SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________.
Commission File No. 0-23900
IDM ENVIRONMENTAL CORP.
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(Name of registrant as specified in its charter)
New Jersey 22-2194790
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
396 Whitehead Avenue, South River, New Jersey 08882
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Include Area Code: (732) 390-9550
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Class A Warrants
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
17,704,935 shares of common stock of the Registrant were outstanding as of
April 9, 1998. As of such date, the aggregate market value of the voting and
non-voting common equity held by non-affiliates, based on the closing price on
the Nasdaq National Market, was approximately $58,400,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive annual proxy statement to be filed
within 120 days of the Registrant's fiscal year ended December 31, 1997 are
incorporated by reference into Part III.
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TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS.................................................. 1
ITEM 2. PROPERTIES................................................ 16
ITEM 3. LEGAL PROCEEDINGS ........................................ 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS....................................... 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS........................... 18
ITEM 6. SELECTED FINANCIAL DATA................................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................. 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK......................................... 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE...................................... 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT............................................... 31
ITEM 11. EXECUTIVE COMPENSATION................................... 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................... 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................................. 31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K...................................... 31
SIGNATURES
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PART I
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 29 of this Form 10-K.
ITEM 1. BUSINESS
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 is a New Jersey corporation formed in 1978. Its principal
offices are located at 396 Whitehead Avenue, South River, New Jersey 08882,
telephone number (732) 390-9550.
Business Strategy
The Company's business has evolved, and continues to evolve, to capitalize
on market opportunities. The Company has added strategic capabilities and
resources through the years to move the business from its roots as a demolition
and deconstruction company to a full service environmental remediation company
and plant relocation services company and, now, an energy project developer and
manager.
In 1997, the Company began to implement a strategic plan to capitalize on
the Company's strengths and market opportunities to position the Company as a
global leader in providing services and technologies in selected high growth
markets with an emphasis on developing recurring revenue streams. The core
elements of the Company's strategic plan are (1) aggressive entry into the
global energy production development and plant management market, (2) narrowing
the focus of the Company's environmental remediation services to emphasize
specialized services and technologies in high growth, high margin niche markets,
and (3) emphasizing the Company's multi-disciplinary expertise and relationships
to generate growth in demand for the Company's plant relocation services.
Management believes that the Company's ability to respond to opportunities in
the market and deploy a broad array of technologies and expertise in a rapid and
cost effective manner provides a competitive advantage to the Company in its
efforts to achieve the elements of its strategic plan.
1
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Central to the Company's strategy is its commitment to generating long-term
recurring revenue streams as a foundation for the Company's other project
specific activities. International energy production projects are the core of
the Company's planned recurring revenue streams. The Company's entry into the
energy production market began with the execution of a power purchase agreement
in El Salvador pursuant to which the Company agreed to develop, construct and
operate an energy production facility and the largest Salvadorean distribution
company agreed to purchase energy from such facility. The Company has since
entered into preliminary agreements pursuant to which the Company's operating
subsidiary would contract with third party sources to construct an energy
generation facility, supply equipment for such facility, provide financing for
the construction of the facility and provide operations and maintenance services
for the facility. The Company would own a controlling interest in the facility
which is expected to generate substantial ongoing revenues and operating profits
to the Company in addition to development fees which the Company expects to
realize from the project. In conjunction with the Company's initial energy
project in El Salvador, the Company expects to develop expertise in energy
project operations and maintenance services which can be deployed in future
energy projects. Management anticipates that the El Salvador energy project will
begin construction during 1998 and be operational in 1999.
Management has identified a number of potential energy projects for future
development and is committed to identifying additional project opportunities in
the future. Management believes that one or more of the current energy projects
under discussion will come to fruition during 1998 and 1999 and that the
commencement of operations in El Salvador will add to the Company's profile as
an energy project developer, owner and operator allowing the Company to
aggressively pursue additional opportunities to add to its recurring revenue
base from the development and operation of energy projects.
Within the Company's historical environmental remediation services
offerings, the Company strategy is to concentrate its efforts on highly
specialized environmental projects where competition is less intense, profit
margins are generally higher and proprietary technology and engineering
expertise are valued at a premium. With the growth and evolution of the
environmental remediation market in the 1990's, various segments of the
remediation market have reached maturity and have become characterized by
intense competition and minimal operating margins. While the Company continues
to be active in the environmental remediation market, the Company expects that
bidding or negotiating of future remediation contracts will be limited to
special situations in which higher margins can be generated by the deployment of
proprietary technologies such as the Molecular Bonding Soil Remediation System
and Life International Products' superoxygenation bioremediation technology
licensed by the Company and the utilization of specialized engineering services.
In particular, the Company is aggressively pursuing opportunities involving the
decommissioning and remediation of large commercial nuclear power facilities,
which market management believes to be in an early growth stage.
In the plant relocation services area, the Company will continue to
emphasize its ever broadening expertise in an array of project engineering
disciplines and the establishment of strong relationships to drive demand for
its services. With the Company's historical record of sourcing, dismantling,
relocating and reerecting process plants and other facilities as a timely and
cost effective alternative to the construction of new facilities, management
believes that the demand for such services, particularly in growing economies
outside of the United States and western Europe, will continue to grow and that
the Company will be a leading provider of those services worldwide.
Supplementing its core business operations, the Company has historically
sought out, and will continue to seek out, opportunities which are compatible
with the Company's existing expertise and capabilities to enhance the Company's
recurring and nonrecurring revenues. Illustrative of such opportunities is the
Company's acquisition of a license covering the bottling rights and distribution
of the Life International Products' superoxygenation process in southeast Asia
which license was acquired after the Company acquired the rights to utilize the
technology for bioremediation purposes.
2
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Industry Background
Energy Services Industry. Worldwide, the energy industry is diverse and
growing increasingly competitive. Management believes that economic development
in the previously underdeveloped nations of Eastern Europe, Asia and South and
Central America has created, and will continue to produce, growing demand for
electrical power in those markets. While many of the developing nations' energy
needs are served by various independent energy producers, distributors and
state, municipal and privately owned utilities, it is management's belief that
the energy needs of many of those nations are not currently met.
In an effort to capitalize on the perceived growth in demand for electrical
power in developing nations, as well as opportunities to deploy the Company's
proprietary waste-to-energy technology and inventory of generators, the Company
has actively entered the energy market. The Company has formed alliances and
entered into agreements with various strategic and financing partners and
industrial consumers and local governments to construct, own and operate energy
production facilities in Eastern European and Central American markets. While
other energy producers may currently serve those markets or enter into those
markets, the Company has entered into, or expects to enter into Power Purchase
Agreements ("PPAs") in each of those markets whereby industrial or governmental
concerns will guarantee the purchase of all or a substantial portion of the
energy produced by such such facilities. Management believes that additional
opportunities to construct and operate energy facilities will become available
as the industrialization of underdeveloped countries progresses.
While management sees substantial opportunities in the international energy
market, that market is subject, and will continue for the foreseeable future to
be subject, to a variety of risks and uncertainties. The energy market is a
niche market which is served by a relatively small number of large competitors
operating in multiple markets and having substantially greater resources than
the Company and by many local producers having established relationships with
local industry and government. In addition to competitive risks, the operation
of energy facilities and the entry into new markets is subject to local economic
risks which may severely effect the demand for energy and the ability to finance
projects and pay for energy production in underdeveloped nations. See
"Competition - Energy Services."
Environmental Services Industry. The "hands-on" environmental services
industry is a diverse and rapidly changing industry. While the industry was
virtually nonexistent prior to the mid-1970's, the overall worldwide market for
environmental services has grown rapidly over the past two decades. Company
management estimates the worldwide environmental services market at $300 billion
for 1997. Included within such industry are numerous specialty areas with the
largest markets being in solid waste handling and disposal, hazardous waste
treatment and disposal, air pollution control, water supply and wastewater
treatment and analytical and environmental consulting services.
The tremendous growth experienced in the 1980's and early 1990's within the
environmental services industry was driven by growing public concern for and
awareness of environmental issues which was accompanied by extensive legislation
and governmental regulation aimed at protecting the environment and requiring
responsible parties to clean up existing environmental hazards. Since the
enactment of the Resource Conservation and Recovery Act ("RCRA") in 1976, the
federal government and the various state governments have significantly
increased the scope of governmental regulation relating to the environment. See
"Regulation."
As a result of the growing public concern for environmental issues and
extensive government regulation, virtually every industry must now address
environmental issues, both with respect to future operations as well as prior
operations. While significant resources are being devoted to reducing pollution
and the discharge of hazardous waste into the environment, many industries have
devoted, or are facing the prospect of devoting, even greater resources to the
clean up of existing hazards created by prior operations, some of which may have
been terminated years earlier. Such clean up obligations extend to the
remediation of so called "superfund" sites, including removal of structures on
such sites, the decommissioning, dismantling and clean up of chemical plants,
nuclear facilities, utility plants and other facilities where hazardous
materials are generated and the clean up of facilities which do not produce but
may use environmentally hazardous materials which may be spilled or otherwise
discharged into the environment, as well as to asbestos abatement and other
forms of environmental clean up. See "Environmental Services."
3
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In addition to private companies which utilize environmental services to
close or clean facilities on a voluntary basis or as a potential responsible
party under government compulsion, governmental agencies, and facilities
operated by such agencies, particularly the Department of Defense ("DOD") and
the Department of Energy ("DOE"), are becoming larger consumers of "hands-on"
environmental services. Spending by the federal government for "hands-on"
environmental programs is expected to increase as a percentage of total funding.
Total funding for these programs in 1997 was approximately $6 billion by DOE and
$5 billion by DOD. Of this market, the value of "hands-on" remediation and
decommissioning services in 1997 was approximately $700 million for DOE and $600
million for DOD. In 1998, the portion of the market devoted to "hands-on"
services is expected to double. State and local spending, as well as spending by
universities and other research institutions, on "hands-on" environmental clean
up is also expected to increase.
As the environmental services industry has grown and matured, the nature of
the services provided and the nature of the service providers has evolved.
Through the late 1980's, the industry was largely focused on early stage
activities, including site assessment, identification of hazards and hazardous
sites, and identification and establishment of responsible parties. While actual
remediation activities took place at various sites, a significant portion of the
resources devoted in the environmental field went to consultants and attorneys
and the number of sites requiring remediation continued to grow. Actual
remediation or site clean up have commanded a significant portion of the
environmental resources during the 1990's and are expected to continue to be the
focus of resources in the future.
The rapid growth in demand for environmental services during the 1980's and
early 1990's has attracted many entrants into the environmental services market.
Despite the influx of entrants into the market, a significant portion of the
market is still controlled by larger architectural engineering and construction
firms. Such firms have typically been called in as consultants on large jobs to
plan and oversee environmental operations but continue to subcontract out
asbestos and hazardous waste remediation, dismantling and demolition operations.
See "Competition."
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.
Other segments of the market requiring special skills and technologies have not
experienced substantial growth or entrance of competition to date but are
expected to experience strong growth over the coming years. The Company believes
that nuclear facilities decommissioning and remediation will be the primary
growth market in the environmental services field over the coming years.
The Company believes that it is widely recognized within the engineering
and industrial world for its expertise in decontamination, decommissioning and
dismantling services. The Company has worked with numerous top engineering firms
as well as Fortune 500 companies providing specialty environmental services in
the areas of decontamination and decommissioning.
Plant Relocation Services Industry. The plant relocation industry is a
highly specialized niche market business. The Company believes that the
relocation of process plants as a viable option to acquisition or on-site
construction of new facilities has grown rapidly in recent years with the
industrialization of underdeveloped countries, particularly in Eastern Europe,
Asia and South America. It has been management's experience that the acquisition
and relocation of existing facilities can cost one-half or less of the cost of
acquiring new facilities. Additionally, as most large plants and facilities
require substantial lead time to manufacture and deliver, facilities can
typically be brought operational in a significantly shorter time period where a
suitable plant can be identified, acquired and relocated as compared to the time
required to manufacture new facilities.
While information as to the worldwide scope and size of the plant
relocation industry is not readily available, management estimates that the
worldwide market for such services was in excess of $1 billion during 1997 with
a substantial majority of the demand for such services being outside of the
United States. Management expects that demand for plant relocation services in
Asia will be temporarily curtailed during 1998 as a result of the currency
crisis experienced in that region during the second half of 1997 and into early
1998. However, management believes that the cost and time benefits associated
with plant relocations will result in strong growth in demand for those services
over the next decade.
4
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The plant relocation market is served by a variety of engineering and
construction firms which typically offer plant relocation services as an
additional service to customers. Management believes that the Company is one of
the few competitors in the plant relocation industry offering those services as
a primary service as opposed to an additional service. Because of its experience
in sourcing and relocating plants and its emphasis on providing plant
relocations as a primary service, management believes that the Company is widely
recognized as a leader in the worldwide plant relocation services market.
Energy Project Development and Management Services
In 1996, the Company laid the groundwork for entry into the energy market.
In evaluating the potential markets for the Company's power generation equipment
inventory and opportunities for future growth and establishment of recurring
revenue streams, management identified the demand for energy in emerging markets
as a business opportunity with the potential to meet each of the Company's
criteria in those regards.
After evaluating various options for entry into the energy production
market, the Company acquired a license from Continental Waste Conversion, Inc.
("CWC") pursuant to which the Company was granted the exclusive worldwide rights
(excluding Canada) to CWC's proprietary gasification technology that can convert
municipal solid waste into electrical energy. Through that investment, the
Company now offers state-of-the-art solutions to municipal waste and energy
concerns worldwide. Management believes that this gasification technology offers
a number of significant advantages over existing waste-to-energy or other
gasification technologies, including the production of substantially reduced
volumes of secondary waste ash and compliance with the most stringent
international clean air standards.
With the acquisition of the rights to deploy the CWC waste-to-energy
process and a strategic inventory of surplus generators, the Company began to
actively pursue energy production opportunities through the establishment of
strategic alliances and discussions with industrial concerns and governmental
entities in Central America, Eastern Europe and Asia.
The Company's international energy production operations and development
activities are anticipated to principally involve the development, acquisition,
financing, promotion, and management of energy projects in emerging markets. The
objective of the Company is to develop, finance, own and manage integrated
energy projects worldwide through the utilization of the Company's portfolio of
products and services.
The Company's initial international activities are expected to include
management of direct and indirect ownership interests in and/or operation of
energy plants in El Salvador and the nation of Georgia and a waste-to-energy
facility in Taiwan. The Company, as of the first quarter of 1998, was involved
in energy projects in early stages of development, financing or construction in
those countries. The following is a brief description of the Company's energy
projects which are in varying stages of development, financing or construction;
thus the information set forth below is subject to change. In addition, these
projects are, to varying degrees, subject to all the risks associated with
project development, construction and financing in foreign countries, including
without limitation, the receipt of permits and consents, the availability of
project financing on acceptable terms, expropriation of assets, renegotiation of
contracts with foreign governments and political instability, as well as changes
in laws and policies governing operations of foreign-based businesses generally.
Other than as noted below, there can be no assurances that these projects will
commence commercial operations.
El Salvador. The Company, through its wholly-owned subsidiary, Empresa de
Poder y Energia de El Salvador, S.A. de C.V. ("PESA"), has entered into a
15-year power purchase agreement to provide Compania de Alumbrado Electrico de
San Salvador, S.A. de C.V. ("CAESS"), a formerly state-owned El Salvadorean
electric power distribution company, with a minimum of approximately 40
megawatts (MW) of electric power through the 15-year term. In order to meet the
minimum supply requirements under the agreement, the Company plans to construct
a power generating plant with a capacity of 45 MW (the "Miravalle Power
Project").
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The Company has entered into an initial agreement with Caterpillar Power
Ventures, Inc. and Caterpillar Power Ventures International, Ltd., both
subsidiaries of Caterpillar, Inc. (collectively, "Caterpillar"), pursuant to
which it is anticipated that Caterpillar will participate as an equity investor
and lead contractor on the Miravalle Power Project. Subject to execution of
definitive agreements, the initial agreement provides that Caterpillar will
acquire a minority interest in the project in exchange for subordinated debt and
equity financing. Additionally, Caterpillar will provide turnkey engineering,
procurement and construction services as well as operation and maintenance
services for the project. The estimated capital cost of the project is $56
million.
Debt financing arrangements for the balance of the cost of the Miravalle
Power Project are expected to be finalized during the Spring of 1998.
Construction of the project is expected to commence upon finalizing the debt
financing arrangements. The plant is expected to be operational within twelve
months after commencement of construction.
Georgia. The Company, through its wholly-owned subsidiary, IDM Energy
Corporation, in January of 1998, signed a Protocol of Intention ("POI") with the
Ministry for Fuel and Energy ("MFE") of the former Soviet state of Georgia under
which the Company will have the right to design, construct, own and operate
electric power facilities in the region. Under the POI, as projects are
selected, the Company shall have the irrevocable right of first refusal for
their development. The Company and the MFE are developing an initial thirty five
year power purchase agreement which will establish the terms for the sale of
electric power from a generating facility or facilities with a capacity of up to
1,000 MW. An agreement is expected to be finalized during the first half of
1998. The Company and the MFE have identified eight potential projects and
initial development work has commenced. The Company and the MFE will also
jointly evaluate the feasibility of erecting high-voltage transmission lines to
export electrical energy to other countries.
The anticipated capital cost for construction of facilities with a total
generating capacity of 1,000 MW is anticipated to be in the range of $500-$750
million, dependent on final designs, fuel utilized and the number of facilities
constructed. Financing arrangements are expected to commence immediately after
the first project has been selected and a power purchase agreement has been
executed. Construction on such projects is expected to commence upon completion
of financing arrangements and commercial operation is anticipated to commence
within twelve months after commencement of construction.
Taiwan. The Company, through its newly formed affiliate, IDM Asia, and
Five-Nines Technology Company, a leading Taiwanese waste management company, has
signed an agreement to jointly develop a 100-tons-per-day industrial waste
processing and energy production facility in Taipei, Taiwan. The Company
anticipates that the project, which is expected to cost approximately $22
million, will be funded through conventional project financing. Several leading
Taiwanese financial institutions have expressed a strong interest in financing
the project. The venture would be among the first and one of the largest
privately owned industrial and energy production facilities in Taiwan.
The Company and Five-Nines are preparing a detailed plant design. The
project is expected to utilize a unique, proprietary and commercially proven
technology for the treatment of a wide range of waste streams. Necessary steps
have been initiated to secure environmental and regulatory permits. The Company
presently anticipates that preliminary commitments for project financing will be
secured during the Summer of 1998 and that the facility will be operational by
the Summer of 1999 subject to receipt of environmental and regulatory permits.
In addition to the projects referenced above, the Company is actively
pursuing energy projects elsewhere in Asia, Eastern Europe, South and Central
America.
The Company's proposed non-domestic operations are subject to the
jurisdiction of numerous governmental agencies in the countries in which
projects are expected to be located with respect to environmental and other
regulatory matters. Generally, many of the countries in which the Company
expects to do business have recently developed or are in the process of
developing new regulatory and legal structures to accommodate private and
foreign-owned businesses. These regulatory and legal structures and their
interpretation and application by administrative agencies are relatively new and
sometimes limited. Many detailed rules and procedures are yet to be issued. The
interpretation of existing rules can also be expected to evolve over time.
Although the Company believes that its operations are, and will be, in
compliance in all material respects with all applicable environmental laws and
regulations in the applicable foreign jurisdictions, the Company also believes
that the operations of its proposed projects eventually may be required to meet
standards that are comparable in many respects to those in effect in the United
States and in countries within the European Community. In addition, as the
Company acquires additional projects in various countries, it will be affected
by the environmental and other regulatory restrictions of such countries.
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Environmental Remediation Services
General. The Company offers a variety of specialized environmental services
with an emphasis on plant decontamination and decommissioning. Many of the
projects undertaken by the Company are "cross-disciplinary" in nature, involving
one or more elements of dismantling, hazardous waste remediation, radiological
remediation, asbestos abatement, plant relocation and other related services.
The Company's services are generally offered on a "lump sum" basis wherein the
Company bids to perform a complete job for a predetermined price or on a "time
and material" basis wherein the Company is paid certain predetermined hourly or
per day rates for its services plus a charge for materials used. The Company
also provides services on a fixed fee basis where the Company is paid for all
costs incurred plus a predetermined fee or profit margin without regard to the
time required to perform the job. While the majority of the Company's projects
are "lump sum" jobs, the Company generally will not bid on such projects without
an in-depth understanding of the scope of such projects.
Many contracts awarded to the Company require the Company to provide a
surety bond. The Company's ability to obtain bonding and the amount of bonding
required is determined by the Company's net worth, annual revenues and liquid
working capital and the number and size of jobs being performed. The larger the
project and/or the more projects in which the Company is engaged, the greater
the Company's bonding, net worth and liquid working capital requirements. The
bonding requirements which the Company must satisfy vary depending upon the
nature of the job to be performed. The Company generally pays a fee to bonding
companies which typically averages three to four percent of the amount of the
contract to be performed with the percentage decreasing as the Company's net
worth increases. Because such fees are generally payable at the beginning of a
job, the Company must maintain sufficient working capital reserves to permit the
Company to pay such fees and secure bonding prior to commencing work on a
project. Additionally, bonding companies will require the Company to provide as
security for the bonding company liquid working capital, consisting of cash and
accounts receivable, in amounts based on the size of the contract in question.
For projects not involving radiological remediation, the Company must generally
have available liquid working capital in an amount equal to 12.5% of the
contract amount in order to secure bonding. With respect to jobs involving
radioactive materials, the total bonding available to the Company is generally
based on having available liquid working capital in an amount equal to 20% of
the contract amount.
Where the Company has adequate bonding capacity to perform a job, an
experienced member of the Company's management team will analyze the project and
develop preliminary plans, schedules and cost estimates in order to prepare a
bid. If the Company obtains a contract to perform the job being bid on, the
management team, working from the preliminary plans, schedules and cost
estimates, will develop detailed work plans, schedules and cost estimates to
perform the job. Such planning will include securing proper equipment and
materials and staffing the jobs with properly trained and experienced personnel
to perform the job in a safe, efficient, competent and timely manner.
Actual on-site services are supervised by Company employees pursuant to the
detailed plans developed by management. Work is subcontracted to third parties
based upon a large number of factors including safety, efficiency, competency
and scheduling.
In order to assure the safety, quality and timeliness of the Company's
projects and to assure the Company's ability to perform projects, the Company
provides extensive training to its entire full-time workforce and goes to great
efforts to retain its trained workforce, many of whom have been with the Company
since inception. By maintaining an experienced workforce and cross-training its
dismantlers, riggers, ironworkers, equipment operators, laborers,
superintendents and foremen in OSHA 1910.120 hazardous waste procedures,
asbestos abatement, radiological remediation and other related skills, the
Company's workforce can address virtually every situation which may arise in a
remediation project. Management believes this level of training and expertise in
each of the major areas of remediation is unique to the Company. In addition to
stringent safety and performance standards and procedures implemented by the
Company to assure safety, quality and timeliness, the Company has established
strict guidelines for the handling and disposal of hazardous materials. Such
guidelines, which are intended to protect the Company from potential liability
as a generator or transporter of hazardous materials, include strict policies
that the Company contract only as an agent for generators to remediate sites,
that the Company never signs any waste manifest and that all transportation of
hazardous materials from remediation sites be subcontracted to qualified
transportation companies with extensive insurance coverage. See "Regulation."
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The Company's environmental services are primarily provided on a project
basis in the areas of plant dismantling and decommissioning, hazardous waste
remediation, radiological remediation and asbestos abatement.
Plant Dismantling and Decommissioning. Plant dismantling and
decommissioning is the historical core of the Company's operations and serves as
a foundation for each of the Company's other specialty services. Since its
inception, the Company has provided deconstruction services for numerous Fortune
500 companies with the bulk of such services being provided in connection with
the closure of chemical process plants. Where facilities have been closed or
abandoned due to age, safety conditions or other factors, the Company has been
called upon to disassemble such facilities on a piece by piece basis. Unlike the
traditional destruction of buildings using wrecking balls and explosives, the
potential release of toxic chemicals or other hazardous substances produced or
present in such facilities requires custom dismantling services in order to
assure safety and proper identification and disposal of contaminated materials
as well as the safety of the laborers involved. Only skilled craftsmen can
safely dismantle contaminated tanks and structures in government mandated and
regulated personal protective equipment. The scope and nature of deconstruction
services provided is carefully planned based on the nature of the subject
facility and the contents thereof as well as the desires of the owner of the
facility. Such services range from dismantling single buildings and small
unenclosed chemical process facilities to the complete deconstruction of large
manufacturing facilities including multiple buildings and all equipment and
machinery within such buildings or on the site.
The Company typically performs dismantling and decommissioning services in
conjunction with other environmental and/or related services performed by the
Company or by a team of providers. This multi-disciplinary team approach is
expected to expand beyond decommissioning and hazardous waste remediation and
management with the Company's participation in a consortium with Duke Energy to
decommission, clean-up and re-industrialize seven nuclear power plant sites in
Germany. See "Radiological Remediation."
Hazardous Waste Remediation. Hazardous waste remediation encompasses the
clean up of a broad range of hazardous materials. The Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") and the
Resource Conservation and Recovery Act ("RCRA") broadly define "hazardous
substances" which, if released, may trigger reporting and clean up obligations.
The list of "hazardous substances" covered by these laws is extensive and
includes a large number of chemicals, metals, pesticides, radiological
materials, biological agents, explosives, toxic pollutants and other materials
which may produce health concerns if released into the environment. Both CERCLA
and RCRA impose stringent reporting, liability and clean up obligations on
owners and operators (including, in some cases, former owners and operators) of
sites where specified levels of hazardous substances have been released. The
most serious of these sites have been designated as "superfund sites" under
CERCLA.
Under CERCLA, the owners and operators of superfund sites at the time of a
release into the environment, and the transporters of hazardous substances, may
be designated as Potential Responsible Parties ("PRP"), many of whom are Fortune
500 companies, and, as such, may be liable for all or part of the clean up cost
at such site without regard to fault or the legality of the PRP's actions. While
PRP's may undertake clean up activities at superfund sites voluntarily or under
government compulsion, the federal government and the EPA may undertake the
clean up of some sites on its own and subsequently seek to identify and impose
liability for the cost of such clean up on PRP's. Additionally, most states have
environmental regulations comparable to, or supplementing, EPA regulations
wherein private parties can be compelled to clean up hazards or the state can
undertake the clean up of such hazards and seek reimbursement from private
parties.
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The Company has extensive experience working with PRP's, including
Allied-Signal, Exide, NL Industries, Johnson Controls, AT&T and others, in the
clean up of hazardous waste sites, including superfund sites. The Company's
services at such sites have entailed a combination of the dismantling of
facilities and actual implementation of remediation techniques to the subject
hazards. Many of the projects undertaken by the Company at such sites are
specialty jobs wherein major architectural engineering firms contract to have
the Company perform complex dismantling and deconstruction jobs and to perform
actual remediation of hazardous materials in conjunction with the dismantling
process. While the Company maintains existing relations with numerous private
sector industrial PRP's and has performed site assessment and actual remediation
at various sites, the Company has established, and is seeking to strengthen,
relations with the major architectural engineering firms which control a
significant portion of the larger government projects, including many superfund
sites. Because of the general lack of expertise and experience in dismantling
and deconstruction at most of the major engineering firms, and a growing
reputation with such firms, the Company has been called on to serve on
remediation teams with the Company handling all aspects of dismantling and
deconstruction at hazardous waste remediation sites.
Beginning with the Company's formation of a strategic alliance with
Solucorp Industries Ltd. ("Solucorp") during the third quarter of 1995, the
Company offers soil remediation services which enhances the Company's hazardous
waste remediation services. Prior to formation of the alliance with Solucorp,
the Company offered soil remediation services on a limited basis because of the
Company's belief that existing soil remediation technologies were unproven and
not cost-effective. Solucorp has developed a Molecular Bonding System ("MBS")
soil remediation technology utilized in the stabilization of hazardous heavy
metal contaminated soils, sludges and other media.
In 1996, the Company further expanded its hazardous waste services with the
acquisition of a license from, and equity interest in, Life International
Products, Inc. ("Life") pursuant to which the Company began to market and employ
Life's patented superoxygenation technology for long term bioremediation of
contaminated groundwater. Bioremediation involves the introduction of a bacteria
culture, nutrients and oxygen into contaminated groundwater. The bacteria
culture feeds on organic pollutants rendering the contaminated waters harmless.
An essential element in the bioremediation process is the introduction and
maintenance of high levels of oxygen into the contaminated water. The bacteria
culture consumes massive quantities of oxygen in the bioremediation process and
low levels of oxygen or the dissipation of oxygen from the water slows the
bioremediation process. Traditional bioremediation processes have involved the
injection of oxygen into water using an aerator. Management believes that
application of Life's superoxygenation process enhances bioremediation of
contaminated groundwater by increasing the oxygen content and the time such
oxygen will remain in water as compared to traditional methods of oxygen
injection. As a result of more effective and longer lasting oxygen injection,
the Company believes that Life's superoxygenation process will increase the rate
of bioremediation substantially when compared to existing industry practices.
Life has granted the Company the exclusive license to utilize the Life
oxygenation process in the United States, Canada and Mexico for purposes of
bioremediation of contaminated groundwater. The Company's license runs through
September 2001 subject to renewal for successive five year terms provided that
certain minimum revenue requirements are met by the Company.
Radiological Remediation. Radiological remediation services consist
primarily of the decontamination and dismantling of facilities employing or
producing radioactive materials and the removal and disposal of radioactive
materials. Typically, such services are utilized by utility companies which
operate nuclear plants, universities and other research facilities which utilize
radioactive isotopes in a variety of research projects, and the DOE and DOD
which oversee nuclear weapons production.
Utility companies have now operated nuclear plants for more than 30 years.
Because of a combination of special interest pressure, worldwide competition for
electricity customers brought about by widespread de-regulation, strict
government oversight and high operating costs, many nuclear generating
facilities have been prematurely closed. As other nuclear facilities continue to
age and public skepticism as to the safety of such facilities remains high,
additional plants are expected to close. Due to the nature of such facilities,
utility companies are expected to seek experienced dismantling and remediation
specialists to decontaminate, dismantle and decommission such facilities and to
assure proper handling and disposal of radioactive waste.
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Universities and other research facilities also operate nuclear reactors
and utilize radioactive isotopes in research and teaching. With a decline in the
enrollment in nuclear engineering departments in recent years the utilization of
nuclear reactors and related materials in teaching has declined to the point
that some programs may be dropped or significantly curtailed. Even where
research is continuing at universities and in industry, the use of isotopes over
extended periods has created, and is expected to continue to create concerns
with respect to the disposal of radioactive materials and the decontamination of
facilities. In order to safely deal with inactive reactors and radioactive
contamination, industry and universities, sometimes under government direction,
are seeking experienced specialists to remove, decontaminate and/or dispose of
abandoned facilities and contaminated materials in and around abandoned or
functional facilities.
Finally, the DOD and DOE oversee the operations and are responsible for the
clean up of weapons facilities across the country. Extensive remediation
activities are expected to be required as many of such facilities are closed as
a result of sharply reduced nuclear weapons production following the end of the
Cold War. As with other owners and operators of facilities having radioactive
waste and contamination, the federal government has sought, and is expected to
continue to seek, experienced specialists to decontaminate and dismantle such
facilities and to remediate and dispose of radioactive waste in a safe manner.
The Company has skilled personnel with the necessary experience and training to
dismantle these structures in government mandated and regulated personal
protective equipment.
Management believes that radiological remediation is the greatest potential
growth area within the environmental services industry. While the asbestos
abatement and general hazardous remediation markets have matured resulting in
slower growth in demand for those services, management believes that the
greatest growth in the radiological remediation market lies ahead. The DOD and
DOE have only recently begun actual remediation of sites under their management
and management of the Company is not aware of any significant nuclear facilities
on which remediation efforts have been completed. Additionally, no significant
remediation efforts have been undertaken to date to management's knowledge at
nuclear facilities in other countries, including former Soviet-bloc countries
and states in which nuclear facilities were the prevalent sources of power.
Management believes that the Company is well positioned to participate in
the future remediation of such facilities. The Company is presently on site at
DOD and DOE locations.
The Company's radiological and decommissioning services are also expected
to be deployed in connection with the provision of radiological remediation
services for six VVER 440 nuclear power plants and one small reactor plant in
Germany. A consortium including the Company and Duke Energy have reached an
agreement in principal pursuant to which the consortium has been selected to
participate in the privatization and re-industrialization of those sites in
conjunction with the performance of radiological remediation services. Under the
terms of the project, the German government will transfer to the consortium
control of a state-owned corporation established to undertake the
decommissioning and waste management of the facilities. In addition to
decommissioning and clean-up activities, the consortium will revitalize and
re-industrialize the sites with the objective of creating a minimum of 1,500 new
jobs at the site and in the Greifswald and Mecklenburg Vorpommern regions. Site
redevelopment work has commenced. Contract negotiations for the acquisition of
the state-owned corporation are ongoing and management anticipates that a
comprehensive agreement will be finalized during the second half of 1998.
Project engineering is expected to begin immediately after execution of a
definitive agreement with the decommissioning and remediation work expected to
last approximately 10 years. The German federal government has established a
reserve of DM 6.209 billion (approximately $3.65 billion) to finance the
project. The project also enjoys the support of state and local governments
which, among other things, have agreed to provide necessary infrastructure
improvements and other economic benefits to promote the re-industrialization of
the sites.
Asbestos Abatement. The United States Environmental Protection Agency
("EPA"), and most, if not all, states, have enacted rules and regulations
governing the emission of asbestos during the renovation or demolition of
facilities as well as during manufacturing and waste disposal operations. These
regulations have effectively required inspection for and/or abatement of
asbestos prior to or in conjunction with the renovation or demolition of
buildings. Requirements imposed by real estate lenders and practical
considerations as well as disclosure laws relating to real estate transactions
have effectively resulted in asbestos inspection and, where appropriate,
abatement as a condition of most conveyances of real estate.
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The Company provides site assessment, planning and asbestos abatement
services to property owners desiring to remodel or sell properties or abate
existing asbestos on site for health and liability reasons. Because the handling
and risk associated with the presence of asbestos varies depending upon the use,
volume and nature of the asbestos present, the Company will evaluate the
appropriate means of abatement and develop a detailed plan based on such
evaluation. The abatement process may range from encapsulation of exposed
asbestos to the actual physical removal and disposal of the asbestos containing
materials on the site. Such materials may include thermal insulation used on
boilers, tanks, hot and cold water systems and heating, ventilation and air
conditioning systems, surfacing materials used for acoustical, decorative or
fireproofing purposes (asbestos sprayed or trawled on walls, ceiling and
structural members) and other materials such as floor tiles, ceiling tiles,
roofing felt, concrete pipe, outdoor siding and fabrics.
Upon development of a plan of abatement in compliance with applicable state
and federal regulations, the Company's work crew wearing protective clothing,
head gear and breathing apparatuses will physically remove asbestos-containing
materials from the building. The building areas in which abatement work is being
performed are sealed off and blowers or ventilation equipment are utilized to
create negative pressure in the building to prevent the escape of airborne
asbestos from the building. Upon completion of the abatement process, the
asbestos removed is disposed of in accordance with applicable regulations by
transportation and disposal companies.
Plant Relocation Services
In addition to its historical dismantling and decommission services, the
Company has developed as a primary service offering the relocation and
re-assembly of plants. Plant relocation and re-erection projects are typically
bid on, planned and engineered in a manner similar to the Company's dismantling
and decommissioning services taking into account the special demands associated
with transporting and re-erecting such facilities. The Company has developed
proprietary techniques and extensive expertise for dismantling, matchmarking,
relocation engineering, packaging, documentation and re-erection of entire
plants. See "Environmental Services - General."
With the growth in the economies of numerous third-world countries and
other countries which were historically non-industrialized, the Company believes
significant opportunities are available in the worldwide plant relocation and
re-assembly market. Because of the time and cost savings associated with
relocating existing plants as compared to purchasing and starting-up new plants,
the Company believes that growing industrial concerns in South and Central
America, Pacific Rim and Eastern European countries will view the acquisition
and relocation of existing plants as the preferred method of expanding
operations. Typical of such opportunities was the Company's completion during
1996 of the acquisition, relocation and refurbishing of a 1,400-ton-per-day
ammonia plant from Lake Charles, Louisiana to Karachi, Pakistan, a site of the
largest fertilizer producer in Pakistan.
Other Specialty Project Engineering Services.
In addition to the Company's principal services, the Company routinely
evaluates projects requiring specialized engineering services of a
multi-disciplinary nature. Where projects require the extension of specialized
engineering services across disciplines and where the Company possesses the
disciplines required to perform those services, the Company will attempt to
negotiate to provide a package of specialized services. The Company typically
seeks opportunities to perform specialty engineering services on projects where
the need to deploy expertise in multiple fields offers provides favorable
margins.
While the Company's specialty project engineering services are not
generally subject to being categorized based on their non-recurring nature,
typical service offerings have included providing drilling and grouting services
on the East Dam reservoir project in California.
Other Services, Products and Investments
The Company has entered into selected strategic investments and
undertakings in conjunction with, and which supplement, its core operations.
Those investments and undertakings, as of the first quarter of 1998, include (1)
an equity investment in Life International Products, Inc., (2) an equity
investment in Seven Star International Holdings, Inc. ("Seven Star") which holds
a license to distribute beverages incorporating Life's superoxygenation process
and (3) an alliance with Universal Process Equipment, Inc. ("UPE") to buy and
sell surplus equipment.
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At the time of the Company's initial acquisition of a license from Life to
utilize Life's patented superoxygenation process in bioremediation, the Company
also acquired a ten percent (10%) equity interest in Life for $1 million. The
Company, in 1997, invested an additional $375,000 in Life to maintain its ten
percent equity interest.
During 1997, the Company and Jin Xin (Holding), Inc. each acquired a fifty
percent (50%) interest in Seven Star, a BVI company. The Company contributed
$300,000 to the capital of Seven Star and Jin Xin contributed $300,000 to Seven
Star. In December of 1997, Seven Star agreed to acquire the exclusive rights to
distribute beverages incorporating, and otherwise exploit, Life's
superoxygenation process in a territory consisting of the People's Republic of
China (including Hong Kong), Taiwan, Indonesia and Singapore. Pursuant to the
terms of the license, Seven Star paid a minimum guarantee payment in the amount
of $400,000 to Life and will pay ongoing royalties based on a percentage of
revenues realized from licensing of the Life process, subject to certain minimum
royalty requirements. Seven Star intends to sublicense the Life process and
management believes that initial sublicensing fees and ongoing minimum royalties
from potential sublicensees will be sufficient to recoup at least the minimum
guarantee payment paid by Seven Star as well as the minimum ongoing royalties.
In December of 1997, Seven Star entered into an initial sublicense agreement
with Zheng Zhou Wo Li Beverage Limited covering a territory consisting of Zheng
Zhou, Henan, in the People's Republic of China and providing for a minimum
guarantee payment of $600,000 and royalties and minimum royalty requirements in
excess of those under Seven Star's license with Life. As of the end of the first
quarter of 1998, the minimum guarantee payment of Zheng Zhou Wo Li Beverage
Limited had not been made and royalty payments had no yet commenced. Seven
Star's ability to successfully exploit the Life process is subject to the
numerous risks associated with operation in Asia, including the recent currency
crisis which has impaired the growth prospects in the region, as well as the
risks and uncertainties associated with identifying, doing business with, and
enforcing contracts with Seven Star's prospective local partners and
sublicensees.
In addition to its core service business and efforts relating to Life, the
Company is engaged in the purchase and sale of surplus equipment. The Company in
conducting its dismantling and plant relocation operations has developed
extensive expertise in identifying and purchasing equipment. Frequently, where
plants are being dismantled but not relocated, the Company has been able to
acquire equipment, with no future value to the owner, at favorable prices.
Because of the nature and cost of acquiring, transporting and storing such
equipment pending the sale thereof, historically, the Company would frequently
enter into joint venture arrangements with sellers or other persons having
available storage capacity wherein the Company would take a fifty percent
interest in the equipment and the equipment would be held at the joint venture
partner's facilities until such time as the Company identified a purchaser for
such equipment.
In September of 1995, the Company entered into an alliance with Universal
Process Equipment ("UPE") to carry on all future surplus equipment purchase and
sales operations. UPE is one of the world's largest marketers of new and used
process equipment. Pursuant to an Agreement for Commissions and Joint Ventures,
the Company directs all inquiries to buy or sell used process equipment to UPE.
UPE, in turn, will utilize its marketing resources to satisfy such inquiries and
will pay prescribed commissions to the Company based on the nature of each
transaction. Where UPE chooses not to, or is unable to, acquire items, the
Company will continue to be able to acquire such equipment for its own account.
In conjunction with the formation of the strategic alliance with UPE, the
Company sold substantially all of its inventory of glass lined equipment and
process equipment to UPE and an affiliated company. The Company retained its
inventory of generators and other selected items.
The Company expects that from time to time in the future it will have
opportunities to invest or participate in ventures outside of, but connected to,
its core businesses. Management will evaluate any such opportunities and, where
management deems the potential of such opportunities to merit participation or
investment, the Company may enter into additional ventures outside of its core
businesses.
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Marketing
The Company, in marketing its services, relies principally on the efforts
of its operating and executive management team who regularly call upon existing
and prospective customers. The Company, through the efforts of its management,
has established working relationships with numerous Fortune 500 industrial
concerns as well as major national architectural engineering firms, the DOD and
the DOE and many smaller and medium size industrial and engineering firms
worldwide. The Company supplements the efforts of its management by regular
advertising in international trade publications, direct mailings to selected
industrial and engineering firms, strategic telemarketing, and regular
participation in industry conferences and trade shows.
As noted above, marketing efforts with respect to MBS soil remediation
applications is handled jointly by the Company, through its management team, and
Solucorp while surplus equipment marketing is now handled principally by UPE
pursuant to the Company's strategic alliance with UPE and Seven Star is
principally marketing its sublicenses to exploit the Life process in Asia.
Regulation
Environmental Regulations. The Company and, in particular, its clients, are
subject to extensive and evolving environmental laws and regulations. These laws
and regulations are directly related to the demand for many of the services
offered by the Company and often subject the Company to stringent regulation in
the conduct of its operations. The principal environmental legislation affecting
the Company and its clients is described below.
-- Resource Conservation and Recovery Act of 1976 ("RCRA"). RCRA regulates
the treatment, storage and disposal of hazardous and solid wastes. RCRA has,
therefore, created a need generally for some of the types of services provided
by the Company. The 1984 Hazardous and Solid Waste Amendments to RCRA ("HSWA")
expanded RCRA's scope by providing for the listing of additional wastes as
"hazardous" and lowering the quantity threshold of wastes subject to regulation.
HSWA also imposes restrictions on land disposal of certain wastes, prescribes
more stringent management standards for hazardous waste disposal sites, sets
standards for underground storage tanks and provides for "corrective" action
procedures. Under RCRA, liability and stringent management standards are imposed
on a person who is an RCRA permit holder, namely, a "generator" or "transporter"
of hazardous waste, or an "owner" or "operator" of a waste treatment, storage or
disposal facility. Both the EPA and states with authorized hazardous waste
programs can bring several types of enforcement actions under RCRA, including
administrative orders and actions seeking civil and criminal penalties. RCRA
also provides for private causes of action as an additional enforcement tool.
-- Comprehensive Environmental Response, Compensation and Liability Act of
1980. CERCLA , also known as the Superfund Act, addresses cleanup of sites at
which there has been or may be a release of hazardous substances into the
environment. CERCLA assigns liability for costs of cleanup and damage to natural
resources to any person who, currently or at the time of disposal of a hazardous
substance, owned or operated any facility at which hazardous substances were
deposited, to any person who by agreement or otherwise arranged for disposal or
treatment, or arranged with a transporter for transport of hazardous substances
owned or possessed by such person for disposal or treatment, and to any person
who accepted hazardous substances for transport to disposal or treatment
facilities or sites from which there is a release or threatened release of
hazardous substances. CERCLA authorizes the Federal government either to clean
up these sites itself or to order persons responsible for the situation to do
so. CERCLA created a fund to be used by the Federal government to pay for the
cleanup efforts. Where the Federal government expends money for remedial
activities, it must seek reimbursement from the potentially responsible parties.
Where the EPA performs remedial work with superfund dollars, it frequently sues
potentially responsible parties for reimbursement under the "cost recovery"
authority of Section 107 of CERCLA. The EPA may also issue an administrative
order seeking to compel potentially responsible parties to perform remedial work
with their own funds under the "abatement" authority of Section 106 of CERCLA.
In lieu of instigating such actions, the EPA may also seek through negotiations
to persuade such parties to perform and/or pay for any and all stages of
remedial action at a site in discharge of their liabilities under CERCLA.
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CERCLA provides that transporters and persons arranging for the disposal of
hazardous waste may be jointly and severally liable for the costs of remedial
action at the site to which the hazardous waste is taken. While the Company
attempts to minimize such exposure by contracting only with qualified hazardous
waste transporters meeting certain minimum insurance requirements and by having
the generator select the disposal site and method there can be no assurances
that the Company will be successful in so limiting such exposure. Under Section
101(20)(B) of CERCLA, when a common or contract carrier delivers a hazardous
substance to a site selected by the shipper, the carrier is not considered to
have caused or contributed to any release at such disposal facility resulting
from circumstances or conditions beyond its control.
The Superfund Amendments and Reauthorization Act ("SARA") was enacted in
1986 and authorized increased Federal expenditure and imposes more stringent
cleanup standards and accelerated timetables. SARA also contains provisions
which expand the enforcement powers of the EPA.
While there can be no assurance, management believes that, even apart from
funding authorized by RCRA and CERCLA, industry and governmental entities will
continue to try to resolve hazardous waste problems due to their need to comply
with other statutory requirements and to avoid liabilities to private parties.
Although the liabilities imposed by CERCLA are more directly related to the
Company's clients, they could under certain circumstances apply to some of the
activities of the Company, including failure to properly design or implement a
cleanup, removal or remedial action plan or to achieve required cleanup
standards and activities related to the transport and disposal of hazardous
substances. Such liabilities can be joint and several where other parties are
involved.
-- Clean Air Act and 1990 Amendments. The Clean Air Act requires compliance
with ambient air quality standards and empowers the EPA to establish and enforce
limits on the emission of various pollutants from specific types of facilities.
The 1990 amendments modify the Clean Air Act in a number of significant areas.
Among other things, they establish emissions allowances for sulfur and nitrogen
oxides, establish strict new requirements applicable to ozone emissions and
other air toxics, establish a national permit program for all major sources of
pollutants and create significant new penalties, both civil and criminal, for
violations of the Clean Air Act.
Included within the scope of the Clean Air Act are rules issued by the EPA
known as National Emissions Standards for Hazardous Air Pollutants ("NESHAP").
NESHAP specifically regulates the emission of asbestos during manufacturing and
waste disposal operations and the renovation and demolition of certain
facilities. Authority to implement and enforce NESHAP standards has been
delegated to the various states which have implemented licensing requirements,
notice requirements and procedures with respect to asbestos abatement and other
rules governing the handling and disposal of asbestos.
-- Clean Water Act of 1972 ("CWA"). Originally enacted as the Federal Water
Pollution Control Act, but renamed as the Clean Water Act in 1977, CWA regulates
the discharge of pollutants into the surface waters of the United States. CWA
established a system of minimum national efficiency standards on an
industry-by-industry basis, water quality standards, and a discharge permit
program. It also contains special provisions addressing accidental or
unintentional spills of oil and hazardous substances into waterways.
-- Other Federal and State Environmental Regulations. The Company's
services are also used by its clients in complying with, among others, the
following Federal laws: the Toxic Substances Control Act, the Safe Drinking
Water Act, the Hazardous Materials Transportation Act and the Oil Pollution Act
of 1990. In addition, many states have passed superfund-type legislation and
other regulations and policies to cover more detailed aspects of environmental
impairment and the remediation thereof. This legislation addresses such topics
as air pollution, underground storage tanks, water quality, solid waste,
hazardous materials, surface impoundments, site cleanup and wastewater
discharge. Most states also regulate the transportation of hazardous wastes and
certain flammable liquids within their borders by requiring that special permits
be obtained in advance of such transportation.
Other Regulations. In addition to a broad array of environmental
regulations relating to the activities of the Company, the Company's business
and proposed businesses, are subject to a variety of non-environmental
regulations. Included in the regulations which may effect the Company's current
business are regulations governing occupational safety and health, wage,
overtime and other employment matters and dealings with governmental agencies.
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The Company's proposed operations relating to the licensing of Life's
superoxygenation process for beverages may be subject to potential regulations
governing such matters as food and beverage safety and processes, packaging and
marketing, among other matters. Additionally, the Company's anticipated
commencement of energy production operations may be subject to various
regulations governing rates, safety of operations, and financing, among other
matters. While the Company anticipates that its licensing activities related to
the Life process and energy production activities will be conducted outside of
the United States in lesser developed countries where extensive regulation may
currently be lacking, it can be expected that some of those countries will adopt
extensive regulation governing those activities similar to the United States.
Competition
Energy Services. Due to the substantial barriers to entry into the market
and the prevalence of purchase agreements, competition within the energy market
is limited in most developing countries, including the markets in which the
Company expects to operate. While a variety of independent energy producers and
private and government owned utilities may provide energy in some of the markets
in which the Company expects to operate, it is anticipated that the Company will
have power production agreements in place in most markets which will provide
contractual commitments to purchase a significant portion, if not all, of the
energy produced from the Company's planned facilities. Further, while the
Company is focused on establishing a niche position in the individual project
100 MW or less market, management believes that the primary competitors in the
energy market generally concentrate on large projects (i.e., 200 MW or greater).
Accordingly, competition for the sale of energy is not expected to be
significant for the foreseeable future in the Company's markets. However, 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. Further, while established energy
production operations in developing markets are expected to be isolated from
competition in the near term, competition for contracts to provide energy in
markets may be intense. In light of the opening of the United States utility
markets to competition, many participants with substantially greater resources
than the Company have actively begun efforts to establish energy operations in
developing countries around the world.
Environmental Services. The environmental services industry is highly
competitive and fragmented. Because of the diverse nature of the industry, there
are many competitors, both large and small. Many segments of the industry,
including a significant portion of superfund and other large projects, are
dominated by large national architectural engineering firms such as Bechtel,
Flour, Westinghouse, Foster Wheeler and ICF Kaiser. Additionally, many smaller
engineering firms, construction firms, consulting firms and other specialty
firms have entered the industry in recent years and additional firms can be
expected to enter the industry in the future. Many of the firms competing in the
environmental services industry have significantly greater financial resources
and more established market positions than the Company.
While many firms are active in the environmental services industry
providing site assessment, consulting and engineering services, management
believes that the number of firms having expertise in, and offering,
dismantling, decommissioning and deconstruction services within the
environmental services industry is limited. The Company maintains a highly
trained and qualified workforce and has extensive experience in planning and
implementing decontamination and decommissioning projects in a safe manner. Such
expertise and experience has allowed the Company to successfully compete within
the industry and to secure contracts from industrial firms as well as
engineering firms which lack experience in environmental decontamination and
deconstruction. Because the Company, unlike most engineering firms, is staffed
by experienced and skilled decontamination/deconstruction personnel, the
involvement of engineering firms is often limited to project management with
actual hands-on services being provided by the Company's personnel. Because of
the need for certain permits and licenses, specialized equipment, OSHA-trained
employees and the need to be knowledgeable of and to comply with federal, state
and local environmental laws, regulations and requirements, the Company believes
there are significant barriers to entry into the environmental dismantling,
decommissioning and deconstruction business. There can be no assurance, however,
that other firms, including the major engineering firms which control a
significant portion of superfund and government contracts, will not expand into
or develop expertise in the areas in which the Company specializes, decreasing
any competitive advantage which the Company may enjoy. The Company believes that
its expertise and ability to provide full service, turnkey remediation and
decommissioning services and its utilization of state-of-the-art remediation
techniques, such as the Life oxygenation process and the MBS soil remediation
process, will continue to allow it to compete effectively in the environmental
services industry and to capitalize on the expected growth in demand for
services in the nuclear facilities arena.
15
<PAGE>
Plant Relocation Services. Plant relocation services are a niche business
and competition within the segment is limited. Management believes that the
Company is one of the dominant firms within such industry. While demolition and
dismantling firms offer similar services, the primary competition within the
plant relocation industry is from various large engineering firms which offer
services in the form of construction management as consultants to owners.
However, most firms which offer relocation services do so as an additional
service and not as a primary service. The Company advertises and markets its
relocation services as a primary service. Competition with respect to other
specialty project engineering services is believed to be limited to large
engineering firms. Management believes that the Company's ability to provide
highly specialized cross-disciplinary engineering services will allow it to
compete successfully in this market.
Employees
At January 31, 1998, the Company employed approximately 237 full-time
employees, 11 of whom were management and administrative personnel, 45 of whom
were clerical personnel and 181 of whom were field personnel. The Company also
employs additional field personnel on a temporary basis when needed to
adequately staff projects. All permanent field personnel employed by the Company
are skilled craftsmen with an average of over ten years service with the
Company, they are OSHA-trained and asbestos trained to perform their respective
duties. Temporary employees are regularly hired on location by the Company to
staff jobs performed away from the immediate vicinity of the Company's
headquarters. The Company carefully reviews the training and qualifications of
all temporary workers to assure that all such workers are qualified to perform
the work in question. In all such instances, Company supervisors and foremen
will plan, supervise and oversee all aspects of work performed by such temporary
workers.
The Company believes that it enjoys good relations with all of its
employees. Each of the Company's executive officers have entered into
confidentiality and noncompetition agreements with the Company. None of the
Company's permanent full-time employees are unionized or subject to collective
bargaining agreements and the Company has experienced no work stoppages or
strikes. Some of the temporary personnel hired by the Company may be union
members where the job in question and local conditions as a practical matter
require such personnel.
ITEM 2. PROPERTIES
The principal offices of the Company are located on a 7.5 acre site at 396
Whitehead Avenue, South River, New Jersey, in a 6,925 square foot two story
office building and an adjoining 7,600 square foot two story office building.
Also located on such site is a 4,248 square foot one story storage/work area and
a 5,700 square foot warehouse facility. Such facilities are leased by the
Company from L&G Associates, an affiliate of the Company controlled by Joel
Freedman and Frank Falco, pursuant to a fifteen year lease expiring May 31, 2011
and providing for monthly rental installments of $22,500, subject to annual
adjustments based on the Consumer Price Index, plus insurance, taxes and
maintenance costs.
The Company also maintains 3 regional offices which are leased from third
parties in locations which are adjacent to strategic growth areas and major
environmental projects.
Management believes that the Company's properties are adequate to support
the Company's current and anticipated operations.
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and
Health Administration ("OSHA") issued a willful citation and notification of
penalty in the amount of $147,000 on the Company in connection with the
accidental death of an employee of one of the Company's subcontractors on the
United Illuminating Steel Point Project job site in Bridgeport, Connecticut. A
complaint was filed against the Company by the Secretary of Labor, United States
Department of Labor on September 30, 1996. The Company is contesting the
Citations and Notification of Penalty.
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, arises out of the same
facts alleged in the above referenced administrative proceeding instituted by
the Occupational Safety and Health Administration. Plaintiff seeks damages of
$45 million. 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 November of 1996, a shareholder filed a class action lawsuit against the
Company and certain directors and officers of the Company. The suit, captioned
Arthur Goldberg v. Joel A. Freedman, Frank A. Falco, James R. Harrigan, John
Klosek and IDM Environmental Corp., Docket No. L-11783-96 in the Superior Court
of New Jersey, Middlesex County, as subsequently amended in June 1997, alleges
that the Company disseminated false and misleading financial information to the
investing public between March 8, 1996 and November 18, 1996 and seeks damages
in an unspecified amount to compensate investors who purchased the Company's
securities between the indicated dates as well as the disgorgement of profits
allegedly received by some of the individual defendants from sales of common
stock during that period. The Company believes the cause of action is without
merit and intends to vigorously contest such cause of action.
Prior to the oral argument before the Court on the defendants' motion to
dismiss the amended complaint, the parties reached an agreement in principle to
settle all claims, subject to notice to the class, hearing before the Court and
Court approval. It is contemplated that, for settlement purposes only, the
parties will stipulate to a settlement class consisting of all persons
(excluding defendants) who purchased the Company's securities from March 8, 1996
through June 5, 1997, and that the action will be dismissed and appropriate
releases provided in consideration for a payment to the stipulated settlement
class by the Company's insurer. Management expects that the matter will be fully
resolved this calendar year.
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.
17
<PAGE>
In addition to the foregoing, the Company is periodically subject to
lawsuits and administrative proceedings arising in the ordinary course of
business. Management believes that the outcome of such lawsuits and other
proceedings will not individually or in the aggregate have a material adverse
effect on the Company's financial condition, operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 4, 1997, a special meeting of shareholders of the Company was
held. The only matter voted upon at such meeting was the approval of issuances
of shares in excess of 1,997,130 on conversion of the 7% Convertible Notes and
Warrants, which proposal was approved by a vote of 6,637,665 For, 230,690
Against and 47,475 Abstentions and Broker Non-Votes.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock trades on The Nasdaq Stock Market under the
symbol "IDMC." The Company's common stock commenced quotation on the Nasdaq
Small-Cap market following completion of the Company's initial public offering
in April of 1994. Subsequently, on August 31, 1994, the Company's common stock
commenced quotation on the Nasdaq National Market System. The following table
sets forth the high and low sales prices for the Company's common stock for each
quarterly period during the last two fiscal years:
High Low
------ ------
First Quarter, ended March 1996 $8.438 $2.875
Second Quarter, ended June 1996 8.656 5.688
Third Quarter, ended September 1996 7.625 5.250
Fourth Quarter, ended December 1996 6.250 1.938
First Quarter, ended March 1997 3.188 1.656
Second Quarter, ended June 1997 2.938 0.888
Third Quarter, ended September 1997 7.313 1.875
Fourth Quarter, ended December 1997 8.625 5.063
The quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
At April 9, 1998, the bid price of the Common Stock was $3.50.
Holders
As of April 9, 1998, there were approximately 78 holders of record and
4,500 beneficial owners of the Common Stock of the Company.
Dividends
The Company has never declared or paid any cash dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.
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<PAGE>
Sales of Unregistered Securities
- Series C 7% Convertible Preferred Stock.
(a) On February 13, 1998, the Company sold 3,600 shares of Series C 7%
Convertible Preferred Stock and 2,350,000 Four Year $5.00 Warrants.
(b) The securities were issued to five accredited investors.
(c) The aggregate sales price of such securities was $3,600,000.
Commissions totaling 10% were paid in connection with the placement.
(d) The securities were offered pursuant to Regulation D. The offer was
directed exclusively to a limited number of accredited investor without general
solicitation or advertising and based on representations from the investors that
such investors were acquiring for investment. The securities bear legends
restricting the resale thereof.
(e) The Series C Preferred Stock is convertible into Common Stock at the
lesser of (i) $4.50 per share or (ii) 75% of the average closing bid price of
the Common Stock during the five trading days prior to conversion. The Four Year
$5.00 Warrants are exercisable for a four year period at the lesser of $5.00 per
share or the lowest conversion price of the Series C Preferred Stock. Conversion
of the Series C Preferred Stock and exercise of the Four Year $5.00 Warrants is
subject to the issuance of a maximum of 3,285,438 shares of Common Stock on
conversion unless the shareholders of the Company have approved issuance beyond
that level upon conversion. In the absence of shareholder approval of issuances
above 3,285,438 shares, the holders of Series C Preferred Stock and Four Year
$5.00 Warrants remaining outstanding if and when 3,285,438 shares have been
issued will have the right to demand redemption of the Series C Preferred Stock
at $1,250 per share plus accrued dividends and to demand redemption of the Four
Year $5.00 Warrants at the pre-tax profit such holders would have realized had
the Four Year $5.00 Warrants been exercised at the time redemption is demanded.
Further, the Company has the right, upon notice to the holders, to redeem any
Series C Preferred Stock submitted for conversion at a price of $2.75 or less at
125% of the principal amount of such Series C Preferred Stock plus accrued and
unpaid dividends. The Series C Preferred Stock pays dividends at 7% per annum
payable quarterly and on conversion or at redemption in cash or Common Stock, at
the Company's option.
- Lock-Up Warrants
(a) On February 11, 1998, the Company issued 1,270,000 Three Year $4.50
Warrants (the "Lock-Up Warrants").
(b) The Lock-Up were issued to three accredited investors.
(c) The Lock-Up Warrants were issued in conjunction with the execution of
Lock-Up Agreements by the holders of $3.00 Warrants of the Company whereby the
holders of such warrants agreed not to resell any shares underlying those
warrants prior to July 30, 1998.
(d) The Lock-Up were offered pursuant to Section 4(2). The offer was
directed exclusively to a limited number of accredited investor without general
solicitation or advertising and based on representations from the investors that
such investors were acquiring for investment. The securities bear legends
restricting the resale thereof.
(e) The Lock-Up Warrants are exercisable for a three year period at $4.50
per share.
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ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, for the periods and at the dates indicated,
selected consolidated financial and operating data for the Company. The
financial data was derived from the consolidated financial statements of the
Company and should be read in conjunction with the Company's audited
consolidated financial statements included in the Index to Financial Statements
on page 35 of this report. See also, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
Years ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues:
Contract revenues........................ $ 17,826 $ 20,808 $ 33,866 $ 25,362 $ 14,436
Equipment and scrap revenues............. 96 834 5,537 3,150 4,368
Other.................................... - - - 22 342
------- -------- ------- ------- -------
Total operating revenues............... 17,922 21,642 39,403 28,534 19,146
Cost of sales:
Direct job costs......................... 17,002 21,492 30,433 20,449 11,539
Unusual job costs........................ - - 3,300 - -
Cost of equipment........................ 647 943 2,977 1,651 1,379
------- -------- ------- ------- -------
Gross profit (loss)................... . . 273 (793) 2,693 6,434 6,228
Operating expenses:
General and administrative.......... . . 10,538 9,567 7,637 5,418 4,514
Depreciation and amortization............ 723 668 653 344 432
Settlement expense....................... - - - - -
------- --------
Income (loss) from operations.............. (10,988) (11,028) (5,597) 672 1,282
Interest income (expense), net............. (513) 30 200 (36) (233)
Other income (expense), net................ - - - - 81
------- -------- ------- ------- -------
Income (loss) before income taxes.......... (11,501) (10,998) (5,397) 636 1,130
Provision (credit) for income taxes........ (1,561) (1,850) (1,530) 312 434
------- -------- ------- ------- -------
Net income (loss).......................... $ (9,940) $ (9,148) $ (3,867) $ 324 $ 696
======= ======== ======= ======= =======
Net income (loss) on common stock.......... $(11,224) $ (9,148) $ (3,867) $ 324 $ 696
======= ======== ======= ======= =======
Net income (loss) per share................ $ (1.00) $ (1.13) $ (0.67) $ 0.06 $ 0.29
======= ======== ======= ======= =======
Weighted average shares outstanding.......11,212,690 8,089,472 5,815,565 5,577,977 2,333,334
========== ========= ========= ========= =========
Balance Sheet Data (at period end):
Working capital............................ $(1,149) $6,122 $ 10,293 $ 12,070 $ 622
Total assets............................. 27,151 22,203 22,028 22,257 9,302
Long-term liabilities...................... 259 164 4,004 - 69
Minority interest.......................... - 1,034 - - -
Shareholders' equity....................... 18,079 13,461 10,940 13,829 1,726
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 29 of this Form 10-K.
General
The Company's business has evolved, and continues to evolve, to capitalize
on market opportunities. The Company has added strategic capabilities and
resources through the years to move the business from its roots as a demolition
and deconstruction company to a full service environmental remediation company
and plant relocation services company and, now, an energy project developer and
manager. The Company's revenues were historically derived primarily from (1)
contract decontamination and decommissioning services in a broad range of
industrial and environmentally sensitive settings, including, but not limited
to, plant dismantlement and relocation services, asbestos abatement services,
and remediation of contaminated soil and groundwater; and (2) equipment and
scrap sales. The Company's operations have been characterized by fluctuations in
revenues and operating profits as projects begin and end. With the
implementation of a strategic shift in the Company's business in 1997, the
Company expects to generate a growing base of recurring revenues and operating
profits from energy projects and long-term nuclear facilities decommissioning
and remediation projects while supplementing such revenues and profits with
revenues from the Company's traditional environmental services and plant
relocation services projects.
The Company's environmental remediation services are provided as primary
contractor or as subcontractor to industrial concerns and governmental and other
entities. Generally, such entities own or operate manufacturing or process plant
facilities which facilities are being abandoned, relocated or otherwise require
varying degrees of dismantling or deconstruction work or remediation of a
variety of environmental hazards. Because of the nature of the operations at
such facilities, the Company's services typically involve varying environmental
concerns which require the application of specialized deconstruction and/or
remediation techniques. In accordance with industry practice, the Company will
typically develop a preliminary work plan for each project and will enter into a
contract to perform the required services. The Company's projects are performed
primarily on a "lump sum" basis wherein the Company bids to perform a complete
job for a predetermined price or on a "time and material" basis wherein the
Company charges predetermined hourly or per day rates for specified services
plus a charge for materials used. Additionally, the Company provides services
pursuant to "fixed fee" contracts wherein the Company is paid for all costs
incurred plus a predetermined fee or profit margin. Because of the risk
associated with lump sum contracts, the Company generally will not bid on such
jobs unless the Company has a thorough understanding of the scope of the job in
question and an established history of performing such jobs within the price
established in the contract or the contract provides for adjustments to the
price based on industry practices and scope of work. While the Company performs
decontamination and decommissioning services directly for numerous industrial
concerns with whom the Company has existing relations and with other industrial
concerns with whom the Company may establish relationships from time to time, a
portion of the Company's services are also provided on a subcontractor basis for
engineering firms which are called in to develop and implement hazardous waste
remediation plans but which lack expertise in dismantling or deconstruction or
specialized remediation processes.
In addition to offering environmental remediation services to its
customers, in connection with such services, the Company has extensive
experience in, and offers, plant relocation and reconstruction services to its
customers.
Since 1995, equipment and scrap sales operations have been conducted
principally through an alliance with Universal Process Equipment ("UPE").
Because of the Company's continual involvement with firms requiring
decontamination and decommissioning services as well as plant relocation and
reconstruction services, the Company has developed extensive expertise in
identifying salvageable equipment and scrap and is often able to acquire
equipment on favorable terms from customers who would otherwise have no ongoing
use for such equipment or otherwise lack the knowledge and expertise to market
such equipment. Pursuant to the Company's alliance with UPE, surplus equipment
and scrap identified by the Company must generally be offered to UPE and UPE
assumes the marketing efforts with respect to such items with the Company
receiving commissions or a share of profits from the resale of such items.
21
<PAGE>
The Company's job expenses are primarily labor and labor related costs,
including salaries to laborers, supervisors and foremen, out-of-town living
expenses, payroll taxes, training, insurance and benefits. Additionally, the
Company's job expenses include bonding and job related insurance cost, repairs,
maintenance and rental of job equipment, job materials and supplies, and
transportation and dumping costs, among others. Direct job costs tend to vary
proportionally with service revenues.
Cost of surplus equipment sales includes the actual cost of such equipment
as well as freight charges to transport such equipment and costs of refurbishing
certain equipment. Such costs vary with the volume of sales, the nature of the
equipment sold and the Company's ability to acquire such equipment on favorable
terms. The Company generally has no cost for scrap materials as the value of
salvageable scrap is generally factored into the price when bidding on jobs and
no payment is made by the Company for such scrap.
In addition to direct job costs and cost of surplus equipment and scrap
sales, the Company incurs various general and administrative expenses to support
its operations. The largest of such expenses is salaries paid to management and
administrative personnel. Other significant general and administrative expenses
include rent on the Company's facilities, general insurance, promotional expense
and general office expense. Selling, general and administrative expenses during
1996 and 1997 have included substantial expenses attributable to the Company's
efforts to reposition itself as an energy project developer and manager and a
leading provider of nuclear facilities decommissioning and remediation services.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. The Company's total revenues decreased by approximately 17.1%
from $21.6 million for the year ended December 31, 1996 to $17.9 million for the
year ended December 31, 1997. Contract service income decreased for the period
by 14.4% from $20.8 million in 1996 to $17.8 million in 1997. The decrease in
contract service income was attributable to a lower volume due to the Company
being more selective in bidding only projects with higher gross margins. The
environmental remediation business has been marked by increasing competition and
pressure on job margins. In light of such operating environment, the Company
during 1997 opted to only pursue specialized niche projects where projects risks
could be limited and higher margins attained. Surplus equipment and scrap sales
decreased by 85.4% from $834,000 from the year ended December 31, 1996 to
$96,000 in 1997 due primarily to the sale in 1996 of $634,000 of glass lined
brewery tanks.
Cost of sales. Cost of sales, which includes direct job costs, cost of
equipment sales, and write-down of the Company's surplus generator inventory,
decreased by approximately 21.4% from $22.4 million for 1996 to $17.6 million
for 1997. Direct job costs decreased by 20.9% during 1997 and decreased from
103.3% to 95.4% of contract income. The primary elements of such decrease in job
costs were materials and supplies, job salaries, subcontracting and disposal
expense. The lower gross margins during 1996 was attributable primarily to cost
overruns on several contracts, including the Los Alamos project where the
Company is presently seeking to recover $2.1 million of additional costs
incurred as a result of change orders from clients.
Cost of equipment sales decreased 92.7% during 1997 and decreased from
77.1% to 49.0% of equipment revenues. The decrease in cost of equipment sales
and the increase in gross margin was attributable to the sale, in a bulk
transaction, of $634,000 in tanks mentioned previously during 1996.
In addition to the routine changes discussed above, the Company's cost of
sales reflects a write-down of the Company's surplus generator inventory of
$600,000 in 1997 and $300,000 in 1996.
22
<PAGE>
General and administrative expense. General and administrative expenses
increased by 9.4% from $9.6 million (44.4% of gross revenues) in 1996 to $10.5
million (58.8% of gross revenues) in 1997. The increase in general and
administrative expenses was primarily attributable to the write-down of a
portion of the Company's notes receivable from UPE ($1,200,000).
Depreciation and amortization. Depreciation and amortization expense stayed
approximately the same $0.7 million in both years.
Loss from operations. Loss from operations was basically the same in both
years ($11.0 million). As a percentage of revenues, loss from operations
increased from 50.9% in 1996 to 61.3% in 1997. The increase in loss from
operations percent of revenues was attributable to the lower volume in 1997.
Interest income and expense. The Company experienced an increase in net
interest expense from $0.0 million in 1996 to $0.5 million in 1997. The increase
in interest expense was primarily attributable to $0.7 million amortization of
debt discount on the convertible notes issued during 1997.
Income taxes. The Company's credit for income taxes decreased from $1.9
million in 1996 to $1.6 million in 1997. The decrease in the income tax credit
for 1997 was primarily attributable to a higher valuation allowance against the
net operating loss from foreign operations.
Miscellaneous. During fiscal years 1996 and 1997, the Company provided no
post retirement benefits subject to FAS 106.
As a result of the foregoing, the Company reported a loss before taxes of
$11,501,000 and a net loss of $9,940,000 for 1997 as compared to a loss before
taxes of $10,998,000 and a net loss of $9,148,000 for 1996. The net loss
attributable to common stock was increased by the preferred stock dividends
($174,000) and an accounting "deemed dividend" ($1,110,000) arising from the
amortization of the beneficial conversion feature of the Company's Series B
Preferred Stock. The Company is calculating earning per share to comply with the
recent SEC staff position on accounting for securities issued with beneficial
conversion features. This accounting requires that the Company reflect the
difference between the market price of the company's common stock and the
applicable conversion rate on the convertible preferred stock as a dividend at
the issue date (the beneficial conversion feature totaling $1,109,589) and has
amortized the dividend over a 180 day period from February 12, 1997, the issue
date of the convertible preferred stock.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995.
Revenues. The Company's total revenues decreased by approximately 45.2%
from $39.4 million for the year ended December 31, 1995 to $21.6 million for the
year ended December 31, 1996. Contract service income decreased for the period
by 38.6% from $33.9 million in 1995 to $20.8 million in 1996. The decrease in
contract service income was attributable to a combination of (1) completion in
early 1996 of a contract to dismantle and relocate an ammonia plant to Pakistan
(the "FFC Contract") which accounted for $13.4 million of revenues in 1995, (2)
delays in the commencement of several contracts awarded to IDM in 1996 and (3)
the reversal of $2.1 million in previously accrued revenues and gross margin
associated with change order claims under negotiation with two customers that
have not been resolved at year end. Surplus equipment and scrap sales decreased
by 85.4% from $5.5 million from the year ended December 31, 1995 to $0.8 million
in 1996 due to the sale in 1995 of $4 million of glass lined and process
equipment in connection with the formation of the Company's marketing alliance
with UPE.
Cost of sales. Cost of sales, which includes direct job costs, cost of
equipment sales, unusual job costs, and write-down of the Company's surplus
generator inventory, decreased by approximately 39% from $36.7 million for 1995
to $22.4 million for 1996. Direct job costs decreased by 29.4% during 1996 and
increased from 89.9% to 103.3% of contract income. The primary elements of such
decrease in job costs were materials and supplies, job salaries, subcontracting
and disposal expense. The decrease in such job costs was primarily attributable
to the decreased level of activity following completion of the performance of
the FFC Contract. The deterioration in gross margins during 1996 was
attributable to a combination of (1) bidding new contracts at lower than normal
margins in order to penetrate strategic markets serviced by the Company's
regional offices and (2) cost overruns on several contracts, including the Los
Alamos project where the Company is presently in negotiations to recover $2.1
million of additional costs incurred as a result of change orders from clients.
23
<PAGE>
Cost of equipment sales decreased 78.6% during 1996 and increased from
53.8% to 77.1% of equipment and scrap sales revenues. The decrease in cost of
equipment sales and the decrease in gross margin was attributable the sale, in a
bulk transaction, of $4,000,000 of surplus equipment to UPE during 1995.
In addition to the routine changes discussed above, the Company's cost of
sales reflects one time charges of $3.3 million in unusual job costs during 1995
and a write-down of the Company's surplus generator inventory of $300,000 in
1996.
General and administrative expense. General and administrative expenses
increased by 26.3% from $7.6 million (19.2% of gross revenues) in 1995 to $9.6
million (44.4% of gross revenues) in 1996. The increase in general and
administrative expenses was primarily attributable to a combination of (1) the
general and administrative expenses of Global Waste & Energy, the Company's 90%
owned subsidiary which was established during the year ($665,000), (2) the
write-down of a portion of the Company's notes receivable from UPE ($630,000)
and (3) increased legal fees ($394,000).
Depreciation and amortization. Depreciation and amortization expense stayed
approximately the same $0.7 million in both years.
Loss from operations. Loss from operations increased from $5.6 million in
1995 to $11.0 million in 1996. As a percentage of revenues, loss from operations
increased from 14.2% in 1995 to 50.9% in 1996. The increase in loss from
operations was attributable to the deferral of several large contracts which
were expected to commence in 1996.
Interest income and expense. The Company experienced a decrease in interest
income from $0.3 million in 1995 to $0.2 million in 1996 and an increase in
interest expense from $0.1 million in 1995 to $0.2 million in 1996. The decrease
in interest income and increase in interest expense was attributable to lower
levels of funds available for investment due to the loss sustained during the
year and a full year of interest expense on $0.6 million of equipment financed
in December 1995.
Income taxes. The Company's credit for income taxes increased from $1.5
million in 1995 to $1.9 million in 1996. The increase in the income tax credit
for 1996 was attributable to the higher operating loss.
Miscellaneous. During fiscal years 1995 and 1996, the Company provided no
post retirement benefits subject to FAS 106.
As a result of the foregoing, the Company reported a net loss of $9.1
million in 1996 as compared to a net loss of $3.9 in 1995.
Liquidity and Capital Resources
At December 31, 1997, the Company had a deficit in working capital of
approximately $1.1 million, including a cash balance of $0.6 million. This
compares to working capital of $6.1 million and a cash balance of $1.0 million
at December 31, 1996. The $7.2 million decrease in working capital and decrease
in cash is attributable to the $11.5 million pre-tax loss and $4.9 million in
cash used in investing activities of which the investment in and advances to
unconsolidated affiliates of $3.5 million was the largest item. Those amounts
were partially offset by the receipt of $6.5 million from the exercise of
outstanding warrants and options during the year; $5.5 million in net proceeds
from Convertible Securities issuance, less $0.7 million for principal payments
on debt, for a total of approximately $11 million in cash provided by financing
activities.
Approximately $0.5 million of working capital consisted of unbilled costs
and estimated earnings on ongoing projects. Such amounts are expected to be
received during 1998 as projects progress with all such amounts being payable to
the Company by the completion of such projects.
24
<PAGE>
Also included in the Company's working capital balance at December 31, 1997
was $0.6 million of surplus equipment inventory (net of a $0.9 million valuation
reserve) held for sale which gross inventory level was identical to that
reported at December 31, 1996. The inventory reflects the Company's sale of
substantially all of its surplus equipment inventory, other than generators, to
UPE in connection with the formation of a marketing alliance with UPE during
1995. The Company's remaining inventory consists of nineteen (19) generator sets
with a total electrical capacity of 242,500 kilowatts per hour (KWH). The
estimated market price of the Company's generator inventory is twelve million
dollars. Twelve (12) of the generators are steam driven and range in size from
12,500 kilowatts to 33,000 kilowatts (KW). Seven (7) of the generators are
diesel driven and range in size from 1,000 to 9,000 kilowatts (KW). These
generator sets should not be considered as obsolete or outdated inventory since
its design and technology has not changed much over the years. They are very
long lead items (15-18 months), experience and project specific and as such they
are not to be compared with disposable items. It is the Company's intent to
incorporate this inventory in future projects.
The Company had available at December 31, 1997, approximately $19,775,000
of operating loss carry-forwards that may be applied against future taxable
income. $2,350,000 of such losses expire in the year 2010 , $9,225,000 in the
year 2011, and the balance the following year. Based on the reported loss to
date it will take approximately $12.2 million dollars in future taxable income
to recover the reported deferred tax asset of $4,170,000 at December 31, 1997.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible and the net operating losses can
be carried forward. In determining such projected future taxable income,
management has considered the company's historical results of operation, the
current economic environment with the company's core industries and future
business activities which the company has positioned itself. Management believes
the company will realize taxable income in future years. However, based on the
company's substantial losses over the past three years, the current contract
commitments in the backlog, and carry forward limitations governed by state,
federal and foreign tax agencies, management believes it is more likely than not
that the company will not realize its entire net deferred tax asset. A valuation
allowance of $6,357,000 has been established by management as a reduction of the
company's deferred tax assets of $10,527,000. Management believes that the net
deferred tax asset will be realized through future taxable income, primarily
from the substantial revenue to be derived from projects such as the Miravalle
Power Project and/or the Greifswald Nuclear Plant Decommissioning/Site
Revitalization Project. Management believes that the income generated from these
projects will be more than sufficient to realize the deferred tax asset at
December 31, 1997.
The Company's accounts receivable decreased by 27.2% from 1996 to 1997.
Such decrease in accounts receivable was attributable to lower levels of
business activity. As a percentage of revenues, accounts receivable decreased
from 26.0% in 1996 to 22.8% in 1997. The decrease in accounts receivable as a
percentage of revenues reflects lower sales in the fourth quarter of 1997 versus
1996. Accounts receivable as a percentage of fourth quarter revenues was a
comparable 87% and 88% in 1997 and 1996, respectively.
Year-end receivables as a percentage of fourth quarter revenue increased
substantially from 53.0% in 1994 to 103.5% in 1995 and 88% in 1996. The ratio
dropped to 53% at December 31, 1994 because the Company received a $4,184,000
payment on a major contract on December 23, 1994. If this payment had been
received after year end, the ratio would have been a more comparable 98.4%.
Unbilled revenue as a percentage of quarterly contract income was 0% at
December 31, 1993, 31% at December 31, 1994, 56% at December 31, 1995, 26% at
December 31, 1996 and 11% at December 30, 1997. Also, accounts payable have
constantly decreased since 1994 whereas accounts receivable and unbilled
revenues have increased substantially during this period. Prior to going public
in April 1994, most of the Company's revenues were generated in the private
sector. Many of these contracts had substantial initial mobilization payments
and generated positive cash flow during the life of the contract. Since then the
company has been successful, as a result of its growth strategy, in obtaining a
number of government contracts at major Department of Energy and Department of
Defense sites. This work was obtained as a direct result of opening three new
regional offices. The experience with these contracts has been negative cash
flows until we near contract completion. This is due to the requirement that we
submit a schedule and a schedule of values at the beginning of the job and bill
according to the percent complete of each item in the schedule of values - not
the costs we have incurred. Our jobs of any size are at a risk of being front
end cost loaded when there is little progress to report (i.e., we cannot bill
until the structure is demolished). The Company is aware of this problem and is
trying to remedy it by maximizing mobilization costs in the schedule of values,
requiring subcontractors to bill on the same basis and aggressively negotiating
better (less front end cost loaded) schedule of values.
25
<PAGE>
Initially the Company tried to increase payment terms to vendors by paying
them after the Company received our payment. This method was unsuccessful. Many
vendors put the Company on a COD basis and its D&B rating weakened because D&B's
file showed "increased slowness in the company's payment record." This lower
rating hurt the Company in attempts to establish credit with new vendors.
Because IDM is a growing company and trying to establish good relationships with
its vendors, the company is now paying its vendors within terms to fifteen days
late and attempting to improve its D&B "paydex rating." The paydex rating of 60
is much worse than the average of the lower quartile for the industry of 68
(median for the industry is 75).
As a result of the loss incurred during 1997, operating activities used
$6.4 million in cash during 1997. The Company also used $4.9 million in cash for
investing activities during 1997 for (1) maintenance of a 10% interest in Life
for $415,000, (2) the acquisition of certain property, plant and equipment and
other assets for $873,000, (3) an investment in and advances to unconsolidated
affiliates of $3,453,000, and (4) advances and loans to certain officers in the
amount of $161,000. Cash flows from financing activities totaled $10.9 million
during 1997 and consisted principally of (1) $6.5 million in proceeds received
from the exercise of various warrants and options, (2) $5.5 million in net
proceeds from convertible securities issuances and (3) ($0.7) million in
principal payments in long-term debt.
In addition to the foregoing items which impacted the Company's cash flows
during 1997, the Company carried out several non-cash transactions and
transactions with subsidiaries not reflected in the Company's cash flow
statements. Among the non-cash transactions entered into during 1997 were (1)
the beneficial conversion feature on the convertible notes of $4,819,000 and on
the convertible preferred stock of $1,110,000 and, (2) the conversion of $0.3
million of convertible preferred stock into common stock. Transactions with
subsidiaries during 1997 related principally to the capitalization of various
subsidiaries formed to deploy the Company's Kocee Gas Generator technology. At
December 31, 1997, the Company had loaned $2.5 million to its 90% owned
subsidiary, Global Waste and Energy, Inc. Such loan is repayable on demand with
interest at 9.25%.
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. Certain contracts, in particular
those with United States governmental agencies, may provide for payment terms of
up to 90 days or more and may require the posting of substantial performance
bonds which are generally not released until completion of a project.
Prior to the completion of the Company's public offering, operations were
historically funded through a combination of operating cash flow, term notes and
bank lines of credit. Following the public offering, the Company paid off all of
its then existing bank debt. At December 31, 1997, the Company had no bank debt
and no significant long-term debt and was funding its operations entirely
through cash on hand and operating cash flow.
With the substantial increase in volume and size of jobs on which the
Company performed services during 1995, and as a result of the incurrence of
costs relating to the opening of additional offices and to otherwise support
growth, the Company experienced shortages in working capital during the third
quarter of 1995. In September of 1995, after evaluating various financing
options, the Company sold $5 million of 7% convertible notes (the "Convertible
Notes") to various non-U.S. investors. The Company received net proceeds from
the sale of the Convertible Notes of approximately $4.2 million. The Convertible
Notes were due on September 15, 1997 and accrued interest at the rate of seven
percent per annum payable upon maturity only if the notes have not been
converted into Common Stock. The holders of the Convertible Notes were entitled,
at their option, to convert such notes into shares of the Company's Common Stock
at a conversion price for each share equal to the lessor of the closing bid
price of the Common Stock on September 15, 1995 ($5.00), or eighty-two percent
(82%) of the closing bid price of the Common Stock on the day prior to
conversion. As of December 31, 1995, $1,358,000 of the Convertible Notes had
been converted resulting in the issuance of 453,366 shares of Common Stock.
During 1996, the remaining $3,642,000 of Convertible Notes were converted
resulting in the issuance of 1,143,903 shares of Common Stock.
26
<PAGE>
In February of 1997, the Company sold 300 shares, or $3.0 million, of
Series B Convertible Preferred Stock to provide funding for the Company's East
Dam project and other projects on which the Company commenced work during the
first half of 1997. The Series B Preferred Shares are convertible into Common
Stock commencing 91 days after issuance at the lesser of (i) 120% of the average
closing price of the Common Stock over the five trading-day period preceding
closing ($2.67) or 82% of the average closing price of the Common Stock over the
five trading-day period preceding conversion for conversion occurring between
the 91st and 120th day following closing, (ii) 110% of the average closing price
of the Common Stock over the five trading-day period preceding closing ($2.475)
or 79% of the average closing price of the Common Stock over the five
trading-day period preceding conversion for conversion occurring between the
121st and 150th day following closing, (iii) 100% of the average closing price
of the Common Stock over the five trading-day period preceding closing ($2.225)
or 76% of the average closing price of the Common Stock over the five
trading-day period preceding conversion for conversion occurring between the
151st and 180th day following closing, and (iv) 100% of the average closing
price of the Common Stock over the five trading-day period preceding closing
($2.225) or 73% of the average closing price of the Common Stock over the five
trading-day period preceding conversion for conversion occurring on or after the
181st day following closing. The Series B Preferred Shares pay a 7% dividend
payable on conversion or at redemption in cash or Common Stock, at the Company's
option. All Series B Preferred Shares remaining outstanding on February 12, 2000
shall be automatically converted into Common Stock. On August 13, 1997, the
Company completed a private placement of $3,025,000 of 7% Convertible Notes (the
"Convertible Notes") and 2,675,000 three year Warrants (the "Three Year
Warrants").
The Convertible Notes are convertible into Common Stock at the lesser of
(i) $2.75 per share or (ii) 75% of the average closing bid price of the Common
Stock during the five trading days prior to conversion. The Three Year Warrants
are exercisable for a three year period at the lesser of $3.00 per share or the
lowest conversion price of the Convertible Notes. Conversion of the Convertible
Notes and exercise of the Three Year Warrants was subject to the issuance of a
maximum of 1,997,130 shares of Common Stock on conversion unless the
shareholders of the Company approved issuances beyond that level upon
conversion. Shareholder approval of issuances beyond 1,997,130 shares was
received on November 4, 1997. Further, the Company has the right, upon notice to
the holders, to redeem any Convertible Notes submitted for conversion at a price
of $2.75 or less at 125% of the principal amount of such Convertible Notes. The
Convertible Notes pay interest at 7% payable quarterly and on conversion or at
redemption in cash or Common Stock, at the Company's option. In the event that a
registration statement covering the shares underlying the Convertible Notes has
not been declared effective within 90 days or 180 days after the issuance of the
Convertible Notes, the interest rate on the Convertible Notes shall be increased
to 18% and 24%, respectively, from those dates until such a registration
statement becomes effective. The registration statement was declared effective
in January 9, 1998. The amount of additional interest expense was $54,500.
The value, totaling $4,718,750, of the discounted conversion feature on the
notes and the value of the warrants has been accounted for as additional
interest via a debit to debt discount and a credit to paid-in-capital. The debt
discount has been calculated as the fixed discount from the market at the date
of sale based upon the common stock's trading price of $4 per share on August
13th. This interest is being amortized over the three year life of the debt.
During 1997, $600,000 was amortized and recorded as interest expense.
27
<PAGE>
On February 13, 1998, the Company sold 3,600 shares of Series C 7%
Convertible Preferred Stock and 2,350,000 Four Year $5.00 Warrants. The
securities were issued to five accredited investors. The aggregate sales price
of such securities was $3,600,000. Commissions totaling 10% were paid in
connection with the placement. The securities were offered pursuant to
Regulation D. The offer was directed exclusively to a limited number of
accredited investor without general solicitation or advertising and based on
representations from the investors that such investors were acquiring for
investment. The securities bear legends restricting the resale thereof. The
Series C Preferred Stock is convertible into Common Stock at the lesser of (i)
$4.50 per share or (ii) 75% of the average closing bid price of the Common Stock
during the five trading days prior to conversion. The Four Year $5.00 Warrants
are exercisable for a four year period at the lesser of $5.00 per share or the
lowest conversion price of the Series C Preferred Stock. Conversion of the
Series C Preferred Stock and exercise of the Four Year $5.00 Warrants is subject
to the issuance of a maximum of 3,285,438 shares of Common Stock on conversion
unless the shareholders of the Company have approved issuance beyond that level
upon conversion. In the absence of shareholder approval of issuances above
3,285,438 shares, the holders of Series C Preferred Stock and Four Year $5.00
Warrants remaining outstanding if and when 3,285,438 shares have been issued
will have the right to demand redemption of the Series C Preferred Stock at
$1,250 per share plus accrued dividends and to demand redemption of the Four
Year $5.00 Warrants at the pre-tax profit such holders would have realized had
the Four Year $5.00 Warrants been exercised at the time redemption is demanded.
Further, the Company has the right, upon notice to the holders, to redeem any
Series C Preferred Stock submitted for conversion at a price or $2.75 of less at
125% of the principal amount of such Series C Preferred Stock plus accrued and
unpaid dividends. The Series C Preferred Stock pays dividends at 7% per annum
payable quarterly and on conversion or at redemption in cash or Common Stock, at
the Company's option.
On February 11, 1998, the Company issued 1,270,000 Three Year $4.50 Warrants
(the "Lock-Up Warrants"). The Lock-Up Warrants were issued to three accredited
investors. The Lock-Up Warrants were issued in conjunction with the execution of
Lock-Up Agreements by the holders of $3.00 Warrants of the Company whereby the
holders of such warrants agreed not to resell any shares underlying those
warrants prior to July 30, 1998. The Lock-Up Warrants were offered pursuant to
Section 4(2). The offer was directed exclusively to a limited number of
accredited investor without general solicitation or advertising and based on
representations from the investors that such investors were acquiring for
investment. The securities bear legends restricting the resale thereof. The
Lock-Up Warrants are exercisable for a three year period at $4.50 per share.
On January 8, 1998, the Company made a $300,000 payment representing its
one half share of the capital of Seven Star International Holding, Inc. ("7
Star"). 7 Star is a joint venture between IDM and Jin Xin and is incorporated in
The British Virgin Islands. 7 Star has entered into a license agreement with
Life International Products, Inc. ("Life") for the right to process, produce,
promote and sell Life products in the Peoples Republic of China (including Hong
Kong), Taiwan, Indonesia and Singapore. The license agreement requires a minimum
royalty of $400,000 for the first year which was paid upon execution of the
license agreement.
Other than funds provided by operations and the potential receipt of funds
from the exercise of outstanding warrants, the Company presently has no sources
of financing or commitments to provide financing. A total of 440,000 Class A
Warrants issued in connection with the Company's initial public offering were
outstanding and exercisable at December 31, 1997. Such warrants are exercisable
to purchase two shares of common stock each for a price of $9.00, or $4.50 per
share. The warrants are exercisable until April of 1999 unless earlier called.
The Company may call the warrants if the closing bid price of the common stock
equals or exceeds $9.00 for a period of twenty consecutive trading days.
Exercise of the warrants would provide gross proceeds to the Company of
approximately $4.0 million and result in the issuance of .9 million shares.
There can be no assurance, however, when, if ever, any or all of the warrants
will be exercised.
28
<PAGE>
Other than funding the Company's bonding and other job costs, the Company
does not anticipate any substantial demands on the liquidity or capital
resources of the Company during the following twelve months.
Management believes that the Company's working capital is sufficient to
meet the Company's anticipated needs for at least the following twelve months,
including the performance of all existing contracts of the Company. However, as
the Company is presently pursuing bids on multiple large projects, the Company
may be required to seek new bank lines of credit or other financing in order to
facilitate the performance of jobs if the volume and size of projects being
performed by the Company increases substantially. While the Company is
conducting ongoing discussions with various potential lenders with a view to
establishing available bank lines of credit if and when needed to support future
growth, the Company presently has no commitments from any bank or other lender
to provide financing if such financing becomes necessary to support growth.
The Year 2000 Issue
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations. The
Company has reviewed its accounting software and has determined since the
software it is using has four digits to identify the year that it does not have
a problem
Certain Factors Affecting Future Operating Results
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include the following: possible fluctuations in the
growth and demand for energy in markets in which the Company may seek to
establish energy production operations; intense competition for establishment of
energy production operations in growing economies; currency, economic, financing
and other risks inherent in establishing energy operations in foreign markets;
uncertainty regarding the rate of growth in demand for nuclear decommissioning
and site revitalization services; continued delays in awarding and commencing
contracts; delays in payment on contracts occasioned by dealings with
governmental and foreign entities; changes in accepted remediation technologies
and techniques; fluctuations in operating costs associated with changes in
project specifications and general economic conditions; substantial fluctuations
in revenues resulting from completion and replacement of contracts and delays in
contracts; economic conditions affecting the ability of prospective customers to
finance projects; and other factors generally affecting the timing and financing
of projects. In addition to the foregoing, the following specific factors may
affect the Company's future operating results.
At December 31, 1997, the Company was on-site on projects with a total
leave in value of services yet to be performed of $31 million. The largest
projects on which the Company was on-site at December 31, 1997 were the East Dam
project in Southern California with an approximate value of services to be
performed of $15 million and Bechtel Jacobs with an approximate value of
services to be performed of $8 million. Both contracts are expected to be fully
completed by the end of 1998.
In addition to its existing contracts, the Company is presently bidding on,
or proposes to bid on, numerous projects in order to replace revenues from
projects which will be completed during 1998 and to increase the total dollar
volume of projects under contract. Management anticipates that the Company's
efforts to bid on and secure new contracts will focus on projects which can be
readily serviced from the regional offices opened by the Company during 1994 and
1995 as well as certain large international plant relocation projects and
nuclear decommissioning projects which the Company intends to pursue. The
Company's regional offices, particularly the Oak Ridge, Tennessee and Los
Alamos, New Mexico offices are strategically located in areas having a high
concentration of prospective governmental and private remediation sites. While
bidding to perform services at such sites is expected to be highly competitive,
management believes that the Company's existing presence on adjacent projects
combined with its proven expertise and resources will allow the Company to
successfully bid on and perform substantial additional projects based out of its
regional offices.
In addition to remediation and plant relocation projects on which the
Company is presently bidding or negotiating, the Company during 1997 entered the
energy production and services market. The Company expects to begin energy
projects and nuclear decommissioning projects at the following prospects by as
early as the second half of 1998, which are representative of the future
direction in which the Company plans to embark:
29
<PAGE>
- - Miravalle Power Project. The Company has signed a 15 year power purchase
agreement pursuant to which it will construct, own and operate a power
production facility to supply approximately 45 megawatts of electric power
to El Salvador's leading power distribution company. The Company has
entered into an initial agreement with Caterpillar Power Ventures, Inc. and
Caterpillar Power Ventures International Ltd., both subsidiaries of
Caterpillar, Inc., pursuant to which it is anticipated that Caterpillar
will participate as an equity investor and lead contractor on the Miravalle
Power Project. The Company, at April 15, 1998, was finalizing project
financing and expects to begin construction of a $55 million facility
shortly. Construction on this project is expected to take about one year
with the plant scheduled to be operational and supplying electricity by the
middle of 1999.
Initial estimates of the value of the supply contract were $360 million.
However, with the privatization of the energy distribution industry in El
Salvador shortly after the Company finalized its supply contract, lower
power rates originally sought by the Salvadorean government are being
eliminated. With realistic prospects of power tariffs as much as doubling
over the next two years, the value of the power supply contract could be
substantially higher than initially projected.
- - Greifswald Nuclear Plant Decommissioning/Site Revitalization Project. The
Company is a principal member of a consortium selected by the German
Government to negotiate the revitalization/reindustrialization and
privatization of the Energiewerke Nord site in Lubmin, Germany. Nuclear
decommissioning and associated cleanup and maintenance activities at the
site will take about 10 years to complete. The German Government has
appropriated DM 6.209 billion for the project.
The revitalization and reindustrialization of the site is expected to
provide numerous additional opportunities for the Company, including
attracting new investment in the region, upgrading infrastructure; and
possibly new construction project. The Company, and its consortium partners
(which includes Duke Energy), have committed to create a minimum of 1,500
new jobs at the site in the Greifswald and Mecklenberg-Vorpommem region and
have identified and negotiated with numerous multinational high-technology,
biotechnology and basic manufacturing companies desiring to establish a
presence at the site. The first investor, Foremost-Magellan, a
Taiwanese/American high technology holding company, has committed to
establish operations in the region and at the site.
- - Georgia Project. The Company has signed a Protocol of Intention with the
Ministry of Fuel and Energy in the former Soviet state of Georgia under
which the Company will have the right to construct, own and operate
electric energy facilities in the region. The Company, at April 15, 1998,
was actively developing the most financially attractive projects in Georgia
with the intent of signing a 35-year power purchase agreement which will
establish the terms for the sale of electric power from generating
facilities with a capacity of up to 1,000 megawatts.
In addition to the above projects which are in advanced stages, the Company
is presently in discussions involving 21 distinct energy production projects
worldwide. The Company believes that the successful commencement of power
production operations in El Salvador will enhance its position in the energy
production market and that ongoing discussions will result in the Company's
participation in the development of multiple energy production facilities
providing 1,500 megawatts or more of electric energy to various countries and
cities in Asia, Central and South America and Eastern Europe.
The Company also believes that successful implementation of the planned
decommissioning and site revitalization activities at the Greifswald site will
open the door for numerous opportunities to provide similar long term services
at nuclear facilities throughout the world, including in Western Europe and the
United States.
While the Company anticipates that entry into the energy production and
nuclear facilities decommissioning and site revitalization market will provide
significant opportunities for sustainable growth in both revenues and operating
profits, entry into those markets requires substantial capital commitments and
involves certain risks. Undertaking energy production and nuclear
decommissioning projects can be expected to require capital expenditures of as
little as several million dollars to hundreds of millions of dollars per
project. The Company does not currently have the necessary capital resources to
undertake such ventures without third party financing. The Company anticipates
that it will take on equity partners and seek third party debt financing to
finance substantial portions of the projects which it expects to undertake.
While the Company has been successful in attracting substantial partners in both
its El Salvador energy project and its German nuclear decommissioning/site
revitalization project, the Company has no commitments from potential partners
and financing sources to provide funding for future projects and there is no
assurance that such partners and financing sources will be available, or will
provide financing on acceptable terms, if and when the Company commences future
projects.
Impact of Inflation
Inflation has not been a major factor in the Company's business since
inception. There can be no assurances that this will continue. However, it is
anticipated that any increases in costs to the Company can be passed on to its
customers in the form of higher prices.
30
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the
independent auditors' report thereon of Samuel Klein and Company, appears on
pages F-1 through F-33 of this report. See Index to Financial Statements on
page 35 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in a definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's fiscal year. Such information is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Consolidated Financial Statements: See Index to Financial
Statements on page 35 of this report for financial statements
and supplementary data filed as part of this report.
(2) Financial Statement Schedules
None
31
<PAGE>
(3) Exhibits
<TABLE>
Exhibit
Number Description of Exhibit
---------- --------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of IDM Environmental Corp. (1)
3.2 Bylaws, as amended, of IDM Environmental Corp. (3)
4.1 Specimen Common Stock Certificate (1)
4.2 Specimen Class A Warrant Certificate (1)
4.3 Form of Warrant Agreement (1)
4.4 Certificate of Designation fixing terms of Series A Junior Participating Preferred
Stock (2)
4.5 Certificate of Designation fixing terms of Series B Preferred Stock (6)
4.6* Certificate of Designation fixing terms of Series C Preferred Stock
4.7 Warrant Agreement dated February 12, 1997 (6)
10.1 Lease Agreement between International Dismantling & Machinery Corporation
and L&G Associates dated March 1, 1993 for site in South River, New Jersey (1)
10.2+ 1993 Incentive Stock Option Plan, as amended (3)
10.3+ 1995 Incentive Stock Option Plan (3)
10.4+* 1998 Comprehensive Stock Option and Award Plan
10.5+ Employment Agreement between the Company and Joel Freedman, as amended,
dated February 1, 1996 (3)
10.6+ Employment Agreement between the Company and Frank Falco, as amended,
dated February 1, 1996 (3)
10.7+* Amendment, dated September of 1997, to Employment Agreement between the Company and Joel Freedman
10.8+* Amendment, dated September of 1997, to Employment Agreement between the Company and Frank Falco
10.9+* Second Amendment, dated February 1998, to Employment Agreement between the Company and Joel
Freedman
10.10+* Second Amendment, dated February 1998, to Employment Agreement between the Company and Frank Falco
10.11+* Nonqualified Stock Option Agreement between the Company and Joel Freedman
10.12+* Nonqualified Stock Option Agreement between the Company and Frank Falco
10.13 Alexander Charles Lentes Stock Option (7)
10.14 Bernd Muller Stock Option (7)
10.15* Stock Option Agreement with M.H. Meyerson & Co., Inc. dated August, 1997
10.16* Nonqualified Stock Option Grant, dated January 8, 1998, between the Company and The Boston Group
10.17 Amended and Restated Warrant Agreement with Rochon Capital Group Ltd. (7)
10.18* Consulting Agreement dated May 23, 1997 between the Company and Ron Logerwell
10.19 Form of Agreement regarding confidential information and competition by
employees (1)
10.20 Form of Severance Agreement (3)
10.21 Voting Agreement (1)
10.22 Share Rights Agreement dated April 1, 1996 (2)
10.23 License Agreement dated June 30, 1996 with Life International Products (4)
10.24 Agreement dated July 19, 1996 with Continental Waste Conversion, Inc. (4)
10.25 License Agreement dated July 18, 1996 with Continental Waste Conversion, Inc. and Continental
Waste Conversion International, Inc. (4)
10.26 Promissory Note in the amount of $160,000 (Canadian) dated July 22, 1996 from Continental Waste
Conversion, Inc. to Continental Waste Conversion International (4)
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
10.27 Pledge and Security Agreement dated July 19, 1996 between Continental Waste Conversion, Inc. and
Continental Waste Conversion International, Inc. (4)
10.28 Form of 7% Convertible Note due January 31, 1999 (5)
10.29 Form of Three Year $3.00 Warrant (5)
10.30* Protocol of Intention dated January 20, 1998 re: Georgia power plant
10.31* License Agreement dated December 15, 1997 between Life International Products, Inc. and Seven
Star International Holding, Inc.
10.32* Form of Lock-Up Agreement
10.33* Form of Lock-Up Warrant
10.34* Form of Four Year $5.00 Warrant
10.35* Consulting Agreement dated March 1997 with SAGA Promotions, Inc.
10.36* Stock Option Grant dated February 1998 to SAGA Promotions, Inc.
10.37* Stock Option Grant dated February 1998 to Aaron Lehman
10.38* Revised Memorandum of Understanding dated March 1998 re: Taiwan waste-to-energy project
10.39* Modification to Power Purchase Contract dated November 1997 re: El Salvador power project
21.1* List of subsidiaries
23.1* Consent of Samuel Klein and Company
27.* Financial Data Schedule
+ Compensatory plan or management agreement.
* Filed herewith
(1) Incorporated by reference to the respective exhibits filed with Registrant's Registration Statement on
Form SB-2 (Commission File No. 33-66466) declared effective by the Securities and Exchange Commission on
April 20, 1994
(2) Incorporated by reference to the respective exhibits filed with Registrant's Current Report on Form 8-K
dated April 1, 1996
(3) Incorporated by reference to the respective exhibits filed with Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1995
(4) Incorporated by reference to the respective exhibits filed with Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996
(5) Incorporated by reference to the respective exhibits filed with Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997
(6) Incorporated by reference to the respective exhibits filed with Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996
(7) Incorporated by reference to the respective exhibits filed with Registrant's Registration Statement on
Form S-3 (Commission File No. 333-28485) declared effective by the Securities and Exchange Commission on
January 9, 1998
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1997.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IDM ENVIRONMENTAL CORP.
By:/s/ Joel Freedman
-------------------------
Joel Freedman
President
Dated: April 15, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
----------- ------ ------
/s/ Joel A. Freedman President, Chief Executive Officer April 17, 1998
- --------------------- (Principal Executive Officer) and
Joel A. Freedman Director
/s/ Frank A. Falco Executive Vice President, Chief April 17, 1998
- --------------------- Operating Officer and Chairman
Frank A. Falco of the Board of Directors
/s/ Michael B. Killeen Treasurer (Principal Accounting April 17, 1998
- ---------------------- and Financial Officer) and Director
Michael B. Killeen
- --------------------- --------, 1998
Richard Keller Director
- --------------------- --------, 1998
Frank Patti Director
/s/ Robert McGuinness
- ---------------------
Robert McGuinness Director April 17, 1998
34
<PAGE>
IDM ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
------
Independent Auditor's Report................................................ F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996............... F-2
Consolidated Statements of Operations for the Years ended December 31, 1997,
1996 and 1995........................................................... F-3
Consolidated Statements of Stockholders' Equity for the Years ended December
31, 1997, 1996 and 1995................................................. F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 1997,
1996 and 1995........................................................... F-5
Notes to Consolidated Financial Statements................................. F-7
35
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
IDM Environmental Corp. and Subsidiaries
South River, New Jersey
We have audited the accompanying consolidated balance sheets of IDM
Environmental Corp. and Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDM Environmental
Corp. and Subsidiaries as of December 31, 1997 and 1996, and the results of
operations and cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Samuel Klein and Company
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
April 8, 1998
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
ASSETS 1997 1996
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 602,242 $ 1,001,254
Accounts receivable 4,094,408 5,626,208
Stock subscription receivable - 775,862
Notes receivable - current 116,457 1,274,773
Inventory 582,517 1,182,517
Costs and estimated earnings in excess of billings 455,823 1,655,754
Bonding deposits 9,157 55,472
Due from officers 369,541 208,676
Prepaid expenses and other current assets 1,433,068 1,884,977
--------------- ---------------
Total Current Assets 7,663,213 13,665,493
Investments in and Advances to Unconsolidated Affiliates 3,453,309 -
Investment in Affiliate, at cost 1,715,000 1,300,000
Notes Receivable - long term 1,381,155 1,572,238
Debt Discount and Issuance Costs 4,610,166 -
Deferred income taxes 4,170,000 2,609,000
Property, Plant and Equipment 3,277,116 2,742,650
Other Assets 880,746 313,246
--------------- ---------------
$ 27,150,705 $ 22,202,627
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 3,566,393 $ 351,127
Accounts payable and accrued expenses 5,159,635 7,105,827
Billings in excess of costs and estimated earnings 86,604 86,496
--------------- ---------------
Total Current Liabilities 8,812,632 7,543,450
Long-Term Debt 258,686 164,034
Minority Interest - 1,034,483
--------------- ---------------
Total Liabilities 9,071,318 8,741,967
--------------- ---------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 30,000,000 shares $.001 par value, issued
and outstanding 14,513 073 in 1997 and 9,602,730 in 1996 14,513 9,603
Additional paid-in capital 38,497,705 25,359,465
Convertible preferred stock, authorized 1,000,000 shares $1.00 par value, issued and
outstanding 270 shares in 1997 stated at conversion value of $10,000 per share 2,700,000 -
Retained earnings (deficit) (23,132,831) (11,908,408)
--------------- ---------------
18,079,387 13,460,660
--------------- ---------------
$ 27,150,705 $ 22,202,627
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the Years Ended December 31,
1997 1996 1995
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenue:
Contract income $ 17,825,849 $ 20,807,491 $ 33,865,680
Sale of equipment 96,050 834,355 5,131,504
Sale of scrap - - 406,187
----------------- --------------- ---------------
17,921,899 21,641,846 39,403,371
----------------- --------------- ---------------
Cost of Sales:
Direct job costs 17,002,308 21,491,328 30,432,547
Unusual job costs - - 3,300,000
Cost of equipment sales 47,057 643,242 2,977,484
Write-down of inventory surplus 600,000 300,000 -
----------------- --------------- ---------------
17,649,365 22,434,570 36,710,031
----------------- --------------- ---------------
Gross Profit (Loss) 272,534 (792,724) 2,693,340
----------------- --------------- ---------------
Operating Expenses:
General and administrative expenses 10,537,677 9,567,435 7,637,621
Depreciation and amortization 723,415 668,227 653,273
----------------- --------------- ---------------
11,261,092 10,235,662 8,290,894
----------------- --------------- ---------------
Loss from Operations (10,988,558) (11,028,386) (5,597,554)
Other Income (Expense):
Interest income (expense) (512,768) 30,542 200,141
----------------- --------------- ---------------
Loss before Credit for Income Taxes (11,501,326) (10,997,844) (5,397,413)
Credit for Income Taxes (1,561,000) (1,850,000) (1,530,000)
----------------- --------------- ---------------
Net Loss (9,940,326) (9,147,844) (3,867,413)
Preferred Stock Dividends including amortization of beneficial
conversion feature of $1,109,589 amortized over 180 days 1,284,097 - -
----------------- --------------- ---------------
Net Loss on Common Stock
$ (11,224,423) $ (9,147,844) $ (3,867,413)
================= =============== ===============
Loss per Share:
Basic loss per share $(1.00) $(1.13) $(0.67)
================= =============== ===============
Diluted loss per share $(1.00) $(1.13) $(0.67)
================= =============== ===============
Basic common shares outstanding 11,212,690 8,089,472 5,815,565
================= =============== ===============
Diluted common shares outstanding 11,212,690 8,089,472 5,815,565
================= =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
Additional Convertible Retained
Common Stock Paid-in Preferred Earnings
---------------------------
Shares Amount Capital Stock (Deficit)
------------ ------------ ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances - January 1, 1995 5,783,334 $5,783 $12,716,381 - $1,106,849
Surrender and Retirement of Common -
Stock by Officer (36,621) (37) (192,223) -
Conversion of Convertible Notes -
to Common Stock 453,366 454 1,169,737 -
Net Loss for the Year Ended
December 31, 1995 - - - - (3,867,413)
------------ ------------ ---------------- -------------- ---------------
Balances - December 31, 1995 6,200,079 6,200 13,693,895 - (2,760,564)
Surrender and Retirement of
Common Stock by Officer (92,214) (92) (670,488) - -
Conversion of Convertible Notes
to Common Stock 1,143,903 1,144 3,319,108 - -
Class A Warrants Exercised 2,102,000 2,102 6,954,348 - -
Private Placement Warrants 7,500 8 33,742 - -
Exercise of Underwriters Options 300,000 300 1,979,700 - -
Common Stock Options Exercised 41,462 41 55,248 - -
Issuance of Non Qualified Options, pursuant
to a consulting agreement - - 210,312 - -
Retirement of Common Stock, pursuant to
a stock repurchase plan (100,000) (100) (216,400) - -
Net Loss for the Year Ended
December 31, 1996 - - - - (9,147,844)
------------ ------------ ---------------- --------------- ---------------
Balances - December 31, 1996 9,602,730 9,603 25,359,465 - (11,908,408)
Issuance of Convertible
Preferred Stock February 1997 - - $3,000,000 -
Conversion of Preferred Stock
to Common Stock 192,925 193 289,237 (300,000) -
Class A Warrants Exercised 4,517,028 4,517 6,166,483 - -
Stock Options Plan Exercises 45,390 45 62,996 - -
Issuance of Non-Qualified Options,
pursuant to consulting agreements - - 456,340 - -
Preferred Stock Beneficial Conversion feature - - 1,109,589 - -
Preferred Stock Dividends - - - - (1,284,097)
Exercise of Non-Qualified Consulting Options 155,000 155 234,845 - -
Discounted Conversion feature on
Convertible Notes and Warrants - - 4,818,750 - -
Net Loss for the year ended
December 31, 1997 - - - - (9,940,326)
------------ ------------ ---------------- --------------- ---------------
Balances - December 31, 1997
14,513,073 $14,513 $38,497,705 $2,700,000 $ (23,132,831)
============ ============ ================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the Years Ended December 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $ (9,940,326) $ (9,147,844) $ (3,867,413)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Deferred income taxes (1,561,000) (1,956,400) (400,000)
Depreciation and amortization 831,937 668,227 653,273
Amortization of debt discount 612,864 - -
Compensation cost of consultant stock options 456,340 - -
Write-down of surplus inventory 600,000 300,000 -
Provision for loss on notes receivable 1,300,000 630,000 -
Decrease (Increase) In: - - -
Accounts receivable 1,531,800 989,922 (1,947,644)
Inventory - - 2,972,875
Notes receivable 49,399 (283,893) (3,193,118)
Costs and estimated earnings in excess of billings 1,199,931 1,978,298 (1,008,812)
Prepaid expenses and other current assets 451,909 (1,119,033) (149,181)
Bonding deposits 46,315 827,691 1,510,494
Recoverable income taxes - 1,114,442 (1,088,005)
Increase (Decrease) In:
Accounts payable and accrued expenses (1,937,675) 1,361,671 (1,845,521)
Billings in excess of costs and estimated earnings 108 (833,079) 853,584
Income taxes payable - - (477,600)
---------- ---------- ----------
Net cash used in operating activities (6,358,398) (5,469,998) (7,987,068)
---------- ---------- ----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (305,533) (574,832) (639,417)
Investment in affiliate (415,000) (1,300,000) -
Investment in and advances to unconsolidated affiliates (3,453,309) - -
Acquisition of other assets (567,500) (313,246) -
Loans and advances to officers (160,865) (330,768) (349,632)
----------- ---------- ---------
Net cash used in investing activities (4,902,207) (2,518,846) (989,049)
----------- ----------- ---------
Cash Flows from Financing Activities:
Net proceeds from convertible bond issuance - - 4,185,000
Net proceeds from convertible note issuance 2,780,000 - -
Net proceeds from convertible preferred stock issuance 2,722,500 - -
Principal payments on long-term debt (676,819) (371,109) (193,922)
Preferred stock dividends (174,508) - -
Purchase and retirement of common stock - (216,500) -
Contribution from minority interest - 258,621 -
Repurchase of minority interest (258,621) - -
Proceeds from exercise of stock options and warrants 6,469,041 9,235,800 -
---------- ---------- --------
Net cash provided by financing activities 10,861,593 8,906,812 3,991,078
---------- ---------- ---------
Increase (Decrease) in Cash and Cash Equivalents (399,012) 917,968 (4,985,039)
Cash and Cash Equivalents, beginning of year 1,001,254 83,286 5,068,325
---------
Cash and Cash Equivalents, end of year $ 602,242 $ 1,001,254 $ 83,286
========= ========== =========
</TABLE>
F-5
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
For the Years Ended December 31,
1997 1996 1995
------------- -------------- ------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 184,631 $ 65,694 $ 35,550
============= ============== ============
Income taxes
$ - $ - $ 488,802
============= ============== ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
Property, plant and equipment financing $ 961,737 $ 195,821 $ 693,324
============= ============== ============
Repayment of officer's loan through surrender of common stock $ - $ 670,580 $ 192,260
============= ============== ============
Conversion of convertible promissory notes to common stock $ - $ 3,320,252 $ 1,170,191
============= ============== ============
Sale to minority stockholder with stock subscription receivable $ - $ 775,862 $ -
============= ============== ============
Cancellation of stock subscription receivable $ 775,862 $ - $ -
============= ============== ============
Conversion of preferred stock to common stock $ 300,000 - -
============= ============== ============
Beneficial conversion feature of debt discount on convertible notes $ 4,818,750 - -
============= ============== ============
Beneficial conversion feature of convertible preferred stock $ 1,109,589 - -
============= ============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
- -----------
IDM Environmental Corp. (collectively with its subsidiaries referred to herein
as the "Company") is a global diversified services company offering a broad
range of design, engineering, construction, project development and management,
plant operations and environmental services and technologies. The Company,
through its domestic and international subsidiaries, offers services and
technologies in three principal areas: Power Project Development and Operation,
Specialty Project Engineering and Environmental Remediation.
The Company is also active in the development and commercialization of a number
of proprietary technologies in the fields of bioremediation/superoxygenation of
water, gasification of solid wastes and soil remediation . In 1995 the Company
formed two subsidiaries to conduct business in specific regions which required
domiciled entities. During 1996 the Company formed two subsidiaries and acquired
through assignment the rights, title and interest of certain contracts and
agreements and two inactive corporations in order to conduct business in
specific regions of North and South America and East Asia.
Principals of Consolidation and Basis of Presentation
- -----------------------------------------------------
The accompanying financial statements consolidate the accounts of the parent
company and all of its wholly owned and majority owned subsidiaries. Investments
in unconsolidated affiliated joint ventures in which ownership of the venture is
between 20% and 50% are accounted for under the equity method for balance sheet
presentation and the proportionate consolidation method for revenues and
expenses of the joint venture. Investments in affiliates representing less than
20% of the ownership of such companies are accounted for under the cost method.
Translation of Foreign Currencies
- ---------------------------------
Assets and liabilities of foreign operations, where the functional currency is
the local currency, are translated into U.S. dollars at the fiscal year end
exchange rate. The related translation adjustments are required to be recorded
as cumulative translation adjustments, a separate component of shareholders'
equity. Revenues and expenses are required to be translated using average
exchange rates prevailing during the year. Foreign currency transaction gains
and losses, as well as translation adjustments for assets and liabilities of
foreign operations where the functional currency is the dollar, are included in
net income (loss). Foreign currency realized and unrealized gains and losses for
the years presented were not material.
Revenue Recognition
- -------------------
The consolidated financial statements have been prepared on the basis of the
percentage of completion method of accounting. Under this method contract
revenue is determined by applying to the total estimated income on each
contract, a percentage which is equal to the ratio of contract costs incurred to
date to the most recent estimate of total costs which will have been incurred
upon the completion of the contract. Costs and estimated earnings in excess of
billings represents additional earnings over billings, based upon percentage
completed, as outlined above. Similarly, billings in excess of costs and
estimated earnings represent excess of amounts billed over income recognized.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Billings on long-term contracts are done on
a monthly basis. Unbilled amounts on long-term contracts include amounts
recognized in revenues under the percentage of completion method of accounting,
but not billed to the customer at year end. It is expected that such billings
will be made as contracts are completed. Unbilled amounts on long-term contracts
are not separately stated as they are not material. Retentions on long-term
contracts are balances billed but not paid by customers which, pursuant to
retainage provisions in contracts, are due upon completion of the contract and
acceptance by the customer. Substantially all retentions are deemed collectible
within one year.
F-7
<PAGE>
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
For financial statement purposes, short-term investments with a maturity of
ninety days or less and highly liquid investments are considered cash
equivalents.
Inventory
- ---------
Inventory consists of used equipment and is stated at the lower of cost
(specific identification) or market.
Unamortized Debt Discount and Issuance Costs
- --------------------------------------------
Costs in connection with the issuance of the 7% Convertible Notes and the
Convertible Preferred Stock are amortized and charged to operations using the
straight line method over the terms of the respective issues. Upon conversion,
any unamortized costs are charged to additional paid in capital net of tax
effect.
Deferred Issue Costs
- --------------------
Costs in connection with the issuance of the 7% Convertible Notes and the
Convertible Preferred Stock are amortized and charged to operations using the
straight line method over the term of the convertible issue. Upon conversion,
any unamortized costs are charged to additional paid in capital net of tax
effect.
Property, Plant and Equipment
- -----------------------------
Property plant and equipment are recorded at cost. Depreciation has been
calculated using the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the term of the related lease or
the estimated useful lives of the assets. The depreciation method and estimated
useful lives of the assets are generally as follows:
Estimated Method of
Asset Useful Life Depreciation
--------- ---------------- --------------
Office equipment 3 - 10 Straight-line
Furniture and fixtures 3 - 10 Straight-line
Leasehold improvements 5 - 31.5 Straight-line
Transportation equipment 3 - 5 Straight-line
Job equipment 7 - 10 Straight-line
Costs of repairs and maintenance are charged to operations as incurred and
additions and betterments are capitalized. Upon retirement or disposition of
assets, the cost and accumulated depreciation are eliminated from the accounts
and any gain or loss is reflected in the statement of operations.
F-8
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Income Taxes
- ------------
Income taxes have been provided for based on the provisions of Statement of
Financial Accounting Standards Board No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Accounting for Stock-Based Compensation
- ---------------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
employee stock options plans. Under APB 25, when the exercise price of the
Company's employee stock options equals or is above the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
In accounting for options granted to persons other than employees, the
provisions of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") were applied. According
to SFAS 123 the fair value of these options was estimated at the grant date
using Black-Scholes option pricing model.
Impairment of Long-Lived Assets
- -------------------------------
The Company accounts for impairment of long lived assets in accordance with
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires that if facts and circumstances indicate that the cost of
fixed assets or other assets may be impaired, an evaluation of recoverability
would be performed by comparing the estimated future undiscounted pre-tax cash
flows associated with the asset to the asset's carrying value to determine if a
write-down to market value or discounted pre-tax cash flow value would be
required.
Earnings (Loss) Per Share
- -------------------------
As of December 31, 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS 128") replacing the calculation
of primary and fully diluted earnings per share with Basic and Diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
the dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Diluted earnings per share reflects the potential dilution
that could occur if securities or other agreements to issue common stock were
exercised or converted into common stock. Dilutive earnings per share is
computed based upon the weighted average number of common shares and dilutive
common equivalent shares outstanding. Common stock options, which are common
stock equivalents, had an anti-dilutive effect on earnings per share and no
effect on the weighted average number of common shares. All net loss per share
amounts for all periods presented have been restated to conform to SFAS 128
requirements.
Reclassifications
- -----------------
Certain reclassifications have been made to the prior year balances to conform
to the current year presentation.
Special Charges
- ---------------
During the fourth quarter of 1997, the Company recorded significant charges of
approximately $3,200,000 to operations, primarily related to write downs of
inventory, notes receivable and other assets. In addition, the Company increased
the valuation allowance for deferred tax assets based on managements assessment
of future operations.
F-9
<PAGE>
2. ACQUISITIONS AND INVESTMENTS IN AFFILIATES
On July 11, 1996, effective June 30, 1996, the Company, pursuant to a license
agreement entered into between the Company and Life International Products
("Life"), acquired a 10% interest in Life for $1,300,000. In addition to
acquiring a 10% interest, the Company entered into an exclusive licensing
agreement with Life pursuant to which the Company shall market and employ Life's
patented environmental remediation technology for long term bioremediation of
contaminated ground water throughout North America. On November 3, 1997, the
Company invested an additional $415,000 in Life to maintain its 10% interest.
The Company has recorded its investment at cost and their investment is
presented in the balance sheet classification "Investment in Affiliate, at
cost".
Pursuant to such license agreement, the Company agreed to fund the operation and
expenses associated with the marketing plan and allocate revenues from such
agreement for (1) repayment of Life's cost in connection with manufacturing and
(2) any actual expenses of both the Company and Life regarding the sale and
marketing of this technology. The balance (the "Net Revenues") shall be shared
between the Company and Life, 20% and 80% respectively, with a minimum net
revenue payment of $400,000 due to Life. This agreement, as amended November 1,
1996, provides that Life is to be paid this minimum net revenue relating to and
for the period of amendment to October 1, 1998. Subsequent to such time, the
Company and Life agree to negotiate in good faith as to future minimum revenues
and agreement terms. For the year ended December 31, 1997, no revenues have been
recognized.
On July 19, 1996 the Company, through a newly formed 90% owned subsidiary,
Global Waste & Energy, Inc. ("Global Delaware"), a Delaware corporation, entered
into an agreement with Enviropower Industries Inc. (formerly Continental Waste
Conversion, Inc. ("CWC").) Pursuant to this agreement, Global Delaware acquired,
in exchange for a 10% interest in Global Delaware and a loan through a wholly
owned subsidiary of Global Delaware of $160,000 (Canadian) or approximately
$116,550 (U.S.), the exclusive worldwide rights (excluding Canada) to CWC's
proprietary Kocee Gas Generator waste treatment technology that converts
municipal solid waste, including tires and plastics, into electrical energy. In
addition, the Company committed to loan up to $1,350,000 over a four month
period to Global Delaware to carry on this newly acquired waste-to-energy
business.
At closing the Company made an initial loan of $600,000 to Global Delaware
repayable upon demand with interest at 9.25%. As of December 31, 1997 the
Company had loaned a total of $2,491,000 to Global Delaware. The consolidated
financial statements include results of operations of Global Delaware and its
subsidiaries from July 19, 1996, and therefore all intercompany loans and
transactions have been eliminated within the consolidated financial statements
of the Company.
In conjunction with the July 19, 1996 agreement, Global Delaware formed a wholly
owned Alberta, Canada subsidiary, Global Waste & Energy, Inc. ("Global Alberta")
and through this company acquired from CWC through assignment the rights, title
and interest of certain contracts and agreements and two inactive corporations
domiciled in El Salvador and East Asia. These companies were acquired to market
and develop systems relating to the disposal of domestic, industrial and
agricultural waste and generation of electrical energy by means of gas generator
technology.
On October 18, 1996, Global Alberta entered into a subscription agreement with a
minority investor, pursuant to which the minority investor had committed to
purchase a 45% interest in the El Salvador corporation for approximately
$1,000,000 U.S. As of December 31, 1996, $258,621 had been received from the
minority investor. During 1997 the Company repurchased from this investor their
45% equity interest for their initial investment of $258,621 and a cancellation
of the stock subscription receivable.
As further discussed in Note 11, CWC has filed a claim against the Company
disputing the agreements. On March 20, 1998 Enviropower Industries Inc. filed an
assignment in bankruptcy. As a result, the Company wrote off the $116,550 loan
as of December 31, 1997.
F-10
<PAGE>
During 1996 and 1997, the Company entered into joint venture agreements for the
purposes of completing construction related projects, totalling approximately
$20,225,000, specifically for work to be performed on the Eastside Resevoir
Project for the Water District of Southern California and building
decommisioning and equipment removal at IBM Microelectronics Hudson Valley
Research Park, East Fishkill, N.Y.
These joint ventures, in which the Company holds equity interests of 49% and
50%, respectively, are accounted for using the equity method of accounting for
balance sheet presentation and are presented in the balance sheet classification
"Investments in and Advances to Unconsolidated Affiliates". The Company has
included their proportionate share of revenues and expenses related to these
joint ventures within its statement of operations for the year ended December
31, 1997. Included in contract income and direct job costs are $3,303,968 and
$3,040,476, respectively.
3. UNUSUAL JOB COSTS
The Company recorded a one-time pre-tax charge of $3,300,000 in the fourth
quarter of 1995. This charge arose from a contract interpretation issue with one
of its international customers with regard to transportation costs. The dispute
specifically related to the overseas transportation costs which were outside the
ordinary and typical business activities of the Company. The Company does not
anticipate entering into any future contracts that require the Company to have
responsibility for overseas transportation costs. The Company absorbed these
costs to avoid the expense and uncertainty of mediation, arbitration and
litigation, and in anticipation of a significant amount of business expected to
be awarded to the Company by the customer in the future. It was recorded as a
separate line item in the Consolidated Statement of Operations for the year
ended December 31, 1995, because of its "unusual" nature.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31,
1997 1996
------ ------
Trade accounts receivable
$ 4,594,408 $ 5,826,208
Allowance for doubtful accounts (500,000) (200,000)
-------------- ---------------
$ 4,094,408 $ 5,626,208
============== ===============
5. NOTES RECEIVABLE
On September 29, 1995, the Company entered into two agreements for the sale of
equipment inventory with Universal Process Equipment, Inc. and their affiliate,
Bethlehem Corporation (collectively "UPE"), a non-public company with principle
operations in North America, and one of the world's largest marketers of new and
processed equipment. Pursuant to the terms of such agreements, the Company sold
substantially all of its glass lined equipment and process equipment for an
aggregate minimum consideration of $4 million. The purchase price of such
equipment is payable from one third of the net sales proceeds of such equipment
received by UPE, which amount may exceed $4 million. The unpaid portion of the
purchase price of such equipment shall bear interest at the average LIBOR base
rate over the previous twelve month period and any amounts not previously paid
under the agreement shall be payable in full on September 29, 2000. At December
31, 1996, the average twelve month rate was 5.53%. At December 31, 1997 and
1996, $3,211,155 and $3,144,476, respectively, was outstanding (including
interest). During the fourth quarter of 1997 and 1996 management provided
$1,200,000 and $630,000 reserves against the outstanding balance.
F-11
<PAGE>
On June 7, 1996, the Company loaned $250,000 to Solucorp Industries, Ltd.
("Solucorp"), an environmental company with which the Company had entered into a
September 7, 1995 Joint Marketing and Operation Agreement relating to the cross
marketing of Solucorp's soil remediation process and the Company's products and
services. The note executed June 7, 1996 (and further amended October 4, 1996),
is secured by shares of Solucorp's common stock. The terms of the note as
amended require the repayment of principal with interest at 10.25% per annum in
eleven consecutive monthly payments of $22,448 commencing November 1, 1996, with
an initial payment of $23,202 due upon the signing of the amended agreement. At
December 31, 1997 and 1996, $216,457 and $215,985, respectively, remains
outstanding (including interest) and is included within current portion of Note
Receivable net of a $100,000 allowance for uncollectability at December 31,
1997.
Total interest income earned from these notes for the years ended December 31,
1997, 1996 and 1995 was $107,879, $184,394 and $44,523, respectively.
6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to the billing status of uncompleted contracts is as
follows:
December 31,
1997 1996
------ ------
Costs incurred on uncompleted contracts
$ 10,108,306 $ 15,683,597
Estimated earnings (loss) 2,331,313 (1,917,659)
--------------- ---------------
12,439,619 13,765,938
Less: Billings to date 12,070,400 12,196,680
--------------- ---------------
$ 369,219 $ 1,569,258
=============== ===============
Included in the accompanying balance sheets under the following captions:
<TABLE>
December 31,
1997 1996
------ ------
<S> <C> <C>
Costs and estimated earnings in excess of billings
$455,823 $ 1,655,754
Billings in excess of costs and estimated earnings (86,604) (86,496)
------------ ------------
$ 369,219 $ 1,569,258
============== =============
</TABLE>
F-12
<PAGE>
7. INVENTORY
Inventory consists of the following:
December 31,
1997 1996
----- ------
Purchased equipment ready for sale
$ 582,517 $ 1,182,517
============= =============
During the fourth quarter of 1997 and 1996, management provided write-downs
against the Company's inventory of surplus power generating equipment of
$600,000 and $300,000, respectively. Management believes the write-downs were
necessary due to the lack of sales activity and delays in the utilization of
this equipment within projects currently being negotiated by the Company.
The profitability of the Company's surplus equipment and scrap sales may be
impacted in the future by potential inventory related uncertainties. Because of
the nature of the inventory items purchased and sold by the Company, ownership
of such inventory items is not evidenced by documents of title. Further, because
of the Company's practice of acquiring surplus equipment from customers in
connection with the performance of jobs and because of the expense of relocating
and storing such items, many inventory items are held pursuant to joint venture
arrangements at the joint venture partner's site pending the sale of such items.
Because such inventory practices do not lend themselves to typical inventory
control procedures, the Company may be susceptible to incurring inventory
related losses arising from fraud, theft or claims of third parties. The Company
is aware of no such losses to date and would assert its rights against the party
from whom any items of inventory were purchased in the event of third party
claims with respect to title to inventory items. Accordingly, no additional
valuation reserves with respect to potential inventory losses have been
established.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
December 31,
1997 1996
------ ------
<S> <C> <C>
Office equipment $ 403,846 $ 401,771
Furniture and fixtures 494,117 398,377
Leasehold improvements 1,018,885 1,150,853
Transportation equipment 778,011 795,719
Job equipment 4,872,313 3,704,740
Land Improvements 131,968 -
-------------- --------------
7,699,140 6,451,460
Less: Accumulated depreciation and amortization 4,422,024 3,708,810
--------------- ---------------
$3,277,116 $2,742,650
=============== ===============
</TABLE>
During the year ended December 31, 1997, $148,526 in depreciation expense was
charged to job costs.
F-13
<PAGE>
9. LONG-TERM DEBT
7% Convertible Notes, Due September, 1997
- -----------------------------------------
During the quarter ended September 30, 1995, the Company completed a $5,000,000
private placement offering of 7% convertible notes pursuant to Regulation S
under the Securities Act of 1933, as amended. The notes were due September 15,
1997. The holders of the notes were entitled, at their option, to convert on or
after November 15, 1995 one third of the original principal amount of the notes
into the shares of common stock of the Company at a conversion price for each
share equal to the lessor of the closing bid price of the common stock on
September 15, 1995 ($5.00) or 82% of the market price of the common stock at the
date of conversion. The remaining two thirds of the principal amount of notes
could be converted on the same terms, one third after December 15, 1995 and one
third after January 15, 1996, respectively. In the event the notes are converted
within one year of their issuance, no interest shall be payable on the converted
portion of such shares. As of December 31, 1997, all the notes had been
converted into 1,597,269 shares of the Company's common stock.
Due to the lack of a fixed conversion price or other mechanism to limit the
total number of shares exercisable upon conversion of the debt, an inadvertent
violation of the rules applicable to NASDAQ National Market Securities was
determined to have occurred during the first quarter of 1996. To remedy such
problem, the Company imposed a cap on conversions which could not be exceeded
unless the shareholders of the Company first approved the issuance of shares on
conversion in an aggregate amount exceeding 20% of the outstanding shares on the
date of the convertible note issuances. Consequently, the balance of the
Convertible Notes outstanding at March 31, 1996 amounting to $1,750,000 were
subject to a cap on conversions imposed by the Company to assure compliance with
NASDAQ rules. The Company submitted a proposal to its shareholders at its 1996
annual shareholders meeting to permit the conversion of the remaining
Convertible Notes. The proposal was approved and the remaining Notes became
convertible with the conversion price being reduced from 82% of the closing bid
price to 80% of such price and all interest accrued on such Convertible Notes
being payable in shares of common stock.
In connection with the issuance of the convertible notes, the Company paid total
offering costs of approximately $815,000. Such costs have been capitalized as
deferred issuance costs and have been amortized over the term of the notes. To
the extent the notes were converted, all or an allocable portion of such costs
were charged against paid in capital net of tax effect. As of December 31, 1996,
$201,775 was amortized and $613,225 of unamortized deferred issuance costs and
($103,668) in accrued interest (net of the tax effect of $69,117) was charged
(credited) to paid in capital in connection with the conversion of the
$5,000,000 of convertible notes.
7% Convertible Notes, Due January 1999
- --------------------------------------
On August 13, 1997, the Company completed a private placement of $3,025,000 of
7% Convertible Notes (the "Convertible Notes") and 2,675,000 three year Warrants
(the "Three Year Warrants").
The Convertible Notes are convertible into common stock at the lesser of (i)
$2.75 per share or (ii) 75% of the average closing bid price of the common stock
during the five trading days prior to conversion. The Three Year Warrants are
exercisable for a three year period at the lesser of $3.00 per share or the
lowest conversion price of the Convertible Notes. Conversion of the Convertible
Notes and exercise of the Three Year Warrants was subject to the issuance of a
maximum of 1,997,130 shares of common stock on conversion unless the
shareholders of the Company approved issuance beyond that level upon conversion.
Shareholder approval of issuance beyond 1,997,130 shares was received on
November 4, 1997. Further, the Company had the right, upon notice to the
holders, to redeem any Convertible Notes submitted for conversion at a price of
$2.75 or less at 125% of the principal amount of such Convertible Notes. The
Convertible Notes pay interest at 7% payable quarterly and on conversion or at
redemption in cash or common stock, at the Company's option. In the event that a
registration statement covering the shares underlying the Convertible Notes has
not been declared effective within 90 days or 180 days after the issuance of the
Convertible Notes, the interest rate on the Convertible Notes was to be
increased to 18% and 24%, respectively, from those dates until such a
registration statement became effective. As a registration was not declared
effective within the 90 days required under the terms of the agreement, the
company incurred $46,215 in additional interest. On January 8, 1998 the
registration was declared effective and during the first quarter of 1998 all
outstanding notes were converted.
The difference between the market price of the Company's common stock, the
discounted beneficial conversion feature, and the fair market value of the
granted warrants totaled $4,718,750 and is being accounted for as additional
interest reflected in debt discount and paid-in capital. The debt discount has
been calculated as the fixed discount from the market at the date of sale based
upon the common stock's trading price of $4 per share on August 13, 1997. This
interest is being amortized over the three year life of the debt. As of December
31, 1997, $612,864 has been amortized and recorded as interest expense.
F-14
<PAGE>
Long-term debt consists of the following:
<TABLE>
December 31,
1997 1996
------ ------
<S> <C> <C>
Debentures:
7% convertible notes, due January 1999 $ 3,025,000 $ -
Notes Payable:
Note, payable in monthly installments of $2,650 through February 1997, -
secured by equipment 5,300
Note, payable in monthly installments of $1,207 including
interest at approximately 8.25% per annum through September 2000, secured by equipment 42,249 55,528
Note, payable in monthly installments of $27,316 including
interest at approximately 7.9% per annum through November 1997, secured by equipment - 277,040
Note, payable in monthly installments of $547 including interest
at approximately 11.9% per annum through February 1998, secured by equipment 912 5,930
Note, payable in monthly installments of $1,082 including interest at approximately
24% per annum through April, 2001, secured by equipment 28,730
Note, payable in monthly installments of $793 including interest at approximately 10.2%
per annum through February 2000, secured by equipment 16,803 -
Capital Lease Obligations:
Capital lease, payable in monthly installments of $3,569 including interest approximately
11.15% per annum through May 2000, secured by equipment 109,070 144,517
Capital lease, payable in monthly installments of $1,508 including interest approximately
11.4% per annum through September 1998, secured by equipment 12,080 26,846
Note, payable in monthly installments of $793 including interest at approximately 10.2%
per annum through February 2000, secured by equipment 16,803 -
Capital lease, payable in monthly installments of $35,513 including interest at approximately
10.7% per annum through March 1999, secured by equipment 471,631 -
Capital lease, payable in monthly installments of $6,614 including interest at approximately
10.7% per annum through October 1999, secured by equipment 118,604 -
-------------- ----------
3,825,079 515,161
Less: Current portion 3,566,393 351,127
-------------- ----------
$ 258,686 $ 164,034
============== ==========
</TABLE>
F-15
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. LONG-TERM DEBT (continued)
At December 31, 1997, maturities of long-term debt (including capital lease
obligations) are as follows:
1998 $ 3,566,393
1998 186,710
2000 56,976
2001 15,000
-----------
$ 3,825,079
============
10. PROVISION (CREDIT) FOR INCOME TAXES
Credit for income taxes is as follows:
December 31,
1997 1996 1995
------ ------ ------
Current:
Federal $ - $ - $ (940,200)
State - - (189,800)
Foreign - - -
--------------- --------------- --------------
- - (1,130,000)
--------------- --------------- --------------
Deferred:
Federal (1,906,000) (1,530,000) (273,700)
State 230,000 (205,000) (126,300)
Foreign 115,000 (115,000) -
--------------- --------------- --------------
(1,561,000) (1,850,000) (400,000)
--------------- --------------- --------------
$ (1,561,000) $ (1,850,000) $ (1,530,000)
=============== =============== ==============
F-16
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. CREDIT FOR INCOME TAXES (continued)
The Company's effective tax rate was (13.6%) in 1997 and (16.8%) in 1996.
Reconciliation of these rates and the U.S. statutory rates are summarized as
follows:
<TABLE>
Years Ended December 31,
1997 1996 1995
------ ------ ------
Amount Percent Amount Percent Amount Percent
------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Taxes at
Statutory rate $ (3,910,000) (34.0%) $ (3,739,000) (34.0)% $(1,835,100) (34.0%)
State taxes net of
federal tax effect (480,500) (4.2) (551,000) (5.0) (211,800) (3.9)
Foreign tax loss
carryforward 390,500 3.4 291,000 2.6 - -
Increase in
valuation allowance 2,479,300 21.6 2,175,100 19.8 418,700 7.8
Other (40,300) (0.4) (26,100) (0.2) 98,200 1.8
--------------- ---------- --------------- ----------- --------------- -----------
$ (1,561,000) (13.6%) $ (1,850,000) (16.8%) $ (1,530,000) (28.3%)
=============== ========== =============== =========== =============== ===========
</TABLE>
Certain items of income and expense are recognized in different years for
financial reporting and income tax purposes. Deferred income taxes are provided
in recognition of these temporary differences. The components of these deferred
income tax assets are as follows:
<TABLE>
December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Deferred Tax Assets:
Accounts and notes receivable allowances $ 1,028,800 $ 351,000 $ 84,000
Inventory allowance 381,000 126,900 -
Other inventory cost 20,000 19,800 19,800
Net operating loss carryforward 9,135,400 5,143,900 967,500
Fixed assets (148,300) (131,300) -
Other 110,100 44,500 -
--------------- ------------ ------------
10,527,000 5,554,800 1,071,300
Valuation allowance (6,357,000) (2,945,800) (418,700)
--------------- ------------ ------------
Total deferred tax assets $ 4,170,000 $2,609,000 $ 652,600
=============== ============ ============
</TABLE>
At December 31, 1997 the Company had net operating loss carryforwards for
federal income tax purposes of approximately $19,550,000, of which approximately
$2,350,000 expires in the year 2010, $9,060,000 in the year 2011 and the balance
of $8,150,000 in the following year. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which temporary differences become
deductible and the net operating losses can be carried forward. In determining
such projected future taxable income, management has considered the Company's
historical results of operations, the current economic environment within the
Company's core industries and future business activities which the company has
positioned itself. Management believes the Company will realize taxable income
in future years. However, based on the Company's substantial losses over the
past three years, the current contract commitments in the backlog, and carry
forward limitations governed by state, federal and foreign tax agencies,
management believes it is more likely than not that the Company will not realize
its entire net deferred tax asset. A valuation allowance of $6,357,000 has been
established by management as a reduction of the Company's deferred tax assets of
$10,527,000. Management believes that the net deferred asset of $4,170,000 will
be realized through future taxable income.
F-17
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES
Employment Contracts and Agreements
- -----------------------------------
On February 1, 1996, and effective January 1, 1996, Joel A. Freedman and Frank
A. Falco each entered into employment agreements, superseding their prior
employment agreements, with the Company on substantially identical terms.
Pursuant to such agreements, Mr. Freedman and Mr. Falco each receive (i) a base
salary of $250,000 per year plus 2% of operating profits; (ii) bonuses as
determined by the Board of Directors; and (iii) participation in any employee
benefit plans and fringe benefit arrangements generally available to the
Company's employees. For purposes of computing the salary of Messrs. Freedman
and Falco, operating profits are defined as net income from operations before
deduction of interest expense, income taxes, depreciation and amortization and
other non-cash charges to income.
In addition to their cash compensation, Messrs. Freedman and Falco will receive
certain bonuses in the form of common stock of the Company (the "Stock Bonus")
if the Company meets certain earnings criteria. Pursuant to such Stock Bonus
arrangements, the Company will issue stock to Messrs. Freedman and Falco in an
aggregate amount of up to 15% of the total issued and outstanding shares of
common stock of the Company as measured at the time(s) of issuance. The criteria
for issuing such shares is as follows: (i) if pre-tax net income for any one of
the years from 1994 to 2005 equals or exceeds $2,500,000, shares in an amount
equal to 5% of total issued and outstanding common stock of the Company shall be
issued; (ii) if pre tax net income for any one of the years from 1994 to 2005
equals or exceeds $3,500,000, shares equal to 5% of total issued and outstanding
common stock of the company shall be issued; and (iii) if pre-tax net income for
any one of the years from 1994 to 2005 equals or exceeds $6,000,000, shares
equal to 5% of total issued and outstanding common stock of the Company shall be
issued. For purposes of determining satisfaction of the above criteria, each of
the criteria may only be satisfied in one of the measuring years but two or more
of such criteria may be satisfied in the same year (e.g. pre-tax earnings of $6
million in any one year will satisfy each of the three criteria thus resulting
in the issuance of the full 15%, but pre-tax earnings of $2.5 million in each of
the years will only satisfy the first criteria for one year thus resulting in
the issuance of only 5% of the possible 15%). Pre-tax net income for each year
shall be determined, and the right to receive shares shall vest, on April 30
following each fiscal year. In computing pre-tax net income for purposes of
determining whether the above criteria has been satisfied, any charges to
earnings arising solely as a result of the issuance of shares pursuant to the
stock bonus arrangement shall be excluded.
On February 18, 1998 they each entered into the second amendment of the
employment agreement wherein the stock bonus provision was deleted in its
entirety and replaced with a stock option grant. The Company granted to each
Messrs. Freedman and Falco a five year option to purchase from the Company Two
Million Two Hundred Fifty Thousand (2,250,000) shares of the common stock of the
Company, $0.001 par value at an exercise price of $3.719 per share, the market
price of the Company's common stock at the date of grant. The Company obtained a
fairness opinion and valuation report from independent sources that estimated
the fair market value for each of these options to be $7,017,750 at the grant
date using the Black-Scholes value option pricing model.
For the years ended December 31, 1997, 1996 and 1995 the compensation expense
for the two officers, including board approved bonuses, was $480,000, $480,000
and $250,000 each, respectively. For 1996, the board approved bonuses to be paid
to Mr. Freedman and Mr. Falco to increase their minimum guaranteed cash
compensation to $480,000 each.
The employment agreements prohibit Mr. Freedman and Mr. Falco from competing,
directly or indirectly, with the Company or disclosing confidential matters with
respect to the Company for two years after termination of employment. Each of
such agreements expires on March 31, 2005 and are thereafter automatically
extended for one-year periods unless there is a notice of termination from
either the Company or the employee.
F-18
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (continued)
In the event of their disability, Messrs. Freedman and Falco are entitled to
continue their full salary at the date of disability for a period of one year
after which time the Company may terminate the employment of such disabled
employee without further compensation. In the event of death during the term of
employment, the estate of Mr. Freedman and Mr. Falco, as appropriate, shall be
entitled to three months salary. In the event of the termination of Mr.
Freedman's or Mr. Falco's employment within one year of the occurrence of
various change in control events, or in the event of termination of their
employment by the Company for any reason other than death or disability, the
Company must pay or provide to Mr. Freedman and/or Mr. Falco, as appropriate;
(i) a lump sum payment equal to 2.99 times his average annual gross income from
the company for the five tax year period ending before the date of such
termination; (ii) a lump sum payment equal to three times the value of all
"in-the-money" stock options held by such persons at the date of termination;
and (iii) continued participation in all employee benefit programs for a period
of three years, provided that the employee may, at his election, receive a lump
sum cash payment equal to the value of such benefits in lieu of continued
participation in such benefit plans. Additionally, in the event of a change in
control during the term of their contracts, Messrs. Freedman and Falco will be
deemed to have earned in full the Stock Bonuses provided for in their employment
contracts. As used in the employment agreements of Messrs. Freedman and Falco, a
"change in control" is defined to be (i) the acquisition of 15% of the Company's
common stock; (ii) a change in majority composition of the Board of Directors
within any two year period; or (iii) a failure to elect either of such employees
to the Board when such employee is standing for election; provided, however,
that such events shall not constitute a change in control if a majority of the
Directors immediately prior to such "change in control" approve the transaction
or event otherwise constituting a "change of control."
On July 19, 1996, Global Alberta entered into employment agreements with the two
principle officers of Global Alberta for terms through June 30, 1999. Pursuant
to such agreement, the two officers each are to receive an annual salary of
$240,000 (Canadian) through the term of the agreement. The annual salary in U.S.
dollars is approximately $168,000, utilizing the exchange rate existing at
December 31, 1997.
On February 11, 1996, the Company entered into agreements with its executive
employees pursuant to which such employees have agreed to maintain the
confidentiality of certain information and have agreed to not compete with the
Company within 250 miles of the Company's principal places of business for a
period of three years following the termination of such persons' employment with
the Company. Additionally, the Company has entered into agreements with each of
its executive officers, other than Messrs. Freedman and Falco, which provide
that such officers shall be entitled to; (i) a lump sum payment equal to 2.99
times his average annual gross income from the company for the three tax-year
period ending before the date of such termination; (ii) a lump sum payment equal
to three times the value of all "in-the-money" stock options held by such
persons at the date of termination; and (iii) continued participation in all
employee benefit plans or programs for a period of three years, provided that
the employee may, at his election, receive a lump sum cash payment equal to the
value of such benefits in lieu of continued participation in such benefit plans.
For purposes of such agreements, a change in control is defined in the same
manner as in the employment agreements of Messrs. Freedman and Falco, except
that failure of either Mr. Freedman or Mr. Falco to be elected when standing for
election as a director shall not constitute a "change in control" for purposes
thereof.
In addition to the foregoing employment and change of control arrangements, the
Company's 1993 and 1995 Stock Option Plans provide that all outstanding options
shall become fully vested and exercisable in the event of a change in control.
Litigation
- ----------
The Company is periodically subject to lawsuits and administrative proceedings
arising in the ordinary course of business. Management believes that no pending
lawsuits or administrative proceeding is likely to have a material adverse
effect on the condition or results of operations of the Company.
F-19
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (continued)
Litigation (continued)
- ----------------------
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and Health
Administration ("OSHA") issued a willful citation and notification of penalty in
the amount of $147,000 on the Company in connection with the accidental death of
an employee of one of the Company's subcontractors on the United Illuminating
Steel Point Project job site in Bridgeport, Connecticut. A complaint was filed
against the Company by the Secretary of Labor, United States Department of Labor
on September 30, 1996. The Company is contesting the Citations and Notification
of Penalty.
Also in connection with this accidental death, the employee's estate filed a
complaint for wrongful death against the subcontractor and the Company on
February 11, 1997. The estate seeks damages in the amount of $45 million. The
Company is being defended by the subcontractor's insurance carrier pursuant to
the subcontractor's obligation to defend and indemnify the Company with respect
to the actions of its (subcontractor's) employees and agents. The Company will
be fully indemnified for any liability, if any, for any potential judgement or
settlement in this matter and, therefore, the action is not expected to have any
material effect.
In November of 1996, a shareholder filed a class action lawsuit against the
Company and certain directors and officers of the Company. The suit, filed in
the Superior Court of New Jersey, Middlesex County, as subsequently amended in
June 1997, alleges that the Company disseminated false and misleading financial
information to the investing public between March 8, 1996 and November 18, 1996
and seeks damages in an unspecified amount to compensate investors who purchased
the Company's securities between the indicated dates, as well as the
disgorgement of profits allegedly received by some of the individual defendants
from sales of common stock during that period.
Prior to the oral argument before the Court on defendants' motion to dismiss the
amended complaint, the parties reached an agreement in principle to settle all
claims, subject to notice to the class, hearing before the Court and Court
approval. It is contemplated that, for settlement purposes only, the parties
will stipulate to a settlement class consisting of all persons (excluding
defendants) who purchased the Company's securities from March 8, 1996 through
June 5, 1997, and that the action will be dismissed and appropriate releases
provided in consideration for a payment to the stipulated settlement class by
the Company's insurer. Management expects that the matter will be fully resolved
in 1998.
On April 1, 1997, Enviropower Industries Inc., formerly Continental Waste
Conversion Inc. ("Enviropower"), commenced an action in court in Calgary,
Alberta (Action No. 9701-04774) against IDM Environmental Corp., Global Waste &
Energy Inc., formerly Continental Waste Conversion International, Inc., a
Delaware Corporation ("Global Delaware"), Global Waste and Energy, Inc.,
formerly Continental Waste Conversion International Inc., an Alberta Corporation
("Global Alberta") together with two former officers and directors of
Enviropower who are now employed by Global Alberta. IDM owns 90% of the issued
and outstanding shares of Global Delaware. Global Alberta is a wholly owned
subsidiary of Global Delaware. The action arose from the agreements entered into
between Enviropower and IDM on or about July 19, 1996 (the "Agreements"), which
provided, among other things, for the grant to Global Alberta of Enviropower's
right, title and interest in certain worldwide marketing and sales agreements
and to an exclusive, irrevocable license granted to Global Delaware to market
and use certain technology outside Canada in connection with the environmentally
safe conversion of certain domestic industrial and agricultural solid waste into
energy (the "Technology"). Enviropower is seeking to set aside the Agreements on
the alleged basis that its shareholders did not approve the transaction. In
addition, Enviropower is claiming damages for loss of its right to market and
use the Technology outside of Canada resulting in an alleged estimated loss of
$30 million. Enviropower also seeks indemnification for liabilities allegedly
incurred by Global Alberta in the name of Enviropower in the amount of $363,000,
a declaration that all profits, interest and benefits arising from the
Agreements be paid to Enviropower, punitive damages of $1 million, costs and
interest plus such further and other relief as is more particularly set out in
the Statement of Claim. At present, while Enviropower has filed a Notice to
Produce documents and Notice to Select an Officer on May 30, 1997, it has not
advanced the claim in any respect subsequent to that time, in large part due to
its apparent insolvency. On March 20, 1998, Enviropower filed an assignment in
bankruptcy.
IDM, Global Alberta and Global Delaware are vigorously defending this matter.
Currently, an application for security for costs is scheduled to be heard in
April ---, 1998. IDM seeks an Order compelling Enviropower to post security for
the costs it will likely incur in defending against Enviropower's frivolous
claim. If the court orders that security must be posted and if Enviropower fails
to do so, an Order to dismiss the action will probably be entered. The Company
believes this claim is without merit and intends to continue to vigorously
contest it.
F-20
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Operating Leases
- ----------------
The Company currently leases its office and warehouse facilities from L&G
Associates ("L&G"), a related partnership owned by the principal shareholders of
the Company, as further discussed in Note 13, Related Parties. The Company has
also entered into leases for other facilities outside of New Jersey under
operating lease agreements with terms ranging from two to five years.
A schedule of the future minimum payments under operating leases is as follows:
Related Other
Year ending December 31, Party Operating
------------------------ ------- -----------
1998 295,032 191,310
1999 295,032 183,986
2000 295,032 177,108
2001 295,032 123,237
2002 295,032 -
Thereafter 2,655,288 -
--------------- ---------------
$ 4,130,448 $ 675,641
=============== ===============
As further discussed in Note 13, the Company incurred renovation and
construction costs at their New Jersey facility which premises are leased from a
related party. The cost of these improvements, totaling approximately $448,000,
by agreement entered into in 1994 and amended May 16, 1996, will be charged over
fifteen (15) years, through May 31, 2011, in lieu of lease payments. The cost
allocation is reflected as amortization at a rate equal to the lease terms.
Other
- -----
The Company is contingently liable to sureties under general indemnity
agreements. The Company agrees to indemnify the sureties for any payments made
on contracts of suretyship, guaranty or indemnity. The Company believes that all
contingent liabilities will be satisfied by their performance on the specific
bonded contracts involved.
12. RETIREMENT SAVINGS PLAN
In July of 1992, the Company amended an existing profit sharing plan to convert
such plan to a retirement savings plan (the "401(k) Plan") under section 401(k)
of the Internal Revenue Code. The 401(k) Plan generally covers all employees of
the Company who have completed two years of service with the Company. Employees
may elect to defer, in the form of contributions to the 401(k) Plan, up to 15%
of their annual compensation, subject to the federal maximum limit. The Company
may, at its own discretion, contribute to the plan. The Company did not
contribute to the 401(k) Plan during the years ended December 31, 1997, 1996 and
1995.
13. RELATED PARTIES
Officer Loans and Advances
- --------------------------
From time to time the Company has made loans and advances to the two principal
shareholders, directors and officers of the Company.
F-21
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. RELATED PARTIES (continued)
On September 1, 1995, Joel Freedman, the President and Chief Executive Officer
of the Company, surrendered to the Company 36,621 shares of his common stock of
the Company at $5.25 per share, the average closing market price for the
previous month, as payment in full of loans from the Company in the amount of
$192,260. Such shares have been canceled.
At December 31, 1995, the Company had a receivable due from Frank Falco,
chairman of the Board of Directors and Chief Operating Officer of the Company,
of $552,479 including interest at 7% per annum. On April 1, 1996, Mr. Falco
surrendered to the Company 92,214 shares of his common stock of the Company at
$7.272 per share, the average closing market price for the previous month, as
payment in full of loans from the Company in the amount of $670,580, the then
current balance. Such shares have been canceled.
At December 31, 1997, the company has receivables due from Mr. Freedman and Mr.
Falco for $7,965 and $361,576, respectively, including interest at 7% per annum,
which is expected to be repaid during 1998.
Leases
- ------
The Company leases its offices and yard storage facilities from L & G
Associates, a related partnership owned by the principal stockholders of the
Company.
On March 1, 1993, the Company entered into a five year lease agreement on such
property, which includes two additional parcels of land. Pursuant to such lease,
the Company will pay base rent of $270,000 annually subject to annual
adjustments based on the consumer price index, plus costs of maintenance,
insurance and taxes.
In 1994, the Company and L&G Associates ("L&G") entered into an agreement
regarding the construction and/or renovation of expanded facilities on the
premises presently leased by the Company from L&G and the renovation and leasing
of an adjoining property. The expanded facilities were needed to support current
operations and anticipated future growth. The Board of Directors formed the
Building Committee to review the terms and fairness of such proposed expansion.
In November of 1994, the parties agreed in principal with respect to the terms
of the proposed expansion and the Building Committee determined that such
expansion met the Company's needs and was on terms which were fair to the
Company. Based on such agreement and determination, the Company in November of
1994 commenced renovation and construction on such sites of which one facility,
office space (7,600 square feet), was completed during the third quarter of
1995, and the second facility, warehouse space (5,700 square feet), was
completed during the third quarter of 1996. Renovation of such office space by
the company at an approximate cost of $303,000 constitutes payment in full of
rent for the initial term of the lease of such office space. The Company shall
also be responsible for all taxes, utilities, insurance and other costs of
occupying the office space during the initial term. Construction of such
warehouse space by the Company at an estimated cost of $145,000 constitutes
payment in full of rent for the initial term of the lease of such warehouse
space. The Company shall also be responsible for all taxes, utilities, insurance
and other costs of occupying the warehouse space during the initial term. The
total cost of the renovations was to be amortized over the initial terms of the
lease. On May 16, 1996 the leases were amended and extended 15 years to May 31,
2011. The amortization associated to the cost of the renovation was extended
through the terms of the modified lease. Amortization expense related to these
costs for the years ended December 31, 1997, 1996 and 1995 was $93,320, $42,014,
and $24,991, respectively. For the years ended December 31, 1997, 1996 and 1995
the rent paid was $302,412, $292,884 and $285,050, respectively. Future minimum
rental payments are reflected in Note 11, Commitments and Contingencies.
F-22
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company earned more than 10% of its revenue from one customer in 1996 and a
different customer in 1995. In 1997 the Company earned more than 10% of its
revenue from each of two different customers. For the years ended December 31,
1997, 1996 and 1954 the revenues were $8,443,000, $2,745,000 and $12,900,000,
respectively.
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade receivables, notes receivable and
investments in affiliates. Management believes that the risk associated with
trade receivables is limited due to the large number of customers comprising the
Company's customer base. As discussed in Note 5 the Company has a note
receivable from UPE which is not expected to be fully collected within the
coming year, therefore there is a concentration of credit risk.
15. STOCKHOLDERS' EQUITY
Preferred Stock
- ---------------
In July of 1993, the Company offered and sold ten units at $50,000 per unit, for
an aggregate of $500,000. Each unit consisted of 500 shares of Series A
Preferred Stock, 6,000 shares of common stock and 5,000 warrants, exercisable to
purchase one share of common stock at $5 per share until July 31, 1996. The
preferred stock had a 9% per annum cumulative dividend, payable quarterly. The
holders of the Series A Preferred Stock had the right to "put" such shares to
the Company at a price of $100 per share after the Company attained a net worth
of $3,000,000 or more or at any time after January 15, 1994. The Company had the
right to redeem the Series A Preferred Stock at $100 per share on or after
August 1, 1995. The Company had also agreed to include the shares underlying the
warrants included in such units in any registration statement filed by the
Company following the Company's initial public offering at no cost to such unit
holders. On April 29, 1994, the Company redeemed all of the outstanding
Preferred Stock at the request of the preferred shareholders.
On July 14, 1997, the Company filed an amendment to its corporate charter
authorizing it to issue up to 1,000,000 shares of Preferred Stock, $1.00 par
value.
Convertible Preferred Stock
- ---------------------------
On February 12, 1997 (the "closing date") the Company entered into a private
placement wherein it offered and sold 300 shares of $10,000 Series "B"
Convertible Preferred Stock (the "preferred shares") in private transactions to
selected investors who qualify as "accredited investors" (within the meaning of
Rule 501(a) promulgated under the Securities Act of 1933, as amended). The
preferred shares were convertible into shares of the Company's common stock
beginning on the 91st calendar day after the closing date according to the
following:
Lower of x or y
x y
Calendar Days Closing Date Conversion Date
After Closing Average Times Average Times
91 - 120 120% 82%
121 - 150 110% 79%
151 - 180 100% 76%
180 100% 73%
The conversion date average is the average closing bid price of the common stock
as calculated over the five trading day period ending on the trading day
preceding the date on which the holder transmits (by telecopier) his notice to
convert. Each preferred share will be convertible into the Company's common
stock (the "conversion shares") determined by dividing $10,000 by the applicable
conversion price. The preferred shares mature on February 12, 2000, and on that
date each preferred share then outstanding shall automatically convert into
conversion shares at the then current conversion price. The preferred shares pay
an annual 7% dividend. The dividends are payable only upon conversion or
redemption of the preferred shares and are payable either in shares of common
stock (the "dividend shares") at the average market price of the common stock
over the five trading days preceding the conversion date or in cash, at the
option of the Company. The difference between the market price of the Company's
common stock and the applicable conversion rate, the beneficial conversion
feature, totaled $1,109,589, and is recorded as additional dividends amortizable
over a 180 day period from February 12, 1997, the issue date of the convertible
preferred stock.
The Company agreed to register the dividend shares, the conversion shares and
penalty shares in a registration statement filed by the Company at no cost to
the holders of such shares. The registration statement was declared effective by
the Commission on January 9, 1998.
The Company has the option to redeem any conversion for which the conversion
price is less than $1.80 per share for cash in the amount of $12,200 per
preferred share plus accrued dividends.
F-23
<PAGE>
In connection with this transaction the Company paid a fee of $195,000 and
$25,000 in expenses to the placement agent. In addition, the Company granted
100,000 warrants to the placement agent. Each warrant is exercisable to purchase
one share of common stock at $2.40 per share, as amended by agreement dated
November 21, 1997, commencing on February 12, 1998 and expiring on February 12,
2002. The Company has granted demand and piggy-back registration rights to the
holders of these warrants.
During the year-ended December 31, 1997, 30 shares with a stated value of
$300,000 were converted into 192,925 shares of the Company's common stock.
During the first quarter of 1998, the remaining 270 shares were converted.
Common Stock
- ------------
On June 22, 1993, the Company filed an amended and restated Certificate of
Incorporation to give effect to a 30,000 for 1 stock split and to simultaneously
reduce the post-split authorized shares of common stock to 20,000,000 shares,
$.001 par value. All references to number of shares, except shares authorized,
and to per share information in the financial statements, have been adjusted to
reflect the stock split on a retroactive basis.
On June 9, 1997 at the Company's annual stockholders meeting, the shareholders
approved a proposal to amend the restated Certificate of Incorporation to
increase the number of authorized shares of common stock to thirty million
shares.
In January of 1994, the principal shareholders of the Company surrendered for
cancellation an aggregate of 666,666 shares of common stock. All references to
number of shares, except shares authorized, and to per share information in the
financial statements, have been adjusted to reflect the surrender and
cancellation of such shares on a retroactive basis.
The Company completed an initial public offering of 3,450,000 units(including
units sold pursuant to the underwriter's overallotment options) in April of
1994. Each Unit consisted of one share of the Company's common stock and one
Class A Warrant. The Company received $11,792,588 from the proceeds of the
offering, after the payment of all offering costs.
On September 1, 1995, Joel Freedman, a principal shareholder, director and Chief
Executive Officer of the Company surrendered 36,621 shares of his common stock
in repayment of his officer's loan.
From November 1995 through December 31, 1996, the Company issued 1,597,269
shares of common stock in exchange for the cancellation of $5,000,000 of the
Company's 7% convertible notes.
On April 1, 1996, Frank Falco, a principal shareholder, director and Chief
Operating Officer of the Company, surrendered 92,214 shares of his common stock
in repayment of his officer's loan.
F-24
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (continued)
On November 15, 1996, the board of directors of the Company approved a stock
repurchase plan whereby the Company may, from time to time, repurchase on the
open market shares in its common stock in an amount up to $750,000. During the
year ended December 31, 1996, the Company repurchased for retirement 100,000
shares at a price of $216,500.
During the year-ended December 31, 1997, $300,000 of the Company's Preferred
Stock were converted into 192,925 shares of the Company's common stock.
Common Stock Purchase Warrants and Options
- ------------------------------------------
The Company has authorized and in July of 1993, issued 50,000 warrants (the
"Private Placement Warrants") to purchase common stock. The Private Placement
Warrants were exercisable to purchase one share of common stock per warrant at a
price of $5.00 per share until August 1, 1996 and are not redeemable. In January
of 1994, the Company granted to the holders of the Private Placement Warrants
"piggy-back" registration rights pursuant to which the holders of such warrants
may include the shares underlying such warrants in any registration statement
subsequently filed by the Company at no cost to the holders of the Private
Placement Warrants. During the year ended December 31, 1996, 7,500 Private
Placement Warrants were exercised, 7,500 shares were issued in connection with
the exercises and resulted in net proceeds to the Company of $33,750. The
remaining 42,500 Private Placement Warrants expired and were canceled.
The Company's Class A Warrants are separately transferrable and entitle the
holder to purchase two shares of common stock at $4.50 per share (subject to
adjustment, which occurred). The Class A Warrants are exercisable commencing on
April 20, 1995 and expiring April 20, 1999. Any or all of the Class A Warrants
may be redeemed by the Company at a price of $.05 per warrant, upon the giving
of 30 days written notice and provided that the closing bid price of the common
stock for a period of twenty (20) consecutive trading days ending within ten
(10) days of the notice of redemption has equaled or exceeded $9.00 per share.
During the year ended December 31, 1996 and 1997, 1,051,000 and 2,258,514 Class
A Warrants were exercised, 2,102,000 and 4,517,028 shares were issued in
connection with the exercises and resulted in net proceeds to the Company of
$6,956,450 and $6,171,000.
In connection with the Offering, the Company sold to the Underwriter for nominal
consideration, an option for the purchase of up to 300,000 units (the "option
units"). Each option unit consisted of one share of the Company's common stock
and one Class A Warrant. Each option unit was exercisable at a price of $6.60
per option unit during the period beginning April 20, 1996 and continuing until
April 20, 1999. The option units could be exercised as to all or any lesser
number of option units and contained provisions which required, under certain
circumstances, the Company to register the option units underlying such options
for sale to the public. The option units were nontransferable except to officers
of the Underwriter, members of the underwriting group and their respective
officers and partners. The option unit exercise price and the number of option
units covered by the option were subject to adjustment to protect the holders
thereof against dilution in certain events. During May 1996, all the option
units were exercised and the company received net proceeds of $1,979,700 and
issued 300,000 shares of the Company's common stock. As of December 31, 1997 all
300,000 Class A Warrants issued in connection with the underwriter option
remained outstanding.
On June 17, 1993, the Company adopted the IDM Environmental Corp. 1993 Stock
Option Plan (formerly International Dismantling & Machinery Corp. 1993 Stock
Option Plan) (the "Stock Option Plan"). Pursuant to the Stock Option Plan, the
Company has reserved 475,000 shares of common stock for issuance pursuant to the
grant of incentive stock options and nonqualified stock options.
F-25
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (continued)
On April 11, 1994, the Board of Directors granted options under the Company's
1993 Stock Option Plan to certain employees and a Director to purchase 445,400
and 5,000 shares, respectively, of the Company's common stock at $4.00 per
share, the market price of the Company's common stock at the date of grant. The
options are incentive stock options, except for the Director's stock option
which is a nonqualified stock option. The options are exercisable until April
2004. Twenty percent of the options vest three months from the date of grant.
The balance of the options vest at a rate of twenty percent per year on each of
the four anniversary dates subsequent to the grant of the options. The option
exercise price was reduced to $2.00 per share on May 22, 1997.
On June 2, 1994, the Company granted a total of 5,000 non qualified stock
options to two of the directors to purchase common stock at $6.25 per share, the
market price of the Company's common stock at the date of the grant. The options
vest at the same rate as the initial grant. The option exercise price was
reduced to $2.00 per share on May 22, 1997.
On December 28, 1994, the Company granted options to certain employees to
purchase 29,700 shares of the Company's common stock at $4.38 per share, the
market price of the Company's common stock at the date of the grant. On August
9, 1995, the Company granted an option to a new employee to purchase 5,000
shares of the Company's common stock at $5.25 per share, the market price of the
Company's common stock at the date of grant. The options vest at the same rate
as the first grant. The option exercise price was reduced to $2.00 per share on
May 22, 1997.
On January 8, 1996, the Company amended the terms of its 1993 Stock Option Plan
to add provisions allowing for the cashless exercise of options issued under the
plan and providing for the automatic vesting of all options granted under the
plan in the event of certain changes in control of the Company. Pursuant to such
cashless exercise provisions, holders of options may, as payment of the exercise
price, have the Company withhold the number of shares of common stock at the
then market price of the Company's common stock, less the exercise price, of
which is equal to the aggregate exercise price of the shares of common stock
issuable upon exercise of the option. Under such provision of the accelerated
vesting, notwithstanding any vesting schedule set forth in any individual option
agreement, all options granted under the 1993 Plan will become fully vested and
exercisable in the event a person or group, other than Joel Freedman or Frank
Falco, acquire in excess of 15% of common stock of the Company unless such
acquisition is approved by the Board.
On January 8, 1996, the Company's Compensation Committee and Board of Directors
adopted and approved a new stock option plan for the Company, the IDM
Environmental Corp. 1995 Stock Option Plan (the "1995 Plan"), under which stock
option awards may be made to employees, directors and consultants of the
Company. The 1995 Plan became effective on the date it was adopted by the Board
of Directors, and it will remain effective until the tenth anniversary of the
effective date unless terminated earlier by the Board of Directors. Pursuant to
the plan, the Company has reserved 500,000 shares of common stock for issuance
pursuant to the grant of incentive stock options and non qualified stock
options. On January 8, 1996, the Company granted options to certain employees
and consultants to purchase 69,000 shares of the Company's common stock at $2.94
per share, the market price of the Company's common stock at the date of the
grant (41,500 have vested). In addition, on January 8, 1996, the Company
approved, effective November 20, 1995, the granting of 40,000 options to
purchase common stock at $3.72 per share, the market price of the Company's
common stock at the date of the grant, to certain consultants (all options were
vested). The balance of the 69,000 options vest at a rate of twenty percent per
year on each of the four anniversary dates subsequent to the grant of the
options. Also on January 8, 1996, the Company granted 75,000 options each to
Messrs., Falco and Freedman at $3.23 per share, 110% of the market price of the
Company's common stock at the date of grant. The option exercise price was
reduced to $2.00 per share on May 22, 1997.
On May 23, 1996, the Company granted vested options to the outside directors, a
consultant and an employee to purchase 50,000 shares at $8.25 per share, the
market price of the Company's common stock at the date of grant. The option
exercise price was reduced to $2.00 per share on May 22, 1997.
On June 28, 1996 the Company adopted and approved a new stock option plan (the
"1996 consulting options") under which nonqualified stock options have been
granted to a consultant for the right to acquire 50,000 shares of its common
stock at
F-26
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
$3.23 per share. The options, which are fully vested and exercisable through
June 28, 2006, were granted pursuant to a consultant agreement. The fair market
value of these shares at the date of grant was $7.44. The difference between the
exercise price and the market price of the Company's common stock at date of
grant (the "intrinsic value") reflects the compensation for the consulting
services. The option exercise price was reduced to $2.00 per share on May 22,
1997.
On May 22, 1997, the Company granted vested options to certain of its employees
to purchase 52,950 shares at $2 a share, the market price of the Company's
common stock at the date of grant. In addition, the Company agreed to reprice
all options granted on or before May 22, 1997 to the same$2 per share.
On June 10, 1997, the Company granted vested options to three of its outside
directors for each to purchase 5,000 shares at $2.5312, the market price of the
Company's common stock at date of grant.
On July 23, 1997, the Company granted vested options in the amount of 5,000
shares for a consultant, and 5,000 shares for each of three officers at $2.5625,
the fair market value of the Company's common stock at date of grant. In
addition, the Company granted a vested option to purchase 100,000 shares each to
Messrs. Falco and Freedman at $2.81875 per share, 110% of the market price of
the Company's common stock at the date of grant.
On August 26, 1997, the Company granted a vested option to its proposed nominee
for director for 5,000 shares at $4.6875, the market price of the Company's
common stock at the date of grant.
During 1997 45,390 options issued under the stock option plans were exercised
resulting in net proceeds of $63,041.
During 1997 the Company issued to six consultants options to purchase 395,000
shares of the Company's common stock at exercise prices ranging from $1.25 to
$4.50. In accordance with FAS 123 the fair value of these options were estimated
at the grant date using the Black-Scholes value option pricing model resulting
in the recording of $456,340 as compensation costs of consultants options.
During 1997 155,000 of these options were exercised resulting in net proceeds to
the Company of $235,000.
As referred to in Note 1, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting provided for
under FASB Statement No. 123 ("FASB 123"), "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company's 1993 and 1995 Incentive Stock Option Plans have authorized the
granting of options to key employees and management personnel for up to 975,000
shares of the Company's common stock. Options granted have terms between 5 and
10 years and become fully exercisable ranging from 0 to 4 years of continued
employment.
Pro forma information regarding net income and earnings per share is required by
FASB 123, and has been determined as if the Company had accounted for the
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of implementation of FASB 123
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995, respectively, with ranges as follows:
<TABLE>
1997 1996 1995
------ ----- ------
<S> <C> <C> <C>
Risk-Free interest 5.65% 4.39 - 6.40% 5.65 - 6.72%
Dividend yields 0% 0% 0%
Volatility factors of the expected market price of the Company's
Common Stock .914% .720 - .865% .594 - .700%
Expected life of options 1 - 5 years 2 - 5 years 4 - 5 years
</TABLE>
Fair values for future options are to be estimated at the date of grant.
F-27
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options. In management's opinion existing stock option valuation
models do not provide a reliable single measure of the fair value of employee
stock options that have vesting provisions and are not transferable. In
addition, option pricing models require the input of highly subjective
assumptions, including expected stock price volatility.
Common Stock Purchase Warrants and Options (continued)
- -----------------------------------------------------
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. In accordance with
FASB 123, only stock options granted during the years ended December 31, 1997,
1996 and 1995 have been included for the Company's pro forma information as
follows:
<TABLE>
1997 1996 1997
------ ------ -----
<S> <C> <C> <C>
Pro forma net loss $(11,885,575) $(9,700,064) $(3,882,441)
Pro forma loss per share:
Primary $(1.06) $ (1.20) $(.067)
Fully diluted $(1.06) $ (1.20) $(.067)
</TABLE>
The Company recognized $0, $63,094 and $0 (net of tax effect and relating to the
1996 consulting options) of compensation expense for the years ended December
31, 1997, 1996 and 1995, respectively. An additional $661,152, $552,220 and
$15,028 of compensation expense (net of tax effect) would be recognized under
implementation of FASB 123.
A summary of changes in common stock options under the 1993 plan during 1997,
1996, 1995 and 1994 is as follows:
<TABLE>
Weighted
Average
Number Price per Exercise
of Shares Share Price
----------- ---------- ----------
<S> <C> <C> <C>
January 1, 1994 - - -
Granted during 1994 485,100 $2.00 $2.00
Canceled during 1994 (30,521) 4.00 4.00
------------
Outstanding at December 31, 1994 454,579 2.00
Granted during 1995 5,000 2.00 2.00
Canceled during 1995 (4,050) 4.00 4.00
------------
Outstanding at December 31, 1995 455,529 2.00
Canceled during 1996 (63,967) 4.00 4.00
Exercised during 1996 (20,910) 4.00 4.00
------------
Outstanding at December 31, 1996 370,652
Granted during 1997 92,950 $2.00 - $4.69 $2.08
Canceled during 1997 (20,168) 2.00 2.00
Exercised during 1997 (38,759) 2.00 2.00
------------
Outstanding at December 31, 1997 404,675
============
Options exercisable at December 31, 1997 340,779 $2.00 - 4.69 $2.09
============
Available for Future Grant 10,652
============
</TABLE>
F-28
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Common Stock Purchase Warrants and Options (continued)
- -----------------------------------------------------
A summary of the 1995 plan activity which occurred during 1997 and 1996 is as
follows:
<TABLE>
Weighted
Average
Number of Price per Exercise
Shares Share Price
--------- ---------- -------
<S> <C> <C> <C>
Outstanding, January 1, 1996 - - -
Granted during 1996 309,000 $2.00 $2.00
Exercised during 1996 (20,552) $3.72 3.72
Canceled during 1996 (9,448) $3.72 3.72
--------------
Outstanding at December 31, 1996 279,000 2.00
Granted during 1997 200,000 $2.82 2.82
Exercised during 1997 (6,631) 2.00 2.00
Canceled during 1997 (3,369) $2.00 2.00
--------------
Outstanding at December 31, 1997 469,000
===============
Options Exercisable at December 31, 1997 458,000 $2.36
===============
Available for future grants 3,817
===============
</TABLE>
In addition, as of December 31, 1996, the 50,000 options granted under the 1996
consulting options remain outstanding at a weighted average exercise price of
$3.23.
The weighted average fair value of options granted during the years ended
December 31, 1997 and 1996 for the 1993 plan, 1995 plan and the 1996 consulting
options were as follows:
1997 1996 1995
----- ------ ------
Stock Prices Equal to Exercise Price 1.29 3.51 2.30
Stock Prices in Excess of Exercise Price 2.53 5.20 -
Stock Prices Less than Exercise Price 0.78 1.28 -
F-29
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (continued)
Shareholder's Rights Plan
- -------------------------
On April 1, 1996, the Board of Directors adopted and approved a "Shareholder
Rights Plan" in order to preserve for stockholders the long-term value of the
Company in the event of a take-over. To put the Plan into effect, the Board
declared a dividend of one Right for each share of common stock outstanding to
stockholders of record at the close of business on April 1, 1996. Each right
represents the right to purchase one one-hundredth of a share of a new series of
preferred stock without voting rights par value $1.00 per share. The exercise
price for each right is $20.00. Each right expires December 31, 2005.
The rights are not exercisable and are not transferrable apart from the
Company's common stock until the tenth day after such time as a person or group
acquires beneficial ownership of 15% or more of the Company's common stock or
the tenth business day (or such later time as the board of directors may
determine) after a person or group announces its intention to commence or
commences a tender or exchange offer the consummation of which would result in
beneficial ownership by a person or group of 15% or more of the Company's common
stock. As soon as practicable after the rights become exercisable, separate
right certificates would be issued and the rights would become transferrable
apart from the Company's common stock. In the event a person or group were to
acquire a 15% or greater position in the Company, each right then outstanding
would "flip in" and become a right to receive that number of shares of common
stock of the Company which at the time of the 15% acquisition had a market value
of two times the exercise price of the rights. The acquirer who triggered the
rights would become excluded from the "flip-in" because his rights would become
null and void upon his triggering the acquisition. The rights are redeemable by
the Company's Board of Directors at a price of $.01 per right at any time prior
to the acquisition by a person or group of beneficial ownership of 15% or more
of the Company's common stock. The redemption of the rights may be effective at
such time, on such basis, and with such conditions as the board of directors in
its sole discretion may establish. Thus, the rights would not interfere with a
negotiated merger or a white knight transaction, even after a hostile tender
offer has been commenced.
F-30
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. Subsequent Events
On February 13, 1998, the Company sold 3,600 shares of Series C 7% Convertible
Preferred Stock and 2,350,000 Four Year $5.00 Warrants. The securities were
issued to five accredited investors. The aggregate sales price of such
securities was $3,600,000. Commissions totaling 10% were paid in connection with
the placement. The securities were offered pursuant to Regulation D. The offer
was directed exclusively to a limited number of accredited investor without
general solicitation or advertising and based on representations from the
investors that such investors were acquiring for investment The securities bear
legends restricting the resale thereof. The Series C Preferred Stock is
convertible into Common Stock at the lesser of (i) $4.50 per share or (11) 75%
of the average closing bid price of the Common Stock during the five trading
days prior to conversion. The Four Year $5.00 Warrants are exercisable for a
four year period at the lesser of $5.00 per share or the lowest conversion price
of the Series C Preferred Stock. Conversion of the Series C Preferred Stock and
exercise of the Four Year $5.00 Warrants is subject to the issuance of a maximum
of 3,285,438 shares of Common Stock on conversion unless the shareholders of the
Company have approved issuance beyond that level upon conversion. In the absence
of shareholder approval of issuances above 3,285,438 shares, the holders of
Series C Preferred Stock and Four Year $5.00 Warrants remaining outstanding if
and when 3,285,438 shares have been issued will have the right to demand
redemption of the Series C Preferred Stock at $1,250 per share plus accrued
dividends and to demand redemption of the Four Year $5.00 Warrants at the
pre-tax profit such holders would have realized had the Four Year $5.00 Warrants
been exercised at the time redemption is demanded. Further, the Company has the
right, upon notice to the holders, to redeem any Series C Preferred Stock
submitted for conversion at a price or $2.75 of less at 125% of the principal
amount of such Series C Preferred Stock plus accrued and unpaid dividends. The
Series C Preferred Stock pays dividends at 7% per annum payable quarterly and on
conversion or at redemption in cash or Common Stock, at the Company's option.
F-31
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On February 11, 1998, the Company issued 1,270,000 Three Year $4.50 Warrants
(the "Lock-Up Warrants"). The Lock-Up Warrants were issued to three accredited
investors. The Lock-Up Warrants were issued in conjunction with the execution of
Lock-Up Agreements by the holders of $3.00 Warrants of the Company whereby the
holders of such warrants agreed not to resell any shares underlying those
warrants prior to July 30, 1998. The Lock-Up Warrants were offered pursuant to
Section 4(2)of the Securities Act of 1933, as amended. The offer was directed
exclusively to a limited number of accredited investor without general
solicitation or advertising and based on representations from the investors that
such investors were acquiring for investment. The securities bear legends
restricting the resale thereof. The Lock-Up Warrants are exercisable for a three
year period at $4.50 per share.
On January 8, 1998, the Company made a $300,000 payment representing its one
half share of the capital of Seven Star International Holding, Inc. ("Seven
Star"). Seven Star is a joint venture, incorporated in the British Virgin
Islands, between the Company and Jin Xin (Holding) Ltd., a company incorporated
in Hong Kong. Seven Star has entered into a license agreement with Life
International Products, Inc. ("Life") for the right to process, produce, promote
and sell Life products in the People's Republic of China (including Hong Kong),
Taiwan, Indonesia and Singapore. The license agreement requuires minimum royalty
of $400,000 for the first year which was paid upon execution of the license
agreement.
In February 1998, the Company also granted an immediately exercisable option to
a consultant to purchase 1,200,000 shares of common stock as an exercise price
of $3.719 per share, the market price of the Company's common stock at the date
of grant. The options expire on February 18, 2000. Neither the option nor the
shares of common stock have been registered under the Securities Act of 1933, as
amended.
F-32
Exhibit 4.6
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
IDM ENVIRONMENTAL CORP.
______________________________________________________________________________
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:7-2(2) of the New Jersey Business
Corporation Law, I, Joel A. Freedman, President of IDM Environmental Corp., a
New Jersey corporation (the "Corporation"), hereby execute the following
Certificate of Amendment to its Certificate of Incorporation:
The undersigned certifies that the following is a true and correct copy of a
resolution adopted by the Corporation's Board of Directors as of February 10,
1998, and that said resolution has not been amended or rescinded and is in full
force and effect at the date hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Corporation by the Corporation's Certificate of
Incorporation, as amended to date, the Board of Directors hereby creates a
series of Preferred Stock of the Corporation, par value $1.00 per share, to be
designated "Series C Convertible Preferred Stock" and to consist of three
thousand six hundred (3,600) shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, option or other rights
and the qualifications, limitations or restrictions thereon, of the Series C
Convertible Preferred Stock by way of the Certificate of Designation set forth
on Exhibit ["A"] attached hereto and made a part hereof.
The Certificate of Incorporation of the corporation is amended so that the
designation and number of shares of each class and series acted upon in the
resolution and the relative rights, preferences and limitations of each such
class and series are as stated in the resolution.
IN WITNESS WHEREOF, the undersigned has executed this certificate this ______
day of February, 1998. ________________________ Joel A. Freedman, President
Attest:
___________________________
Frank A. Falco, Secretary
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
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.
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 is being issued under Private Placement Purchase
Agreements between the Company and the holders of the Preferred
(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 July 17, 1998, and means the period which begins on
July 18, 1998 and ends on the earlier of October 17, 1998 or the
Effective Date.
(d) The reference in Section 5 to the "Extended Delay Period" shall
apply only if the Effective Date has not occurred by October 17,
1998, and means the period which begins on October 18, 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 April 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 April 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.
<PAGE>
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) $4.50 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 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
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 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 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.
(d) The Company shall reserve for issuance on conversion and exercise
of the Preferred and the Warrant (as defined in the Subscription
Agreement) the number shares of Common Stock which would be
issuable under the Preferred 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.
(e) The Preferred 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 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, 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 (assuming
the Preferred 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 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 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.
<PAGE>
(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 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 Preferred 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,
acknowledges that the Preferred (and the Common Stock into which the Preferred
is convertible) has not been registered under the Act, covenants and agrees with
the Company that such Holder is taking and holding the Preferred (and the Common
Stock into which the Preferred is convertible) for investment purposes and not
with a view to, or for sale in connection with, a distribution thereof and that
the Preferred (and the Common Stock into which the Preferred 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 (and the Common Stock into which the Preferred is convertible)
and is able to bear the economic risk of such investment.
<PAGE>
8. The Company covenants and agrees that all shares of Common Stock which may be
issued upon conversion of this Preferred 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.
10. Certain Events of Mandatory Redemption.
(a) An "event of redemption" with respect to this Preferred 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 and such breach or failure shall
continue for 15 days after written notice by any Holder of
any Preferred 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 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, the Company shall not create any class of equity security which is
senior to or on parity with the Preferred 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.
12. All share, redemption and similar amounts are subject to appropriate
adjustment in the event of stock splits, stock dividends, recapitalization and
similar events.
<PAGE>
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, 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.
Exhibit 10.4
IDM ENVIRONMENTAL CORP. 1998
COMPREHENSIVE STOCK OPTION AND AWARD PLAN
ARTICLE I -- PREAMBLE
1.1 The IDM Environmental Corp. 1998 Comprehensive Stock Option and Award
Plan is intended to secure for the Corporation, its Subsidiaries and its
shareholders the benefits arising from ownership of the Corporation's Common
Stock by the employees of the Corporation and its Subsidiaries and by the
directors and certain key consultants of the Corporation, all of whom are and
will be responsible for the Corporation's future growth. The Plan is designed to
help attract and retain for the Corporation and its Subsidiaries personnel of
superior ability for positions of exceptional responsibility, to reward
employees, directors and consultants for past services and to motivate such
individuals through added incentives to further contribute to the success of the
Corporation. With respect to persons subject to Section 16 of the Act,
transactions under this Plan are intended to satisfy the requirements of Rule
16b-3 of the Act.
1.2 Awards under the Plan may be made to Eligible Persons in the form of
(i) Incentive Stock Options (to Eligible Employees only); (ii) Nonqualified
Stock Options; (iii) Restricted Stock; (iv) Stock Awards; (v) Performance
Shares; or (vi) any combination of the foregoing.
1.3 The Plan shall be effective January 8, 1998 (the "Effective Date"),
subject to approval by the shareholders of the Corporation to the extent
necessary to satisfy the requirements of the Code, The Nasdaq Stock Market, or
other applicable federal or state law.
ARTICLE II -- DEFINITIONS
DEFINITIONS. Except where the context otherwise indicates, the following
definitions apply:
2.1 "Act" means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended.
2.2 "Award" means an award granted to a Participant in accordance with the
provisions of the Plan, including, but not limited to, Stock Options, Restricted
Stock, Stock Awards, Performance Shares, or any combination of the foregoing.
2.3 "Award Agreement" means the separate written agreement evidencing each
Award granted to a Participant under the Plan.
2.4 "Board of Directors" means the Board of Directors of the Corporation.
<PAGE>
2.5 "Change of Control" means (i) the adoption of a plan of merger or
consolidation of the Corporation with any other corporation or association as a
result of which the holders of the voting capital stock of the Corporation as a
group would receive less than 50% of the voting capital stock of the surviving
or resulting corporation; (ii) the approval by the Board of Directors of an
agreement providing for the sale or transfer (other than as security for
obligations of the Corporation) of substantially all the assets of the
Corporation; or (iii) in the absence of a prior expression of approval by the
Board of Directors, the acquisition of more than 20% of the Corporation's voting
capital stock by any person within the meaning of Section 13(d)(3) of the Act,
other than a person, or group including a person, who beneficially owned, as of
the Effective Date, more than 5.0% of the Corporation's voting capital stock.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered.)
2.7 "Committee" means a committee of the Board of Directors established for
the administration of the Plan pursuant to Article III and consisting of two or
more Directors. To the extent necessary to comply with Rule 16b-3 under the Act,
the Committee shall consist solely of two or more Non-Employee Directors. The
Compensation Committee of the Board of Directors shall constitute the Committee
until otherwise determined by the Board of Directors.
2.8 "Common Stock" means the common stock of the Corporation to be issued
pursuant to the Plan.
2.9 "Corporation" means IDM Environmental Corp., a New Jersey corporation,
and its successors and assigns.
2.10 "Director" means a member of the Board of Directors of the
Corporation.
2.11 "Disability" means disability as determined under procedures
established by the Committee or in any Award, as set forth in a Participant's
Award Agreement.
2.12 "Effective Date" shall be the date set forth in Section 1.3 of the
Plan.
2.13 "Eligible Employee" means an Eligible Person who is an employee of the
Corporation or any Subsidiary.
2.14 "Eligible Person" means any employee of the Corporation or any
Subsidiary or any Director, as well as any consultant or other person whose
participation the Committee determines is in the best interest of the
Corporation, subject to limitations as may be provided by the Code, the Act or
the Committee.
<PAGE>
2.15 "ERISA" means the Employee Retirement Income Security Act of 1974, as
now in effect or as hereafter amended.
2.16 "Fair Market Value" means, as of a given date and for so long as
shares of the Common Stock are listed on a national securities exchange or
reported on The Nasdaq Stock Market as a Nasdaq National Market security, the
mean between the high and low sales prices for the Common Stock on such date,
or, if no such shares were sold on such date, the most recent date on which
shares of such Common Stock were sold, as reported in The Wall Street Journal.
If the Common Stock is not listed on a national securities exchange or reported
on The Nasdaq Stock Market as a Nasdaq National Market security, Fair Market
Value shall mean the average of the closing bid and asked prices for such stock
in the over-the-counter market as reported by The Nasdaq Stock Market. If the
Common Stock is not listed on a national securities exchange or reported on The
Nasdaq Stock Market as a Nasdaq National Market security, or the
over-the-counter market, Fair Market Value shall be the fair value thereof
determined in good faith by the Board of Directors.
2.17 "Grant Date" means, as to any Award, the latest of:
(a) the date on which the Committee authorizes the grant of the Award;
or
(b) the date the Participant receiving the Award becomes an employee
or a director of the Corporation or its Subsidiaries, to the extent
employment status is a condition of the grant or a requirement of the Code
or the Act; or
(c) such other date (later than the dates described in (a) and (b)
above) as the Committee may designate and as set forth in the Participant's
Award Agreement.
2.18 "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include
adoptive relationships.
2.19 "Incentive Stock Option" means a Stock Option that meets the
requirements of Section 422 of the Code and is granted under Article IV of the
Plan and designated as an Incentive Stock Option in a Participant's Award
Agreement.
2.20 "Non-Employee Director" shall have the meaning set forth in Rule 16b-3
under the Act.
2.21 "Nonqualified Stock Option" means a Stock Option that does not meet
the requirements of Section 422 of the Code and is granted under Article V of
the Plan, or, even if meeting the requirements of Section 422 of the Code, is
not intended to be an Incentive Stock Option and is not so designated in the
Participant's Award Agreement.
<PAGE>
2.22 "Option Period" means the period during which a Stock Option may be
exercised from time to time, as established by the Committee and set forth in
the Award Agreement for each Participant who is granted a Stock Option.
2.23 "Option Price" means the purchase price for a share of Common Stock
subject to purchase pursuant to a Stock Option, as established by the Committee
and set forth in the Award Agreement for each Participant who is granted a Stock
Option.
2.24 "Participant" means an Eligible Person to whom an Award has been
granted and who has entered into an Award Agreement evidencing the Award.
2.25 "Performance Objectives" shall have the meaning set forth in Article
IX of the Plan.
2.26 "Performance Period" shall have the meaning set forth in Article IX of
the Plan.
2.27 "Performance Share" means an Award under Article IX of the Plan of a
unit valued by reference to the Common Stock, the payout of which is subject to
achievement of such Performance Objectives, measured during one or more
Performance Periods, as the Committee, in its sole discretion, shall establish
at the time of such Award and set forth in a Participant's Award Agreement.
2.28 "Plan" means the IDM Environmental Corp. 1998 Comprehensive Stock
Option and Award Plan, as amended from time to time.
2.29 "Restricted Stock" means an Award under Article VII of the Plan of
shares of Common Stock that are at the time of the Award subject to restrictions
or limitations as to the Participant's ability to sell, transfer, pledge or
assign such shares, which restrictions or limitations may lapse separately or in
combination at such time or times, in installments or otherwise, as the
Committee, in its sole discretion, shall determine at the time of such Award and
set forth in a Participant's Award Agreement.
2.30 "Restriction Period" means the period commencing on the Grant Date
with respect to such shares of Restricted Stock and ending on such date as the
Committee, in its sole discretion, shall establish and set forth in a
Participant's Award Agreement.
2.31 "Retirement" means retirement as determined under procedures
established by the Committee or in any Award, as set forth in a Participant's
Award Agreement.
<PAGE>
2.32 "Stock Award" means an Award of shares of Common Stock under Article
VIII of the Plan.
2.33 "Stock Option" means an Award under Article IV or Article V of the
Plan of an option to purchase Common Stock. A Stock Option may be either an
Incentive Stock Option or a Nonqualified Stock Option.
2.34 "Subsidiary" means a subsidiary corporation of the Corporation as that
term is defined in Code section 424(f). "Subsidiaries" means more than one
Subsidiary.
2.35 "Ten Percent Stockholder" means an individual who, at the time of
grant, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation.
2.36 "Termination of Service" means (i) in the case of an Eligible
Employee, the discontinuance of employment of such Participant with the
Corporation or its Subsidiaries for any reason other than a transfer to another
member of the group consisting of the Corporation and its Subsidiaries and (ii)
in the case of a Director who is not an employee of the Corporation or any
Subsidiary, the date such Participant ceases to serve as a Director. The
determination of whether a Participant has discontinued service shall be made by
the Committee in its sole discretion. In determining whether a Termination of
Service has occurred, the Committee may provide that service as a consultant or
service with a business enterprise in which the Corporation has a significant
ownership interest shall be treated as employment with the Corporation.
ARTICLE III -- ADMINISTRATION
3.1 The Plan shall be administered by the Committee. Except as otherwise
required by Rule 16b-3 under the Act, the Committee, in its discretion, may
delegate to one or more of its members such of its powers as it deems
appropriate. The Committee also may limit the power of any member to the extent
necessary to comply with Rule 16b-3 under the Act or any other law, rule or
regulation. The Board of Directors may serve as the Committee, if by the terms
of the Plan all members of the Board of Directors are otherwise eligible to
serve on the Committee.
3.2 The Committee shall meet at such times and places as it determines. The
Committee shall at all times operate and be governed, and Committee meetings
shall be conducted and action taken, in accordance with the provisions of the
Corporation's Bylaws or resolutions or policies adopted by the Board of
Directors from time to time regarding the operation of committees of the
Corporation.
<PAGE>
3.3 Except as set forth in Sections 3.15 and 3.16 regarding grants of
Awards by the Board of Directors and grants of Awards to Non-employee Directors,
the Committee shall have the exclusive right to interpret, construe and
administer the Plan, to select the Eligible Persons who shall receive an Award,
and to act in all matters pertaining to the grant of an Award and the
determination and interpretation of the provisions of the related Award
Agreement, including, without limitation, the determination of the number of
shares subject to Stock Options and the Option Period(s) and Option Price(s)
thereof, the number of shares of Restricted Stock or shares subject to Stock
Awards or Performance Shares subject to an Award, the vesting periods (if any)
and the form, terms, conditions and duration of each Award, and any amendment
thereof consistent with the provisions of the Plan. All acts, determinations and
decisions of the Committee made or taken pursuant to the Plan or with respect to
any questions arising in connection with the administration and interpretation
of the Plan or any Award Agreement, including the severability of any and all of
the provisions thereof, shall be conclusive, final and binding upon all
Participants, Eligible Persons and their beneficiaries.
3.4 The Committee may adopt such rules, regulations and procedures of
general application for the administration of this Plan as it deems appropriate.
3.5 Without limiting the provisions of this Article III, and subject to the
provisions of Article X, the Committee is authorized to take such action as it
determines to be necessary or advisable, and fair and equitable to Participants
and to the Corporation, with respect to an outstanding Award in the event of a
Change of Control as described in Article X or other similar event. Such action
may include, but shall not be limited to, establishing, amending or waiving the
form, terms, conditions and duration of an Award and the related Award
Agreement, so as to provide for earlier, later, extended or additional times for
exercise or payments, differing methods for calculating payments, alternate
forms and amounts of payment, an accelerated release of restrictions or other
modifications. The Committee may take such actions pursuant to this Section 3.5
by adopting rules and regulations of general applicability to all Participants
or to certain categories of Participants, by including, amending or waiving
terms and conditions in an Award and the related Award Agreement, or by taking
action with respect to individual Participants from time to time.
3.6 Subject to the provisions of Section 3.11, the aggregate number of
shares of Common Stock which may be issued pursuant to Awards under the Plan
shall be one million (1,000,000) shares. Such shares of Common Stock shall be
made available from authorized and unissued shares of the Corporation.
<PAGE>
(a) For all purposes under the Plan, each Performance Share awarded
shall be counted as one share of Common Stock subject to an Award.
(b) If, for any reason, any shares of Common Stock (including shares
of Common Stock subject to Performance Shares) that have been awarded or
are subject to issuance or purchase pursuant to Awards outstanding under
the Plan are not delivered or purchased, or are reacquired by the
Corporation, for any reason, including but not limited to a forfeiture of
Restricted Stock or failure to earn Performance Shares or the termination,
expiration or cancellation of a Stock Option, or any other termination of
an Award without payment being made in the form of shares of Common Stock
(whether or not Restricted Stock), such shares of Common Stock shall not be
charged against the aggregate number of shares of Common Stock available
for Award under the Plan and shall again be available for Awards under the
Plan. In no event, however, may Common Stock that is surrendered or
withheld to pay the exercise price of a Stock Option or to satisfy tax
withholding requirements be available for future grants under the Plan.
(c) The foregoing subsections (a) and (b) of this Section 3.6 shall be
subject to any limitations provided by the Code or by Rule 16b-3 under the
Act or by any other applicable law, rule or regulation.
3.7 Each Award granted under the Plan shall be evidenced by a written Award
Agreement, which shall be subject to and shall incorporate (by reference or
otherwise) the applicable terms and conditions of the Plan and shall include any
other terms and conditions (not inconsistent with the Plan) required by the
Committee.
3.8 The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock under the Plan prior to:
(a) any required approval of the Plan by the shareholders of the
Corporation; and
(b) the completion of any registration or qualification of such shares of
Common Stock under any federal or state law, or any ruling or regulation of any
governmental body that the Corporation shall, in its sole discretion, determine
to be necessary or advisable.
3.9 The Committee may require any Participant acquiring shares of Common
Stock pursuant to any Award under the Plan to represent to and agree with the
Corporation in writing that such person is acquiring the shares of Common Stock
for investment purposes and without a view to resale or distribution thereof.
Shares of Common Stock issued and delivered under the Plan shall also be subject
to such stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Common Stock is then
listed and any applicable federal or state laws, and the Committee may cause a
legend or legends to be placed on the certificate or certificates representing
any such shares to make appropriate reference to any such restrictions. In
making such determination, the Committee may rely upon an opinion of counsel for
the Corporation.
<PAGE>
3.10 Except as otherwise expressly provided in the Plan or in an Award
Agreement with respect to an Award, no Participant shall have any right as a
shareholder of the Corporation with respect to any shares of Common Stock
subject to such Participant's Award except to the extent that, and until, one or
more certificates representing such shares of Common Stock shall have been
delivered to the Participant. No shares shall be required to be issued, and no
certificates shall be required to be delivered, under the Plan unless and until
all of the terms and conditions applicable to such Award shall have, in the sole
discretion of the Committee, been satisfied in full and any restrictions shall
have lapsed in full, and unless and until all of the requirements of law and of
all regulatory bodies having jurisdiction over the offer and sale, or issuance
and delivery, of the shares shall have been fully complied with.
3.11 The total amount of shares with respect to which Awards may be granted
under the Plan and rights of outstanding Awards (both as to the number of shares
subject to the outstanding Awards and the Option Price(s) or other purchase
price(s) of such shares, as applicable) shall be appropriately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock of the
Corporation resulting from payment of a stock dividend on the Common Stock, a
stock split or subdivision or combination of shares of the Common Stock, or a
reorganization or reclassification of the Common Stock, or any other change in
the structure of shares of the Common Stock. The foregoing adjustments and the
manner of application of the foregoing provisions shall be determined by the
Committee in its sole discretion. Any such adjustment may provide for the
elimination of any fractional shares which might otherwise become subject to an
Award. All adjustments made as the result of the foregoing in respect of each
Incentive Stock Option shall be made so that such Incentive Stock Option shall
continue to be an Incentive Stock Option, as defined in Section 422 of the Code.
3.12 The members of the Committee shall be entitled to indemnification by
the Corporation in the manner and to the extent set forth in the Corporation's
Bylaws or as otherwise provided from time to time regarding indemnification of
Directors.
3.13 The Committee shall be authorized to make adjustments in any
performance based criterium or in the other terms and conditions of outstanding
Awards in recognition of unusual or nonrecurring events affecting the
Corporation (or any Subsidiary, if applicable) or its financial statements or
changes in applicable laws, regulations or accounting principles. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award Agreement in the manner and to the extent it shall deem
necessary or desirable to reflect any such adjustment. In the event the
Corporation (or any Subsidiary, if applicable) shall assume outstanding employee
benefit awards or the right or obligation to make future such awards in
connection with the acquisition of another corporation or business entity, the
Committee may, in its sole discretion, make such adjustments in the terms of
outstanding Awards under the Plan as it shall deem appropriate.
<PAGE>
3.14 Subject to the express provisions of the Plan, the Committee shall
have full power and authority to determine whether, to what extent and under
what circumstances any outstanding Award shall be terminated, canceled,
forfeited or suspended. Notwithstanding the foregoing or any other provision of
the Plan or an Award Agreement, all Awards to any Participant that are subject
to any restriction or have not been earned or exercised in full by the
Participant shall be terminated and canceled if the Participant is terminated
for cause, as determined by the Committee in its sole discretion.
3.15 In addition to, and not in limitation of, the right of the Committee
to grant Awards to Eligible Persons under this Plan the full Board of Directors
may from time to time grant Awards to Eligible Persons pursuant to the terms and
conditions of this Plan, subject to the requirements of the Code, Rule 16b-3
under the Act or any other applicable law, rule or regulation. In connection
with any such grants, the Board of Directors shall have all of the power and
authority of the Committee to determine the Eligible Persons to whom such Awards
shall be granted and the other terms and conditions of such Awards.
3.16 Notwithstanding anything herein to the contrary, grants of Awards to
Non-Employee Directors shall only be made pursuant to the following formula:
Each Non-Employee Director serving in such capacity immediately following the
first annual shareholders meeting of the Corporation following the Effective
Date of this Plan shall automatically be granted a number of Nonqualified Stock
Options equal to 5,000 multiplied by the number of years remaining in said
Non-Employee Director's term as a Director. Thereafter, each Non-Employee
Director who is initially elected to serve in such capacity or who is reelected
to serve in such capacity at each subsequent shareholders meeting shall
automatically be granted a number of Nonqualified Stock Options equal to 5,000
multiplied by the number of years remaining in said Non-Employee Director's term
as a Director. All such Nonqualified Stock Options shall vest ratably over the
balance of the term of each Non-Employee Director with an amount equal to the
total number of Nonqualified Stock Options granted to each such Non-Employee
Director divided by the total number of years remaining in each such Director's
term vesting on the date of grant and a like amount vesting on each subsequent
anniversary of the grant provided that such Non-Employee Director continues to
serve in such capacity on each such anniversary; provided, however, that if a
Non-Employee Director's service in such capacity is terminated due to death or
disability (as determined in the discretion of the Board), then the vesting of
such Nonqualified Stock Options shall be accelerated upon the occurrence of such
event. The date on which each Non-Employee Director is elected, or reelected, in
such capacity by the shareholders of the Corporation shall constitute the Grant
Date for all Nonqualified Stock Options granted pursuant to this Section 3.16
and the Option Price shall be fixed at the Fair Market Value of the Common Stock
on the Grant Date. The Option Period of each Nonqualified Stock Option granted
pursuant to this Section 3.16 shall be ten years from the Grant Date. No
additional grants of stock options under any prior plans of the Corporation
shall be made after the Effective Date of this Plan.
<PAGE>
ARTICLE IV -- INCENTIVE STOCK OPTIONS
4.1 The Committee, in its sole discretion, may from time to time on or
after the Effective Date grant Incentive Stock Options to Eligible Employees,
subject to the provisions of this Article IV and Articles III and VI and subject
to the following conditions:
(a) Incentive Stock Options shall be granted only to Eligible
Employees, each of whom may be granted one or more of such Incentive Stock
Options at such time or times determined by the Committee.
(b) The Option Price per share of Common Stock for an Incentive Stock
Option shall be set in the Award Agreement, but shall not be less than (i)
one hundred percent (100%) of the Fair Market Value of the Common Stock at
the Grant Date, or (ii) in the case of an Incentive Stock Option granted to
a Ten Percent Stockholder, one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the Grant Date.
(c) An Incentive Stock Option may be exercised in full or in part from
time to time within ten (10) years from the Grant Date, or such shorter
period as may be specified by the Committee as the Option Period and set
forth in the Award Agreement; provided, however, that, in the case of an
Incentive Stock Option granted to a Ten Percent Stockholder, such period
shall not exceed five years from the Grant Date; and further, provided
that, in any event, the Incentive Stock Option shall lapse and cease to be
exercisable upon a Termination of Service or within such period following a
Termination of Service as shall have been determined by the Committee and
set forth in the related Award Agreement; and provided, further, that such
period following a Termination of Service shall not exceed three (3) months
unless employment shall have terminated:
<PAGE>
(i) as a result of Disability, in which event such period shall
not exceed one year after the date of Disability; or
(ii) as a result of death, or if death shall have occurred
following a Termination of Service (other than as a result of
Disability) and during the period that the Incentive Stock Option was
still exercisable, in which event such period may not exceed one year
after the date of death; and provided, further, that such period
following a Termination of Service shall in no event extend beyond the
original Option Period of the Incentive Stock Option.
(d) The aggregate Fair Market Value of the shares of Common Stock with
respect to which any incentive stock options (whether under this Plan or
any other plan established by the Corporation) are first exercisable during
any calendar year by any Eligible Employee shall not exceed one hundred
thousand dollars ($100,000), determined based on the Fair Market Value(s)
of such shares as of their respective grant dates; provided, however, that
to the extent permitted under Section 422 of the Code:
(i) if the aggregate Fair Market Values of the shares of Common
Stock with respect to which incentive stock options are first
exercisable during any calendar year (whether such Incentive Stock
Options are granted under this Plan or any other plan established by
the Corporation) exceeds one hundred thousand dollars ($100,000), such
excess shall be treated as a Nonqualified Stock Option;
(ii) if a Participant's employment is terminated by reason of
death, Disability or Retirement and the portion of any incentive stock
option that is otherwise exercisable during the post-termination
period applied without regard to the one hundred thousand dollar
($100,000) limitation contained in Section 422 of the Code is greater
than the portion of such option that is immediately exercisable as an
Incentive Stock Option during such post-termination period under
Section 422, such excess shall be treated as a Nonqualified Stock
Option; and
(iii) if the exercise of an Incentive Stock Option is accelerated
by reason of a Change of Control, any portion of such Award that is
not exercisable as an incentive stock option by reason of the one
hundred thousand dollar ($100,000) limitation contained in Section 422
of the Code shall be treated as a Nonqualified Stock Option.
(e) No Incentive Stock Options may be granted more than ten (10) years
from the Effective Date.
(f) The Award Agreement for each Incentive Stock Option shall provide
that the Participant shall notify the Corporation if such Participant sells
or otherwise transfers any shares of Common Stock acquired upon exercise of
the Incentive Stock Option within two (2) years of the Grant Date of such
Incentive Stock Option or within one (1) year of the date such shares were
acquired upon the exercise of such Incentive Stock Option.
<PAGE>
4.2 Subject to the limitations of Section 3.6, the maximum number of shares
of Common Stock subject to Incentive Stock Option Awards shall be the maximum
number of shares available for Awards under the Plan.
4.3 The Committee may provide for any other terms and conditions which it
determines should be imposed for an Incentive Stock Option to qualify under
Section 422 of the Code, as well as any other terms and conditions not
inconsistent with this Article IV or Articles III or VI, as determined in its
sole discretion and set forth in the Award Agreement for such Incentive Stock
Option.
4.4 Each provision of this Article IV and of each Incentive Stock Option
granted hereunder shall be construed in accordance with the provisions of
Section 422 of the Code, and any provision hereof that cannot be so construed
shall be disregarded.
ARTICLE V -- NONQUALIFIED STOCK OPTIONS
5.1 The Committee, in its sole discretion, may from time to time on or
after the Effective Date grant Nonqualified Stock Options to Eligible Persons,
subject to the provisions of this Article V and Articles III and VI and subject
to the following conditions:
(a) Nonqualified Stock Options may be granted to any Eligible Persons,
each of whom may be granted one or more of such Nonqualified Stock Options,
at such time or times determined by the Committee.
(b) The Option Price per share of Common Stock for a Nonqualified
Stock Option shall be set in the Award Agreement and may be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock at the
Grant Date.
(c) A Nonqualified Stock Option may be exercised in full or in part
from time to time within the Option Period specified by the Committee and
set forth in the Award Agreement; provided, however, that, in any event,
the Nonqualified Stock Option shall lapse and cease to be exercisable upon
a Termination of Service or within such period following a Termination of
Service as shall have been determined by the Committee and set forth in the
related Award Agreement.
5.2 The Committee may provide for any other terms and conditions for a
Nonqualified Stock Option not inconsistent with this Article V or Articles III
or VI, as determined in its sole discretion and set forth in the Award Agreement
for such Nonqualified Stock Option.
<PAGE>
ARTICLE VI -- INCIDENTS OF STOCK OPTIONS
6.1 Each Stock Option shall be granted subject to such terms and
conditions, if any, not inconsistent with this Plan, as shall be determined by
the Committee and set forth in the related Award Agreement, including any
provisions as to continued employment as consideration for the grant or exercise
of such Stock Option and any provisions which may be advisable to comply with
applicable laws, regulations or rulings of any governmental authority.
6.2 Except as hereinafter described, a Stock Option shall not be
transferable by the Participant other than by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the Participant
only by the Participant or the Participant's guardian or legal representative.
In the event of the death of a Participant, any unexercised Stock Options may be
exercised to the extent otherwise provided herein or in such Participant's Award
Agreement by the executor or personal representative of such Participant's
estate or by any person who acquired the right to exercise such Stock Options by
bequest under the Participant's will or by inheritance. The Committee, in its
sole discretion, may at any time permit a Participant to transfer a Nonqualified
Stock Option for no consideration to or for the benefit of one or more members
of the Participant's Immediate Family (including, without limitation, to a trust
for the benefit of the Participant and/or one or more members of such
Participant's Immediate Family or a corporation, partnership or limited
liability company established and controlled by the Participant and/or one or
more members of such Participant's Immediate Family), subject to such limits as
the Committee may establish. The transferee of such Nonqualified Stock Option
shall remain subject to all terms and conditions applicable to such Nonqualified
Stock Option prior to such transfer. The foregoing right to transfer the
Nonqualified Stock Option, if granted by the Committee, shall apply to the right
to consent to amendments to the Award Agreement.
6.3 Shares of Common Stock purchased upon exercise of a Stock Option shall
be paid for in such amounts, at such times and upon such terms as shall be
determined by the Committee, subject to limitations set forth in the Stock
Option Award Agreement. The Committee may, in its sole discretion, permit the
exercise of a Stock Option by payment in cash or by tendering shares of Common
Stock (either by actual delivery of such shares or by attestation), or any
combination thereof, as determined by the Committee. In the sole discretion of
the Committee, payment in shares of Common Stock also may be made with shares
received upon the exercise or partial exercise of the Stock Option, whether or
not involving a series of exercises or partial exercises and whether or not
share certificates for such shares surrendered have been delivered to the
Participant. The Committee also may, in its sole discretion, permit the payment
of the exercise price of a Stock Option by the voluntary surrender of all or a
portion of the Stock Option. Shares of Common Stock previously held by the
Participant and surrendered in payment of the Option Price of a Stock Option
shall be valued for such purpose at the Fair Market Value thereof on the date
the Stock Option is exercised.
<PAGE>
6.4 No cash dividends shall be paid on shares of Common Stock subject to
unexercised Stock Options.
6.5 The Committee may permit the voluntary surrender of all or a portion of
any Stock Option granted under the Plan to be conditioned upon the granting to
the Participant of a new Stock Option for the same or a different number of
shares of Common Stock as the Stock Option surrendered, or may require such
voluntary surrender as a condition precedent to a grant of a new Stock Option to
such Participant. Subject to the provisions of the Plan, such new Stock Option
shall be exercisable at such Option Price, during such Option Period and on such
other terms and conditions as are specified by the Committee at the time the new
Stock Option is granted. Upon surrender, the Stock Options surrendered shall be
canceled and the shares of Common Stock previously subject to them shall be
available for the grant of other Stock Options.
6.6 The Committee may at any time offer to purchase a Participant's
outstanding Stock Option for a payment equal to the value of such Stock Option
payable in cash, shares of Common Stock or Restricted Stock or other property
upon surrender of the Participant's Stock Option, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.
6.7 The Committee shall have the discretion, exercisable either at the time
the Award is granted or at the time the Participant discontinues employment, to
establish as a provision applicable to the exercise of one or more Stock Options
that, during a limited period of exercisability following a Termination of
Service, the Stock Option may be exercised not only with respect to the number
of shares of Common Stock for which it is exercisable at the time of the
Termination of Service but also with respect to one or more subsequent
installments for which the Stock Option would have become exercisable had the
Termination of Service not occurred.
ARTICLE VII -- RESTRICTED STOCK
7.1 The Committee, in its sole discretion, may from time to time on or
after the Effective Date award shares of Restricted Stock to Eligible Persons as
a reward for past service and an incentive for the performance of future
services that will contribute materially to the successful operation of the
Corporation and its Subsidiaries, subject to the terms and conditions set forth
in this Article VII.
<PAGE>
7.2 The Committee shall determine the terms and conditions of any Award of
Restricted Stock, which shall be set forth in the related Award Agreement,
including without limitation:
(a) the purchase price, if any, to be paid for such Restricted Stock,
which may be zero, subject to such minimum consideration as may be required
by applicable law;
(b) the duration of the Restriction Period or Restriction Periods with
respect to such Restricted Stock and whether any events may accelerate or
delay the end of such Restriction Period(s);
(c) the circumstances upon which the restrictions or limitations shall
lapse, and whether such restrictions or limitations shall lapse as to all
shares of Restricted Stock at the end of the Restriction Period or as to a
portion of the shares of Restricted Stock in installments during the
Restriction Period by means of one or more vesting schedules;
(d) whether such Restricted Stock is subject to repurchase by the
Corporation or to a right of first refusal at a predetermined price or if
the Restricted Stock may be forfeited entirely under certain conditions;
(e) whether any performance goals may apply to a Restriction Period to
shorten or lengthen such period; and
(f) whether dividends and other distributions with respect to such
Restricted Stock are to be paid currently to the Participant or withheld by
the Corporation for the account of the Participant.
7.3 Awards of Restricted Stock must be accepted within a period of thirty
(30) days after the Grant Date (or such shorter or longer period as the
Committee may specify at such time) by executing an Award Agreement with respect
to such Restricted Stock and tendering the purchase price, if any. A prospective
recipient of an Award of Restricted Stock shall not have any rights with respect
to such Award, unless such recipient has executed an Award Agreement with
respect to such Restricted Stock, has delivered a fully executed copy thereof to
the Committee and has otherwise complied with the applicable terms and
conditions of such Award.
7.4 In the sole discretion of the Committee and as set forth in the Award
Agreement for an Award of Restricted Stock, all shares of Restricted Stock held
by a Participant and still subject to restrictions shall be forfeited by the
Participant upon the Participant's Termination of Service and shall be
reacquired, canceled and retired by the Corporation. Notwithstanding the
foregoing, unless otherwise provided in an Award Agreement with respect to an
Award of Restricted Stock, in the event of the death, Disability or Retirement
of a Participant during the Restriction Period, or in other cases of special
circumstances (including hardship or other special circumstances of a
Participant whose employment is involuntarily terminated), the Committee may
elect to waive in whole or in part any remaining restrictions with respect to
all or any part of such Participant's Restricted Stock, if it finds that a
waiver would be appropriate.
<PAGE>
7.5 Except as otherwise provided in this Article VII, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
7.6 Upon an Award of Restricted Stock to a Participant, a certificate or
certificates representing the shares of such Restricted Stock will be issued to
and registered in the name of the Participant. Unless otherwise determined by
the Committee, such certificate or certificates will be held in custody by the
Corporation until (i) the Restriction Period expires and the restrictions or
limitations lapse, in which case one or more certificates representing such
shares of Restricted Stock that do not bear a restrictive legend (other than any
legend as required under applicable federal or state securities laws) shall be
delivered to the Participant, or (ii) a prior forfeiture by the Participant of
the shares of Restricted Stock subject to such Restriction Period, in which case
the Corporation shall cause such certificate or certificates to be canceled and
the shares represented thereby to be retired, all as set forth in the
Participant's Award Agreement. It shall be a condition of an Award of Restricted
Stock that the Participant deliver to the Corporation a stock power endorsed in
blank relating to the shares of Restricted Stock to be held in custody by the
Corporation.
7.7 Except as provided in this Article VII or in the related Award
Agreement, a Participant receiving an Award of shares of Restricted Stock Award
shall have, with respect to such shares, all rights of a shareholder of the
Corporation, including the right to vote the shares and the right to receive any
distributions, unless and until such shares are otherwise forfeited by such
Participant; provided, however, the Committee may require that any cash
dividends with respect to such shares of Restricted Stock be automatically
reinvested in additional shares of Restricted Stock subject to the same
restrictions as the underlying Award, or may require that cash dividends and
other distributions on Restricted Stock be withheld by the Corporation or its
Subsidiaries for the account of the Participant. The Committee shall determine
whether interest shall be paid on amounts withheld, the rate of any such
interest, and the other terms applicable to such withheld amounts.
<PAGE>
ARTICLE VIII -- STOCK AWARDS
8.1 The Committee, in its sole discretion, may from time to time on or
after the Effective Date grant Stock Awards to Eligible Persons in payment of
compensation that has been earned or as compensation to be earned, including
without limitation compensation awarded or earned concurrently with or prior to
the grant of the Stock Award, subject to the terms and conditions set forth in
this Article VIII.
8.2 For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Common Stock subject to such Stock Award shall be valued at
not less than one hundred percent (100%) of the Fair Market Value of such shares
of Common Stock on the Grant Date of such Stock Award, regardless of when such
shares of Common Stock are issued and certificates representing such shares are
delivered to the Participant.
8.3 Unless otherwise determined by the Committee and set forth in the
related Award Agreement, shares of Common Stock subject to a Stock Award will be
issued, and one or more certificates representing such shares will be delivered,
to the Participant as soon as practicable following the Grant Date of such Stock
Award. Upon the issuance of such shares and the delivery of one or more
certificates representing such shares to the Participant, such Participant shall
be and become a shareholder of the Corporation fully entitled to receive
dividends, to vote and to exercise all other rights of a shareholder of the
Corporation. Notwithstanding any other provision of this Plan, unless the
Committee expressly provides otherwise with respect to a Stock Award, as set
forth in the related Award Agreement, no Stock Award shall be deemed to be an
outstanding Award for purposes of the Plan.
ARTICLE IX -- PERFORMANCE SHARES
9.1 The Committee, in its sole discretion, may from time to time on or
after the Effective Date award Performance Shares to Eligible Persons as an
incentive for the performance of future services that will contribute materially
to the successful operation of the Corporation and its Subsidiaries, subject to
the terms and conditions set forth in this Article IX.
9.2 The Committee shall determine the terms and conditions of any Award of
Performance Shares, which shall be set forth in the related Award Agreement,
including without limitation:
(a) the purchase price, if any, to be paid for such Performance
Shares, which may be zero, subject to such minimum consideration as may be
required by applicable law;
<PAGE>
(b) the performance period (the "Performance Period") and/or
performance objectives (the "Performance Objectives") applicable to such
Awards;
(c) the number of Performance Shares that shall be paid to the
Participant if the applicable Performance Objectives are exceeded or met in
whole or in part; and
(d) the form of settlement of a Performance Share.
9.3 At any date, each Performance Share shall have a value equal to the
Fair Market Value of a share of Common Stock.
9.4 Performance Periods may overlap, and Participants may participate
simultaneously with respect to Performance Shares for which different
Performance Periods are prescribed.
9.5 Performance Objectives may vary from Participant to Participant and
between Awards and shall be based upon such performance criteria or combination
of factors as the Committee may deem appropriate, including, but not limited to,
minimum earnings per share or return on equity. If during the course of a
Performance Period there shall occur significant events which the Committee
expects to have a substantial effect on the applicable Performance Objectives
during such period, the Committee may revise such Performance Objectives.
9.6 In the sole discretion of the Committee and as set forth in the Award
Agreement for an Award of Performance Shares, all Performance Shares held by a
Participant and not earned shall be forfeited by the Participant upon the
Participant's Termination of Service. Notwithstanding the foregoing, unless
otherwise provided in an Award Agreement with respect to an Award of Performance
Shares, in the event of the death, Disability or Retirement of a Participant
during the applicable Performance Period, or in other cases of special
circumstances (including hardship or other special circumstances of a
Participant whose employment is involuntarily terminated), the Committee may
determine to make a payment in settlement of such Performance Shares at the end
of the Performance Period, based upon the extent to which the Performance
Objectives were satisfied at the end of such period and pro rated for the
portion of the Performance Period during which the Participant was employed by
the Corporation or a Subsidiary; provided, however, that the Committee may
provide for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems appropriate or
desirable.
9.7 The settlement of a Performance Share shall be made in cash, whole
shares of Common Stock or a combination thereof and shall be made as soon as
practicable after the end of the applicable Performance Period. Notwithstanding
the foregoing, the Committee in its sole discretion may allow a Participant to
defer payment in settlement of Performance Shares on terms and conditions
approved by the Committee and set forth in the related Award Agreement entered
into in advance of the time of receipt or constructive receipt of payment by the
Participant.
<PAGE>
9.8 Performance Shares shall not be transferable by the Participant. The
Committee shall have the authority to place additional restrictions on the
Performance Shares including, but not limited to, restrictions on transfer of
any shares of Common Stock that are delivered to a Participant in settlement of
any Performance Shares.
ARTICLE X -- CHANGES OF CONTROL OR OTHER FUNDAMENTAL CHANGES
10.1 Upon the occurrence of a Change of Control and unless otherwise
provided in the Award Agreement with respect to a particular Award:
(a) all outstanding Stock Options shall become immediately exercisable
in full, subject to any appropriate adjustments in the number of shares
subject to the Stock Option and the Option Price, and shall remain
exercisable for the remaining term of such Stock Option, regardless of any
provision in the related Award Agreement limiting the exercisability of
such Stock Option or any portion thereof for any length of time;
(b) all outstanding Performance Shares with respect to which the
applicable Performance Period has not been completed shall be paid out as
soon as practicable as follows:
(i) all Performance Objectives applicable to the Award of
Performance Shares shall be deemed to have been satisfied to the
extent necessary to earn one hundred percent (100%) of the Performance
Shares covered by the Award;
(ii) the applicable Performance Period shall be deemed to have
been completed upon occurrence of the Change of Control;
(iii) the payment to the Participant in settlement of the
Performance Shares shall be the amount determined by the Committee, in
its sole discretion, or in the manner stated in the Award Agreement,
as multiplied by a fraction, the numerator of which is the number of
full calendar months of the applicable Performance Period that have
elapsed prior to occurrence of the Change of Control, and the
denominator of which is the total number of months in the original
Performance Period; and
(iv) upon the making of any such payment, the Award Agreement as
to which it relates shall be deemed terminated and of no further force
and effect.
<PAGE>
(c) all outstanding shares of Restricted Stock with respect to which
the restrictions have not lapsed shall be deemed vested, and all such
restrictions shall be deemed lapsed and the Restriction Period ended.
10.2 Anything contained herein to the contrary notwithstanding, upon the
dissolution or liquidation of the Corporation, each Award granted under the Plan
and then outstanding shall terminate; provided, however, that following the
adoption of a plan of dissolution or liquidation, and in any event prior to the
effective date of such dissolution or liquidation, each such outstanding Award
granted hereunder shall be exercisable in full and all restrictions shall lapse,
to the extent set forth in Section 10.1(a), (b) and (c) above.
10.3 After the merger of one or more corporations into the Corporation or
any Subsidiary, any merger of the Corporation into another corporation, any
consolidation of the Corporation or any Subsidiary of the Corporation and one or
more corporations, or any other corporate reorganization of any form involving
the Corporation as a party thereto and involving any exchange, conversion,
adjustment or other modification of the outstanding shares of the Common Stock,
each Participant shall, at no additional cost, be entitled, upon any exercise of
such Participant's Stock Option, to receive, in lieu of the number of shares as
to which such Stock Option shall then be so exercised, the number and class of
shares of stock or other securities or such other property to which such
Participant would have been entitled to pursuant to the terms of the agreement
of merger or consolidation or reorganization, if at the time of such merger or
consolidation or reorganization, such Participant had been a holder of record of
a number of shares of Common Stock equal to the number of shares as to which
such Stock Option shall then be so exercised. Comparable rights shall accrue to
each Participant in the event of successive mergers, consolidations or
reorganizations of the character described above. The Committee may, in its sole
discretion, provide for similar adjustments upon the occurrence of such events
with regard to other outstanding Awards under this Plan. The foregoing
adjustments and the manner of application of the foregoing provisions shall be
determined by the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional shares which might otherwise
become subject to an Award. All adjustments made as the result of the foregoing
in respect of each Incentive Stock Option shall be made so that such Incentive
Stock Option shall continue to be an Incentive Stock Option, as defined in
Section 422 of the Code.
<PAGE>
ARTICLE XI -- AMENDMENT AND TERMINATION
11.1 Subject to the provisions of Section 11.2, the Board of Directors,
upon recommendation of the Committee or otherwise, at any time and from time to
time may amend or terminate the Plan as may be necessary or desirable to
implement or discontinue the Plan or any provision hereof. To the extent
required by the Act or the Code, however, no amendment, without approval by the
Corporation's shareholders, shall:
(a) materially alter the group of persons eligible to participate in
the Plan;
(b) except as provided in Section 3.6, increase the maximum number of
shares of Common Stock that are available for Awards under the Plan;
(c) extend the period during which Incentive Stock Option Awards may
be granted beyond January 8, 2008; or
(d) alter the class of individuals eligible to receive an Incentive
Stock Option or increase the limit on Incentive Stock Options set forth in
Section 4.1(d) or the value of shares of Common Stock for which an Eligible
Employee may be granted an Incentive Stock Option.
11.2 No amendment to or discontinuance of the Plan or any provision hereof
by the Board of Directors or the shareholders of the Corporation shall, without
the written consent of the Participant, adversely affect (in the sole discretion
of the Committee) any Award theretofore granted to such Participant under this
Plan; provided, however, that the Committee retains the right and power to:
(a) annul any Award if the Participant is terminated for cause as
determined by the Committee; and
(b) convert any outstanding Incentive Stock Option to a Nonqualified
Stock Option.
11.3 If a Change of Control has occurred, no amendment or termination shall
impair the rights of any person with respect to an outstanding Award as provided
in Article X.
ARTICLE XII -- MISCELLANEOUS PROVISIONS
12.1 Nothing in the Plan or any Award granted hereunder shall confer upon
any Participant any right to continue in the employ of the Corporation or its
Subsidiaries or to serve as a Director or shall interfere in any way with the
right of the Corporation or its Subsidiaries or the shareholders of the
Corporation, as applicable, to terminate the employment of a Participant or to
release or remove a Director at any time. Unless specifically provided
otherwise, no Award granted under the Plan shall be deemed salary or
compensation for the purpose of computing benefits under any employee benefit
plan or other arrangement of the Corporation or its Subsidiaries for the benefit
of their respective employees unless the Corporation shall determine otherwise.
No Participant shall have any claim to an Award until it is actually granted
under the Plan and an Award Agreement has been executed and delivered to the
Corporation. To the extent that any person acquires a right to receive payments
from the Corporation under the Plan, such right shall, except as otherwise
provided by the Committee, be no greater than the right of an unsecured general
creditor of the Corporation. All payments to be made hereunder shall be paid
from the general funds of the Corporation, and no special or separate fund shall
be established and no segregation of assets shall be made to assure payment of
such amounts, except as provided in Article VII with respect to Restricted Stock
and except as otherwise provided by the Committee.
<PAGE>
12.2 The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required. Any provision herein
relating to compliance with Rule 16b-3 under the Act shall not be applicable
with respect to participation in the Plan by Participants who are not subject to
Section 16 of the Act.
12.3 The terms of the Plan shall be binding upon the Corporation, its
successors and assigns.
12.4 Neither a Stock Option nor any other type of equity-based compensation
provided for hereunder shall be transferable except as provided for in Section
6.2. In addition to the transfer restrictions otherwise contained herein,
additional transfer restrictions shall apply to the extent required by federal
or state securities laws. If any Participant makes such a transfer in violation
hereof, any obligation hereunder of the Corporation to such Participant shall
terminate immediately.
12.5 This Plan and all actions taken hereunder shall be governed by the
laws of the State of New Jersey.
12.6 Each Participant exercising an Award hereunder agrees to give the
Committee prompt written notice of any election made by such Participant under
Section 83(b) of the Code, or any similar provision thereof.
12.7 If any provision of this Plan or an Award Agreement is or becomes or
is deemed invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the Plan or any Award Agreement under any law deemed applicable by
the Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Award Agreement, it shall be stricken, and the remainder of the Plan or the
Award Agreement shall remain in full force and effect.
<PAGE>
12.8 The grant of an Award pursuant to this Plan shall not affect in any
way the right or power of the Corporation or any of its Subsidiaries to make
adjustments, reclassification, reorganizations, or changes of its capital or
business structure, or to merge or consolidate, or to dissolve, liquidate or
sell, or to transfer all or part of its business or assets.
12.9 The Plan is not subject to the provisions of ERISA or qualified under
Section 401(a) of the Code.
12.10 If a Participant is required to pay to the Corporation an amount with
respect to income and employment tax withholding obligations in connection with
(i) the exercise of a Nonqualified Stock Option, (ii) certain dispositions of
Common Stock acquired upon the exercise of an Incentive Stock Option, or (iii)
the receipt of Common Stock pursuant to any other Award, then the issuance of
Common Stock to such Participant shall not be made (or the transfer of shares by
such Participant shall not be required to be effected, as applicable) unless
such withholding tax or other withholding liabilities shall have been satisfied
in a manner acceptable to the Corporation. The Committee, in its sole discretion
and subject to such rules as it may adopt, may permit the Participant to satisfy
such obligation, in whole or in part, by making an irrevocable election that a
portion of the total Fair Market Value of the shares of Common Stock be paid in
the form of cash in lieu of the issuance of Common Stock and that such cash
payment be applied to the satisfaction of the withholding obligations. The
amount to be withheld shall not exceed the statutory minimum federal and state
income and employment tax liability arising from the transfer of the Common
Stock to the Participant. Notwithstanding any other provision of the Plan, any
election under this Section 12.10 is required to satisfy the applicable
requirements of Rule 16b-3 under the Act.
Exhibit 10.7
AMENDMENT
This amendment (this "Amendment") is made as of the 1st day of September,
1997 to the Employment Agreement, dated February 1, 1996, by and between Joel
Freedman and IDM Environmental Corp., a New Jersey corporation (the "Employment
Agreement"). All capitalized terms not defined herein shall be defined as in the
Employment Agreement.
Pursuant to and in accordance with Section 7.01 of Article VII of the
Employment Agreement, the parties hereto agree to modify the Employment
Agreement as follows:
1. Section 2.01 of Article II of the Employment Agreement is hereby deleted
in its entirety and replaced with the following:
"Compensation.
- --------------
(a) Salary. From and after the effective date of this Agreement, the
Employee shall receive a salary ("Salary") from the Company in an
amount equal to $480,000.00 per year. The Employee's Salary shall be
payable in no less than twelve (12) monthly payments.
(b) Non-Discretionary Bonus. In addition to the Salary, Employee shall
receive a non-discretionary bonus equal to two (2%) percent of the
operating profits of the Company during each year (the
"Non-Discretionary Bonus"). Within ten (10) business days following
the filing of the Company's Annual Report on Form 10-K, including the
certified financial statements of the Company, the Company shall pay
to Employee the Non-Discretionary Bonus, if any. For purposes of
computing the Non-Discretionary Bonus, "Operating Profits" shall
consist of income from operations before deduction of income taxes,
interest expenses, depreciation and amortization and any other
non-cash charges, including any compensation charges relating to the
issuance of stock or options."
2. Section 2.02 of Article II of the Employment Agreement is hereby deleted
in its entirety and replaced with the following:
"Expenses. Expenses incurred by Employee on behalf of the Company
----------
shall be paid as follows:
(a) Entertainment Expenses. Employee shall receive a stipend of
$45,000 per year payable in no less than twelve (12) monthly
payments for entertainment expenses incurred by Employee in
connection with the promotion of the Company.
<PAGE>
(b) Travel and Other Expenses. The Company shall reimburse
Employee for all reasonable travel and other expenses related to
his employment by of the Company. Employee shall provide a
written accounting and explanation of all expenses for which
reimbursement is sought on a monthly basis and the Company shall
reimburse all such expenses within ten (10) days following
receipt of each written accounting."
3. The heading of Section 2.03 of Article II of the Employment Agreement is
hereby amended to read "Other Bonuses."
4. This Amendment and the provisions set forth herein are effective
immediately and are merged into and a part of the Employment Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
date herein first set forth.
IDM ENVIRONMENTAL CORP.
By:/s/ Frank A. Falco
----------------------------
Frank A. Falco Chairman
and Chief Operating Officer
EMPLOYEE:
/s/ Joel A. Freedman
-----------------------------
Joel A. Freedman
amendemp.agr
r:\legal\corp
9297
Exhibit 10.8
AMENDMENT
-----------
This amendment (this "Amendment") is made as of the 1st day of September,
1997 to the Employment Agreement, dated February 1, 1996, by and between Frank
A. Falco and IDM Environmental Corp., a New Jersey corporation (the "Employment
Agreement"). All capitalized terms not defined herein shall be defined as in the
Employment Agreement.
Pursuant to and in accordance with Section 7.01 of Article VII of the
Employment Agreement, the parties hereto agree to modify the Employment
Agreement as follows:
1. Section 2.01 of Article II of the Employment Agreement is hereby deleted
in its entirety and replaced with the following:
"Compensation.
--------------
(a) Salary. From and after the effective date of this Agreement, the
Employee shall receive a salary ("Salary") from the Company in an amount
equal to $480,000.00 per year. The Employee's Salary shall be payable in no
less than twelve (12) monthly payments.
(b) Non-Discretionary Bonus. In addition to the Salary, Employee shall
receive a non-discretionary bonus equal to two (2%) percent of the
operating profits of the Company during each year (the "Non-Discretionary
Bonus"). Within ten (10) business days following the filing of the
Company's Annual Report on Form 10-K, including the certified financial
statements of the Company, the Company shall pay to Employee the
Non-Discretionary Bonus, if any. For purposes of computing the
Non-Discretionary Bonus, "Operating Profits" shall consist of income from
operations before deduction of income taxes, interest expenses,
depreciation and amortization and any other non-cash charges, including any
compensation charges relating to the issuance of stock or options."
2. Section 2.02 of Article II of the Employment Agreement is hereby deleted
in its entirety and replaced with the following:
"Expenses. Expenses incurred by Employee on behalf of the Company
shall be paid as follows:
(a) Entertainment Expenses. Employee shall receive a stipend of
$45,000 per year payable in no less than twelve (12) monthly
payments for entertainment expenses incurred by Employee in
connection with the promotion of the Company.
<PAGE>
(b) Travel and Other Expenses. The Company shall reimburse
Employee for all reasonable travel and other expenses related to
his employment by of the Company. Employee shall provide a
written accounting and explanation of all expenses for which
reimbursement is sought on a monthly basis and the Company shall
reimburse all such expenses within ten (10) days following
receipt of each written accounting."
3. The heading of Section 2.03 of Article II of the Employment Agreement is
hereby amended to read "Other Bonuses." 4. This Amendment and the provisions set
forth herein are effective immediately and are merged into and a part of the
Employment Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
date herein first set forth.
IDM ENVIRONMENTAL CORP.
By:/s/ Joel Freedman
------------------------------
Joel Freedman, President
EMPLOYEE:
/s/ Frank A. Falco
---------------------------------
Frank A. Falco
amendemp.agr
r:\legal\corp
9297
Exhibit 10.9
SECOND AMENDMENT
-------------------
This second amendment (this "Amendment") is made on this 18th day of
February, 1998 to the Employment Agreement, dated February 1, 1996, as amended
as of September 1, 1997, by and between Joel Freedman and IDM Environmental
Corp., a New Jersey corporation (the "Employment Agreement"). All capitalized
terms not defined herein shall be defined as in the Employment Agreement.
Pursuant to and in accordance with Section 7.01 of Article VII of the
Employment Agreement, the parties hereto agree to modify the Employment
Agreement as follows:
1. Section 2.06 of Article II of the Employment Agreement is hereby deleted
in its entirety and replaced with the following:
"2.06 Stock Option Grant. The Company hereby grants to the
Employee an option to purchase from the Company Two Million Two
Hundred Fifty Thousand (2,250,000) shares of the common stock of
the Company, $0.001 par value, at an exercise price of $3.719 per
share subject to the terms and conditions set forth on Appendix A
attached hereto and made a part hereof."
2. This Amendment and the provisions set forth herein are effective
immediately and are merged into and made a part of the Employment Agreement.
F:\legal\corporate\ffjf
frdmn2am.wpd
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment on the day and
date herein first set forth. IDM ENVIRONMENTAL CORP.
By: /s/ Frank A. Falco
------------------------------------
Frank A. Falco, Chairman
EMPLOYEE:
------------------------------------
Joel Freedman
F:\legal\corporate\ffjf
frdmn2am.wpd
Exhibit 10.10
SECOND AMENDMENT
--------------------
This second amendment (this "Amendment") is made as of the 18th day of
February, 1998 to the Employment Agreement, dated February 1, 1996, as amended
as of September 1, 1997, by and between Frank A. Falco and IDM Environmental
Corp., a New Jersey corporation (the "Employment Agreement"). All capitalized
terms not defined herein shall be defined as in the Employment Agreement.
Pursuant to and in accordance with Section 7.01 of Article VII of the
Employment Agreement, the parties hereto agree to modify the Employment
Agreement as follows:
1. Section 2.06 of Article II of the Employment Agreement is hereby deleted
in its entirety and replaced with the following:
"2.06 Stock Option Grant. The Company hereby grants to the
Employee an option to purchase from the Company Two Million Two
Hundred Fifty Thousand (2,250,000) shares of the common stock of
the Company, $0.001 par value, at an exercise price of $3.719 per
share subject to the terms and conditions set forth on Appendix A
attached hereto and made a part hereof."
2. This Amendment and the provisions set forth herein are effective
immediately and are merged into and made a part of the Employment Agreement.
F:\legla\corporate\ffjf
falco2am.wpd
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment on the day and
date herein first set forth. IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
------------------------------------
Joel Freedman, President
EMPLOYEE:
/s/ Frank A. Falco
--------------------------------------
Frank A. Falco
F:\legla\corporate\ffjf
falco2am.wpd
Exhibit 10.11
IDM ENVIRONMENTAL CORP.
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is between
IDM Environmental Corp., a New Jersey corporation (the "Company"), and Joel A.
Freedman ("Optionee"), who agree as follows:
Section 1. Introduction. The Company and the Optionee have heretofore
agreed to amend the employment agreement between the Company and the Optionee to
delete the stock bonus provision of the employment agreement. As consideration
for relinquishing the stock bonus right under the employment agreement, the
Company has agreed to grant to the Optionee, among other consideration, stock
options in an amount determined to have an intrinsic value approximately equal
to the estimated value of the stock bonus right under the employment agreement.
The Company, acting through its Board of Directors (the "Board"), has determined
that its interests will be advanced by the issuance to Optionee of nonqualified
stock options as provided for by the amendment to the employment agreement.
Section 2. Option. Subject to the terms and conditions contained herein,
the Company hereby irrevocably grants to Optionee the right and option
("Option") to purchase from the Company 2,250,000 shares of the Company's common
stock, $.001 par value ("Common Stock"), at a price of $3.719 per share, being
the closing bid price of the Common Stock on the last trading day immediately
preceding the grant of this Option.
Section 3. Option Period. The Option herein granted may be exercised by
Optionee in whole or in part at any time during a five year period beginning on
the date set forth below (the "Option Period").
Section 4. Procedure for Exercise. The Option herein granted may be
exercised by the delivery by Optionee of written notice to the Secretary of the
Company setting forth the number of shares of Common Stock with respect to which
the Option is being exercised. The notice shall be accompanied by, at the
election of the Optionee, (i) cash, cashier's check, bank draft, or postal or
express money order payable to the order of the Company, (ii) certificates
representing shares of Common Stock theretofore owned by Optionee duly endorsed
for transfer to the Company, or (iii) any combination of the preceding, equal in
value to the aggregate exercise price. Notice may also be delivered by telecopy
provided that the exercise price of such shares is received by the Company via
wire transfer on the same day the telecopy transmission is received by the
Company. The notice shall specify the address to which the certificates for such
shares are to be mailed. An option to purchase shares of Common Stock, shall be
deemed to have been exercised immediately prior to the close of business on the
date (i) written notice of such exercise and (ii) payment in full of the
exercise price for the number of shares for which Options are being exercised,
are both received by the Company and Optionee shall be treated for all purposes
as the record holder of such shares of Common Stock as of such date.
<PAGE>
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this Section 4.
Section 5. Death. In the event the Optionee dies during the Option Period,
the options previously granted to Optionee may be exercised (to the extent
Optionee would have been entitled to do so at the date of death) at any time and
from time to time by the guardian of Optionee's estate, the executor or
administrator of Optionee's estate or by the person or persons to whom
Optionee's rights under this Option Agreement shall pass by will or the laws of
descent and distribution, but in no event may the Option be exercised after its
expiration under the terms of this Option Agreement.
Section 6. Transferability. This Option shall not be transferable by
Optionee otherwise than by Optionee's will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, as amended,
or the rules thereunder. During the lifetime of Optionee, the Option shall be
exercisable only by Optionee. Any heir or legatee of Optionee shall take rights
herein granted subject to the terms and conditions hereof. No such transfer of
this Option Agreement to heirs or legatees of Optionee shall be effective to
bind the Company unless the Company shall have been furnished with written
notice thereof and a copy of such evidence as the Board may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions hereof.
Section 7. No Rights as Shareholder. Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by this Option
Agreement until the Option is exercised by written notice and accompanied by
payment as provided in Section 4 of this Option Agreement.
<PAGE>
Section 8. Extraordinary Corporate Transactions. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issuance of the Common Stock or subscription rights thereto, or any issuance of
bonds, debentures, preferred or prior preference stock ahead of or affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise. If the Company recapitalizes or otherwise changes its capital
structure, or merges, consolidates, sells all of its assets or dissolves (each
of the foregoing a "Fundamental Change"), then thereafter upon any exercise of
the Option, Optionee shall be entitled to purchase under the Option, in lieu of
the number of shares of Common Stock as to which the Option shall then be
exercisable, the number and class of shares of stock and securities to which
Optionee would have been entitled pursuant to the terms of the Fundamental
Change if, immediately prior to such Fundamental Change, Optionee had been the
holder of record of the number of shares of Common Stock as to which the Option
is then exercisable.
Section 9. Changes in Capital Structure. If the outstanding shares of
Common Stock or other securities of the Company, or both, for which the Option
is then exercisable shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares of Common Stock or other securities subject to the
Plan or subject to the Option and the exercise price, shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares or other
securities without changing the aggregate exercise price.
Section 10. Compliance With Securities Laws. Upon the acquisition of any
shares pursuant to the exercise of the Option herein granted, Optionee (or any
person acting under Section 6) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
Section 11. Compliance With Laws. Notwithstanding any of the other
provisions hereof, Optionee agrees that he or she will not exercise the Option
granted hereby, and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the Option or the issuance
of such shares of Common Stock would constitute a violation by Optionee or by
the Company of any provision of any law or regulation of any governmental
authority.
<PAGE>
Section 12. Withholding of Tax. To the extent that the exercise of this
Option or the disposition of shares of Common Stock acquired by exercise of this
Option results in compensation income to Optionee for federal or state income
tax purposes, Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the Company may require to meet its obligation under applicable tax
laws or regulations; and, if Optionee fails to do so, the Company is authorized
to withhold from any cash remuneration then or thereafter payable to Optionee,
any tax required to be withheld by reason of such resulting compensation income
or Company may otherwise refuse to issue or transfer any shares otherwise
required to be issued or transferred pursuant to the terms hereof.
Section 13. No Right to Employment. Optionee who is an employee shall be
considered to be in the employment of the Company so long as he or she remains
an employee of the Company or its Affiliates. Any questions as to whether and
when there has been a termination of such employment and the cause of such
termination shall be determined by the Board, and its determination shall be
final. Nothing contained herein shall be construed as conferring upon Optionee
the right to continue in the employ of the Company, nor shall anything contained
herein be construed or interpreted to limit the "employment at will"
relationship between Optionee and the Company.
Section 14. Resolution of Disputes. As a condition of the granting of the
Option hereby, Optionee, and Optionee's heirs, personal representatives and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Board in its sole discretion and judgment, and that
any such determination and any interpretation by the Board of the terms of this
Option Agreement shall be final and shall be binding and conclusive, for all
purposes, upon the Company, Optionee, and Optionee's heirs, personal
representatives and successors.
Section 15. Legends on Certificate. Unless an effective registration
statement has been filed with the Securities and Exchange Commission covering
the shares issuable upon exercise of this Option, the certificates representing
the shares of Common Stock purchased by exercise of the Option will be stamped
or otherwise imprinted with legends in such form as the Company or its counsel
may require with respect to any applicable restrictions on sale or transfer and
the stock transfer records of the Company will reflect stop-transfer
instructions with respect to such shares.
Section 16. Notices. Every notice hereunder shall be in writing and shall
be given by registered or certified mail. All notices of the exercise of any
Option hereunder shall be directed to IDM Environmental Corp., 396 Whitehead
Avenue, South River, New Jersey 08882, Attention: Secretary. Any notice given by
the Company to Optionee directed to Optionee at the address on file with the
Company shall be effective to bind Optionee and any other person who shall
acquire rights hereunder. The Company shall be under no obligation whatsoever to
advise Optionee of the existence, maturity or termination of any of Optionee's
rights hereunder and Optionee shall be deemed to have familiarized himself or
herself with all matters contained herein which may affect any of Optionee's
rights or privileges hereunder.
<PAGE>
Section 17. Construction and Interpretation. Whenever the term "Optionee"
is used herein under circumstances applicable to any other person or persons to
whom this award, in accordance with the provisions of Section 6 hereof, may be
transferred, the word "Optionee" shall be deemed to include such person or
persons.
Section 18. Binding Effect. This Option Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee as provided herein.
IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has been
executed as of the 18th day of February, 1998.
IDM ENVIRONMENTAL CORP.
ATTEST: By:
---------------------------------
Name:
- --------------- ---------------------------------
Title:
---------------------------------
OPTIONEE
Joel A. Freedman
-----------------------------------
b:/ms/nqsgran1.idm
idm97/98
Exhibit 10.12
IDM ENVIRONMENTAL CORP.
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is between
IDM Environmental Corp., a New Jersey corporation (the "Company"), and Frank A.
Falco ("Optionee"), who agree as follows:
Section 1. Introduction. The Company and the Optionee have heretofore
agreed to amend the employment agreement between the Company and the Optionee to
delete the stock bonus provision of the employment agreement. As consideration
for relinquishing the stock bonus right under the employment agreement, the
Company has agreed to grant to the Optionee, among other consideration, stock
options in an amount determined to have an intrinsic value approximately equal
to the estimated value of the stock bonus right under the employment agreement.
The Company, acting through its Board of Directors (the "Board"), has determined
that its interests will be advanced by the issuance to Optionee of nonqualified
stock options as provided for by the amendment to the employment agreement.
Section 2. Option. Subject to the terms and conditions contained herein,
the Company hereby irrevocably grants to Optionee the right and option
("Option") to purchase from the Company 2,250,000 shares of the Company's common
stock, $.001 par value ("Common Stock"), at a price of $3.719 per share, being
the closing bid price of the Common Stock on the last trading day immediately
preceding the grant of this Option.
Section 3. Option Period. The Option herein granted may be exercised by
Optionee in whole or in part at any time during a five year period beginning on
the date set forth below (the "Option Period").
Section 4. Procedure for Exercise. The Option herein granted may be
exercised by the delivery by Optionee of written notice to the Secretary of the
Company setting forth the number of shares of Common Stock with respect to which
the Option is being exercised. The notice shall be accompanied by, at the
election of the Optionee, (i) cash, cashier's check, bank draft, or postal or
express money order payable to the order of the Company, (ii) certificates
representing shares of Common Stock theretofore owned by Optionee duly endorsed
for transfer to the Company, or (iii) any combination of the preceding, equal in
value to the aggregate exercise price. Notice may also be delivered by telecopy
provided that the exercise price of such shares is received by the Company via
wire transfer on the same day the telecopy transmission is received by the
Company. The notice shall specify the address to which the certificates for such
shares are to be mailed. An option to purchase shares of Common Stock, shall be
deemed to have been exercised immediately prior to the close of business on the
date (i) written notice of such exercise and (ii) payment in full of the
exercise price for the number of shares for which Options are being exercised,
are both received by the Company and Optionee shall be treated for all purposes
as the record holder of such shares of Common Stock as of such date.
<PAGE>
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this Section 4.
Section 5. Death. In the event the Optionee dies during the Option Period,
the options previously granted to Optionee may be exercised (to the extent
Optionee would have been entitled to do so at the date of death) at any time and
from time to time by the guardian of Optionee's estate, the executor or
administrator of Optionee's estate or by the person or persons to whom
Optionee's rights under this Option Agreement shall pass by will or the laws of
descent and distribution, but in no event may the Option be exercised after its
expiration under the terms of this Option Agreement.
Section 6. Transferability. This Option shall not be transferable by
Optionee otherwise than by Optionee's will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, as amended,
or the rules thereunder. During the lifetime of Optionee, the Option shall be
exercisable only by Optionee. Any heir or legatee of Optionee shall take rights
herein granted subject to the terms and conditions hereof. No such transfer of
this Option Agreement to heirs or legatees of Optionee shall be effective to
bind the Company unless the Company shall have been furnished with written
notice thereof and a copy of such evidence as the Board may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions hereof.
Section 7. No Rights as Shareholder. Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by this Option
Agreement until the Option is exercised by written notice and accompanied by
payment as provided in Section 4 of this Option Agreement.
<PAGE>
Section 8. Extraordinary Corporate Transactions. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issuance of the Common Stock or subscription rights thereto, or any issuance of
bonds, debentures, preferred or prior preference stock ahead of or affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise. If the Company recapitalizes or otherwise changes its capital
structure, or merges, consolidates, sells all of its assets or dissolves (each
of the foregoing a "Fundamental Change"), then thereafter upon any exercise of
the Option, Optionee shall be entitled to purchase under the Option, in lieu of
the number of shares of Common Stock as to which the Option shall then be
exercisable, the number and class of shares of stock and securities to which
Optionee would have been entitled pursuant to the terms of the Fundamental
Change if, immediately prior to such Fundamental Change, Optionee had been the
holder of record of the number of shares of Common Stock as to which the Option
is then exercisable.
Section 9. Changes in Capital Structure. If the outstanding shares of
Common Stock or other securities of the Company, or both, for which the Option
is then exercisable shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares of Common Stock or other securities subject to the
Plan or subject to the Option and the exercise price, shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares or other
securities without changing the aggregate exercise price.
Section 10. Compliance With Securities Laws. Upon the acquisition of any
shares pursuant to the exercise of the Option herein granted, Optionee (or any
person acting under Section 6) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
Section 11. Compliance With Laws. Notwithstanding any of the other
provisions hereof, Optionee agrees that he or she will not exercise the Option
granted hereby, and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the Option or the issuance
of such shares of Common Stock would constitute a violation by Optionee or by
the Company of any provision of any law or regulation of any governmental
authority.
<PAGE>
Section 12. Withholding of Tax. To the extent that the exercise of this
Option or the disposition of shares of Common Stock acquired by exercise of this
Option results in compensation income to Optionee for federal or state income
tax purposes, Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the Company may require to meet its obligation under applicable tax
laws or regulations; and, if Optionee fails to do so, the Company is authorized
to withhold from any cash remuneration then or thereafter payable to Optionee,
any tax required to be withheld by reason of such resulting compensation income
or Company may otherwise refuse to issue or transfer any shares otherwise
required to be issued or transferred pursuant to the terms hereof.
Section 13. No Right to Employment. Optionee who is an employee shall be
considered to be in the employment of the Company so long as he or she remains
an employee of the Company or its Affiliates. Any questions as to whether and
when there has been a termination of such employment and the cause of such
termination shall be determined by the Board, and its determination shall be
final. Nothing contained herein shall be construed as conferring upon Optionee
the right to continue in the employ of the Company, nor shall anything contained
herein be construed or interpreted to limit the "employment at will"
relationship between Optionee and the Company.
Section 14. Resolution of Disputes. As a condition of the granting of the
Option hereby, Optionee, and Optionee's heirs, personal representatives and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Board in its sole discretion and judgment, and that
any such determination and any interpretation by the Board of the terms of this
Option Agreement shall be final and shall be binding and conclusive, for all
purposes, upon the Company, Optionee, and Optionee's heirs, personal
representatives and successors.
Section 15. Legends on Certificate. Unless an effective registration
statement has been filed with the Securities and Exchange Commission covering
the shares issuable upon exercise of this Option, the certificates representing
the shares of Common Stock purchased by exercise of the Option will be stamped
or otherwise imprinted with legends in such form as the Company or its counsel
may require with respect to any applicable restrictions on sale or transfer and
the stock transfer records of the Company will reflect stop-transfer
instructions with respect to such shares.
Section 16. Notices. Every notice hereunder shall be in writing and shall
be given by registered or certified mail. All notices of the exercise of any
Option hereunder shall be directed to IDM Environmental Corp., 396 Whitehead
Avenue, South River, New Jersey 08882, Attention: Secretary. Any notice given by
the Company to Optionee directed to Optionee at the address on file with the
Company shall be effective to bind Optionee and any other person who shall
acquire rights hereunder. The Company shall be under no obligation whatsoever to
advise Optionee of the existence, maturity or termination of any of Optionee's
rights hereunder and Optionee shall be deemed to have familiarized himself or
herself with all matters contained herein which may affect any of Optionee's
rights or privileges hereunder.
<PAGE>
Section 17. Construction and Interpretation. Whenever the term "Optionee"
is used herein under circumstances applicable to any other person or persons to
whom this award, in accordance with the provisions of Section 6 hereof, may be
transferred, the word "Optionee" shall be deemed to include such person or
persons.
Section 18. Binding Effect. This Option Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee as provided herein.
IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has been
executed as of the 18th day of February, 1998.
IDM ENVIRONMENTAL CORP.
ATTEST: By:
---------------------------------
Name:
- --------------- ---------------------------------
Title:
---------------------------------
OPTIONEE
Frank A. Falco
-------------------------------------
b:/ms/nqsgran2.idm
idm97/98
Exhibit 10.15
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, entered into this day of August, 1997, by and
between IDM Environmental Corp. ("IDM"), a New Jersey corporation, and M.H.
Meyerson & Co., Inc. ("Optionee").
WITNESSETH:
WHEREAS, Optionee has rendered and will continue to render valuable
services (the "Services") to IDM in connection with the operation of IDM's
business; and WHEREAS, in order to compensate Optionee for the Services, and as
inducement for continuing to provide the Services, IDM and Optionee desire to
evidence IDM's agreement to grant certain options to Optionee as described
herein. NOW THEREFORE, for and in consideration of the foregoing and for the
mutual covenants and consideration described herein, the parties hereto agree as
follows:
1. Services. Optionee has assisted, and shall assist, IDM by performing
consulting services including: (i) analyze and assess alternatives for IDM, as
presented by IDM, for raising capital, including public or private offerings of
IDM's securities; and (ii) provide introductions to professional analysts and
money managers.
2. Option. As consideration for Optionee rendering the Services to IDM, IDM
hereby grants to Optionee an option (the "Option"), exercisable immediately and
for the duration of this Agreement, to acquire up to 100,000 shares of the
common stock of IDM (the "Option Shares", the Option and the Option Shares are
referred to collectively as the "Registrable Securities") at $3.50 per share.
3. Term. The term of this Agreement shall commence on the date first stated
above and shall expire on the fifth anniversary of such date.
4. Piggyback Registration Rights. IDM covenants and agrees with Optionee
that commencing six (6) months after the date hereof and at any time thereafter
during the term of the Option, it proposes to file a registration statement with
respect to any class of equity or equity-related security (other than in
connection with an offering to the Company's employees or in connection with an
acquisition, merger or similar transaction) under the Securities Act of 1933, as
amended, in a primary registration on behalf of IDM and/or in a secondary
registration on behalf of holders of such securities and the registration form
to be used may be used for registration of the Registrable Securities, IDM will
give prompt written notice (which in the case of a registration statement
pursuant to the exercise of demand registration rights shall be within ten (10)
business days after IDM's receipt of notice of such exercise and, in any event,
after IDM's receipt of notice of such exercise and, in any event, shall be at
least thirty (30) days prior to such filing) to the holders of Registrable
Securities at the addresses appearing on the records of IDM of its intention to
file a registration statement and will offer to include in such registration
statement such number of Registrable Securities with respect to which IDM has
received written requests for inclusion therein within ten (10) days after the
giving of notice by IDM, subject to the right of IDM to exclude from the
registration statement some or all of the Registrable Securities if, and only
if, IDM has been advised in writing by any underwriter named in any such
registration statement that the distribution of the Registrable Securities
requested to be included in the registration statement would materially
adversely affect the distribution of securities by IDM contemplated by such
registration statement. All registrations requested pursuant to this Section 4
will be made solely at IDM's expense, other than discounts or commissions
relating to the sale of the Registrable Securities and fees, if any, of counsel
for the holder of the Registrable Securities. This Section is not applicable to
a registration statement filed by IDM on Forms S-4 or S-8 or any successor
forms. IDM's obligations under this Section 4 shall be conditioned upon a timely
receipt by IDM in writing of: (i) information as to the terms of such public
offering furnished by or on behalf of each holder of Registrable Securities
intending to make a public offering of his, her or its Registrable Securities,
and (ii) such other information as IDM may reasonably require from such holders,
or any underwriter for any of them, for inclusion in such registration
statement.
<PAGE>
5. Representations of Optionee. Optionee represents to IDM that Optionee is
authorized to enter into this Agreement and to carry out the terms set out
herein and that execution of this Agreement and carrying out of the terms hereof
will not breach any contracts or other obligations to which Optionee is a party
or violate any laws, regulations or rules applicable to Optionee.
6. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
7. Assignment and Amendment. The rights and obligations hereunder may not
be assigned and this Agreement may not be amended without the prior written
consent of all parties hereto.
8. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed first class, registered, with
postage prepaid as follows: If to IDM, addressed to: IDM Environmental Corp. 396
Whitehead Avenue South River, New Jersey 08882 Attn: President
If to Optionee, addressed to: M.H. Meyerson & Co., Inc.
30 Montgomery Street
P.O. Box 260
Jersey City, New Jersey 07303-0260
Attn: President
9. Costs and Expenses. Each party hereto shall be responsible for its own
costs and expenses incurred in connection with the execution and performance of
this Agreement.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
<PAGE>
11. Disputes. Any disputes arising among the parties with respect to this
Agreement shall be settled by arbitration in accordance with the rules then in
effect of the American Arbitration Association in Newark, New Jersey. The
prevailing party in any such disputes shall be entitled to recover all of its
reasonable costs and attorneys fees incurred as a result of such dispute.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and the year first written above.
IDM ENVIRONMENTAL CORP.
By:
---------------------------
Title:
---------------------------
M.H. MEYERSON & CO., INC.
By:
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Title:
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mhmeyers.soa
r:\legal\invrelat
Exhibit 10.16
Neither this Option nor the shares of Common Stock issuable on exercise of this
Option 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.
Non-Qualified Stock Option Grant
This Non-Qualified Stock Option Agreement ("Option Agreement") is between
IDM Environmental Corp., a New Jersey corporation (the "Company"), and The
Boston Group, L.P. ("Optionee"), who agree as follows:
1. This certifies that the Optionee, in consideration of valuable financial
consulting services rendered to the Company, is entitled to purchase from the
Company one hundred thousand (100,000) shares of the Company's common stock (the
"Common Stock") at an exercise price equal to $4.813 per share. This Option is
exercisable immediately and may be exercised in whole or in part at any time
prior to expiration.
2. All rights granted under this Option shall expire on February 5, 2000.
3. This Option and the Common Stock issuable on exercise of this Option
(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 Option or the Underlying Shares is not
necessary in connection with such transfer, sale, assignment or hypothecation.
The Option 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.
4. This Option may only be assigned to entities controlled by the Optionee.
Any permitted assignment of this Option shall be effected by the holder by (i)
executing a form of assignment acceptable to the Company; (ii) surrendering the
Option for cancellation at the office of the Company, accompanied by the opinion
of counsel to the Company referred to above; and (iii) delivery to the Company
of a statement by the transferee (in a form acceptable to the Company and its
counsel) that such Option 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 Options
representing in the aggregate rights to purchase the same number of Shares as
are purchasable under the Option surrendered. Such Options shall be exercisable
immediately upon any such assignment of the number of Options assigned. The
transferor will pay all relevant transfer taxes. Replacement options shall bear
the same legend as is borne by this Option.
<PAGE>
5. The term "Holder:" should be deemed to include any permitted record
transferee of this Option.
6. 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 Option 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 Option and all other Options.
7. This Option shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
8. In the event that as a result of reorganization, merger, consolidation,
liquidations, 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 Option 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 Option.
Such adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder of the Option of each 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 Option adjusted
accordingly.
9. The rights represented by this Option may be exercised at any time
within the period above specified by (i) surrender of this Option 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 Underlying Shares specified in the
notice together with applicable stock transfer taxes, if any; and (iii) the
delivery to the Company of a statement by the holder (in a form acceptable to
the Company and its counsel) that the holder intends to exercise this Option and
that such Shares are being acquired by the holder for investment and not with a
view to their distribution or resale.
10. Promptly following each receipt by the Company of the documents
required to exercise all or any part of this Option as provided in Section 9,
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
legends in accordance with applicable securities laws.
11. This Option 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 as well as other remedies.
<PAGE>
IN WITNESS WHEREOF, IDM Environmental Corp. has caused this Option to be
signed by its duly authorized officers under its corporate seal, and to be dated
as of February 5, 1998.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel A. Freedman
--------------------------
Joel A. Freedman, President
Exhibit 10.18
May 23, 1997
Mr. Ron Logerwell
8245 Boon Blvd., Suite 700
Vienna, VA 22l82
Dear Mr. Logerwell:
This consulting agreement ("Agreement") revises, restates and replaces the
original consulting agreement between IDM Environmental Corp. (the "Company")
and you dated April 25, 1996 ("Original Agreement"). The Company is pleased to
present you with the revised Agreement in recognition of your contributions to
the Company and as an incentive to continue to serve the Company.
Inasmuch as you have developed substantial expertise in environmental
contracting and have many contacts among public and private environmental
remediation customers that IDM Environmental Corp. (the "Company") believes
would be useful to the Company, subject to the further provisions hereof, the
Company will retain you and you will serve the Company as a consultant.
1. Duties. During the Term (as hereinafter defined) you agree to consult,
in person and by telephone, with the Company and its employees, agents and
representatives and other persons that the Company reasonably requests that you
meet with.
2. Compensation; Expenses.
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(a) Fee. The Company will compensate you for the services to be
rendered by you hereunder with a monthly fee at the rate of $2,500.00
payable on the first business day of each month.
(b) Stock Option. In addition to your monthly fee, the Company hereby
grants to you an option to purchase from the Company up to thirty thousand
(30,000) shares (the "Option Shares") of the Company's $.00l par value
Common Stock at the price per share set forth below pursuant to the
Company's l995 Stock Option Plan and subject to the terms and conditions
thereof (the "Option"). This grant is subject to the terms and conditions
hereinafter stated. Your options may be purchased, subject to the vesting
schedule set forth herein, at the following prices per share:
<PAGE>
Option Shares Price Per Share
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1 to 5,000 $2.00
5,001 to 10,000 $2.50
10,001 to 15,000 $3.00
15,001 to 20,000 $3.50
20,001 to 25,000 $4.00
25,001 to 30,000 $4.50
(i) Vesting Schedule. Upon execution of this Agreement, 5,000 Option
Shares shall vest and be immediately exercisable by you. The balance of the
Option Shares shall vest at the rate of l,000 Option Shares for each one
million dollars in revenue recognized by the Company which is directly
attributable to your efforts.
(ii) Exercise Period. Except as otherwise provided below, you may
exercise your Option Shares to the extent vested from the date of the grant
through the fifth anniversary thereof. The Option Shares may be exercised
in part from time to time or in full but only to the extent vested.
(iii) Payment. You shall pay for the Common Stock underlying your
Option Shares in full at the time you exercise and no shares shall be
issued until such payment has been received.
(iv) Termination of Consulting Relationship. Except as otherwise
expressly provided, this Option may be exercised only while you are engaged
by the Company as a consultant provided, however, (a) if the Company
terminates you with cause or you terminate your engagement without cause,
your Option shall expire immediately, and (b) if the Company terminates you
without cause or you terminate your engagement with cause, then you shall
have the right for one year from the date of termination to exercise the
Option Shares to the extent vested, in whole or in part. If you die while
engaged by the Company, your estate or any person who acquires the right to
exercise this Option by bequest or inheritance or by reason of your death
shall have the right within one year from the date of your death to
exercise the Option Shares to the extent vested, in whole or in part.
(v) Non-Transferability. The Option shall not be transferable other
than by last will and testament or by the laws of descent and distribution.
During your lifetime, the Option shall be exercisable only by you.
(vi) SEC Requirements. The exercise of the Option, the issuance of
shares pursuant to such exercise, and the subsequent transfer of such
shares shall be conditioned upon compliance with the listing requirements
of any securities exchange upon which the stock of the Company may be
listed, the requirements of the Securities Act of l933 and/or the
Securities Exchange Act of l934, and the requirements of applicable state
laws relating to authorization, issuance or sale of securities, and the
Company may take such measures as it deems desirable to secure compliance
with the foregoing.
<PAGE>
(vii) Change in Capital Stock. The total number of shares subject to
this Option shall be appropriately adjusted for a change in the outstanding
shares of Common Stock of the Company through recapitalization, stock
split, stock dividend or a change in the corporate structure through merger
or consolidation in which the Company is not the surviving corporation, any
outstanding options hereunder shall terminate, provided that you shall, in
such event, have the right immediately prior to such dissolution,
liquidation, or merger or consolidation in which the Company is not the
surviving corporation, to exercise your Option to the extent vested in
whole or in part. Nothing herein contained shall prevent the assumption of
an option or the substitution thereof of a new option by the surviving
corporation. Such adjustments and the manner of application thereof shall
be determined by the Board of Directors of the Company in its sole
discretion.
(viii) Withholding Tax. The Company may adopt and apply rules that
will ensure that the Company will be able to comply with applicable
provisions of any federal, state or local law relating to the withholding
of tax, including but not limited to the withholding of tax on the amount
includable in your income on the exercise of the Option.
(ix) Right to Terminate Employment; Benefits under Other Plans. The
right of the Company to terminate or change your engagement at any time
with or without cause shall not be restricted by the grant of the Option.
You shall not be deemed to receive compensation or realize earnings for
purposes of determining benefits under any pension, profit sharing, life
insurance, salary continuation or other employee benefit plan as a result
of receiving or exercising the Option.
(c) Expenses. The Company will reimburse you for all extraordinary
travel expenses reasonably incurred in performing your duties hereunder, in
all cases upon the presentation by you of an itemized account satisfactory
to the Company in substantiation of such expenses when claiming
reimbursement.
3. Term. You agree that your engagement as a consultant to the Company
began on March 25, l996 and continues on and through the date hereof; provided
that your engagement may, at any time upon three days' prior written notice, be
terminated by you or by the Company (collectively, the "Term"). Upon
termination, all of your obligations, other than those contained in paragraph 4
of this Agreement, and all of the obligations of the Company under this
Agreement except with respect to fees earned through such date and expenses due
for reimbursement and as otherwise set forth herein shall terminate.
4. Secret or Confidential Information. During the Term and for ten (l0)
years thereafter, you will not directly or indirectly divulge to anyone (other
than the Company's directors and persons designated by its Board of Directors)
or use for your personal benefit, or the benefit of any other person,
confidential or proprietary information of the Company, including, without
limitation, any trade secrets, inventions, discoveries, improvements, devices,
practices, processes, methods or products, whether or not patented or
patentable, as to which at any time during the Term you become aware except that
which (i) shall be generally known to the public or recognized as standard
practice, (ii) becomes available to you on a non-confidential basis from a
source other than the Company, unless disclosed in breach of agreement or
applicable law, (iii) was already known to you on the date of this Agreement, or
(iv) must be disclosed, as determined by the Company on advice of counsel, to
comply with applicable law.
<PAGE>
5. Survival. Notwithstanding any termination of this Agreement, you, in
consideration of your consulting hereunder to the date of such termination,
shall remain bound by the provisions of the foregoing paragraph 4.
6. Severability. If any provision of this Agreement including, without
limitation, the provisions of Paragraph 4, or the application thereof to any
person(s) or circumstance(s) shall be invalid or unenforceable to any extent,
the remainder of this Agreement and the application of such provision to other
Person(s) or circumstance(s) shall not be affected thereby; and each such
provisions shall be enforced to the greatest extent permitted by law.
7. Miscellaneous. The provisions of this Agreement may be amended or
modified by and only by a written instrument signed by the parties hereto. This
Agreement shall inure to the benefit of and be binding upon the successors of
the Company, but shall not otherwise be assignable by the Company or you. This
Agreement shall be construed and enforced in accordance with the laws of the
State of New Jersey.
If you agree with the foregoing, please sign the enclosed copy of this
letter and return it to the Company, whereupon this revised Agreement will
become a binding agreement between you and the Company and the Original
Agreement shall immediately terminate and shall no longer be legally binding or
have any force or effect.
Very truly yours,
The foregoing is agreed to as IDM ENVIRONMENTAL CORP.
of the day and year first above
written.
/s/ Ron Logerwell By: /s/ Joel Freedman
- -------------------------------- ------------------------
Ron Logerwell Joel Freedman
President
Exhibit 10.30
Protocol of Intention
By and Between
THE MINISTRY FOR FUEL AND ENERGY OF GEORGIA
and
IDM ENERGY CORPORATION
Tbilisi January 20, 1998
The Ministry for Fuel and Energy of Georgia, hereinafter referred to as
Georgian Party or its assignees or designees, and IDM Energy Corporation or its
assignees or designees, hereinafter referred to as Foreign Party, on the other
hand, hereinafter together referred to as the Parties, recognizing the important
role of energy sector for the development of Georgian economy and expressing
their good will to establish long-term cooperation in the field, have agreed
upon the following:
Foreign Party, taking into consideration its resources, shall incur the
corresponding economic and legal expenses, necessary to evaluate the
possibilities of generating and selling electric energy in Georgia. Georgian
Party agrees to conduct the relevant negotiations regarding purchasing of the
electric power generated by Foreign Party. A mutually agreeable Power Purchase
Agreement ( PPA ) between the Parties shall be signed no later than ninety (90)
days after the date of this Protocol of understanding.
The Parties have also expressed the desire to cooperate in the evaluation
of the construction's feasibility of high-voltage transmission lines, with the
purpose to export electric energy to other countries. The optimum capacity,
routing, construction schedule, etc. of such lines shall be determined later by
the Parties and covered by the corresponding agreement as the Parties shall
agree.
The PPA will establish the terms for the sale of electric energy by the
Foreign Party to the Georgian Party from a generating facility or facilities
with a net capacity of up to 1,000 ( one thousand) MW, which will be
constructed, operated and owned by the Foreign Party in Georgia (the
Project(s)).
The initial term of the PPA will be for thirty five (35) years beginning on
the Commercial Operations Date of each plant (which will be defined in the PPA).
The initial term of the PPA may be extended for an additional period of equal
duration at the sole discretion of the Foreign Party.
<PAGE>
The PPA will enter into full force and effect on the date of its execution.
The Foreign Party will advise and update the Georgian Party of the construction
schedule for the Projects and the projected Commercial Operation Date.
The Georgian Party will grant to the Foreign Party the required permits for
use of natural resources associated with the Project including, without
limitation, rivers and dams. Where required by law Foreign Party shall pay for
such usage. The direct cost to Foreign Party resulting here from shall be offset
in the then prevailing rate for electrical energy as charged by Foreign Party
for delivery hereof.
The Georgian Party covenants to cooperate with the Foreign Party, its
representatives and affiliates in connection with the financing for the Project.
The PPA will establish that the point of delivery will be located at the
generating facility of the Project. The Georgian Party will be responsible for
the transmission of electric energy from the Project to its facilities.
The Foreign Party will install, operate and maintain the metering system.
The PPA will establish that the Foreign Party shall make available to the
Georgian Party a minimum quantity of electric energy (the Minimum Off- Take
Quantity) during each contract year.
During each contract year, the Georgian Party must accept and pay for the
Minimum Off-Take Quantity. If during each contract year the Georgian Party
accepts an amount of electric energy that is less than the Minimum Off-Take
Quantity, the Georgian Party shall provide for the sale of electric energy to
other buyer( s ), either in Georgia or abroad. The Foreign Party will have the
right to receive payment for any amount of electric energy delivered to the
Georgian Party prior to the Commercial Operations Date at the rate established
in the PPA.
The Georgian Party represents and warrants that the Foreign Party shall
have the irrevocable right of first refusal, but not the obligation, to develop,
on a project-by- project basis for a period of one year from the date
preliminary due diligence is completed and the identified project is verified as
feasible to develop by the Foreign Party. The right to develop individual
projects shall be covered by separate agreements on a project-by-project basis.
Initially, the following projects are mentioned for the purpose of such
identification: Tvishi, Namakhvani, Zhoneti, Zestaponi I, Zestaponi lI,
Zestaponi III, and Rustavi I, Rustavi II.
This Protocol of Intention is and constitutes a legally binding and
enforceable obligation on the part of Foreign Party and Georgian Party. The
Parties agree that Foreign Party shall enter into a PPA with an Assignee (GA) of
the Georgian Party within 90 days of the date of this Protocol. If an agreement
with GA cannot be reached on terms acceptable to Foreign Party then Foreign
Party shall not have any obligations under this Protocol of Intention and shall
in such case have the right to decline the Project. This Protocol of
Understanding does not confer, and shall not be deemed to confer, any rights or
remedies upon any person or entity other than Georgian Party, Foreign Party, and
their permitted successors and assigns.
<PAGE>
This Protocol of Understanding does not constitute the entire agreement
between the Parties. Additional details hereof will be defined in the PPA.
Executed in Tbilisi, on January 20, 1998 in English and Georgian languages,
two original copies in each language.
Georgian Party Foreign Party
By: /s/ D. Zubitashvili By: /s/ Birger Munck
----------------------- -----------------------
D. Zubitashvili Birger Munck
Minister for Fuel President of IDM
and Energy of Georgia Energy Corporation
Exhibit 10.31
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is entered into this 15th day of
December, 1997 by and between Life International Products, Inc., a California
corporation (the "Licensor"), and Seven Star International Holding, Inc., a
British Virgin Islands corporation (the "Licensee"), with respect to the
following:
WHEREAS, Licensor is the owner and developer of the Process, as that term
is defined below, and is the owner, by assignment, of patents and patent
applications in the United States, Canada and various other countries throughout
the world claiming the Process for its manufacture; and
WHEREAS, Licensee desires to obtain a license from Licensor to use the
Process to process, produce, promote and sell products in Licensee's fields of
interest as described in this Agreement, and to use the Equipment or Unit(s), as
defined below, provided by the Licensor to enable Licensee to so utilize the
Process and Licensor is willing to grant such license and provide such Unit(s).
NOW, THEREFORE, in consideration of the terms and conditions and mutual
promises and covenants contained herein, the parties hereto agree as follows:
1. Definitions. Terms defined in this Section 1 and elsewhere in this
Agreement, parenthetically and/or in quotations, shall have the same meaning
throughout the Agreement. Defined terms may be used in the singular or plural.
1.1. "Process" shall mean the process for enriching water with oxygen,
developed and owned by Licensor wherein the liquid is saturated with a high
concentration of dissolved oxygen as more fully described in Exhibit A and
in the Intellectual Property.
1.2. "Intellectual Property" shall mean the patents, patent
applications, trademarks, service marks, copyrights, technology and
know-how owned by Licensor and relating to the Process and includes,
without limitation, the patents and patent applications listed on Exhibit B
and any reissue, extension or addition to any such patents and/or patent
applications.
1.3. "Intellectual Property Rights" shall mean Licensor's sole and
exclusive right to make use of the Intellectual Property, including the
right to license to any party the Intellectual Property, or any portion
thereof.
1.4. "Equipment" shall mean the P2 model manufactured by Licensor
which makes use of the Process in order to produce oxygenated water. Each
individual unit of such equipment shall be referred to as a "Unit".
<PAGE>
1.5. "Products" shall mean Licensee's products in the field of drinks
and beverages, encompassing only the following products:
A. Life O2 Water bottled and packaged with the Life O2 label as
approved by Licensor pursuant to Section 7.5 of this Agreement.
B. All other Life O2 drinks and beverages bottled or otherwise
packaged by Licensor, its affiliates and licensees utilizing the
Process, such beverages to be pre-approved by Licensor.
1.6. "Territory" shall mean the Peoples' Republic of China (including
Hong Kong), Taiwan, Indonesia and Singapore.
1.7. "Purpose of this Agreement" shall mean the processing,
production, promotion and sale of the Products in the Territory.
1.8. "Confidential Information" shall mean all confidential and
proprietary information disclosed by Licensor to Licensee, including this
Agreement, and all information related to the Process, the Intellectual
Property, the Equipment, Licensor technology, know-how, current products,
future products, potential products, drawings, intellectual property,
services marketing and other business information, whether disclosed orally
or in writing, and shall, without limiting the foregoing, specifically
include all information marked as "Confidential" or "Proprietary".
2. Confidential Information.
2.1. Licensee agrees, at all times, to promptly furnish to Licensor
any and all information it develops, maintains or otherwise has knowledge
of with respect to the Process and Products and grants to Licensor the
irrevocable right to use such information.
2.2. Without limiting the generality of the foregoing paragraph, if,
at any time, Licensee files information with any governmental agency (for
example, the Food and Drug Administration (the "FDA")), Licensee shall
furnish Licensor all such information developed by Licensee relating to the
Process and its inclusion in the Products, prior to such filings.
2.3. Licensee agrees to hold all Confidential Information in strict
confidence. Licensee may disclose the Confidential Information to its
responsible employees, consultants, sub-licensees, contractors and
affiliates who require such information in order to carry out the Purpose
of this Agreement. Licensee agrees to instruct all such parties regarding
the foregoing obligations. Licensee agrees that it shall take all
reasonable measures to protect the confidentiality of and avoid disclosure
or use of Confidential Information in order to prevent it from falling into
the public domain or the possession of persons other than those persons
authorized hereunder to have any such information, which measures shall
include the highest degree of care that Licensee utilizes to protect its
own confidential information of a similar nature. The obligation of
confidentiality imposed by this Section 2.3 shall be in effect for the term
hereof, as extended, plus fifteen (15) years. The foregoing obligations
shall not apply to any Confidential Information which Licensee can
demonstrate by written records: (i) relates to disclosures by Licensee
required by governmental agencies, such as the FDA; or (ii) is disclosed in
any of the Patents; or (iii) is or becomes publicly known through no
wrongful act of Licensee; or (iv) is disclosed to Licensee by a third party
not under an obligation of confidentiality to Licensor; or (v) was known by
Licensee prior to the disclosure thereof by Licensor. Licensee's obligation
to keep Confidential Information confidential shall not terminate upon the
termination of this Agreement.
<PAGE>
2.4. Licensee agrees that for a period of five (5) years following the
termination of this Agreement, Licensee shall not use the Process or the
Units in any manner to manufacture, sell, or distribute any products,
including beverages, fortified with oxygen, whether or not in competition
with Licensor. Furthermore, during the term hereof, Licensee shall only be
permitted to manufacture, sell, or distribute such products under the terms
of and subject to this Agreement.
3. Grant of License.
3.1. Licensor hereby grants to Licensee the exclusive right and
license (the "License") to use the Process and the Intellectual Property
for the Purpose of this Agreement, to make or have made, use and sell, with
the right of purchasers to resell, throughout the Territory, Products for a
period of five (5) years (the "Initial Term") effective the date hereof;
provided, however, that for purposes of calculating the commencement date
of the first year of the Initial Term (the "First Year"), the First Year
shall commence on the earlier of the first day that Licensee produces the
Product for sale or resale or thirty (30) days after the Units are received
by Licensee at its plant site. It being agreed also that the First Year
shall be thirteen (13) months in duration. Nothing contained herein shall
be deemed to grant to Licensee the right or license to make use of the
Process for any other purpose within or outside of the Territory nor permit
others to do so.
3.1.1. The License shall include the right of Licensee to
sublicense to any subsidiary of Licensee or any other third party,
subject to the prior approval of Licensor which shall not be
unreasonably delayed or withheld, provided that such sublicensee
agrees to be bound by all of the obligations of Licensee and all of
the provisions of this Agreement as if such sublicensee was the same
as Licensee.
<PAGE>
3.2. Extension of Term.
3.2.1. At Licensee's election, Licensee may extend the term of
this Agreement for an additional term of five (5) years (the "First
Renewal Term") by giving notice to the Licensor not later than ninety
(90) days prior to the expiration of the Initial Term, provided that
this Agreement has not been previously terminated and further provided
that Licensee, on the commencement of the First Renewal Term, is not
in breach of any material terms of this Agreement.
3.2.2. Licensee shall have the right to extend further the term
of this Agreement for successive five (5) year terms (each a
"Succeeding Renewal Term"), commencing on the expiration of the First
Renewal Term by giving notice to the Licensor not later than ninety
(90) days prior to the expiration of the First Renewal Term, provided
that this Agreement has not been previously terminated and further
provided that Licensee, on the commencement of such then-current
Succeeding Renewal Term, is not in breach of any material terms of
this Agreement.
3.3 Additional License Grants. Licensor hereby grants to Licensee the
sole right of first option for the exclusive right and license to use the
Process in the fields of aquaculture, bioremediation and waste water
treatment in the Territory for a period of two (2) years from and after the
commencement of the First Year. For purposes of the preceding sentence, the
phrase "right of first option" shall mean the Licensee shall have an
exclusive option to license the Process from Licensor in the fields and
Territory set forth above subject to mutually acceptable terms and
conditions.
4. Use of Units.
4.1. Within three (3) months of Licensee's request, Licensor shall
provide to Licensee the number of Units requested by Licensee and an
operations manual therefor (the "Original Units") to be used for the
manufacture of the Products. The Original Units shall be shipped to such
plant location as indicated by Licensee ("Licensee's Plant"). The Original
Units shall be installed at Licensee's Plant(s) by Licensor's technician.
The Original Units shall be shipped FOB Licensor's closest manufacturing
facility to Licensee's Plant(s), with all costs for shipment of the Units
to be borne by Licensee. Licensee shall pay for or reimburse Licensor for
all actual expenses associated with the installation, including travel,
hotel and incidental expenses, as reasonably incurred, for Licensor's
technician. Licensor shall provide the installation services and time of
the technician at no cost to Licensee.
4.2. The Units shall be the property of the Licensor, and shall bear
serial numbers recorded by the Licensor and acknowledged by Licensee prior
to shipment. Licensee shall pay to Licensor a one time rental fee of the
actual cost of manufacture for each Unit to be paid upon installation of
each Unit at Licensee's Plant(s). These payments shall be in addition to
the Guaranteed Minimum Royalty payments to be paid by Licensee to Licensor
in accordance with Section 5.2 below. For the First Renewal Term and for
all succeeding renewal terms, Licensor shall have the option of increasing
such rental fee by up to fifty percent (50%) over the rental fee for the
preceding term for all additional Units installed.
<PAGE>
4.3. Licensor represents and warrants to Licensee that each Unit it
shall deliver to Licensee will be fit for the purpose intended, will be of
good and sound quality and be free from manufacturer's or design defects.
Licensor warrants and will be responsible for each Unit for a five (5) year
period commencing with the date of installation. Licensor shall provide the
services of a technician for the normal maintenance of the Units, with
Licensee responsible for paying or reimbursing Licensor for all actual
expenses associated with such maintenance, including travel, hotel and
incidental expenses for Licensor's technician. In the event that repairs
are required due to the negligence, mishandling, or improper day-to-day use
and maintenance of the Units by Licensee or its employees or agents,
Licensee shall pay for all expenses associated with such repair, including
the compensation for the technician's services. Licensee agrees to utilize
the Units properly and in accordance with the guidelines and instructions
contained in the operational manuals provided by Licensor. Licensor shall
have the right, without prior notice, to inspect the Units whether or not
they are in operation, at any time during normal business hours, or
otherwise (provided that inspections outside of normal business hours shall
require seven (7) days prior notice).
4.4. In the event that the term of this Agreement extends beyond ten
(10) years from the date of this Agreement, upon such ten (10) year
anniversary, Licensor shall replace all Units installed at Licensee's Plant
with the then-current models of Units. The replacement Units shall be
installed at Licensee's Plant by Licensor's technician. All costs for
shipment of the replacement Units will be borne by Licensee. Licensee shall
pay for or reimburse Licensor for all actual expenses associated with the
installation, including travel, hotel and incidental expenses for
Licensor's technician. Licensor shall provide the installation services and
time of the technician at no cost to Licensee.
4.5. Licensee shall have the right to any improvements to the
Equipment and to lease any new models of the Equipment or Units, if any, as
and when such improvements are made and such models are ready for
operation. The price for adding such improvements or leasing such new
models ("New Models") shall be equal to Licensor's actual fully burdened
cost for such New Model(s). Licensor's actual fully burdened cost shall not
include any costs incurred by Licensor with respect to the development,
manufacture or other expenses associated with the Equipment, the Units or
New Model(s) as used for purposes other than the production of beverages
(such as modifications for environmental uses of the equipment). Licensee
shall receive a credit against the above described New Model lease price
equal to the amount paid for any original Units replaced by the New
Model(s), reduced on an amortized basis of 20% per year commencing with the
date of installation of such original Units. By way of example, if the
original Unit price was $25,000 and the Licensee replaces same exactly one
year after the original Unit's installation, then the price for the new
Model(s) shall be reduced to $20,000 (i.e., 20% of the original price has
been depreciated off the original Unit). The New Models shall be the
property of Licensor, and shall bear serial numbers recorded by the
Licensor and acknowledged by Licensee (along with at least one complete
operations manual per New Model) FOB from the Licensor's manufacturing
facility closest to the Licensee's designated delivery site, with all costs
of shipment to be borne by Licensee. The New Models shall be installed at
Licensee's designated location by Licensor's technician. Licensee shall pay
for or reimburse Licensor for reasonable travel, hotel and other incidental
expenses if supported by receipts of Licensor's technician associated with
the installation. Licensor shall provide the installation and time of the
technician at no cost to Licensee.
<PAGE>
5. Royalties; Minimum Guarantee.
5.1. In consideration of the grant of the License and all other rights
hereunder, and the use of the Units, during the Term of this Agreement,
Licensee and/or its sublicensees shall pay to Licensor as royalties
("Royalties") an amount equal to five percent (5%) of the Gross Receipts
(as defined below) collected in the First Year and seven (7%) percent of
the Gross Receipts collected in each subsequent year of this Agreement.
"Gross Receipts" shall be defined to mean the total annual gross sales of
the Products sold in the Territory by Licensee exclusive of any customs,
duties, federal, state or local taxes, tariffs, third party charges or any
other fees of any kind. All customs, duties, federal, state or local taxes
and/or tariffs paid by Licensee on the Royalties arising in the Territory
shall be net against and deducted from Royalties paid to Licensor by
Licensee. In the event that Licensee sells the Product to a related party,
then such portion of the Gross Receipts relating to related party sales
shall be calculated based on the assumption that the invoice price charged
by Licensee for the Products sold to a related party is equal to the lowest
invoice price charged by Licensee for the Products sold to an unrelated
third party in the same country within the Territory to the extent the
actual invoice price is lower.
5.2. As a condition of maintaining the License, Licensee shall be
required to pay to Licensor guaranteed minimum royalty amounts ("Guaranteed
Minimum Royalties") in accordance with this section. All Guaranteed Minimum
Royalties shall be applicable against the Royalties payable to Licensor
under this Agreement. Licensee agrees to pay to Licensor all Guaranteed
Minimum Royalties in accordance with the payment schedule set forth below:
5.2.1. Four Hundred Thousand Dollars ($400,000) as the Guaranteed
Minimum Royalty for the First Year payable upon execution of this
Agreement. It being agreed that a $40,000.00 good faith deposit has
previously been paid to Licensor by Licensee, receipt of which is
hereby acknowledged, and shall be credited to the First Year
Guaranteed Minimum Royalty.
5.2.2. Five Hundred Thousand Dollars ($500,000) as the Guaranteed
Minimum Royalty for the second year payable on the first business day
of the second year.
5.2.3. Six Hundred Thousand Dollars ($600,000) as the Guaranteed
Minimum Royalty for the third year payable on the first business day
of the third year.
5.2.4. Seven Hundred Twenty Thousand Dollars ($720,000) as the
Guaranteed Minimum Royalty for the fourth year payable on the first
business day of the fourth year.
<PAGE>
5.2.5. Eight Hundred Sixty Four Thousand ($864,000) as the
Guaranteed Minimum Royalty for the fifth year payable on the first
business day of the fifth year.
5.3. On or before the 10th day after the beginning of each calendar
year quarter during the term hereof, and any extension thereof, Licensee
shall deliver to Licensor a written statement, certified to be true and
correct by the Chief Financial Officer of Licensee, setting forth (i) the
Gross Receipts received for the Products during the preceding calendar
year, (ii) the calculation of the Royalty amounts due under Section 5.1
above, and (iii) subtracting from the Royalties due any unapplied
Guaranteed Minimum Royalties for that Royalty year actually paid to
Licensor and any unapplied Unit Rental Fees actually paid to Licensor. At
such time as the Royalties due to Licensor for any Royalty Year begin to
exceed the Guaranteed Minimum Royalties paid for such year, giving a
positive balance due on such statement, Licensee shall remit with each such
statement a check in full payment of the Royalty amount due to Licensor. If
Licensee fails to pay any sum due hereunder within ten (10) days after its
due date, the amount owing will thereupon bear interest until paid at the
rate of two percent (2%) above the prime rate per annum as established by
First Union National Bank of Florida, with the amount of such interest
calculated from such time as said amounts were initially due hereunder
until they are actually paid. In no event shall the interest rate charged
exceed the maximum rate allowable under the relevant provisions of the laws
of Florida and Licensee's domicile. In addition, at the same time Gross
Receipts are reported, Licensee shall report the open unshipped orders and
prior months' bookings as of the close of the preceding calendar quarter.
5.4. Licensee shall keep full and accurate books and records in
sufficient detail so that Royalties can be properly calculated. At all
times during the term of this Agreement and for twelve (12) months
thereafter, Licensor, upon giving Licensee at least ten (10) days advance
written notice of its intention to do so, shall have the right to inspect
or audit all books and records of Licensee with respect to the Product. If
any such audit shall disclose that Licensee has understated Gross Receipts
or has underpaid Royalties for any reporting period, Licensee shall, within
three (3) days of receipt of written demand therefor, pay to Licensor the
amount, if any, by which the Royalties owing exceed Royalties paid, with
interest at two percent (2%) over the prime rate, as described in Section
5.3 above. In the event that Licensee has understated Gross Receipts in
excess of five percent (5%) or underpaid Royalties in excess of five
percent (5%) of the amount due, Licensee shall, within three (3) days of
written demand therefor, pay to Licensor all costs, fees and expenses
incurred by Licensor in conducting such audit, including without
limitation, reasonable travel expenses.
6. Licensor's Right to Terminate in Event of Nonmarketing of Licensed Use.
6.1. Licensor shall have the right to terminate this Agreement in its
entirety and the License granted herein in the event that (i) Licensee is
not actively and substantially producing the Product within sixty (60) days
of the installation of the Original Units, or (ii) Licensee fails to market
such Product to the trade or the consumer in commercially reasonable
quantities within sixty (60) days after the installation of the Original
Units or during any thirty (30) day period thereafter.
<PAGE>
6.2. Termination of the license and this Agreement under this Section
6 shall be effective immediately upon written notice from Licensor to
Licensee of such termination.
7. Licensor Rights; Quality Controls.
7.1. The Products shall conform to such reasonable standards and
specifications as Licensor and Licensee shall agree from time to time.
Representatives of Licensor shall have the right, at all reasonable times
upon reasonable notice, to inspect those aspects of Licensee's operations
relating to the manufacture of the Products and the use of the Process,
both at the Licensee's Plant(s) and elsewhere, to carry out the purposes of
inspection. Any sublicense for the Product shall contain a provision for
inspection by Licensor.
7.2. Samples.
7.2.1. Licensee shall submit for the Licensor's approval ten (10)
initial samples of each Product, packaged and labeled in the form
approved by Licensor under Section 7.5 hereof, at least fifteen (15)
days before actually marketed.
7.2.2. Quarterly, at other times upon reasonable request by
Licensor, and at all times before any change is made in the packaging
or content of any Product, Licensee, at its own expense, shall submit
to the Licensor and without obligation on the part of Licensor to
return same:
(I) a reasonable number of samples (in no case less than ten) of
each batch of Products of Licensee's production, packaged as
it does or shall actually appear on the retail market; and
(ii) a reasonable number of samples (in no case less than ten) of
each label, tag, wrapper, carton, container, bottle and item
of promotional and/or advertising material which the
Licensee shall use in connection with each of the Products;
and
(iii)copies of reports (which must be no less frequently than
quarterly or as reasonably requested by Licensor), prepared
by professional food laboratories, which shall show whether
or not the Products comply with the standards and
specifications mutually agreed upon and with governmental
requirements, if any; and
<PAGE>
(iv) tear sheets of all media advertising (as defined in Section
7.7 below) together with a statement of place(s) of
publication and date(s) of the advertisement.
7.3. Based upon the reports submitted under 7.2.2. (iii), if any
material aspects of the Product fail to comply with the standards and
specifications as mutually agreed upon, Licensee shall promptly proceed to
correct such defects, in accordance with the standards and specifications.
7.4. All of the Products shall be first quality, unadulterated food
products, equal in taste, quality of ingredients and appearance to the
sample submitted to the Licensor for preliminary approval, and in all
events each Product processed, distributed and sold hereunder will be equal
or superior in quality to the approved sample.
7.5. The Product shall be packaged and labeled in accordance with the
specifications of Licensor. Licensee shall not distribute the Product under
any name other than "Life O2" or such other name as approved in writing by
Licensor. Furthermore, prior to the dissemination by Licensee of any
packaging, labeling, advertising or promotional materials concerning the
Product or the Process, Licensee shall submit a specimen to the Licensor
for approval and Licensee shall not disseminate any such Product or
material without Licensor's prior written approval, which approval shall
not be unreasonably withheld or delayed. Licensee shall include Licensor's
"Life O2" logo indicating its particular process of oxygenation on Products
which it sells in the Territory; provided, however, that the size and
placement of such "Life O2" logo shall be at the reasonable discretion of
Licensee after due consultation with Licensor and all applicable regulatory
authorities. Licensee's "Life O2" logo shall be included in all of
Licensee's advertising of any Product. The dimensions of such logo on the
Product label and any other Licensee advertising of comparable size shall
be no smaller than 7 millimeters by 5.6 millimeters without any border, and
on all other Licensee advertising shall be no smaller than 1 centimeter by
1.2 centimeters, surrounded by a non-printed border of at least one
millimeter in thickness.
7.6. Licensee shall deliver to Licensor, promptly upon its receipt of
same, copies of all surveys, market studies, analyses, and the like
concerning the Products, whether made by or for the Licensee or which shall
otherwise come into Licensee's possession.
7.7. During each of its fiscal quarters during the term of this
Agreement, and any extensions thereof, the Licensee shall incur expenses
for media advertising which, in the aggregate, equals a sum which is no
less than five percent (5%) of the Gross Receipts for each fiscal quarter.
Any deficiency in any fiscal quarter may be corrected by an expenditure in
the calendar month immediately following such quarter in an amount equal to
such deficiency, such expenditure to correct the deficiency not to be
included in computing the advertising and promotion expenditure of the
Licensee for the quarter in which actually incurred. The term "media
advertising" shall not include any coop advertising or promotional payments
or discounts, but rather, shall be expressly limited to placement by or on
behalf of the Licensee for advertisements of the Products. Licensee shall
present a copy of the advertising to Licensor prior to its dissemination
for Licensor's prior written approval, which approval shall not be
unreasonably withheld or delayed.
<PAGE>
7.8. Licensor agrees that, during each Royalty year during the term
hereof, it shall dedicate five percent (5%) of the total aggregate amount
of Royalties collected from Licensee hereunder to advertising, marketing,
and/or consumer education designed, in Licensor's sole discretion, to
increase marketplace awareness of the Process and the Products in the
Territory (such amount being referred to herein as the "Advertising
Amount"). Upon request of Licensee, Licensor shall make available to
Licensee one-half (1/2) of the Advertising Amount, in the form of a credit
against Royalties to be paid to Licensor hereunder (the "Advertising
Credit"); provided, however, that, subject to Section 7.8.1. hereof, in no
event shall the sum of the Advertising Credit and the Advertising Amount
exceed five percent (5%) of the aggregate amount of Royalties paid by
Licensee in the previous Royalty year, and provided, further, that (i)
Licensor's "Life O2" logo shall be displayed in connection with such
advertising in accordance with the requirements of Section 7.5 above, and
(ii) Licensee shall make no use of Licensor's logo or any Intellectual
Property of Licensor, including, without limitation, trademarks, service
marks or the like, which would diminish the value of the same.
7.8.1. In addition to the Advertising Credit, Licensee shall be
entitled, upon request, to receive an additional Advertising Credit
(the "Additional Credit") of one percent (1%) of Royalties paid by
Licensee for each 1,000,000 cases of Product sold during the previous
year, up to an aggregate limit of ten percent (10%) of such Royalties,
which aggregate limit shall include the Advertising Credit in its
calculation. Licensee's eligibility for such Additional Credit shall
be governed by the same terms as govern the Advertising Credit.
8. Insurance.
8.1. Within five (5) days of the date of installation of the Original
Units, the Licensee shall submit to Licensor proof, in form and substance
satisfactory to Licensor, that the Licensee has purchased comprehensive
liability insurance, or the equivalent in the Territory, in an amount not
less than $10,000,000 for personal injury and $1,000,000 for property
damage, for each occurrence related to the Products, subject to all
applicable legal limitations within the Territory. The Licensee shall
maintain such insurance in full force and effect at all times when selling
the Products and coverage shall survive termination of the License granted
hereby for any previously manufactured Products. Such insurance coverage
shall insure the Units at the Licensee's Plant(s), with acknowledgment in
the insurance policy that such Units are the property of Licensor. Each
insurance shall name the Licensor as an additional insured party and shall
require the insurer to give Lessor at least thirty (30) days notice of
cancellation before any cancellation shall be effective as to the Licensor.
Licensee shall submit to the Licensor proof of renewal of such insurance
coverage at least thirty (30) days prior to the expiration date of any such
policy. The Licensee shall request each contractor and subcontractor which
renders services to the Licensee with respect to the Products to provide
substantially similar insurance protection.
<PAGE>
9. Termination.
9.1. This Agreement and the license granted hereunder shall terminate
at the expiration of the Initial Term or any renewal term hereof, unless
terminated earlier in accordance with this Section 9.
9.2. This Agreement may be terminated upon notice:
9.2.1. by Licensor pursuant to the terms of Section 6 hereof; or
9.2.2. by Licensor, in the event that the Licensee shall failed
to either remit Royalties in full when due (subject to Section 9.3
below), or intentionally and willfully failed to fully and fairly
report Gross Receipts, which failure shall be discerned by Licensor
pursuant to the audit rights provided by Section 5.5.
9.2.3. by either party, if the other party has breached or failed
to punctually perform any of its duties or obligations under this
Agreement and such breach remains uncured, is not in the process of
being cured or such failure to perform continues for at least thirty
(30) days after the aggrieved party has given notice to the other; or
9.2.4. by the Licensor, if Licensee is insolvent or becomes the
subject of a voluntary or involuntary petition in bankruptcy for its
reorganization or liquidation and does not post a bond, or makes any
assignment for the benefit of its creditors, or if a trustee or
receiver of its property is appointed, or if Licensee takes or is
subjected to any other similar action based upon its inability to meet
its financial obligations; or
9.2.5. by the Licensor, if there is a sale of substantially all
of the assets or a majority of the shares of the Licensee, or if there
is a change in control of the Licensee by contract, a change of
management or otherwise.
9.3. Section 9.2.2. notwithstanding, a notice of termination based
upon nonpayment or underpayment of Royalty shall be deemed withdrawn in the
event that the Licensee shall pay such unpaid amount within three (3) days
with interest from the date originally due at fourteen percent (14%) per
annum; provided, however, that the Licensee shall be able to effectuate
such Royalties in excess of one (1) time in any such period shall result in
the notice of termination as to any additional default being final, binding
and noncurable.
9.4. If the Initial Term (or renewal term, if applicable) expires or
if the Agreement is terminated, all rights of the Licensee (and
sublicensees, if any) under this Agreement shall cease and the Licensee
shall cease (and cause the sublicensees to cease) to use the Process or the
Units and shall cease the manufacture, use or sale of the Products, the
Licensee concurring that any such continued manufacture, use or sale shall,
in and of itself, cause irreparable injury to Licensor. Furthermore,
Licensee shall immediately return to and/or surrender control of the Units
to Licensor, who shall be granted the right to enter the Licensee's
Plant(s) to remove all of the Units provided to Licensee hereunder. In such
event, Licensee shall be obligated to assist Licensor with the removal of
such Units, to the extent requested by Licensor. Notwithstanding the above,
in the event that Licensee has any inventory of Products remaining at the
effective date of termination hereof, Licensee shall offer to sell such
inventory to Licensor at Licensee's actual purchase price thereof, and if
Licensor elects not to purchase such inventory, Licensee shall have a
period of six (6) months from the date of termination hereof in which to
sell the remaining Products.
<PAGE>
9.5. Notwithstanding any termination of this Agreement and exercise of
any rights or remedies hereunder, the following rights and obligations
shall survive any such termination or exercise of rights to the degree
necessary to permit their complete fulfillment or discharge:
9.5.1. the Licensor's right to receive or recover, and the
Licensee's obligation to pay, all Royalties as may be due and payable
at the time of such termination, or as may become due and payable
after such termination, and any adjustments in payments required
thereafter as a result of any audits under Section 5.5; and
9.5.2. Licensee's obligations under Section 2 hereof;
9.5.3. Any other rights and obligations intended in this
Agreement to survive termination.
10. Improvements to Unit and Process.
10.1. Licensee acknowledges that any and all improvements, inventions,
modifications, technology or development (collectively "Improvements") made
by Licensee, its employees and agents, to the Units and/or Process, if any,
shall be the sole and exclusive property of Licensor and that Licensor
shall have the right to use, refrain from using, change, modify, add to,
subtract from and to file for any patents for the Improvements or any of
them in any manner and in any and all countries throughout the world, in
perpetuity, as Licensor in its sole discretion shall determine. Licensee
hereby irrevocably and exclusively assigns to Licensor, in perpetuity, all
rights (including without limitation all patents and renewals and
extensions thereof) in and to such Improvements. Licensee further agrees to
execute and cause its employees to execute any and documents (including
without limitation assignments, declarations and affidavits) requested by
Licensor or Licensor's attorneys in furtherance of the provisions of this
paragraph. Licensee hereby grants to Licensor its irrevocable power of
attorney, coupled with an interest, to execute, in Licensee's name, any and
all documents required under this paragraph. Notwithstanding the foregoing,
Licensee shall have the right to use such Improvements within the scope of
the License without any escalation in royalty.
<PAGE>
11. Representations and Warranties; Indemnification.
11.1. Each party hereto represents and warrants the following:
11.1.1. Each party is a corporation, duly incorporated, in good
standing and authorized to transact business in the jurisdictions in
which the respective corporations transact business.
11.1.2. Each party hereto has taken the necessary corporate
action to properly authorize and bind the corporation to the terms and
conditions hereof. Nothing contained in the Agreement shall violate
any of the Articles of Incorporation, By-Laws or any other agreement
or arrangement of the respective corporations.
11.1.3. To the best of the parties' knowledge nothing in
existence prevents them from entering into this Agreement or
performing under this Agreement.
11.2. Each party ("Indemnifying Party") agrees to indemnify, hold
harmless, reimburse and defend the other party ("Indemnified Party") at all
times against any claim, costs, expense, liability, obligation, loss,
damage or judgment (including legal fees) of any nature (collectively
referred to as "Claim"), incurred by or imposed upon the Indemnified Party
which results, arises out of or is based upon any misrepresentation by the
Indemnifying Party. The Indemnified Party shall send notice to the
Indemnifying Party of any Claim, and within ten (10) business days
thereafter counsel for the Indemnified Party and counsel for the
Indemnifying Party shall determine if the Indemnifying Party shall assume
the defense of the Claim; provided, however, the failure to give notice
shall not affect the Indemnified Party's rights hereunder so long as the
Indemnified Party vigorously defends the Claim.
11.3. Licensor represents and warrants to Licensee that the Equipment
and each Unit shall be of good material and workmanship, shall be fully
operational and in good working order free and clear of any defects (normal
wear and tear excepted), shall be fit and sufficient for the purpose
intended, and shall meet or exceed the minimum specifications described in
Exhibit A attached hereto and made a part hereof.
12. Miscellaneous.
12.1. The terms of this Agreement are contractual, not mere recitals.
This Agreement is the result of protracted, arms-length negotiation between
the parties, each of whom has participated in the drafting hereof, through
their respective attorneys or legal representatives. The rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this
Agreement.
<PAGE>
12.2. This Agreement shall, in all respects, be governed by the laws
of the State of Florida applicable to agreements executed and to be wholly
performed within the State of Florida. Nothing contained herein shall be
construed so as to require the commission of any act contrary to law, and
wherever there is any conflict between any provision contained herein and
any present or future statute, law, ordinance or regulation contrary to
which the parties have no legal right to contract, the latter shall prevail
but the provision of this document which is affected shall be curtailed and
limited only to the extent necessary to bring it within the requirements of
the law.
12.3. The captions appearing at the commencement of the paragraphs
hereof are descriptive only and are for convenience and reference and shall
not be construed as part of this Agreement. Should there be any conflict
between any such caption and the paragraph at the head of which it appears,
the paragraph and not such caption shall control and govern in the
construction of this document.
12.4. The relationship between the parties hereto is contractual only,
and nothing contained in this Agreement shall be construed so as to create
a joint venture or partnership between the parties hereto or a third party
beneficiary relationship to any third party. Furthermore, nothing contained
herein shall be deemed to create any franchise rights in Licensee; this
Agreement is not a franchise and does not include payment of a franchise
fee, and does not require distribution of the Product under the control or
plan of Licensor.
12.5. Any loss or damage, or delays in or failure of performance by
either party hereto shall not constitute default hereunder or give rise to
any claims for damages if, but only to the extent that, such loss, damage,
delay or failure is caused by "Force Majeure." As herein used, the term
"Force Majeure" means: war, mobilization, revolution, civil commotion,
riots, strikes, lockouts, floods, hurricanes, similar storms or other
extraordinary actions of the elements, acts of God or the public enemy,
acts of civil or military authorities, interruption of transportation
facilities, fire and any other cause which is beyond the reasonable control
of the party whose performance is affected and which, by the exercise of
reasonable diligence, such party is unable to prevent.
12.6. Any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing and shall be
validly given or made to another party if given by person, telex,
facsimile, telegram or if deposited in the United States mail, certified or
registered, postage prepaid, return receipt requested. If such notice,
demand or other communication be given by personal delivery, telex,
facsimile or telegram, service shall be conclusively deemed made at the
time of such personal service. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed
given forty-eight (48) hours after the deposit thereof in the United States
mail addressed to the party to whom such notice, demand or other
communication is to be given as hereinafter set forth:
<PAGE>
If to the Licensor: Life International Products, Inc.
Attn: Duane DuCharme
8889 Pelican Bay Boulevard, Suite 301
Naples, Florida 34108
Telephone: 941-592-9788
Facsimile: 941-592-9787
If to Licensee: Seven Star International Holding, Inc.
Attn: Li Kam Chung
Room 1810-1814 Hang-Lung Centre
2-20 Paterson Street, Causeway Bay
Hong Kong
Telephone: (852) 2895-5698
Facsimile: (852) 2577-8201
Any party hereto may change its address for the purpose of receiving notices,
demands and other communications as herein provided by a written notice given in
the manner provided hereby to the other party or parties hereto.
12.7. No reliance upon or waiver of one or more provisions of this
Agreement shall constitute or be deemed a waiver of any other provisions
hereof or of any subsequent breach of the same or any other provision.
12.8. This Agreement may be executed in one or more separate
counterparts, each of which, when so executed, shall be deemed to be an
original. Such counterparts shall, together, constitute and shall be one
and the same instrument. Any signed copy of this document or of any other
document or agreement referred to herein, or copy or counterpart thereof,
delivered by facsimile transmission shall for all purposes be treated as if
it were delivered containing an original manual signature of the party
whose signature appears in the facsimile, and shall be binding upon such
party in the same manner as though an originally signed copy had been
delivered.
12.9. No amendment, change or modification of this Agreement shall be
valid unless in writing and signed by all of the parties in interest at the
time of such amendment, change or modification.
12.10. Each of the parties hereto shall execute and deliver any and
all additional papers, documents, and other assurances, and shall do any
and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of
the parties hereto.
<PAGE>
12.11. Nothing contained herein is intended to or shall be construed
so as to limit the remedies which any party hereto may have against any
other party hereto in the event of a breach by any party of any
representation, warranty, covenant or agreement made under or pursuant to
this Agreement, it being intended that any remedies shall be cumulative and
not exclusive. Without limiting the generality of the foregoing, the rights
granted to Licensee pursuant to this Agreement are of a special, unique,
unusual, extraordinary and intellectual character which gives them a
peculiar value, the loss of which cannot be reasonably or adequately
compensated by damages in an action at law. As such, Licensor may seek, but
shall not be limited to, equitable relief, by injunction or otherwise, in
the event of a default by Licensee.
12.12. The parties hereto intend this Agreement, together with any
related documents referred to in this Agreement, to constitute the entire
understanding and agreement of the parties with respect to the subject
matter of this Agreement, and any and all prior agreements, understandings
or representations are hereby and intended to be terminated and canceled in
their entirety.
IN WITNESS WHEREOF, the parties have executed this License Agreement as of
the date first written above.
"Licensee" "Licensor"
SEVEN STAR INTERNATIONAL LIFE INTERNATIONAL PRODUCTS, INC.
HOLDING, INC.
By: /s/ Frank Falco By: /s/ Duane DuCharme
---------------------- -----------------------------
Frank A. Falco Duane DuCharme
Vice Chairman/COO President/CEO
f:\legal\life02\final.china
finaldraft:12/15/97.1:47p.m..
Exhibit 10.32
LOCK-UP AGREEMENT
AGREEMENT, by and between IDM ENVIRONMENTAL CORP., a New Jersey corporation
(the "Company"), and the undersigned holders of warrants of the Company (the
"Holders").
W I T N E S S E T H :
WHEREAS, the Company previously sold to the Holders certain Promissory
Notes (the "Prior Notes") and Warrants (the "$3.00 Warrants");
WHEREAS, the Company desires to secure the commitment of the Holders to
"lock-up" the shares issuable in connection with the $3.00 Warrants for the
period described herein;
WHEREAS, the Holders are willing and able to "lock-up" the underlying
shares of common stock in exchange for the issuance to the Holders of the number
of new warrants (the "Lock-Up Warrants") set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises herein, the parties hereto agree as follows:
1. Lock-Up of Warrant Shares. The Holders agree that they will not,
without the prior written consent of the Company, sell, assign, transfer,
pledge, hypothecate or otherwise dispose of any of the shares of common
stock underlying the $3.00 Warrants (the "Warrant Shares") prior to July
30, 1998 (the "Lock-Up Period"). In order to enforce the "lock-up"
requirement under this paragraph 1, the Warrant Shares shall bear a legend
indicating that the Warrant Shares may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of before July 30, 1998 without
the prior written consent of the Company.
2. Issuance of New Warrants to Holders. As consideration for the
Holders' "lock-up" agreement pursuant to paragraph 1, the Company agrees to
issue to the Holders an aggregate of 1,270,000 warrants (the "Lock-Up
Warrants") which shall be substantially in the form attached hereto as
Exhibit A. The Lock-Up Warrants shall be allocated among and issued to the
Holders in the numbers set forth on the signature page.
3. Registration Rights. (a) The Company will use commercially
reasonable efforts to cause a registration statement (the "New Registration
Statement") covering the resale of the shares of common stock underlying
the Lock-Up Warrants (the "Lock-Up Warrant Shares") to be filed with the
Securities and Exchange Commission no later than April 17, 1998. The
Company will use commercially reasonable efforts to cause the New
Registration Statement to remain effective for three years. The New
Registration Statement shall be accompanied by blue sky clearances in such
states as Holders may reasonably request.
<PAGE>
(b) The Company shall pay all expenses in connection with the
preparation and filing of the New Registration Statement, other than
the Holders' underwriting discounts, legal fees and other costs
incurred by the Holders on a voluntary basis.
(c) The Company shall supply to the Holders a reasonable number
of copies of the New Registration Statement, prospectuses and other
related materials prepared by the Company. The Company and the Holders
shall execute and deliver to each other indemnity agreements which are
conventional in registered offerings of the nature contemplated. The
Holders shall reasonably cooperate with the Company in the preparation
and filing of the New Registration Statement and appropriate
amendments thereto.
(d) Holders may transfer a proportionate part of its registration
rights to a limited number of permitted transferees of the Lock-Up
Warrants or portions thereof. A "permitted transferee" is a person to
whom a transfer is made in compliance with the provisions of paragraph
4 below.
(e) Once the New Registration Statement is effective, the Company
will issue UNLEGENDED shares of common stock (except as may be
required by paragraph 1 above) on exercise of the Lock-Up Warrants,
whether or not such shares are sold simultaneous with such exercise.
(f) Should the Holders from time to time or times give to the
Company notice that it has assigned the Lock-Up Warrants or any
portion thereof, the Company shall within three business days file a
supplement to the registration statement to reflect the name(s) of the
transferee(s) as a selling shareholder(s).
4. Securities Representations. (a) Holders represent and warrant that
they are acquiring the Lock-Up Warrants solely for investment, solely for
their own account and not with a view to or for the resale or distribution
thereof except as permitted under the New Registration Statement.
(b) Holders understand that they may sell or otherwise transfer
the Lock-Up Warrants or the Lock-Up Warrant Shares only if such
transaction is duly registered under the Securities Act of 1933, as
amended (the "1933 Act"), under the New Registration Statement or
otherwise, or if Holder shall have received the favorable opinion of
counsel to the Holder, which opinion shall be reasonably satisfactory
to counsel to the Company, to the effect that such sale or other
transfer may be made in the absence of registration under the 1933 Act
and registration or qualification in every applicable state. Subject
to the provisions of paragraph 3(e) above, the certificates
representing the aforesaid securities will be legended to reflect
these restrictions, and stop transfer instructions will apply. Holder
realizes that the Lock-Up Warrants and, prior to the effectiveness of
the New Registration Statement, the Lock-Up Warrant Shares are not
liquid investments.
<PAGE>
(c) Holders have had the opportunity to discuss the Company's
affairs with the Company's officers and to review the Company's
filings with the Securities and Exchange Commission (the
"Commission"), including the currently effective registration
statement on Form S-3 (the "Prior Registration Statement") and the
Commission's accounting comments relating to the Prior Registration
Statement.
(d) Holders have not relied upon the advice of "Purchaser
Representatives" (as defined in Regulation D of the 1933 Act) in
evaluating the risks and merits of this investment. Holders have the
knowledge and experience to evaluate the Company and the risks and
merits relating thereto.
(e) Holders represent and warrant that they are "accredited
investors" as such term is defined in Rule 501 of Regulation D
promulgated pursuant to the 1933 Act. Holders acknowledge that Holders
are able to bear the economic risk of losing Holder's entire
investment in the Warrant Shares and the Lock-Up Warrant Shares and
understands that an investment in the Company involves substantial
risks; Holders have the power and authority to enter into this
agreement, and the execution and delivery of, and performance under,
this agreement shall not conflict with any rule, regulation, judgment
or agreement applicable to the Holders; and Holders have invested in
previous transactions involving restricted securities.
5. Prior Agreements Confirmed. The Company and the Holders confirm
their obligations under the agreements dated August 13, 1997 pursuant to
which the Company issued the $3.00 Warrants.
6. Legal Fees. The Company, upon execution of this Agreement by all
parties, shall pay legal fees in the amount of $15,000 to Oscar D. Folger,
counsel to the Holders.
7. Miscellaneous. (a) This Agreement may not be changed or terminated
except by written agreement among the parties hereto.
(b) This Agreement shall be binding on the parties hereto and on
their personal representatives and permitted assigns.
(c) This Agreement contains the entire agreement between the
parties hereto with respect to the subject matter hereof and
supersedes all prior arrangements or understandings between the
parties with respect thereto.
(d) This Agreement shall be enforceable by decrees of specific
performance (without posting bond or other security) as well as by
other available remedies.
<PAGE>
(e) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New Jersey. The federal and
state courts sitting in the City of Newark, New Jersey shall have
exclusive jurisdiction over all matters relating to this Agreement.
Trial by jury is expressly waived.
(f) All notices, requests, service of process, consents, and
other communications under this Agreement shall be in writing and
shall be deemed to have been delivered (i) on the date personally
delivered, or (ii) one day after properly sent by a recognized
national overnight courier service, addressed to the respective
parties at their address set forth on the signature page for each
Holder and addressed to the Company at 396 Whitehead Avenue, South
River, New Jersey 08882, Attn: Chief Financial Officer, facsimile #
(732) 390-9545, or (iii) on the day transmitted by facsimile so long
as a confirmation copy is simultaneously forwarded by a recognized
national overnight courier service, in each case addressed to the
respective parties at their address set forth in this Agreement.
Either party may designate a different address by providing written
notice of such new address to the other party hereto as provided
above.
(g) Each party hereto shall be responsible for its own expenses
with regard to the negotiation and execution of this Agreement.
(h) The Company may waive, in writing, the lock-up requirements
of paragraph 1 with respect to part or all of the Warrant Shares on
any one or more occasions. Any such waiver shall be binding upon the
Company but shall not be construed as a waiver of any other lock-up
requirements or other provisions of this Agreement unless expressly
provided for in writing.
(i) If one or more of the provisions contained herein for any
reason shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and date set forth below.
Dated: IDM ENVIRONMENTAL CORP.
-----------, 1998
By:
------------------------
Title:
------------------------
HOLDER:
Name: No. of $3.00 Warrants:
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Address: No. of Lock-up Warrants:
------------------ ---------------
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Fax No. Signature:
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Exhibit 10.33
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:
Number of Shares:
Holder:
Address:
_______________________________
THIS CERTIFIES THAT from and after July 6, 1998 until February 11, 2001 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 $4.50 per share.
1. All rights granted under this Warrant shall expire on February 11, 2001.
2. 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.
3. In the event the Company breaches its obligation to deliver irrevocable
instructions to its transfer agent as required under Section 13, 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.
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.
<PAGE>
5. The holder of this warrant is entitled to certain registration rights under
an Agreement dated of even date herewith (the "Lock-Up 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.
6. 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.
7. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
8. 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.
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.
<PAGE>
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 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.
12. Within two business days following each receipt by the Company of the
documents required to exercise all or any part of this Warrant as provided
in Section 12, 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.
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:
--------------------------
a:/ms/lockupwarrant.idm/idm98
Exhibit 10.34
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:
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 $5.00, 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 $5.00, 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.
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.
<PAGE>
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:
-----------------------
Exhibit 10.35
CONSULTING AGREEMENT
This agreement made this ___ day of March, 1997 by and between IDM
Environmental Corp., a New Jersey corporation (the "Company"), with its
principal offices located at 396 Whitehead Avenue, South River, New Jersey,
08882 and SAGA Promotions, Inc., a New York corporation (the "Consultant"), with
its principal offices located at 545 Madison Avenue, New York, New York 10022.
WITNESSETH
WHEREAS, the Company desires to retain the Consultant and the Consultant
desires to be retained by the Company, all pursuant to the terms and conditions
hereinafter set forth;
WHEREAS, the Consultant intends to perform such services through one or
more principals of Consultant (the "Principals");
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. Retention.
---------
(a) The Company hereby retains the Consultant to perform consulting
services relating to investment banking matters, and the Consultant hereby
accepts such retention and shall perform for the Company the duties describes
herein, faithfully and to the best of its ability. (b) The Consultant agrees, to
the extent reasonably required in the conduct of the business of the Company, to
place at the disposal of the Company its judgment and experience and to provide
consulting services (the "Consulting Services") to the Company including, but
not limited to, the following:
(i) review the Company's managerial and financial requirements;
(ii) review budget and business plans;
(iii) analyze and assess alternatives for the Company, presented by the
Company, for raising capital, including public or private offerings of the
Company's securities;
(iv) advise with regard to shareholder relations and public matters;
(v) provide introductions to professional analysts and money managers;
<PAGE>
(vi) provide periodic evaluations of the Company;
(vii) assist the Company in financing arrangements; and
(viii) provide evaluations of competitors.
2. Term.
----
The term of this Agreement shall continue for a period of two years from
and after the date hereof.
3. Compensation.
------------
In consideration for the Consulting Services to be rendered by the
Consultant to the Company, the Company hereby grants to the Consultant an option
to purchase from the Company one hundred fifteen thousand (115,000) shares of
the common stock of the Company, $0.001 par value, at an exercise price of $3.00
per share subject to the terms and conditions set forth on Appendix A attached
hereto and made a part hereof (the "Option").
4. Liability of Consultant.
-----------------------
In furnishing the Company with consulting services herein provided, the
Consultant shall not be liable to the Company or its creditors for errors of
judgment or any other cause except willful malfeasance, bad faith or reckless
disregard of its obligations and duties under the terms of this Agreement.
5. Status of Consultant.
--------------------
The Consultant shall be deemed to be an independent contractor and, except
as expressly provided or authorized in this Agreement, shall have no authority
to act for, bind or represent the Company.
6. Other Activities of Consultant; Confidentiality.
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(a) The Company recognizes that the Consultant now renders and may continue
to render financial consulting and other investment banking services to other
companies which may or may not conduct business and activities similar to those
of the Company.
(b) The Consultant shall not be required to devote its full time and
attention to the performance of its duties under this Agreement, but shall
devote only so much of its time and attention as shall be reasonably necessary
for such purposes.
(c) Consultant shall maintain the confidentiality of all confidential
and/or proprietary information which the Company discloses to Consultant.
<PAGE>
7. Control.
-------
Nothing contained herein shall be deemed to require the Company to take any
action contrary to its Certificate of Incorporation or By-Laws, or any
applicable statute or regulation, or to deprive its Board of Directors of their
responsibility for any control of the conduct of the affairs of the Company.
8. Notices.
-------
Any notices hereunder shall be sent to the Company and the Consultant at
their respective addresses above set forth. Any notice shall be given by
registered or certified mail, postage prepaid, and shall be deemed to have been
given when deposited in the United States mail. Either party may designate any
other address to which notice shall be given, by giving written notice to the
other of such change of address in the manner herein provided.
9. Governing Law.
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This Agreement has been made in the State of New Jersey and shall be
construed and governed in accordance with the laws thereof without regard to
conflicts of laws.
10. Entire Agreement.
----------------
This Agreement contains the entire agreement between the parties, may not
be altered or modified, except in writing and signed by the party to be charged
thereby and supersedes any and all previous agreements between the parties.
<PAGE>
11. Binding Effect.
--------------
This Agreement shall be binding upon the parties hereto and their
respective heirs, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
--------------------------
Joel Freedman, President
SAGA PROMOTIONS, INC.
By: /s/ Joseph Salvani
---------------------------
Joseph Salvani, President
saga.consul
r:\legal\invrelat
Exhibit 10.36
Neither this Option nor the shares of Common Stock issuable on exercise of this
Option have been registered under the Securities Act of 1933, as amended (the
"Act"). None of such securities may be transferred in the absence of
registration under the Act or an opinion of counsel to the effect that such
registration is not required.
IDM ENVIRONMENTAL CORP.
Stock Option Grant
This Non-Qualified Stock Option Agreement ("Option Agreement") is between
IDM Environmental Corp., a New Jersey corporation (the "Company"), and Saga
Promotions, a New York corporation ("Optionee"), who agree as follows:
1. This certifies that the Optionee, in consideration of valuable
consulting services rendered to the Company, is entitled to purchase from the
Company one million two hundred thousand (1,200,000) shares of the Company's
common stock (the "Common Stock") at an exercise price equal to $3.719 per
share.
2. All rights granted under this Option shall expire on February 18, 2000.
3. Notwithstanding anything to the contrary contained herein, Holder
(defined below) shall not have the right to exercise this Option 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, as amended. 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 the amount of Holder's beneficial
ownership.
4. This Option and the Common Stock issuable on exercise of this Option
(the "Underlying Shares") may be transferred, sold, assigned or hypothecated,
only if registered by the Company under the Act or if the Company has received
from counsel to the Company a written opinion to the effect that registration of
the Option or the Underlying Shares is not necessary in connection with such
transfer, sale, assignment or hypothecation. The Option 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. This Option may only be assigned to entities controlled by the Optionee.
Any permitted assignment of this Option shall be effected by the Holder by (i)
executing a letter of assignment (in a form acceptable to the Company and its
counsel); (ii) surrendering the Option for cancellation at the office of the
Company, accompanied by the opinion of counsel to the Company referred to above;
and (iii) delivery to the Company of a statement by the Holder (in a form
acceptable to the Company and its counsel) that such Option 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 Options representing in the aggregate rights to
purchase the same number of Underlying Shares as are purchasable under the
Option surrendered. Such Options shall be exercisable immediately upon any such
assignment of the number of Options assigned. The transferor will pay all
relevant transfer taxes. Replacement options shall bear the same legend as is
borne by this Option.
<PAGE>
6. The term "Holder" should be deemed to include any permitted record
transferee of this Option.
7. 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 Option 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 Option and all other options.
8. This Option shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
9. 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 Option 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 Option.
Such adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder 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 Option adjusted
accordingly.
10. The Option herein granted may be exercised by the delivery by Holder of
written notice to the Secretary of the Company setting forth the number of
shares of Common Stock with respect to which the Option is being exercised. The
notice shall be accompanied by, at the election of the Holder, (i) cash,
cashier's check, bank draft, or postal or express money order payable to the
order of the Company, (ii) certificates representing shares of Common Stock
theretofore owned by Holder duly endorsed for transfer to the Company, (iii) an
election by Holder to have the Company withhold shares of Common Stock issuable
upon exercise of the Option, or (iv) any combination of the preceding, equal in
value to the aggregate exercise price. Notice may also be delivered by telecopy
provided that the exercise price of such shares is received by the Company. The
notice shall specify the address to which the certificates for such shares are
to be mailed.
<PAGE>
11. Within two business days following each receipt by the Company of the
documents required to exercise all or any part of this Option as provided in
Section 10, the Company shall deliver irrevocable instruction to its transfer
agent (with a copy to Holder) to issue certificates evidencing the Underlying
Shares so purchased. Such certificates shall bear appropriate legends in
accordance with applicable securities laws.
12. This Option 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 sent 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 performance as well as
other remedies.
IN WITNESS WHEREOF, IDM Environmental Corp. has caused this Option to be
signed by its duly authorized officer under its corporate seal, and to be dated
February 18, 1998.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
-----------------------------
Joel Freedman, President
Exhibit 10.37
Neither this Option nor the shares of Common Stock issuable on exercise of this
Option have been registered under the Securities Act of 1933, as amended (the
"Act"). None of such securities may be transferred in the absence of
registration under the Act or an opinion of counsel to the effect that such
registration is not required.
IDM ENVIRONMENTAL CORP.
Stock Option Grant
This Non-Qualified Stock Option Agreement ("Option Agreement") is between
IDM Environmental Corp., a New Jersey corporation (the "Company"), and Aaron
Lehman, ("Optionee"), who agree as follows:
1. This certifies that the Optionee, in consideration of valuable
consulting services rendered to the Company, is entitled to purchase from the
Company twenty thousand (20,000) shares of the Company's common stock (the
"Common Stock") at an exercise price equal to $4.813 per share.
2. All rights granted under this Option shall expire on February 5, 2000.
3. Notwithstanding anything to the contrary contained herein, Holder
(defined below) shall not have the right to exercise this Option 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, as amended. 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 the amount of Holder's beneficial
ownership.
4. This Option and the Common Stock issuable on exercise of this Option
(the "Underlying Shares") may be transferred, sold, assigned or hypothecated,
only if registered by the Company under the Act or if the Company has received
from counsel to the Company a written opinion to the effect that registration of
the Option or the Underlying Shares is not necessary in connection with such
transfer, sale, assignment or hypothecation. The Option 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. This Option may only be assigned to entities controlled by the Optionee.
Any permitted assignment of this Option shall be effected by the Holder by (I)
executing a letter of assignment (in a form acceptable to the Company and its
counsel); (ii) surrendering the Option for cancellation at the office of the
Company, accompanied by the opinion of counsel to the Company referred to above;
and (iii) delivery to the Company of a statement by the Holder (in a form
acceptable to the Company and its counsel) that such Option 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 Options representing in the aggregate rights to
purchase the same number of Underlying Shares as are purchasable under the
Option surrendered. Such Options shall be exercisable immediately upon any such
assignment of the number of Options assigned. The transferor will pay all
relevant transfer taxes. Replacement options shall bear the same legend as is
borne by this Option.
<PAGE>
6. The term "Holder" should be deemed to include any permitted record
transferee of this Option.
7. 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 Option 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 Option and all other options.
8. This Option shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
9. 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 Option 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 Option.
Such adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder 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 Option adjusted
accordingly.
10. The Option herein granted may be exercised by the delivery by Holder of
written notice to the Secretary of the Company setting forth the number of
shares of Common Stock with respect to which the Option is being exercised. The
notice shall be accompanied by payment to the Company of the exercise price for
the number of Underlying Shares specified in the Notice. Notice may also be
delivered by telecopy provided that the exercise price of such shares is
received by the Company. The notice shall specify the address to which the
certificates for such shares are to be mailed.
<PAGE>
11. Within five business days following each receipt by the Company of the
documents required to exercise all or any part of this Option as provided in
Section 10, the Company shall deliver irrevocable instruction to its transfer
agent (with a copy to Holder) to issue certificates evidencing the Underlying
Shares so purchased. Such certificates shall bear appropriate legends in
accordance with applicable securities laws.
12. This Option 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 sent 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 performance as well as
other remedies.
IN WITNESS WHEREOF, IDM Environmental Corp. has caused this Option to be
signed by its duly authorized officer under its corporate seal, and to be dated
February 5, 1998.
IDM ENVIRONMENTAL CORP.
By: /S/ Joel Freedman
-----------------------------
Joel Freedman, President
Exhibit 10.38
Revised Memorandum of Understanding
Agreement to Jointly Develop a 2 by 50 Tons Per Day
Plant for the Treatment of Industrial Wastes
In Taipei, Taiwan
between
IDM Environmental Corp. - 396 Whitehead Ave. South River, NJ 08882, USA
Hao Ching Technology Consultants, Inc. - 13200 Campus Drive, Oakland, CA 94619,
USA
Hereinafter, collectively, IDM Asia
and
Five - Nines Technology Company - No. 15 7, Lane 182, Sec 2 Wen Hwa Road, Pang
Chiao, Taipei County, Taiwan, R.O.C.
Hereinafter Five - Nines
Whereas,
1. The Republic of China has an urgent need to develop permanent solutions to
deal with a serious environmental and social problems presented by the ever
increasing and accumulated volumes of industrial wastes. To this end, the
government of Taiwan has instituted policies, legislation and regulations
to encourage (and simplify) the private sector development of waste
processing and waste to energy facilities. Among the regulations instituted
is the requirement that any electric power produced from cogeneration (or
waste to energy plants) must be purchased by the utility for a minimum
equivalent of $0.04 per kw-hr.
2. Five - Nines and IDM Asia have expressed a keen and urgent interest in
developing a facility to process industrial wastes from Taipei City, Taipei
County and other locations within Taiwan as secured by Five - Nines through
their core waste handling and disposal business.
3. IDM Asia brings engineering and construction expertise and resources as
well as access to proprietary technology for the processing of a wide range
of conventional, industrial and hazardous wastes and thus has a deep
interest in developing waste to energy facilities in partnership with Five
- Nines .
Therefore, the parties agree as follows:
1. Five - Nines and IDM Asia agree to establish a Joint Venture partnership
for the development of waste to energy and waste processing facilities in
Taiwan for sites owned by and designated by Five - Nines.
<PAGE>
2. The facility will be jointly developed and owned by both parties, each
party sharing the project risks and rewards in accordance with the
following ownership structure: Five - Nines will own 60% of the Project and
IDM Asia will own the remaining 40%. The Parties recognize, and agree, that
Five - Nines also brings an additional, unique and essential benefit to the
Project in the form of its existing waste contracts, contacts within the
industry and access to the waste with the highest value to the project. As
such, the Parties agree that these benefits entitle Five - Nines to an
additional level of ownership percentage over and above that corresponding
to the value of its cash (or cash equivalent) equity contribution to the
project. The Parties agree that the value of this benefit will be up to 5%
The attached Conceptual Project description provides a tabulation of the
value of the equity investments envisioned by both parties. The parties
agree that this ownership breakdown will be subject to revision if there
are any changes to the value of equity investment contributions from either
party following completion of the feasibility study.
3. As presently envisioned the equity contributions from each party will be
based in accordance with the following activities and provisions:
a. Five - Nines will contribute the land for the project. The
parties currently estimate that this contribution is
approximately $ 5.0 million USD (160 million NTD).
b. IDM Asia will contribute the equipment for generating thermal and
electrical energy that will be sourced from its inventory of
power generating equipment. The parties estimate that the value
of the power equipment and technical services is approximately $
4.3 million USD (138 million NTD).
The value of these equity contributions will be verified by third party
appraisals to be performed during the feasibility study phase.
4. Based on current estimates of the Project costs described in the attached
Conceptual Project Description, the Parties agree that the project will be
financed by securing third party (non-recourse) project financing for the
costs of the project net of the equity contributions described in # 3
above. The Parties estimate that the amount to be financed will be
approximately $ 13 million USD (416 million NTD).
5. The role of each Party in this joint venture partnership is envisioned as
follows:
a. Five - Nines will have majority ownership of the plant(s) and
will provide the land and the contracts for waste processing in
accordance with established tipping and processing fees.
b. IDM Asia will be responsible for the design, construction and
start-up and operation of the plant(s).
<PAGE>
c. Five - Nines and IDM Asia will work together to secure the most
advantageous terms for third-party project financing for the
project(s).
6. Five Nines will retain majority ownership of the plant(s) with a 60 %
equity interest in the project(s). IDM Asia will have a 40% equity interest
in the project(s), subject to the provisions of # 2 above. The equity
contributions are in accordance with the provisions described in # 3
7. The Parties agree to develop this project in a mutually exclusive fashion
and that neither party will commit to bring in any other equity partner
without the express consent and approval of the other party. The Parties
further agree not to circumvent each other. Five - Nines agrees not to
contact any suppliers of waste to energy or waste processing technologies
or any contractors or engineering companies in regards to these projects
without the express knowledge and consent of IDM Asia. IDM Asia agrees not
to contact any waste handling and disposal companies or incinerator
developers without the express consent and approval of Five - Nines.
8. Upon execution of this MOU, Five - Nines and IDM agree to immediately begin
the development of a detailed feasibility study. The feasibility study will
build upon the Conceptual Project Description (attached to this MOU) and
will include the following major tasks:
a. Waste fuel profile and analysis for Industrial Solid Wastes,
Industrial solvents and other liquid wastes and other
(non-hazardous) organic products and Industrial waste sludges.
b. Develop a more detailed preliminary design of the facility,
including a more refined and detailed project cost estimate and
project schedule.
c. Develop the preliminary technical and environmental data required
to initiate discussions and submittals to secure the required
Taiwan EPA and Ministry of Construction permits. Review all
applicable regulations and requirements and will include the
development of a draft Environmental Impact Assessment (EIA).
d. Develop the required technical and design information required
for submittals to the Taiwanese Government_s Energy Committee to
secure government approval as a _co-generator._ Following this
approval, the parties will initiate discussions with Taipower to
secure a long-term (e.g. 20 year) Power Purchase Agreement (PPA)
in accordance with the provisions of the Taiwanese Cogeneration
Law (requiring that Taipower purchase the electric power produced
by approved cogeneration facilities).
e. Based on the project design developed above, a detailed financial
analysis and profile will be developed as a basis to begin
discussions with potential sources of third-party financing.
<PAGE>
The costs for the feasibility study will be shared by the parties
in accordance with the equity ownership breakdown described in #
3 above with IDM Asia taking the lead responsibility for the
development of this study and financing its share of the costs
with in-kind contribution for engineering. The costs associated
with the development of the feasibility study will be carefully
tabulated and controlled and fully reported to the Parties. Prior
to commencing the performance of the feasibility study the
parties will establish a cost structure for engineering manhours
and out-of-pocket (e.g. travel) expenses that will be considered
allowable costs on the project. Based on a monthly review of the
expenditures of each party associated with the feasibility study,
the parties agree to reinburse each other in accordance with the
breakdown of equity ownership breakdown described in # 3 above.
The parties currently estimate that the total cost of this
feasibility study will not exceed $ 300,000 USD (9.6 million
NTD).
9. The parties acknowledge that in connection with the development of the
project disclosures will be made by Five - Nines to IDM Asia and by IDM
Asia to Five - Nines , orally and in writing, of a wide variety of
information and documents, a substantial part of which is confidential and
proprietary in nature (_Confidential Information_). The Confidential
Information is of special and unique order and constitutes valuable assets.
Accordingly, the parties agree that, prior to the closing of the project
agreement, the Confidential Information will be held in strict confidence
at all times, provided that in furtherance of the project, the parties may
make the Confidential Information available to their respective agents and
advisors and to a limited number of financial institutions and other
investors and their agents and advisors (_Institutions_), each of which
shall agree to hold the Confidential Information in strict confidence. In
the event discussions concerning the project are terminated for any reason,
the parties and their respective agents and advisors and the institutions
and their agents and advisors will continue to maintain in strict
confidence and will not use any of the Confidential Information learned
from the other party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of
Understanding on this _______ day of February,1998
IDM ENVIRONMENTAL CORP Five - Nines
Name: Name:
------------------------ -----------------------
Title: Title:
------------------------ -----------------------
HAO CHING TECHNOLOGY CONSULTANTS, INC.
Name:
--------------------------
Title:
--------------------------
Exhibit 10.39
MODIFICATION TO THE POWER PURCHASE CONTRACT
CAESS-CWEL
BY MEANS OF THIS INSTRUMENT, WE, BENJAMIN SALVADOR VALIENTE ARGUETA, Civil
Engineer, 74 years old, of this domicile, acting on behalf of and in
representation of, in his capacity of President of COMPANIA DE ALUMBRADO
ELECTRICO DE SAN SALVADOR, S.A. DE C.V., of this domicile, hereinafter referred
to as "CAESS" , and, DEISY REYNOSA, with a degree in Economics, 36 years old, of
this domicile, acting on behalf of and in representation of, in her capacity as
President and Director of the company CONTINENTAL WASTE CONVERSION DE EL
SALVADOR, S.A. DE C. V., of this domicile, hereinafter referred to as
"GENERATOR" or "CWEL", agree to the following:
ANTECEDENTS
I On December 29, 1995, CAESS together with CONTINENTAL WASTE CONVERSION
INC., domiciled in Calgary, Canada (hereinafter referred to as "CWI')
entered into a CONTRACT FOR THE SUPPLY OF POWER AND ELECTRICAL ENERGY
(hereinafter referred to as the "Original Contract") whereby CWI or its
subsidiary in EI Salvador, is bound to sell to CAESS and CAESS is bound to
buy, the total Net Power Capacity produced by GENERATOR for a term of 15
years, renewable, starting from the Commencement Date specified in clause
4.3 of the referred Original Contract The Original Contract is a B.O.O
type, which initials in English stand for BUILDING, OWNING AND OPERATING.
II On July 16, 1996, CWI notified CAESS of the incorporation of their
subsidiary company in the Republic of EI Salvador, CONTINENTAL WASTE
CONVERSION DE EL SALVADOR, S A de C.V., who would be in charge of
fulfilling the rights and obligations of CWI, pursuant to the terms
contained in the Original Contract .
III On October 10, 1996, the General Law of Electricity was issued (hereinafter
referred to as the "Law"), which determines the obligations, procedures and
regulations to be observed and adhered to by companies generating and
distributing electricity in EI Salvador
IV Due to the above circumstances and as agreed mutually by the parties, it is
deemed necessary to modify the Original Contract to reflect these new
circumstances and to better comply with the parties' interests Therefore,
the parties agree upon the following modifications to the Original
Contract.
<PAGE>
Modification to the Power Purchase Contract CAESS-CWEL Page 2
MODIFICATIONS TO THE CONTRACT
The Original Contract must be interpreted congruously with these modifications
and in the event of any discrepancy, the provisions contained in this document
shall prevail. For better understanding of this Contract, this document contains
all the provisions agreed upon whereby the clauses preceded by an asterisk (*)
correspond to those of the Original Contract.
ARTICLE 1- DEFINITIONS
GENERATOR'S CREDITORS
means any financial institution, including in an explicit
manner but not limited to the World Bank, the International
Financing Society, the Interamerican Bank for Development or
the Export -Import Bank of the United States of North
America and any investors who may provide financing for
construction and/or permanent financing, including senior
and/or subordinated debt and/or equity for the Generating
Facility.
YEAR
means one calendar year
CONTRACTUAL YEAR
means any period of twelve (12) months commencing on the
Commercial In-Service Date or on its anniversary date.
EXCESS AMOUNT
Its definition is provided in clause 6.4
MINIMUM INTAKE QUANTITY
PER MONTH
Its definition is provided in clause 2.2
INTERNAL LOAD
means the electrical requirements of the Generating
Facility, associated equipment and supporting facilities of
same
LETTER OF CREDIT
means a confirmed, irrevocable and revolving Letter of
Credit issued and payable to GENERATOR by a commercial bank,
which is acceptable to GENERATOR. In accordance to the
Letter of Credit, payments will be made to GENERATOR subject
to solely submitting a certificate to the issuer bank
indicating that a) under this contract, GENERATOR has not
received payment from CAESS (specifying amount); or b) CAESS
has not reissued the Letter of Credit in an amount in United
States currency equal to the original amount of the pending
Letter of Credit, before its expiration or termination; and
c).
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<PAGE>
Modification to the Power Purchase Contract CAESS-CWEL Page 3
CAESS has received written notice from GENERATOR demanding
that the Letter of Credit will become effective in a maximum
period of 48 hours in the event such default continued The
Letter of Credit must have an expiry date that does not
occur prior to the 12 months following its date of issuance
The Letter of Credit ( or any replacement of the same) will
have to be, in all aspects, both in content and value,
satisfactory to GENERATOR's opinion.
FINANCIAL CLOSURE
Is the execution of financing contracts with Creditors of
GENERATOR and the compliance or waivers of every provision
which is conditional to the availability of funds, in such
contracts.
COLONES
means the legal currency in EI Salvador.
CONTRACT
means the Original Contract together with all its
appendices, the modifications incorporated in this document
and any future amendment done in writing and with the
corresponding approval of the parties.
ORIGINAL CONTRACT
means the contract executed on December 9, 1995 between
CAESS and Continental Waste Conversion Inc.
EMERGENCY
means a condition or situation which affects the ability of
CAESS or GENERATOR or which UT consider that affects the
transmission system to comply with their obligations to
maintain a safe, adequate and continuous electrical service.
ELECTRICAL ENERGY
is defined as the electricity generated by the Generating
Facility and is measured in kilowatt-hour (kWh).
EXECUTION DATE
means the date when the modifications to the Original
Contract established in this document are executed.
POWER FACTOR*
is the quotient by dividing the Electrical Power by the
Apparent Power.
COMMERCIAL IN-SERVICE
DATE
It refers to the date when the Generating Facility is first
brought into commercial service following the Commissioning
Period and the satisfactory compliance of the Steady Power
Test Period and the electrical connection to CAESS as
described in this Contract.
SYNCHRONIZATION DATE
means the date when the Generating Facility is placed in
parallel operation with the transmission system and/or
Rz:translations/1997/62-111797doc
<PAGE>
Modification to the Power Purchase Contract CAESS CWEL Page 4
CAESS' electrical system.
FORCE MAJEURE
has the meaning assigned in Article I5.
PAYMENT GUARANTEE
means the document described in clause 6.5 (g).
NON-COMPLIANCE
means the occurrence of an event as described in Article 14.
GENERATING FACILITY
means the plant and equipment, owned or leased, by GENERATOR
to generate and supply electrical energy to the Point of
Delivery, which is schematically described in Appendix A.
MONTHLY INVOICE
has the meaning described in Clause 6.5 (g).
MRS - PRICING OF THE
ELECTRICAL ENERGY AT
THE GRID
It will operate based on offers and prices corresponding to
increases or reductions in the amounts of Electrical Energy
determined by the Delivery Schedule and will be operated by
the UT in accordance to the General Law of Electricity.
MONTH OR MONTHLY
means one calendar month.
MODIFICATION TO THE
LAW
Its meaning is explained in Clause 6.6.
POINT OF DELIVERY
means the physical point or points where the Electrical
Energy is supplied to CAESS, described in more detail in
Appendix B.
COMMISSIONING PERIOD
means the period of time following the Synchronization Date
which is before the Commercial In-Service Date, during which
testing of the Generating Facility will be performed by
GENERATOR as per Appendix C The Commissioning Period will
include the verification of the electrical connection
carried out by CAESS.
APPARENT POWER
It is expressed in kilovolt-amperes (kVA) and is the product
of the integrated magnitude of the intensity of the current,
expressed in amperes, by the integrated magnitude of the
voltage, expressed in kilovolts.
ELECTRICAL POWER*
means the integrated value of the power expressed in
kilowatts (KW).
STEADY POWER (BASE LOAD)
means the value of the Generating Facility's Electrical
Power at the time of the Commercial In-Service Date
expressed in kilowatts (kW) and which is determined by a
Steady Power
Rz:translation1997/62-111797 doc
<PAGE>
Modification to the Power Purchase Contract CAESS-CWEL Page 5
Steady Power Test (kV A).
GENERAL POWER
means the Electrical Energy supplied by CAESS at the Point
of Delivery, if necessary, to supply GENERATOR's Internal
Load requirements if it could not be supplied by the
Generating Facility CAESS shall invoice GENERATOR.
OPERATION PROCEDURES
means the procedures to be passed on by CAESS to GENERATOR
as per clause 11, which describes the adequate
interconnection of the Generating Facility with CAESS's
electrical system or the operation procedures contemplated
in UT's Operation Manual for the interconnection to the
national electrical system.
STEADY POWER TEST
is a test performed as per Appendix C, to demonstrate the
Generating Facility's Electrical Power from the time of the
Commercial In-Service Date.
MONTHLY PRICE
Means the agreed upon price in conformity to clause 6 of
this Contract.
SIGET
SUPERINTENDENCIA
GENERAL DE
ELECTRICIDAD y TELECOMUNICACIONES
Government entity responsible for ensuring that the
provisions of the General Law of Electricity are adhered to.
TRIMESTER
means any calendar trimester.
UNIT OF TRANSACTIONS OR
UT
Has the meaning established by the General Law of
Electricity. If it does not work, it will be understood that
it will correspond to the organization in charge of
operating the transmission system.
ARTICLE 2 - PURCHASE AND SALE OF ELECTRICAL ENERGY
2.1 Subject to the terms and conditions contained in this Contract, GENERATOR
is bound to provide CAESS with a steady power of thirty-eight thousand two
hundred and seventy kilowatts (38,270 Kw) for each hour of the day during
the Contractual Year, and in this way, the contracted Electrical Energy at
the Points of Delivery, as detailed in Appendix B of this Contract, will be
calculated, and CAESS is bound to receive and pay the total amount of
Electrical Energy contracted.
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2.2 Subject to the terms and conditions specified in this Contract, commencing
on the Commercial In-Service Date, CAESS will take at any hour of the day
during the Contractual Year, a minimum amount of Steady Power equal to
38,270 kilowatts, which is the Minimum Intake Amount per month, and which
will be calculated as described in Appendix A.
2.3 CAESS will take all the Electrical Energy supplied by GENERATOR after the
Synchronization Date and before the Commercial In-Service Date and will pay
for the Electrical Energy as per the prices indicated in Clause 6 of this
Agreement The Synchronization Date will begin twelve months after this
Contract has been ratified by the Board of Directors of CAESS and the
Commissioning Period will not take more than 15 calendar days.
2.4 GENERATOR, at its own discretion, will be able to sell to third parties any
amount of Electrical Energy generated in excess of the Minimum Intake
Amount.
ARTICLE 3 - PURCHASE AND SALE OF GENERAL POWER
3.1 The General Power will be supplied by CAESS to GENERATOR whenever it is
required by GENERATOR The supply of General Power will be steady and
uninterrupted GENERATOR will pay the price invoiced by CAESS at the end of
the supply period
*3.2 The General Power is for the use of GENERATOR in the operation of the
Generating Facility and shall not be sold or resold directly or indirectly.
ARTICLE 4 - VALIDITY AND TERM OF CONTRACT
4.1 The Original Contract has been in effect since December 29, 1995 and its
terms and conditions will continue to prevail, together with the
modifications agreed to in this Contract and subject to clause 15.3, until
the 15th anniversary of the Commercial In-Service Date At the end of this
period, this Contract can be renewed for the same period of time and will
be governed by the same terms, as agreed to by the parties involved.
4.2 Notwithstanding the foregoing, in the event that:
a) GENERATOR fails to generate any amount of Electrical Energy for three
consecutive months, which is not caused by:
(i) force majeure;
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(ii) any action or omission by CAESS; or
(iii) a moratorium in the terms contained in Clause 13 4;
after giving a 30 day written notice to GENERATOR, CAESS may consider this
contract to be terminated if GENERATOR does not rectify the situation
within the 30 day period.
b) If CAESS fails to pay for Electrical Energy as required by this
Contract, GENERATOR may, within at least five (5) days written notice,
terminate this Contract unless CAESS remedies such breach In the event
of non- compliance, CAESS will not enjoy of this last benefit if they
fail to comply for three times during a Contractual Year.
4.3 The projected Commercial In-Service Date for the Generating Facility will
occur 12 months after all necessary government permits required for the
construction and operation of the Generating Facility have been obtained,
as well as the Transmission Contract, if required
ARTICLE 5 - DELIVERY OF POWER
5. I GENERATOR will supply Electrical Energy in the form of an alternating
current at the voltage of the Points of Delivery as detailed in Appendix B,
and at 60 Hertz. The supplied frequency and voltage will be governed by the
quality standard guidelines agreed upon by SIGET , UT and as determined by
law.
5.2 GENERATOR will, at its expense, make available the interconnection between
the Generating Facility and the system for supplying power of CAESS, as per
Appendix B.
5.3 GENERATOR is bound to provide CAESS with Electrical Energy as per the
guidelines and regulations contemplated in UT's Operations Manual
ARTICLE 6 - RATES, INVOICING AND OTHER CHARGES
6.1 PRICE OF THE ELECTRICAL ENERGY
6. I .I From the Commercial In-Service Date and during the term of this
Contract, the sale price for the Electrical Energy, which will be
applied during the year on January I, will be calculated based on (i)
the average price of the Electrical Energy as per the Pricing of the
Electrical Energy at the Grid (hereinafter referred to as "MRS")
during the preceding year,
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(ii) less colones 0 05 per kWh. The average price ofthe MRS will
be based on the prices published by the "Unit of Transactions"
(hereinafter referred to as "UT") pursuant to the terms and
conditions of the General Law of Electricity During the first
year, the price prevailing for the Electrical Energy shall be
calculated as determined in clause 6.1.4.
6.1.2The sale price for the Electrical Energy shall be adjusted every
year on January I based on the average price of Electrical Energy
in the MRS during the preceding year.
6.1.3During the year when the price for the Electrical Energy,
calculated pursuant to the conditions determined in the preceding
clause becomes effective, the sale price can be automatically
adjusted every three months, as per the following formula
Pen = PEo (MRSn divided by MRSo )
Where
Pen: Adjusted price of the energy
Peo: Current price of the energy
MRSn: Average price of the MRS in the preceding trimester
immediately prior to the date the adjustment is made.
MRSo: Average price of the MRS in the preceding trimester
immediately prior to the date the last adjustment to the
List of Price is made.
The prices referred to in this article may be adjusted by
utilizing the corresponding formula, if and when the
increase or reduction of the adjusted value with respect to
the current value exceeds I 0% of the latter The adjustment
will become effective on the first day of April, July or
October, accordingly
6.1.4The price for the Electrical Energy on the first year counted
from the Date of Commercial In-Service, shall be calculated as
follows:
a) If at the Commercial In-Service Date the MRS remained for
more than 180 consecutive days, the sale price for the
Electrical Energy shall be based pursuant to clause 6 I I
and will prevail until the next quarter price adjustment is
done, and should this adjustment not take place, it shall
prevail until December 31 of the calendar year when the
Commercial In-Service Date took place Beginning on January 1
following the year when the Commercial In-Service Date took
place until the end of the term of this Contract, the price
shall be adjusted pursuant to the conditions determined in
clause 6.1.1.
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b) If at the Commercial In-Service Date the MRS had not been in
operation for 180 consecutive days, the price CAESS shall
pay GENERATOR for the Electrical Energy shall be the price
agreed upon between CAESS and CEL for the sale of Electrical
Energy in BLOCK The price will prevail until the MRS is in
operation for 180 consecutive days During the time when the
above condition is not fulfilled, the sale price for the
Electrical Energy shall be adjusted in the same proportion
as the price to be adjusted for the sale of Electrical
Energy agreed upon by CAESS and CEL.
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6.2 AMOUNT IN EXCESS
If during any Contractual Year, GENERATOR delivers to CAESS an amount
in excess of the Minimum Intake Amount (the" Amount in Excess")
required by CAESS which is measured as per Appendix A, CAESS shall pay
GENERATOR on every Contractual Year an amount equal to the product of
(a) the Amount in Excess; and (b ) the average price of the preceding
year determined by the UT Payment shall be made as per the pending
invoice pursuant to the terms in Clause 6.5 of this Contract.
6.3 TAXES ON TRANSFERS OF PROPERTIES AND SERVICES (Iv A )
The price for the Electrical Energy does not include charges
corresponding to the Tax on Transfers of Properties and Services (IV
A), which shall be added by GENERATOR to its invoice, as required by
the Salvadorean law, and shall be paid in accordance to clause 6.5.
6.4 FORM OF PAYMENT
GENERATOR shall invoice CAESS on a monthly basis and at the end of
every Contractual Year, in dollars of the United States of America
(US$) and all payments of invoices shall be made in U S dollars or its
equivalent in Salvadorean Colones For the latter , the exchange rate
that shall prevail for payment of the corresponding invoices shall be
the one utilized for the sale of dollars as published by the Banco
Central de Reserva Those amounts corresponding to IV A tax shall be
paid in Salvadorean Colones.
The parties agree to keep the above reference, which has been agreed
upon by them, fixed as long as the fluctuation ofthe Salvadorean Colon
with respect to the U S dollar does not exceed a percentage equal to
20%, up or down As a result, the relation colon/dollar shall never be
higher than 10 50 colones per dollar, nor lesser than 7 00 colones per
dollar When the fluctuation of the Salvadorean Colon with respect to
the U S dollar exceed the 20% percentage, GENERATOR shall bear the
exchange cost.
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The monthly invoices shall be calculated by multiplying the price
determined in clause 6 I by the Minimum Intake Amount less the amount
equal to the energy not supplied which differs from the Minimum Intake
Amount, taking into account the provisions stated in article 8 with
respect to penalties.
6.5 CONDITIONS OF PAYMENT
CAESS shall pay GENERATOR all amounts owed, as per the following:
a) Within ten (IO) days following the end of the Month or the end of
the Contractual Year, as the case may be, GENERATOR shall submit
its invoice for payment of the previous month's energy supply
(the "Invoicing Month") or for payment for the supply of Amount
in Excess during the preceding Contractual Year, as the case may
be, together with the corresponding documentation to support
GENERATOR's calculations for the invoice Payment of this invoice
on the part of CAESS to GENERATOR shall be made within thirty
(30) days from receipt of the invoice If such payment was not
made within the thirty (30) days period, CAESS will be bound to
pay interest calculated at the prevailing LIBOR rate at six
months plus 5%.
b) * If CAESS, in good faith, does not agree with the amount of the
invoice, it will have fifteen (15) days from the date of receipt
of the invoice to give written notice to GENERATOR regarding the
discrepancy of the invoice and the reasons for it.
c) * Any disagreement to clause 6 5 (b), in conformity do not
release CAESS from its obligation to pay the invoice by the due
date In the case where GENERATOR must reimburse CAESS, a revised
invoice will be issued and CAESS shall receive a credit on the
subsequent monthly invoice, for an amount equal to said
reimbursement, if CAESS has already paid the inaccurate invoice;
if CAESS has not yet done so, CAESS shall then pay the revised
invoice by the due date.
d) * If the disagreement persists, the Parties will attempt to reach
an agreement directly If the Parties cannot reach such an
agreement, they will refer the matter to arbitration as outlined
in Section I 9 of this Contract.
e) * If an error has been made in the invoice, CAESS can request
that GENERATOR correct the error, and if required, make the
corresponding adjustment to the invoice Each time a request for
correction is made, it must be submitted in written form within
ninety (90) days from the date the invoice was paid After the end
of this 90 day period, neither Parties may object to the content
of the invoice.
f) * If it is established that the measuring equipment has a greater
than +-0 2% inaccuracy, the invoices for the sale of Electrical
Energy made during those months corresponding to the inaccurate
measurements must be adjusted
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according to the established margin of error between the +-0 2%
and the corrected value. Each adjustment will be made by adding
or subtracting, whichever the case, the charges on the invoice(s)
which correspond to the second half of the period from the month
in which the existence of error was established, and the month in
which the last calibration of the meter was made in agreement
with Appendix E This adjustment will be reflected on the
invoices.
g) As security for the payment for the supply of Electrical Energy
and Electrical Power during the whole term ofthe Contract, CAESS
will issue and maintain a Guarantee of Payment in favour of
GENERATOR 60 days before the Date of Synchronization Said
Guarantee of Payment is the Letter of Credit described in this
Contract which shall be for an amount equal to the amount
resulting when multiplying (i) such monthly payments applicable
under Clause 6; multiplied by (ii) the Minimum Intake Amount;
multiplied by (iii) twenty five percent (25%) The cost of the
Guarantee of Payment will be the responsibility of CAESS. CAESS
will keep the Guarantee of Payment current and any amount
withdrawn by GENERATOR will have to be replaced within 5 days.
6.6 AMENDMENT TO THE LA W
If, as a result of any amendment to the laws of EI Salvador, including
environmental and fiscal laws, which took place after this Contract
became effective (" Amendment to the Law"), GENERATOR will incur in
important costs additionally to those costs specified in this
Contract, GENERATOR will notify CAESS of such modifications to the law
Said Notice will be delivered on or before the tenth working day after
the last day of each calendar month and will have to specify the
Amendment to the Law, its effect in the profits or expenses paid or to
be paid by GENERATOR and the exact date of such changes in the profits
or expenses as a result of the Amendments to the Law. In this
circumstances, the parties are bound to review together the impact
that such amendment will have on the price and which has not been
reflected in the MRS price.
ARTICLE 7- LIABILITIES
7.1 GENERATOR'S LIABILITIES
7.I.IGENERATOR shall undertake all risk, liability and obligation in
respect to all losses, damages or injuries to:
a) the property of CAESS located on the lands or premises on
CAESS side of the Point of Delivery (hereinafter referred to
as the "Said Lands");
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b) the property of GENERATOR or of any third party on the Said
Lands;
c) any person or persons (including loss of life) on the Said
Lands.
This loss, damage or injury shall have been due to the negligence
of GENERATOR, its employees or agents in the process of supplying
CAESS with Electrical Energy, except to the degree that such
loss, damage or injury shall have been due to the willful acts or
negligence of CAESS, its employees or agents Without limiting the
generality of the foregoing, GENERATOR shall be responsible for
the cost of any damage to its equipment and transformers or any
damage to equipment of a third party or to CAESS electrical
system installed at GENERATOR's side of the Point of Delivery,
that may occur due to the negligent operation of the Generating
Facility by GENERATOR.
*7.I.2 CAESS shall inform GENERATOR as soon as practicable of the claim or
demand and shall give GENERATOR such opportunity as is afforded by
applicable laws to participate in the defense thereof; and further,
such indemnity shall not apply to a claim or demand which is settled
without the consent of GENERATOR.
7.I.3All transmission lines, distribution lines, substations, plants,
meters, data acquisition and computer system facilities and equipment
of CAESS on or in the Said Lands shall be there to manage the delivery
of the Electrical Energy In the case that said equipment is destroyed
or damaged by willful acts or negligence of GENERATOR's employees and
agents, GENERATOR shall pay to CAESS the replacement value of such
equipment or the cost of repairing same, whichever amount is the
lesser.
*7.1.4 GENERATOR shall assume all risk, liability or obligation in respect
to all actions, causes of action, suits, proceedings, claims, demands,
losses, damages, penalties, fines, costs, expenses, obligations and
liabilities arising out of a discharge of any contaminant by GENERATOR
into the natural environment on the Said Lands including any fines or
orders of any kind that may be levied or made pursuant to the
corresponding environmental legislation presently legislated GENERATOR
shall comply at all times with the environmental guidelines issued by
the World Bank, as well as those established by the current applicable
laws of EI Salvador
*7.I.5 GENERATOR's liability as well as CAESS's shall be limited in each
case up to a maximum of USD 10,000,000 on a per case basis Each Party
shall be responsible for its own negligence.
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ARTICLE 8- PENALTIES
8.1 GENERATOR shall deliver on a monthly basis Electrical Energy for an amount
not less than the Minimum Intake Amount. In the event current deliveries of
Electrical Energy by GENERATOR during any month are less than the Minimum
Intake Amount, GENERATOR will deduct from its invoice or monthly statement
the amount equivalent to the energy not supplied and will pay a penalty as
per the provisions stated in this clause. The Deficit shall be equal to the
Minimum Intake Amount less the actual deliveries of Electrical Energy by
GENERATOR less the amount of electrical energy suspended due to force
majeure by virtue of clause 15 GENERATOR shall pay monthly a penalty equal
to the one CAESS has to pay to the final user in accordance to the General
Law of Electricity This penalty shall not be higher than 200% of the price
of the MRS multiplied by the deficit calculated as per this clause, except
in the case of force majeure and following the provisions stated in clause
15 of this Contract.
ARTICLE 9- COVENANTS OF GENERA TOR
9.I GENERATOR shall arrange, at is expense, for the connection between the
Generating Facility and CAESS's electrical supply system or to the national
transmission system, as per Appendix B GENERATOR shall guarantee the
reliability of the interconnection to any of the above systems. In order to
guarantee such efficiency/reliability, GENERATOR shall respect and follow
SIGET's guidelines and regulations as well as UT's Operations Manual.
9.2 GENERATOR accepts to provide, at its expense, all power system components
on GENERATOR ' s side of the Delivery Point, including transformers,
switching and auxiliary equipment such as synchronizing and protection and
control equipment, pursuant to requirements mutually agreed upon by the
Parties, as considered reasonably necessary to protect the safety and
security of both Parties' power system Without limiting the generality of
the foregoing, the said required equipment will include such equipment as
may be necessary to provide for voltage conversions or to correct operation
of GENERA TOR ' s synchronizing, control or protection equipment as it
might affect CAESS equipment and personnel safety and CAESS's customers All
said equipment of GENERATOR shall be subject to the approval of CAESS and
such approval cannot be unreasonably withheld and shall be installed,
maintained and operated in accordance with equipment manufacturer's
recommendations GENERATOR and CAESS shall work as a team during the
installation of the electrical equipment of the Generating Facility
9.3 CAESS shall install, operate and maintain the metering electrical system in
accordance to Appendix E.
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*9.4 GENERATOR agrees to provide, free of charge or rent, a convenient and safe
space for the metering, communication, and other access equipment of CAESS
in GENERATOR's premises and further agrees that only properly authorized
agents of CAESS or persons otherwise lawfully entitled to do so shall be
permitted to read, inspect, repair, adjust or remove any of the said
metering and communication equipment and that the properly authorized
agents of CAESS shall, at all reasonable hours, have the right to read,
inspect, repair, adjust, replace or remove any of the said metering and
communication equipment and they will provide a permit to access said
premises. The metering equipment of both Parties shall be calibrated
jointly.
9.5 GENERATOR agrees that if this Contract is terminated in accordance with the
terms of this Contract or for any other legal ground, CAESS may enter on
GENERA TOR ' s premises and remove therefrom meters, lines, stations,
plant, equipment and appliances installed thereon and owned by CAESS.
9.6 GENERATOR shall comply with all applicable governmental regulations as well
as SIGET's regulations and will follow UT's Operations Manual, and shall be
subject to obtain and maintain in good standing, whenever required, all
licenses, permits and approvals from any and all governments, governmental
commissions, boards or agencies required in respect of its operations,
including, without limitation, the construction of the Generating Facility
and its connections to the national electrical system or to CAESS
electrical system.
*9.7 GENERATOR shall install safety equipment to protect its own property and
equipment for variations in frequency and voltage or from temporary
delivery of other than three-phase power, whether caused by the Generating
Facility or CAESS' distribution system.
9.8 GENERATOR accepts to operate its Generating Facility at Steady Power
(BaseLoad) following the minimum required standards as per UT's Operations
Manual.
9.9 GENERATOR shall keep proper records relating to the production of
Electrical Energy as reasonably required by CAESS in form and detail
satisfactory to CAESS, and shall retain such records for a period of not
less than three (3) years counted from the first day of the Contractual
Year.
9.10 GENERATOR shall employ qualified personnel for monitoring the Generating
Facility and for coordinating operations of the Generating Facility with
CAESS system GENERATOR shall ensure that such personnel are available at
all times Electrical Energy is being generated.
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ARTICLE 10- OBLIGATIONS
10.1 OBLIGATIONS OF CAESS
10.1.1 CAESS agrees that it will:
a) maintain a take or pay obligations for the contracted Electrical
Energy in the manner indicated by this Contract, except in cases
of force majeure;
b) * provide GENERATOR with all information GENERATOR may require
and that may affect the operation ofthe Generating Facility;
c) maintain the Letter of Credit referred to in Section 6.5 (g)
during the entire term of this Contract and according to the
terms of the same;
d) not require GENERATOR to supply Electrical Energy at a Power
Factor outside ofthe capability curves of its Turbo Generators.
10.2 OBLIGATIONS OF GENERATOR
10.2.1 GENERATOR agrees to
a) In case it does not deliver the Minimum Intake Amount, it will
pay the penalty stipulated in Article 8 of this Contract and it
will discount the monthly invoice by the quantity that
corresponds to the energy not delivered in accordance with the
Minimum Intake Amount. The exception is represented by the cases
of Force Majeure.
b) * Provide CAESS with all the information available which may
affect the Generating Facility.
c) Will not supply Electrical Energy at a Power Factor outside the
capacity curves of its turbo-generator.
d) will comply with all the regulations of the country, the Law of
Electricity and of UT and CAESS's rules.
ARTICLE 11- OPERATING PROCEDURES
11.1 In the event GENERATOR interconnects to CAESS's electrical system, CAESS
shall provide GENERATOR with a copy of its substation's Manual of
Operations as soon as possible and such Manual will provide the basis for
the Operating
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Procedures to be agreed upon by the Parties The operating procedures
shall address the interconnection and the integration of the
installation of the Generating Facility into CAESS's electrical system
Topics covered may include, without limitation, method of day-to-day
communications; key personnel list for both Parties' operating
centres; authorization and commutation procedures; outage scheduling
and reactive power support.
In the event the interconnection is through the national electrical
system, GENERATOR is bound to comply with UT's Operations Manual with
the purpose of ensuring the optimization of the delivery and to
guarantee the operation of the national electrical system.
11.2 As part of the finalization of operating procedures, each Party shall
designate in writing to the other Party the name of the employee or agent
to whom notices are to be given, and in default of such designation or in
the event of the said employee or agent not being immediately available to
receive any such notice, such Party agrees the notice may be given by
telephone or otherwise to any other responsible employee or agent of the
other Party.
* ARTICLE 12- PRE-OPERATION PERIOD
*12.IGENERATOR shall notify CAESS and to UT in writing at least twelve
(12)business days prior to the proposed Synchronization Date In no event
shall the Synchronization Date be less than twelve (12) business days prior
to the Commercial In-Service Date CAESS shall have the right to have
representatives present at the Generating Facility at the Synchronization
Date.
12.2 The Synchronization of the Generating Facility into CAESS's electrical
system does not occur on the Synchronization Date proposed by GENERATOR in
the notice delivered to CAESS pursuant to Clause 12 for any reason
attributable to CAESS, its employees or agents, GENERATOR shall be entitled
to an indemnification from CAESS, equivalent to the value of one day of
Electrical Energy, calculated as per the provisions stated in this
Contract, for each day of delay.
* ARTICLE 13- OPERATION OF THE GENERATING FACILITY
*13 I GENERATOR shall operate its Generating Facility so that, except for
normal operating conditions, variations of frequency or voltage shall be
within normal operating ranges acceptable to UT, SIGET and the Law of
Electricity.
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*13.2GENERATOR shall take remedial measures, at its own expense, by way of
installing suitable apparatus or otherwise as may be necessary to maintain
voltage and frequency, in order to reduce any fluctuations, interruptions
or interference with the communication systems or control circuits.
*13.3GENERATOR shall adjust exit control to CAESS's requirement or of the
transmission company or to the national electrical system in an acceptable
manner to contribute in the regulation of voltage of CAESS's electrical
system, as set out in the Operations Procedures of CAESS and in the UT
Operations Manual.
13.4 Either Party shall have the right to interrupt the supply of Electrical
Energy or receipt of General Power at any time to the extent necessary to
safeguard life or property or for the purpose of construction, maintenance,
operation, repair, replacement or extension of their equipment or works
Either Party shall limit the duration of such interruptions as much as
practicable and, except in emergencies, shall give to the other Party
adequate warning of its intention to interrupt the supply The Parties shall
coordinate common maintenance schedules And both GENERATOR and the
distributor shall comply with the provisions stated in articles 8 and 10,
respectively.
*13.5 GENERATOR shall cooperate with CAESS in establishing Emergency plans,
including recovery from a total electrical interruption; voltage reduction
of non-essential auxiliary equipment in order to accomplish a reduction in
the flow of electricity; and other plans which may arise GENERATOR shall
make technical references available concerning start-up times, black-start
capabilities and minimum load-carrying ability.
13.6 GENERATOR shall, during an Emergency, supply Electrical Energy as the
Generating Facility is able to generate and CAESS is able to receive If
GENERATOR has a scheduled outage, and such scheduled outage occurs or would
occur coincident with an Emergency, GENERATOR shall make its best efforts
to reschedule the outage or, if the outage has begun, to expedite the
completion thereof.
*13.7CAESS may from time to time make tests to determine the electrical
characteristics of the Generating Facility and may, at its own cost and
expense, install and use meters and equipment which it deems necessary to
establish the basis of billing.
ARTICLE 14- LACK OF PERFORMANCE UNDER THIS CONTRACT
14.1 Pursuant to Clause 14 5 of this Contract, in the event GENERATOR fails to
perform any obligation under this Contract, CAESS may give written notice
to GENERATOR that unless the obligation is completely fulfilled within a
period of
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30 days after delivery of the notice, CAESS shall discontinue
receiving Electrical Energy or supplying General Power until GENERATOR
has rectified the problem, at which time, CAESS shall reconnect the
Generating Facility to its grid The right to discontinue receiving
Electrical Energy or supplying General Power in this section is in
addition to and not in limitation of any other right provided
elsewhere in this Contract to discontinue receiving Electrical Energy
or supply of General Power.
14.2 If at any time GENERATOR fails to comply with any of its obligations
affecting operation of CAESS's electrical system, including failing to
operate as required by this Contract or by any operating procedures
pursuant to the Operations Procedures, CAESS may give notice thereof to
GENERATOR, which notice may be given by telephone to the Plant Manager or
Shift Operator of GENERATOR, as specified in Article I I 2, and GENERATOR
shall immediately commence to remedy the said failure In case of continued
failure for more than thirty minutes after the notice, CAESS may
discontinue the receipt of all Electrical Energy or supply of General Power
or any part thereof and shall not be obliged to resume receipt of
Electrical Energy or supply of General Power until GENERA TOR has remedied
the failure.
14.3 If at any time CAESS fails to perform any of its obligations affecting the
operation of the Generating Facility, including failing to operate as
required by this Contract or by any operating procedures pursuant to the
Operations Procedures, GENERATOR may give written notice thereof to CAESS,
which notice may be given by telephone to the persons referred to in Clause
I I 2, and CAESS shall immediately commence to remedy the said failure In
case of continued failure for more than thirty minutes after the notice,
GENERATOR may discontinue the supply of all Electrical Energy or receipt of
General Power until CAESS has remedied the failure.
14.4 Any of the following topics discussed below will constitute breach of
Contract:
a) Material breach of any of the Parties' obligations pursuant to this
Contract;
b) Any declaration made by any of the Parties that proves to be incorrect
in any material aspect;
c) Dissolution, termination of business or voluntary or involuntary
bankruptcy of any of the Parties; and,
d) In the case CAESS loses its license to provide electrical service such
that it cannot distribute Electrical Energy generated by the
Generating Facility. The above mentioned event will not constitute
grounds for default on the part of CAESS if and when this Contract
(including the Letter of Credit) is assigned to a successor who
GENERATOR, at its own discretion, may deem capable of complying with
all of CAESS's obligations pursuant to this Contract.
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14.5 In the event of default and if this default continued, the Party not in
default shall adhere to the following rights granted by this Contract and
which are referred to in the different clauses of this Contract, may take
the following actions:
a) Give written notice to the Party in default indicating the
circumstances behind such default Thereupon and for a period of not
less than thirty (30) days following the receipt of such notice, the
Parties will have to consult with each other to consider the actions
to be taken in order to alleviate the consequences of such default.
b) After the thirty (30) day period has elapsed, if such default has not
been remedied during such period of time or during an extended period
necessary under the circumstances, the Contract will be terminated
(unless the Parties have agreed to the contrary) by means of a written
notice to the Party in default The Party not in default will be
relieved from every obligation and responsibility acquired through
this Contract, except for the payment of any amount due or for any
liability acquired as a result from any action, omission or event
which occurred before the termination date.
c) Will have the right or recourse based on the law or fairness,
including compensation for monetary damages, temporary suspensions or
forced fulfillment of its contractual obligations.
14.7 In addition to that indicated in Clause 14.6:
a) In the event CAESS failed to comply, GENERATOR may, at its sole and
absolute discretion and under an agreement or otherwise, sell or
contract or agree to the sale of all or any portion of the Electrical
Energy to third parties, and if GENERATOR terminates this Contract in
accordance to Clause 14.6, GENERATOR shall immediately request and
will be authorized to receive payment from CAESS for damages, pursuant
to the provisions stated in Article 1427 ofthe current Civil Code in
the Republic of EI Salvador (please refer to Appendix F).
b) If GENERATOR failed to comply, CAESS shall, in addition to
givingwritten notice to GENERATOR, notify the Creditors of such
default and the Creditors shall have the same 30 day period to remedy
GENERATOR's default or an extended period of time as may be reasonably
necessary in order to remedy such default.
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ARTICLE 15- FORCE MAJEURE
15.1 The Parties shall not be responsible for default ofthe obligations
established in this Contract for reasons of force majeure or unforeseen
circumstances such as war, invasion, rebellion, civil unrest, revolts,
riots, sabotage, floods, earthquakes, fires and other similar occurrences.
15.1 BIS - Neither ofthe parties to this Contract shall be authorized to benefit
from the provisions indicated in Clause I 5 I under the following
circumstances:
a) If default was caused by the negligence of the Party claiming Force
Majeure; or
b) If default was caused by the Party claiming Force Majeure, who did not
attempt to diligently implement measures to remedy the situation and
to promptly recommence compliance with its obligations.
*ARTICLE 16- DIVISIBILITY OF THE CONTRACT
*16.1If any of the terms, covenants or conditions of this Contract, under any
circumstances become invalid or unenforceable, the rest of this Contract
shall remain in full force and effect subject to any necessary adjustments
to replace any of the above-mentioned invalid or unenforceable provisions.
*ARTICLE 17- WAIVER
*17.1The waiver of the right to protest against violations or default of any of
the terms, provisions or covenants contained in this Contract, shall not be
considered or interpreted as waiver of the right to protest against any of
the terms, provisions or covenants contained in this Contract, and a
decision to refrain from making use of one or more of the recourses
stipulated in this Contract in cases of default, shall not be considered or
interpreted as waiver of the right to protest against said default.
ARTICLE 18- PREVIOUS CONTRACTS
18.1 This document contains all of the terms and conditions agreed upon by the
Parties, which includes the terms and conditions set out in the Original
Contract which have not been modified, as well as the amendments agreed to
herein. No other contract held prior to the date of the Original Contract,
either written or verbal, referring to the subject matter of this Contract,
shall be considered in effect or binding to either Party In the event of a
contradiction between the terms agreed upon in the Amended Contract and the
Original Contract, the terms and conditions established in this Amended
Contract shall prevail.
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*ARTICLE 19- CONTROVERSIES AND ARBITRATION
*19.1Any doubt or controversy that may arise between the Parties regarding the
interpretation, fulfillment or execution of this Contract, shall in the
first instance be resolved in either ofthe following ways:
a) by the Management of each of the Parties; or
b) by the Presidency of the Executive Committee of each contracting
company, who will be notified in the event that the Management of each
Party do not reach an agreement.
*19.2If a dispute is not resolved through the negotiations referred to in
Article 19 I, the dispute will be referred to arbitration, which shall be
carried out in accordance with the rules established by the International
Chamber of Commerce in Paris. Such arbitration shall take place in the city
of Miami, Florida in the United States Each Party shall name an arbitrator,
and the chosen arbitrators shall in turn nominate a third arbitrator; if
the chosen arbitrators do not agree upon the naming of a third arbitrator,
one will be appointed by the International Chamber of Commerce in Paris.
The decision of the arbitrators will be final and binding on the Parties
hereto.
19.3 CAESS unconditionally and irrevocably agrees that the execution, delivery
and fulfillment of this Contract on the part of CAESS constitutes private
and commercial acts, and not public or governmental acts Furthermore,
CAESS, as a private company, declares that it shall not enjoy any sovereign
immunity or procedural privileges instituted by any special laws.
ARTICLE 20- NOTICES AND CONFIDENTIALITY
20.1 Any formal notices exchanged between the Parties shall be delivered by
telefax or telecopy and confirmed in writing, upon request of the
interested Party, to the following addresses:
CONTINENT AL WASTE CONVERSION DE EL SALVADOR, S A DE C V
89 Avenida Norte, No 561, Colonia Escalon, San Salvador, EI Salvador
Telephone (503) 264-1200
Facsimile (503) 263-2808
COMPANIA DE ALUMBRADO ELECTRICO DE SAN SALVADOR, SA DE CV
(CAESS)
Blvd Los Heroes, Edificio CAESS, San Salvador, EI Salvador
Telephone (503) 260-6033
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*20.2This Contract shall remain confidential between the Parties and their
professional advisors, except in accordance with internal requirements or
for purposes of financing, and except insofar as the Parties are required
by law to disclose such Contract.
ARTICLE 21- MISCELLANEOUS PROVISIONS
21.1 This Contract is intended exclusively for the benefit of the Parties hereto
Nothing in this Contract shall create any obligation or responsibility to
any person not a Party to this Contract.
"21.2This Contract shall not be interpreted or utilized to create an
association, joint venture or alliance between the Parties or to impose any
obligation or responsibility to the Company on either of the Parties.
Neither Party has the right, power or authority to agree in name of or as
an agent or representative of the other Party.
"21.3Both Parties shall produce and deliver, or shall cause to be produced and
delivered, all documents and future deeds (including certificates,
declarations and affidavits) and any other similar documents, as per any
reasonable requests made by the other Party for the purpose of giving
validity to this Contract and/or to establish compliance with the
representations, covenants and conditions of this Contract.
"21.4The division of this Contract into Articles and the use of headings herein
are solely for the purposes of convenience and shall not affect the
interpretation of same. Any reference in this Contract to an act, statute
or section shall be considered as a reference to said act, statute or
section as may be amended or enforced from time to time. Any words in
singular form signify the same in plural form, and vice versa.
"21.5Except as otherwise herein provided, this Contract shall be governed and
interpreted by the applicable laws of the Republic of EI Salvador, and the
Courts to which the Parties will be subject shall be those based in San
Salvador.
ARTICLE 22- SUCCESSORS AND ASSIGNS
22.1 This Contract shall extend to and be binding upon CAESS and GENERATOR, and
to their respective successors and authorized assigns, with the
understanding that GENERATOR shall not assign its interest in this Contract
or any part thereof, without the written consent of CAESS or vice versa.
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ARTICLE 23- GUARANTEES AND REPRESENTATIONS
23.I GENERATOR represents and guarantees to CAESS the following
a) GENERATOR is a Corporation of Variable Capital, legally
incorporated, validly existing and duly accredited, under the
laws of the Republic of EI Salvador, that it is validly existing
and duly accredited to carry out acts in the whole territory of
EI Salvador and abroad, and that GENERATOR has the power and
authority to conduct its business, to retain the ownership of its
property and to hold, deliver and comply with its obligations
under this Contract.
b) The execution, delivery and fulfillment by GENERATOR of this
Contract has been duly authorized through the necessary corporate
procedures, whereby it shall not (i) require any consent or
approval from the Board of Directors or shareholders of
GENERATOR, or from any third party, other than that which has
already been obtained (proof of such consent and approval must be
provided to CAESS if it has not yet received same); (ii) result
in or constitute default under any provisions of the
constitutional documents of GENERATOR or any Deed or contract to
which GENERATOR is a party, or by that which GENERATOR or its
agents might be obligated or subjected; or violate a law, rule,
regulation, order, mandate, sentence, decree, determination or
finding currently in full force and effect and applicable to
GENERATOR; or (iii) result in the creation or imposition of any
tax on GENERATOR's property.
c) This Contract constitutes a legal, valid and mandatory obligation
for GENERATOR, and the required fulfillment of such against
GENERATOR will be in accordance with the terms of this document.
d) All necessary government authorizations related to the proper
execution and delivery by GENERATOR of this Contract have been
duly obtained or created and are now in full force and effect.
e) There are no pending legal or judicial actions, lawsuits or
proceedings (nor have any been threatened, to the knowledge of
GENERA TOR), nor any before any government body having
jurisdiction over GENERATOR, that are against or affecting
GENERATOR or any of its property, titles or assets, which, in the
event of an adverse determination, would have a material and
negative effect on (i) GENERATOR's financing conditions, profits
or operations; or (ii) GENERATOR's ability to carry out the
transactions considered in this Contract.
23.2 Both GENERATOR and CAESS shall preserve and maintain in full force and
effect their existence, as well as all the government authorizations
necessary for the adequate operation of their business, including the
fulfillment of this Contract.
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Page 24
23.3 CAESS shall make its best efforts to execute, deliver and acknowledge
receipt of any instruments and documents, to implement any modification of
this Contract and to take any necessary action to satisfy any reasonable
request made in writing from any Creditor or prospective Creditor with
respect to the financing of the Generating Facility The aforementioned
shall not be interpreted as a request for CAESS to implement, acknowledge
receipt of and deliver any other document, or to take any other necessary
actions which are inconsistent with its rights under this Contract or which
are specifically subject to its consent or approval under this Contract,
except that CAESS shall carry out all reasonable efforts to deliver any
other instruments or documents, or take any other actions, which are
consistent with the routine requests by the Creditors with respect to the
financing of similar projects.
23.4 MOST FAVOURABLE CONDITIONS
a) GENERATOR is obligated to grant to CAESS the same conditions,
terms and price which by virtue of the Power Purchase Contract it
would grant to any other distributor, when such conditions, terms
and price are considered by CAESS as more favourable than the
conditions, terms and price agreed to in this Contract The new
conditions shall become valid fifteen ( I 5) days after CAESS
request them from GENERATOR in writing.
23.5 RIGHT OF PREFERENCE
CAESS is obligated to grant to GENERATOR the preferential right
to supply any amount of Electrical Energy that might be required
in the future in excess of the contracted amounts agreed upon by
GENERATOR and CEL. GENERATOR must reply as to whether it will
accept the offer to purchase, no later than twenty (20) days from
the date GENERATOR receives the written request made by CAESS The
conditions, terms and price of the new Contract shall be agreed
upon independently of the covenants contained in this Contract.
ARTICLE 24- PREVIOUS CONDITIONS
24.1 Without prejudice to any of the other provisions stipulated in this
Contract, GENERATOR and CAESS agree that the following events constitute
previous conditions to the implementation of GENERATOR's obligations under
this Contract:
24.I.I The implementation of a Fuel Supply Contract that is acceptable to
GENERATOR entirely at its discretion;
24.1.2 GENERATOR obtaining all necessary land transfers, leases, obligations,
licenses, rights of way or other documents related to GENERA TOR ' s real
estate, that may
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Page25
be necessary or desirable, entirely at the discretion of
GENERATOR, for the development, ownership, operation and
financing of the Generating Facility; and,
24.1.3 The ratification by GENERATOR's Board of Directors of the agreements that
modify the Original Contract.
24.2 Without prejudice to any of the other provisions stipulated in this
Contract, GENERATOR and CAESS agree that the following events constitute
previous conditions to the implementation of CAESS' s obligations under
this Contract:
24.2.I The ratification by the Board of Directors elected by the shareholders
which have acquired the shares of CAESS, of the agreements that modify the
Original Contract In the event that said Board of Directors does not ratify
the terms of this amendment, the Board of Directors shall indicate the
specific items with which it is in disagreement, in order to initiate
negotiations immediately.
The term of this ratification will be a maximum of two (2) months from the
Election of the new Board of Directors of CAESS.
By virtue of the stipulations contained in this Article, the durations
agreed to in this Contract shall come into effect following the
ratification established in Article 24.2.I.
CAESS and GENERATOR agree to the terms and conditions of this Contract, in the
City ofSan Salvador, this 12th day of November, 1997.
(Signed) (Signed)
Benjamin Salvador Valiente Argueta Deisy Reynosa
CAESS CWEL
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Exhibit 21.1
List of Subsidiaries
------------------------
IDM ENVIRONMENTAL CORP.
Name State of Incorporation
------------ -------------------------
IDM Energy Corp. Delaware
IDM Environmental of Massachusetts, Inc. Massachusetts
Global Waste & Energy, Inc. Alberta
Global Waste & Energy, Inc. Delaware
CWC de El Salvador S.A. de C.V. El Salvador
Empresa de Poder y Energia de
El Salvador S.A. de C.V. El Salvador
b:/ms/subsidia.idm
Exhibit 23.1
CONSENT OF SAMUEL KLEIN AND COMPANY
We consent to the incorporation by reference in Registration Statements No.
33-92972, 333-04703 and 333-09445 of IDM Environmental Corp. on Form S-8 and in
Registration Statement No. 333-28485 on Form S-3 of our reports dated April 8,
1998 appearing in the Annual Report on Form 10-K, and amendment number 1
thereto, of IDM Environmental Corp. for the year ended December 31, 1997.
/s/ Samuel Klein and Company
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
April 17, 1998
b:/ms/accountantconsent.idm/idm98
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<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 602,242
<SECURITIES> 0
<RECEIVABLES> 4,594,408
<ALLOWANCES> 500,000
<INVENTORY> 582,512
<CURRENT-ASSETS> 11,833,213
<PP&E> 7,699,140
<DEPRECIATION> 4,422,024
<TOTAL-ASSETS> 27,150,705
<CURRENT-LIABILITIES> 8,812,632
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0
2,700,000
<COMMON> 14,513
<OTHER-SE> 15,364,874
<TOTAL-LIABILITY-AND-EQUITY> 27,150,705
<SALES> 17,921,899
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<CGS> 17,649,365
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<OTHER-EXPENSES> 11,261,092
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<INTEREST-EXPENSE> 512,768
<INCOME-PRETAX> (11,501,326)
<INCOME-TAX> (1,561,000)
<INCOME-CONTINUING> (9,940,326)
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