SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] 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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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2194790
- ------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
396 Whitehead Avenue, South River, New Jersey 08882
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(Address of principal executive offices)
(908) 390-9550
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(Registrant's Telephone Number, Including Area Code)
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(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- ------
As of August 17, 1998, 19,158,644 shares of Common Stock of the issuer were
outstanding.
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
----------------------------------------
INDEX
Page
Number
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -June 30, 1998
and December 31, 1997........................................ 1
Consolidated Statements of Operations - For the six
months ended June 30, 1998 and June 30, 1997................. 2
Consolidated Statement of Operations - For the three
months ended June 30, 1998 and June 30, 1997................. 3
Consolidated Statements of Cash Flows - For the six
months ended June 30, 1998 and June 30, 1997................. 4
Notes to Consolidated Financial Statements................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities........................................ 16
Item 4. Submission of Matters to a Vote of Security Holders.......... 17
Item 6. Exhibits and Reports on Form 8-K............................. 17
SIGNATURES.............................................. .............. 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
Unaudited
June 30, December 31,
ASSETS 1998 1997
--------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 119,900 $ 602,242
Accounts receivable 5,301,164 4,094,408
Notes receivable - current 108,805 116,457
Inventory 582,517 582,517
Costs and estimated earnings in excess of billings 154,471 455,823
Bonding deposits - 9,157
Due from officers 444,499 369,541
Prepaid expenses and other current assets 1,414,000 1,433,068
--------------- ----------------
Total Current Assets 8,125,356 7,663,213
Investments in and Advances to Unconsolidated Affiliates 2,462,496 3,453,309
Investment in Affiliate, at cost 1,893,125 1,715,000
Notes Receivable - long term 1,381,155 1,381,155
Debt Discount and Issuance Costs 270,000 4,610,166
Deferred Income Taxes 4,570,000 4,170,000
Property, Plant and Equipment 3,423,795 3,277,116
Other Assets 880,746 880,746
--------------- ----------------
$ 23,006,673 $ 27,150,705
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 455,340 $ 3,566,393
Accounts payable and accrued expenses 5,153,632 5,159,635
Billings in excess of costs and estimated earnings 867,568 86,604
--------------- ----------------
Total Current Liabilities 6,476,540 8,812,632
Long-Term Debt 160,834 258,686
--------------- ----------------
Total Liabilities 6,637,374 9,071,318
--------------- ----------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 75,000,000 shares $.001 par value, issued
and outstanding 17,864,302 in 1998 and 14,513,073 in 1997 17,863 14,513
Additional paid-in capital 51,431,761 38,497,705
Convertible preferred stock, authorized 1,000,000 shares $1.00 par value
Series B, Issued and outstanding 0 in 1998 and 270 shares in 1997,
stated at conversion value of $10,000 per share - 2,700,000
Series C, Issued and outstanding 3,600 shares, stated at conversion value
of $10,000 per share 3,600,000 -
Retained earnings (deficit) (38,680,325) (23,132,831)
--------------- ----------------
16,369,299 18,079,387
--------------- ----------------
$ 23,006,673 $ 27,150,705
=============== ================
----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Six Months Ended June 30,
1998 1997
--------------- -------------
<S> <C> <C>
Revenue:
Contract income $10,015,549 $7,794,201
Sale of equipment - 28,550
-------------- -------------
10,015,549 7,822,751
-------------- -------------
Cost of Sales:
Direct job costs 11,494,348 7,380,087
Cost of equipment sales - 22,413
-------------- -------------
11,494,348 7,402,500
-------------- -------------
Gross Profit (loss) (1,478,799) 420,251
-------------- -------------
Operating Expenses:
General and administrative expenses 6,380,722 4,030,728
Depreciation and amortization 318,246 375,841
-------------- -------------
6,698,968 4,406,569
-------------- -------------
Loss from Operations (8,177,767) (3,986,318)
Other Income (Expense)
Interest income(Expense) (4,322,684) 37,534
-------------- -------------
Loss before Credit for Income Taxes (12,500,451) (3,948,784)
Credit for Income Taxes (400,000) (680,000)
-------------- -------------
Net Loss (12,100,451) (3,268,784)
Preferred Stock Dividends including $3,330,000 and
$844,521 amortization of beneficial conversion feature
in 1998 and 1997. Total amounts of $3,330,000 and $1,109,589
for 1998 and 1997 3,447,043 924,062
-------------- -------------
Net Loss on Common Stock ($15,547,494) ($4,192,846)
============== =============
Loss per Share:
Basic Loss per share ($0.91) ($0.45)
============== =============
Diluted Loss per share ($0.91) ($0.45)
============== =============
Basic common shares outstanding 17,126,231 9,602,730
============== =============
Diluted common shares outstanding 17,126,231 9,602,730
============== =============
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Three Months Ended June 30,
1998 1997
------------ -----------
<S> <C> <C>
Revenue:
Contract income $4,846,791 $4,129,787
Sale of equipment - -
------------ -----------
4,846,791 4,129,787
------------ -----------
Cost of Sales:
Direct job costs 6,742,025 3,391,708
Cost of equipment sales - -
------------ -----------
6,742,025 3,391,708
------------ -----------
Gross Profit (Loss) (1,895,234) 738,079
------------ -----------
Operating Expenses:
General and administrative expenses 2,533,107 1,863,074
Depreciation and amortization 184,466 219,782
------------ -----------
2,717,573 2,082,856
------------ -----------
Loss from Operations (4,612,807) (1,344,777)
Other Income (Expense):
Interest income (expense) (1,145,998) (19,710)
------------ -----------
Loss before Credit for Income Taxes (5,758,805) (1,364,487)
Credit for Income Taxes - (230,000)
------------ -----------
Net Loss (5,758,805) (1,134,487)
Preferred Stock Dividends including $3,226,000 and $554,795
amortization of beneficial conversion feature in 1998 and 1997.
Total amount of $3,330,000 and $1,109,589 for 1998 and 1997 3,289,000 607,295
------------ -----------
Net Loss on Common Stock ($9,047,805) ($1,741,782)
============ ===========
Loss per Share:
Basic Loss per share ($0.51) ($0.18)
============ ===========
Diluted Loss per share ($0.51) ($0.18)
============ ===========
Basic common shares outstanding 17,747,491 9,602,370
============ ===========
Diluted common shares outstanding 17,747,491 9,602,370
============ ===========
-----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Six Months Ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (12,100,451) ($3,268,784)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes (400,000) (680,000)
Depreciation and amortization 325,649 306,475
Amortization of debt discount and issuance costs 4,306,786 -
Compensation cost of consultant stock options 1,871,400 -
Decrease (Increase) In:
Accounts receivable (1,206,756) 2,131,672
Notes receivable 7,652 (39,014)
Costs and estimated earnings in excess of billings 301,352 1,304,565
Prepaid expenses and other current assets 19,068 95,624
Bonding deposits 9,157 46,474
Increase (Decrease) In:
Accounts payable and accrued expenses 325,971 (2,649,014)
Billings in excess of costs and estimated earnings 780,964 82,787
-------------- --------------
Net cash used in operating activities (5,759,208) (2,669,215)
-------------- --------------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (472,328) (36,552)
Proceeds from disposal of property, plant and equipment - 17,707
Investment in and advances to unconsolidated affiliates 990,813 -
Acquisition of other assets (178,125) (267,179)
Loans and advances to officers (74,958) (93,573)
-------------- --------------
Net cash provided by (used in) in investing activities 265,402 (379,597)
-------------- --------------
Cash Flows from Financing Activities:
Net proceeds from convertible preferred stock issuance 3,240,000 2,780,000
Principal payments on long-term debt (340,146) (224,396)
Long term debt borrowing 156,238 763,710
Preferred stock dividends (117,043) (79,541)
Proceeds from exercise of stock options and warrants 2,072,415 -
-------------- --------------
Net cash provided by financing activities 5,011,464 3,239,773
-------------- --------------
Increase (Decrease) in Cash and Cash Equivalents (482,342) 190,961
Cash and Cash Equivalents, beginning of period 602,242 1,001,254
-------------- --------------
Cash and Cash Equivalents, end of period $ 119,900 $ 1,192,215
============== ==============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Continued)
<TABLE>
For the Six Months Ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 231,205 $ 122,994
============= ============
Income taxes
-
============= ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
Conversion of convertible promissory notes to common stock $ 3,025,000
============= ============
Conversion of preferred stock to common stock $ 2,700,000
============= ============
Beneficial conversion feature of convertible preferred stock $ 3,330,000
============= ============
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. These statements include the
accounts of IDM Environmental Corp. and all of its wholly owned and
majority owned subsidiary companies. The December 31, 1997 balance sheet
data was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's Form 10-K for the year ended December 31, 1997. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
the interim periods presented. The current period results of operations are
not necessarily indicative of results which ultimately will be reported for
the full year ending December 31, 1998.
2. CONTINGENCIES
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and
Health Administration ("OSHA") issued three citations and notification of
penalty in the aggregate 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. A hearing was conducted in the matter in April, 1997. In June 1998,
the Company received a copy of the written decision filed by OSHA's Review
Commission. The Commission vacated the first alleged wilful citation, but
affirmed each of the second and third wilful citations, imposing a penalty
in the amount of $70,000 for each citation. The Company strongly objects to
the Commission's finding on the basis that it cannot be sustained as
matters of fact or law and has filed a timely Notice of Appeal with the
OSHA Review Commission for Discretionary Review, which body has accepted
jurisdiction of the matter on administrative appeal. 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. A written settlement agreement has been executed by plaintiff's
counsel on behalf of the class. Subject to final court approval, the matter
will be settled and finally resolved with the payment of $1,125,000 to the
class. The entire settlement sum will be paid by the Company's director's
and officer's ("D&O") insurance policy carrier pursuant to the obligations
owed by the carrier under the Company's existing D&O policy. The settlement
will cover the class period March 8, 1996 to June 5, 1997. The settlement,
as expressly reflected in the settlement documents, has been made as a
business accommodation only, and neither the Company, nor any director,
officer or employee of the Company has admitted or will admit any wrong
doing of any kind. With the closing of the settlement, which is expected by
October, 1998, the action will be dismissed with prejudice and the Company
and each of the individuals who have been named as defendants will be
released from any and all claims for the entire class period.
6
<PAGE>
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.
2. CONTINGENCIES (Continued)
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 June 17, 1997, IDM, Global Alberta and Global Delaware
commenced an action in Court in Calgary, Alberta (Action No. 9701-08705)
against Envirpower seeking to enforce the Agreements and, more
specifically, an injunction to restrain Enviropower from, among other
things, selling, marketing, exporting, licensing, exploiting or using in
any manner the Technology outside of Canada, together with damages in the
amount of $160,000 owing pursuant to a Promissory Note owed to Global
Alberta. IDM has also alleged its entitlement to special and general
damages on account of Enviropower's intentional interference with its
contractual relations in the estimated amount of $50 million, aggravated
and punitive damages in the amount of $1 million, respectively, together
with interest and costs.
On June 20, 1997, IDM, Global Alberta and Global Delaware were successful
in obtaining an Interim Injunction Order protecting it's rights to the
Technology from interference by Enviropower. On September 19, 1997, IDM,
Global Alberta and Global Delaware were successful in extending the
operation of the initial Injunction Order to trial. On March 20, 1998,
Enviropower Industries, Inc. (Formerly, Continental Waste Conversion
International, Inc. ("CWC") ), filed for bankruptcy protection in Calgary
Bankruptcy Court. At present, pursuant to Canadian Bankruptcy law, the
matter commenced by IDM, et al., has been stayed, and the Trustee appointed
by the Court has indicated that he has no intention of continuing to
prosecute the matter. The preliminary injunction previously granted in
favor of IDM and Global remains in full force and effect protecting IDM's
license rights to the Technology against infringement by Enviropower (or
the Trustee on its behalf) and/or any other party. The Company is presently
awaiting further word from the Trustee concerning his intentions with
respect to liquidation of the Bankrupt estate.
3. CONVERTIBLE PREFERRED STOCK SERIES C, "LOCK-UP WARRANTS" AND "RELOAD
WARRANTS"
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 (amended
on June 2, 1998 to $3.75). 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 (amended
on June 2, 1998 to $3.25) or (ii) 75% of the average closing bid price of
the Common Stock during the five trading days prior to conversion. The Four
Year $3.75 Warrants are exercisable for a four year period at the lesser of
$3.75 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 $3.75 Warrants was 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 $3.75 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 $3.75 Warrants at the
pre-tax profit such holders would have realized had the Four Year $3.75
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 June 2, 1998, at the Annual
Stockholders Meeting, the shareholders approved a proposal for the issuance
of shares in excess of 3,285,438.
7
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. CONVERTIBLE PREFERRED STOCK SERIES C, "LOCK-UP WARRANTS" AND "RELOAD
WARRANTS" (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 Exchange
Act of 1933, as amended. The offer was directed exclusively to a limited
number of accredited investors 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 June 2, 1998, the Company issued 266,875 $6.00 and 266,875 $6.75
Warrants (the "Reload Warrants"). The $6.00 Warrants and $6.75 Warrants
were issued as an inducement for early exercise by the holders of certain
$3.00 Warrants and are exercisable to the extent of one $6.00 Warrant and
one $6.75 Warrant for each $3.00 Warrant previously exercised. The $6.00
Warrants and $6.75 Warrants are exercisable for a period of one year
commencing June 8, 1998 to purchase Common Stock at $6.00 and $6.75 per
share, respectively. Exercise of the $6.00 Warrants and $6.75 Warrants is
subject to the restrictions that the holders, individually, will not
beneficially own in excess of 4.99% of the Company's Common Stock following
any exercise. Exercise of the $6.00 Warrants and $6.75 Warrants is also
subject to amendment of the Company's Certificate of Incorporation to
increase the authorized shares of Common Stock to provide for an adequate
number of authorized and unissued shares of Common Stock to permit the
exercise or conversion of all outstanding convertible securities.
4. EARNINGS PER SHARE
The Company is calculating earnings 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 (note
payable) as a dividend (interest expense) at the issue date and amortize
from the issue date of the convertible security. The beneficial conversion
feature of the Series B preferred stock was $1,109,589 and was amortized as
a dividend over a 180 day period from February 12, 1997, the issue date of
the convertible preferred stock. The beneficial conversion feature of the
Company's convertible notes and related warrants was $4,818,750 and was
recorded as additional interest expense from August 13, 1997, the issue
date of the convertible notes, to March 4, 1998, the date the last
convertible note was converted into common stock. The beneficial conversion
feature of the Series C preferred stock and related warrants was $3,330,000
and was amortized as a dividend from the issue date, February 13, 1998, to
June 22, 1998, the date the Registration Statement of the underlying stock
was declared effective.
5. STOCKHOLDERS' EQUITY
During the six months ended June 30, 1998, the remaining 270 shares of
Series B Convertible Preferred Stock were converted, resulting in the
issuance of an aggregate of 1,359,441 shares of common stock.
Additionally, during the period, the remaining $3,025,000 of 7% Convertible
Notes were converted, resulting in the issuance of an aggregate of
1,152,669 shares of common stock. Debt discount of $4,205,886 was amortized
as additional interest expense on the convertible notes during the six
months ended June 30, 1998. The unamortized balance of deferred issuance
costs of $260,223 were charged to paid in capital upon conversion of the
convertible notes to common stock.
During the six months ended June 30, 1998, 658,462 Class A Warrants were
exercised resulting in net proceeds to the Company of $1,439,297; 288,750
Three Year Warrants were exercised resulting in net proceeds to the Company
of $629,063; and, 2,027 stock options were exercised resulting in proceeds
to the Company of $4,054.
6. CONSULTANT STOCK OPTIONS
During the six months ended June 30, 1998, the Company granted immediately
exercisable options to consultants to purchase 1,220,000 shares of common
stock at the market price of the Company's common stock at the date of
grant. The Company recorded a non-cash compensation expense of $1,871,400
during the first quarter in connection with the grant of those options.
7. SUBSEQUENT EVENTS
On August 11, 1998, the Company sold 1,500 shares of Series RR 6%
Convertible Preferred Stock. The securities were issued to one accredited
investor. The aggregate sales price of such securities was $1,500,000.
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 single accredited investor without general solicitation or
advertising and based on representations from the investor that such
investor was acquiring for investment. The securities bear legends
restricting the resale thereof.
The Series RR Preferred Shares are convertible into Common Stock at the
lesser of (i) $2.25 per share or (ii) 75% of the average closing bid price
of the Common Stock during the five trading days prior to conversion.
Conversion of the Preferred Shares is subject to the issuance of a maximum
of 3,600,000 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 3,600,000 shares,
the holders of Preferred Shares remaining outstanding if and when 3,600,000
shares have been issued will have the right to demand redemption of the
Preferred Shares at 120% of the principal balance outstanding. Further, the
holder of the Preferred Shares has the right to demand redemption of any
Preferred Shares remaining outstanding in the event that (1) the Company
carries out a placement of common stock or securities convertible into
common stock on or before the effective date of a registration statement to
be filed covering the shares underlying the Preferred Shares and (2) the
holder elects not to exercise its right of first refusal with respect to
such securities. In the event the holder exercises its redemption right in
connection with a subsequent offering, the Company is obligated to redeem
the remaining Preferred Shares for (1) cash in an amount equal to 125% of
the principal balance outstanding plus accrued dividends and (2) in the
event the Company's common stock is trading above $3.25 at the time of
redemption, the issuance of up to 461,539 two year warrants exercisable at
$3.25 per share. The Preferred Shares pay an annual dividend of 6% payable
semi-annually or on conversion or at redemption in cash or Common Stock, at
the Company's option.
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Item 2. Management's Discussion and Analysis Of Financial Condition And Results
Of Operations.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of Securities Exchange Act of
1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in this
report.
Three Months Ended June 30, 1998 Compared with June 30, 1997
The Company's total revenues increased by approximately 17% from $4,130,000 for
the quarter ended June 30, 1997 to $4,847,000 for the quarter ended June 30,
1998. The increase in contract service revenues in 1998 over 1997 is
attributable to an increase of approximately one million dollars in our projects
in our Oak Ridge office.
Direct job costs increased by approximately 99% from $3,392,000 for the quarter
ended June 30, 1997 to $6,742,000 for the same period in 1998. The primary
elements of such increase in job costs were job salaries and material and
supplies. The increase in job costs was attributable to unforeseeable
developments on the Company's Boston State Hospital and East Dam projects which
resulted in negative gross margin from these projects of $1.9 million dollars on
total contract revenues of $4.8 million dollars in the quarter.
IDM is a subcontractor to the prime contractor on the Boston State Hospital
project. IDM, in turn, subcontracted with Dockside Dismantling Corporation
("Dockside"). Dockside defaulted on it's subcontract with IDM and abandoned the
work for which it was, and remains, responsible. In addition, on or about May
27, 1998, the project owner's consulting engineer notified IDM of the claim of
certain work deficiencies for which Dockside and, derivatively, IDM are
allegedly responsible. IDM has estimated the additional costs to complete and to
correct Dockside's work to be in excess of $1.2 million dollars and has recorded
this amount in it's financial statements for the quarter. IDM made an immediate
claim against the bond ($500,000 performance and $500,000 payment) provided by
Dockside's surety company. The surety company has disclaimed coverage and the
issue of the enforceability of the Bond is now the subject of litigation pending
in Federal Court in the Commonwealth of Massachusetts. Trial is now scheduled in
the matter for February 1999. IDM expects to receive payment for and recognize
revenues for the work performed in subsequent periods. These revenues have not
been recognized in the financial statements.
With respect to the East Dam project, upon transition from the north end of the
dam to the south end of the dam, the estimated drill footage of the project was
substantially reduced compared to the bid package for the project. As a result,
the total estimated revenues from the project was reduced from approximately $20
million to approximately $15 million. The impact on the financial statements for
the quarter is approximately a negative $700,000 in gross margin. While the
project is still expected to show a profit, increased costs during the quarter
for unapproved change orders and a revised estimate of lower revenues has
decreased the expected gross margin significantly. In accordance with
conservative accounting principles, all costs have been recognized, while
expected revenues from unapproved change orders and claims will be recognized in
subsequent periods when they are received. The Company expects to submit claims
on this project in excess of eight million dollars.
While total revenues increased by 17% for the quarter, general and
administrative expenses increased 36 % from $1,863,000 during the quarter ended
June 30, 1997 to $2,533,000 during the same period in 1998. The increase in
general and administrative expense was attributable to (1) a $92,000 audit
refund of workers compensation insurance recorded in 1997, (2) $230,000 increase
in professional fees over the same period in 1997, (3) and other increases in
salaries, office expenses and travel and entertainment expenses due to increased
activity for foreign projects.
In addition to its operating income and expenses, the Company reported net
interest expense of $1,146,000 for the quarter ended June 30, 1998 as compared
to net interest expense of $20,000 for the same period in 1997. The decrease in
net interest income/expense was attributable to $1,163,000 in interest expense
recorded on the convertible notes and related warrants in 1998. This amount
represented the amortization of the beneficial conversion feature of the
convertible notes and warrants.
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As a result of the foregoing, the Company reported a loss before taxes of
$5,759,000 and a net loss of $5,759,000 for the quarter ended June 30, 1998 as
compared to a loss before taxes of $1,364,000 and a net loss of $1,134,000 for
the same quarter in 1997.
The net loss attributable to common stock was increased by the preferred stock
dividends $63,000 in 1998 and $53,000 in 1997, and an accounting "deemed
dividend" of $3,226,000 and $555,000 in 1998 and 1997 arising from the
amortization of the beneficial conversion feature of the Company's 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 totaled $3,330,000 and
$1,109,589 in 1998 and 1997, respectively) and amortize the dividend over a 180
day period from the issue date for the Series B Preferred Stock and to the date
the registration statement became effective for the Series C Preferred Stock.
Six Months ended June 30, 1998 Compared with Six Months Ended June 30, 1997.
Total revenues increased by approximately 28.0% from $7,823,000 for the six
months ended June 30, 1997 to $10,016,000 for the same period in 1998. Contract
service income increased during the period by 28.5% from $7,794,000 in 1997 to
$10,016,000 in 1998. See the quarterly comparison for discussion of the factors
contributing to the increase.
Surplus equipment revenues decreased 100% from $29,000 in 1997 to none in 1998
due to no volume in 1998.
Direct job costs increased by approximately 55.7% from $7,380,000 for the six
months ended June 30, 1997 to $11,494,000 for the same period in 1998. See the
quarterly comparison for a discussion of the factors contributing to the
increase in direct job costs.
Cost of equipment sales decreased from $22,000 in 1997 to none due to no volume
in 1998.
General and administrative expenses increased 58.3% from $4,031,000 during the
six months ended June 30, 1997 to $6,381,000 during the same period in 1998. The
increase in general and administrative expense was attributable to $1.9 million
expense recorded in February, 1998 for options granted to consultants to
purchase 1,220,000 shares of common stock of the Company at the market price of
the Company's common stock at the date of the grant and the factors discussed in
the quarterly comparison.
The Company reported an increase in net interest income/(expense) from $38,000
income for the six months ended June 30, 1997 to $4,323,000 expense for the same
period in 1998. See the quarterly comparison for discussion of the factors
contributing to the increased expense.
As a result of the foregoing, the Company reported a loss before taxes of
$12,500,000 and a net loss after tax of $12,100,000 for the six months ended
June 30, 1998 as compared to a loss before taxes of $2,584,000 and a net loss
after taxes of $2,134,000 for the same period in 1997.
The net loss attributable to common stock was increased by $117,000 and $80,000
in preferred stock dividends and $3,330,000 and $845,000 amortization of the
beneficial conversion feature in 1998 and 1997 respectively.
Material Changes in Financial Condition, Liquidity and Capital Resources.
At June 30, 1998, the Company had working capital of approximately $1.6 million,
including a cash balance of $.1 million. This compares to a working capital
deficit of $1.1 million and a cash balance of $0.6 million at December 31, 1997.
The increase in working capital and decrease in cash is attributable to the
conversion to common stock of $3,025,000 in notes payable classified as a
current liability at December 31, 1997 and the receipt of net proceeds of
$3,240,000 from the Series C Preferred Stock which was more than offset by the
loss for the period.
Approximately $0.2 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.
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Also included in the Company's working capital balance at June 30, 1998 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, 1997. 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 $13.4 million dollars in future taxable income to recover the
reported deferred tax asset of $4,570,000 at June 30, 1998. 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 $6,757,000 has been established by management as a reduction of the
Company's deferred tax assets of $11,327,000. 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 El Salvador
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 June
30, 1998.
The Company's accounts receivable increased by 29.5% from 1997 to 1998. Such
increase in accounts receivable was attributable to the increase in revenues
during the period. Accounts receivable as a percentage of quarterly revenues was
109.4% and 99.1% in 1998 and 1997, 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 and 26% at December
31, 1996, 11% at December 30, 1997, and (15%) at June 30, 1998. 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) schedules of
values.
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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 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).
Other items impacted the Company's cash flows during 1998. 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 1998 were (1) the conversion of $2.7 million of convertible
preferred stock into common stock and (2) the conversion of $3.025 million of
convertible notes payable to common stock. Transactions with subsidiaries during
1998 related principally to the capitalization of various subsidiaries formed to
deploy the Company's Kocee Gas Generator technology. At June 30, 1998, the
Company had loaned $3.1 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 June 30, 1998, 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.
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 were 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 paid a 7% dividend
payable on conversion or at redemption in cash or Common Stock, at the Company's
option. As of March 31, 1998, all of the Convertible Preferred Stock had been
converted resulting in the issuance of 1,552,366 shares of 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").
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The Convertible Notes were 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 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 paid 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 had
not been declared effective within 90 days or 180 days after the issuance of the
Convertible Notes, the interest rate on the Convertible Notes would increase to
18% and 24%, respectively, from those dates until such a registration statement
became effective. The registration statement was declared effective in January
9, 1998. The amount of additional interest expense was $54,500. As of June 30,
1998, all of the Convertible Notes had been converted resulting in the issuance
of 1,152,669 shares of common stock.
12
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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 period from the date of issuance
to the date the notes were first convertible, January 8, 1998 and for the
warrants to June 30, 1998. During 1997, $600,000 was amortized and recorded as
interest expense. During 1998, $4,118,750 was charged to interest expense.
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 (amended on June 2, 1998
to $3.75). The aggregate sales price of such securities was $3,600,000.
Commissions totaling 10% were paid in connection with the placement. The Series
C Preferred Stock is convertible into Common Stock at the lesser of (i) $4.50
per share (amended on June 2, 1998 to $3.25) or (ii) 75% of the average closing
bid price of the Common Stock during the five trading days prior to conversion.
The Four Year $3.75 Warrants are exercisable for a four year period at the
lesser of $3.75 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 $3.75 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 $3.75 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 $3.75 Warrants at the pre-tax profit such
holders would have realized had the Four Year $3.75 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 June 2, 1998, at
the Annual Stockholders Meeting, the shareholders approved a proposal for the
issuance of shares in excess of 3,285,438.
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 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 are
exercisable for a three year period at $4.50 per share.
On June 2, 1998, the Company approved the issuance of 266,875 $6.00 and 266,875
$6.75 Warrants. The $6.00 Warrants and $6.75 Warrants were issued as an
inducement for early exercise by the holders of certain $3.00 Warrants and are
exercisable to the extent of one $6.00 Warrant and one $6.75 Warrant for each
$3.00 Warrant previously exercised. The $6.00 Warrants and $6.75 Warrants are
exercisable for a period of one year commencing June 8, 1998 to purchase Common
Stock at $6.00 and $6.75 per share, respectively. Exercise of the $6.00 Warrants
and $6.75 Warrants is subject to the restrictions that the holders,
individually, will not beneficially own in excess of 4.99% of the Company's
Common Stock following any exercise. Exercise of the $6.00 Warrants and $6.75
Warrants is also subject to amendment of the Company's Certificate of
Incorporation to increase the authorized shares of Common Stock to provide for
an adequate number of authorized and unissued shares of Common Stock to permit
the exercise or conversion of all outstanding convertible securities.
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 370,000 Class A
Warrants issued in connection with the Company's initial public offering were
outstanding and exercisable at June 30, 1998. 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 $3.3 million and result in the issuance of 0.7 million shares.
There can be no assurance, however, when, if ever, any or all of the warrants
will be exercised.
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In addition to its funding requirements to support ongoing operations, the
Company has committed substantial capital resources to implementation of the
Company's strategic initiative known as "Vision 2000." The focus of Vision 2000
is to position the Company as a leading participant in the global energy market
and in the nuclear facility decommissioning and site revitalization market. The
development and initial implementation of Vision 2000 initiatives have required
substantial capital expenditures on the Company's part and can be expected to
continue to require substantial capital expenditures in the future. In
particular, the Company's first energy project, the Miravalle Power Project in
El Salvador, is expected to cost approximately $55 million to develop and will
require substantial funding beyond that which the Company can presently provide.
The Company has entered into discussions with several potential equity investors
in the Miravalle Power Project. The Company is also in discussion with a major
project financing source with respect to the provision of debt financing for the
balance of the cost above the contributions of the Company and its equity
partner. The Company's ability to successfully bring the Miravalle Power Project
on line and implement its other Vision 2000 initiatives is substantially
dependent upon its ability to secure project financing and other financing.
While the Company believes that it will be able to attract adequate financing to
develop the Miravalle Power Project and its other anticipated projects, the
Company has no definitive commitments to provide financing for those projects
and there is no assurance that such financing will be available. Other than
funding Vision 2000 initiatives and 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.
Subsequent to June 30, 1998, on August 11, 1998, the Company sold 1,500 shares
of Series RR 6% Convertible Preferred Stock. The securities were issued to one
accredited investor. The aggregate sales price of such securities was
$1,500,000. Commissions totaling 10% were paid in connection with the placement.
The Series RR Preferred Shares are convertible into Common Stock at the lesser
of (i) $2.25 per share or (ii) 75% of the average closing bid price of the
Common Stock during the five trading days prior to conversion. Conversion of the
Preferred Shares is subject to the issuance of a maximum of 3,600,000 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 3,600,000 shares, the holders of Preferred Shares
remaining outstanding if and when 3,600,000 shares have been issued will have
the right to demand redemption of the Preferred Shares at 120% of the principal
balance outstanding. Further, the holder of the Preferred Shares has the right
to demand redemption of any Preferred Shares remaining outstanding in the event
that (1) the Company carries out a placement of common stock or securities
convertible into common stock on or before the effective date of a registration
statement to be filed covering the shares underlying the Preferred Shares and
(2) the holder elects not to exercise its right of first refusal with respect to
such securities. In the event the holder exercises its redemption right in
connection with a subsequent offering, the Company is obligated to redeem the
remaining Preferred Shares for (1) cash in an amount equal to 125% of the
principal balance outstanding plus accrued dividends and (2) in the event the
Company's common stock is trading above $3.25 at the time of redemption, the
issuance of up to 461,539 two year warrants exercisable at $3.25 per share. The
Preferred Shares pay an annual dividend of 6% payable semi-annually or on
conversion or at redemption in cash or Common Stock, at the Company's option.
Management believes that the Company's working capital, combined with the
expected receipt of funds from the resolution of certain change orders and
litigation, is sufficient to meet the Company's anticipated needs, other than
project financing requirements discussed above, 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 and there is no assurance as to the timing or amount of the receipt of
funds from change orders, litigation or other sources, the Company may be
required to seek new bank lines of credit or other financing in order to
facilitate the performance of jobs. 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.
Certain Factors Affecting Future Operating Results
This Form 10-Q 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 June 30, 1998, the Company was on-site on projects with a total left in value
of services yet to be performed of $21 million. The largest project on which the
Company was on-site at June 30, 1998 was the Bechtel Jacobs project with an
approximate value of services to be performed of $6 million. The contract is
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.
14
<PAGE>
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 various prospects by as early as the second
half of 1998. In addition to the El Salvador Power Project, the Greifswald
Nuclear Plant Decommissioning and Site Revitalization Project and the Georgia
Power Project described in the Company's Form 10-K for the year ended December
31, 1997, the Company, through August 15, 1998, had entered into preliminary
agreements with respect to the development and operation of (i) a 200-ton per
day industrial waste processing and energy production facility in Taipei,
Taiwan; and (ii) a 1,750 ton per day municipal and industrial waste-to-energy
power plant in Szczecin, Poland.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
(a) On August 11, 1998, the Company sold 1,500 shares of Series RR 6%
Convertible Preferred Stock.
(b) The securities were issued to one accredited investor.
(c) The aggregate sales price of such securities was $1,500,000.
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 single accredited investor without general
solicitation or advertising and based on representations from the
investor that such investor was acquiring for investment. The
securities bear legends restricting the resale thereof.
(e) The Series RR Preferred Shares are convertible into Common Stock at
the lesser of (i) $2.25 per share or (ii) 75% of the average closing
bid price of the Common Stock during the five trading days prior to
conversion. Conversion of the Preferred Shares is subject to the
issuance of a maximum of 3,600,000 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 3,600,000 shares, the holders
of Preferred Shares remaining outstanding if and when 3,600,000 shares
have been issued will have the right to demand redemption of the
Preferred Shares at 120% of the principal balance outstanding.
Further, the holder of the Preferred Shares has the right to demand
redemption of any Preferred Shares remaining outstanding in the event
that (1) the Company carries out a placement of common stock or
securities convertible into common stock on or before the effective
date of a registration statement to be filed covering the shares
underlying the Preferred Shares and (2) the holder elects not to
exercise its right of first refusal with respect to such securities.
In the event the holder exercises its redemption right in connection
with a subsequent offering, the Company is obligated to redeem the
remaining Preferred Shares for (1) cash in an amount equal to 125% of
the principal balance outstanding plus accrued dividends and (2) in
the event the Company's common stock is trading above $3.25 at the
time of redemption, the issuance of up to 461,539 two year warrants
exercisable at $3.25 per share. The Preferred Shares pay an annual
dividend of 6% payable semi-annually or on conversion or at redemption
in cash or Common Stock, at the Company's option.
15
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 2, 1998, an annual meeting of shareholders of IDM
Environmental Corp. was held.
(b) The following directors were elected (by the vote indicated) at such
meeting:
Michael Killeen 13,161,337 For 887,379 Withheld
Mark Franceschini 13,096,937 For 951,779 Withheld
Richard Keller 13,188,287 For 860,429 Withheld
Robert McGuinness 13,172,537 For 876,179 Withheld
In addition to the foregoing directors, Joel Freedman, Frank Falco and
Frank Patti continued to serve as directors following the meeting.
(c) In addition to the election of directors as noted above, the following
matters were voted upon at such meeting:
(i) Approval of amendment to Certificate of Incorporation to increase
the number of authorized shares of common stock from 30,000,000
shares to 75,000,000 shares (12,315,926 For, 1,573,675 Against,
159,115 Abstain)
(ii) Approval of adoption of the IDM Environmental Corp. 1998
Comprehensive Stock Option and Award Plan (3,551,223 For,
1,654,610 Against, 156,770 Abstain)
(iii)Approval of issuances of shares in excess of 3,285,438 on
conversion of outstanding Series C Preferred Stock and Warrants
(3,749,593 For, 1,491,895 Against, 121,115 Abstain) Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
4.1 Certificate of Designation of Series RR Convertible Preferred
Stock
10.1 Registration Rights Agreement dated August 10, 1998 with The
Isosceles Fund Limited
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IDM ENVIRONMENTAL CORP.
Dated: August 19, 1998 By: /s/ Joe Freedman
------------------------------
Joel Freedman, President
Dated: August 19, 1998 By: /s/ Michael B. Killeen
------------------------------
Michael B. Killeen, Principal
Financial and Accounting Officer
IDM ENVIRONMENTAL CORP.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES RR PREFERRED STOCK
The undersigned officer of IDM Environmental Corp., a corporation organized
and existing under the Business Corporation Act of the State of New Jersey, does
hereby certify that, pursuant to authority conferred by the Certificate of
Incorporation, as amended to date, and pursuant to the provisions of the
Business Corporation Act of the State of New Jersey, the Board of Directors of
IDM Environmental Corp., as of August 10th, 1998 , adopted a resolution
providing for certain powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of certain shares of Series RR Preferred Stock, $1.00 par
value, of the Corporation, which resolution is as follows:
RESOLVED: That, pursuant to the authority vested in the Board of Directors
of the Corporation and in accordance with the Business Corporation Act of the
State of New Jersey and the provisions of the Corporation's Certificate of
Incorporation, a series of 1,500 shares of the class of authorized Preferred
Stock, par value $1.00 per share, of the Corporation is hereby created as the
Series RR Preferred Stock, and that the designation and number of shares thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof, are as set forth on Exhibit A attached
hereto.
EXECUTED as of this 10th day of August, 1998.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
----------------------------
Joel A. Freedman, President
ATTEST:
/s/ Frank Falco
- --------------------------
Frank A. Falco, Secretary
<PAGE>
Exhibit A
A. Description and Designation of Series RR Preferred Stock
1. Designation and Definitions.
---------------------------
(a) Designation. A total of 1,500 shares of the Corporation's
previously undesignated Preferred Stock, $1.00 par value, shall be
designated as the "Series RR Preferred Stock." The original issue price per
share of the Series RR Preferred Stock shall be $1,000 (the "Original Issue
Price").
(b) Certain Definitions. As used herein, the following terms, unless
the context otherwise requires, have the following respective meanings:
(i) "Average Quoted Price" means the average of the closing bid
price of the Common Stock of the Corporation as reported by the Nasdaq
SmallCap Market or Nasdaq National Market or, if the Corporation's
Common Stock is no longer traded on a Nasdaq market, such other
exchange on which the Corporation's Common Stock is then traded, for
the five (5) trading days immediately preceding any holder's
Conversion Date, the Mandatory Conversion Date (as defined in Section
5(c) below) or the date of the consummation or closing of a
Fundamental Change, as the case may be.
(ii) "Conversion Date" means each date on which the Corporation
receives by telecopy written notice in accordance with Section 5(j)
hereof from a holder of Series RR Preferred Stock that such holder
elects to convert shares of its Series RR Preferred Stock.
(iii) "Fundamental Change" means: (i) any sale, lease, exchange
or other transfer of all or substantially all of the assets of the
Corporation; or (ii) any merger or consolidation to which the
Corporation is a party. Notwithstanding the foregoing, the following
shall not be a Fundamental Change: A merger or consolidation (a) to
which the Corporation is a party; (b) in which it is the surviving
corporation and there is no resulting reclassification of the
outstanding Common Stock; and (c) after giving effect to which,
persons who were, immediately before the consummation or closing of
such merger or consolidation, holders of outstanding Common Stock will
be the direct or indirect owners of securities of the Corporation
possessing, on a fully diluted basis, at least seventy-five percent
(75%) of the voting power of all voting securities of the Corporation
(excluding, for purposes of such computation, any such person who also
is a party to such merger or consolidation).
(iv) "Issue Date" means, with respect to each share of Series RR
Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (irrespective of any
subsequent transfer or other disposition of such share to any other
holder).
A-1
<PAGE>
2. Dividends.
(a) Preferred Dividend - Cash and/or In-Kind. When and as declared by
the Board of Directors and to the extent permitted by the Business
Corporation Act of the State of New Jersey, the Corporation shall pay
preferential dividends to the holders of the Series RR Preferred Stock as
provided in this Section 2(a).
(i) Preferred Dividend. Except as otherwise provided herein,
dividends on each share of Series RR Preferred Stock shall accrue,
cumulatively on a daily basis, at the rate of six percent (6%) per
annum of the Original Issue Price, from and including the Issue Date
of such share to and including the date on which the Liquidation Value
of such share is paid or such share is converted in accordance with
the provisions hereof (the "Preferred Dividend"). Such Preferred
Dividend will accrue whether or not it has been declared and whether
or not there are profits, surplus or other funds of the Corporation
legally available for its payment.
(ii) Semi-Annual Payments. Commencing on January 31, 1999, the
Preferred Dividend shall be payable in cash (subject to Section
2(a)(v) below) semi-annually, for the actual number of days elapsed,
on each July 31 and January 31, to the holders of record of shares of
Series RR Preferred Stock as of the tenth (10th) trading day preceding
the applicable dividend payment date.
(iii) No Interest. Accrued but unpaid Preferred Dividends shall
not bear interest. Preferred Dividends paid in cash in an amount less
than the total amount of such dividends at the time accrued and
payable shall be allocated on a share-by-share basis among all shares
of Series RR Preferred Stock at the time outstanding.
(iv) Payment Upon Conversion. On the date on which any holder's
shares of Series RR Preferred Stock are converted into Common Stock
pursuant to Section 5 hereof, the accrued Preferred Dividend with
respect to the shares so converted shall be paid to such holder. All
accrued Preferred Dividends also shall be payable upon the
liquidation, dissolution or winding up of the Corporation.
(v) Payment in Common Stock. The Corporation, at its sole
discretion, may pay the Preferred Dividends in cash or in shares of
Common Stock at the then fair market value per share of Common Stock
as of the date on which the Preferred Dividend is payable. For
purposes of this Section 2(a)(v), fair market value shall be the
average of the closing bid price of the Common Stock of the
Corporation as reported by the Nasdaq SmallCap Market or Nasdaq
National Market or, if the Corporation's Common Stock is no longer
traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the five (5) trading
days immediately preceding the date on which the Preferred Dividend is
payable.
A-2
<PAGE>
(vi) Fractional Shares. Notwithstanding anything herein to the
contrary, no fractional shares shall be issued pursuant to this
Section 2, and the number of shares of Common Stock issued upon the
payment of the Preferred Dividend shall be rounded up or down to the
nearest whole share.
(b) Declared Dividends on Common Stock. If the Board of Directors
shall declare a cash dividend payable upon the then outstanding shares of
Common Stock (other than a stock dividend on the Common Stock distributed
solely in the form of additional shares of Common Stock), the holders of
the Series RR referred Stock shall be entitled to the amount of dividends
on the Series RR Preferred Stock as would be declared payable on the
largest number of whole shares of Common Stock into which the shares of
Series RR Preferred Stock held by each holder thereof could be converted
pursuant to the provisions of Section 5 hereof, such number determined as
of the record date for the determination of holders of Common Stock
entitled to receive such dividend. Such determination of "whole shares"
shall be based upon the aggregate number of shares of Series RR Preferred
Stock held by each holder, and not upon each share of Series RR Preferred
Stock so held by the holder.
(c) Dividends on Other Securities. Subject to the foregoing provisions
of this Section 2, the Board of Directors may declare and the Corporation
may pay or set apart for payment, or cause the accrual of, stated or
cumulative dividends and other distributions on the Series A Preferred
Stock or the Series C Preferred Stock of the Corporation, or any other
series of preferred stock hereafter designated, and may purchase or
otherwise redeem any of the same (or any warrants, rights, options or other
securities exercisable therefor or convertible or exchangeable there into),
and the holders of Series RR Preferred Stock shall not be entitled to share
therein.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Treatment at Liquidation, Dissolution or Winding Up. In the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior
to the Series RR Preferred Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the
Board of Directors in the future to be senior to or on a parity with the
Series RR Preferred Stock with respect to liquidation preferences, the
holder of each share of Series RR Preferred Stock shall be entitled to be
paid first out of the assets of the Corporation available for distribution
to holders of the Corporation's capital stock of all classes, whether such
assets are capital, surplus or earnings, an amount equal to the Original
Issue Price per share of Series RR Preferred Stock held by any holder, plus
the Preferred Dividend accruing to the Series RR Preferred Stock pursuant
to Section 2 above (the "Liquidation Value"). For purposes hereof, the
Series RR Preferred Stock shall rank on liquidation junior to the Series A
Preferred Stock and on parity with the Series C Preferred Stock.
A-3
<PAGE>
If, upon liquidation, dissolution or winding up of the Corporation,
the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series RR
Preferred Stock the full amount to which they otherwise would be entitled,
the holders of Series RR Preferred Stock shall share ratably in any
distribution of available assets pro rata in proportion to the respective
liquidation preference amounts which would otherwise be payable upon
liquidation with respect to the outstanding shares of the Series RR
Preferred Stock if all liquidation preference amounts with respect to such
shares were paid in full, based upon the aggregate Liquidation Value
payable upon all shares of Series RR Preferred Stock then outstanding.
After such payment shall have been made in full to the holders of the
Series RR Preferred Stock, or funds necessary for such payment shall have
been set aside by the Corporation in trust for the account of holders of
the Series RR Preferred Stock so as to be available for such payment, the
remaining assets available for distribution shall be distributed ratably
among the holders of the Common Stock and any class or series of capital
stock designated to be junior to the Series RR Preferred Stock (if any) in
right of payment upon any liquidation, dissolution or winding up of the
Corporation.
The amounts set forth above shall be subject to equitable adjustment
by the Board of Directors whenever there shall occur a stock dividend,
stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series RR Preferred Stock.
(b) Distributions Other than Cash. Whenever the distributions provided
for in this Section shall be payable in property other than cash, the value
of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions
(including distributions other than cash) made hereunder shall be made pro
rata to the holders of Series RR Preferred Stock.
(c) Events Not Deemed a Liquidation. Neither the merger or
consolidation of the Corporation into or with any other corporation(s), nor
the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will be deemed
to be a liquidation, dissolution or winding up of the Corporation under
this Section 3.
4. Voting Power.
------------
(a) General. The holders of Series RR Preferred Stock will not have
any voting rights except as set forth below or as otherwise from time to
time required by law.
A-4
<PAGE>
To the extent that under New Jersey law the vote of the holders of
Series RR Preferred Stock, voting separately as a class, is required to
authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the outstanding shares of
Series RR Preferred Stock shall constitute the approval of such action by
the class. To the extent that under New Jersey law the holders of Series RR
Preferred Stock are entitled to vote on a matter with holders of Common
Stock, voting together as one class, each share of Series RR Preferred
Stock shall be entitled to a number of votes equal to the number of shares
of Common Stock into which it is then convertible using the record date for
the taking of such vote of stockholders as the date as of which the
Conversion Price is calculated. Holders of Series RR Preferred Stock shall
be entitled to notice of all shareholders meetings or written consents
regardless of whether they would be entitled to vote with respect thereto,
which notice would be provided pursuant to the Corporation's by-laws and
applicable statutes.
(b)Amendments to Charter. For so long as there are any shares of
Series RR Preferred Stock outstanding, the Corporation shall not amend its
Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority
of the then outstanding shares of Series RR Preferred Stock, voting
together as a class, each share of Series RR Preferred Stock to be entitled
to one vote in each instance, if such amendment would adversely affect the
rights of the holders of Series RR Preferred Stock; provided, that the
creation, or increase in the authorized number of shares, of any class or
series of stock ranking prior to or on a parity with the Series RR
Preferred Stock either as to dividends or upon liquidation shall not be
deemed to adversely affect the rights of the holders of Series RR Preferred
Stock for purposes of this Section 4(b).
5. Conversion Rights.
-----------------
(a)Conversion at the Option of Holders. Beginning the earlier of
ninety (90) days after the Issue Date to such holder, or upon the Effective
Date of the Registration Statement, each such holder of Series RR Preferred
Stock shall have the right, at such holder's option, to convert up to fifty
percent (50%) of the shares of Series RR Preferred Stock held by such
holder into such number of fully paid and nonassessable shares of Common
Stock as shall be determined by multiplying the number of shares of Series
RR Preferred Stock to be converted by a fraction, the numerator of which is
the Original Issue Price, and the denominator of which is the applicable
Conversion Price (as defined below). Beginning thirty (30) days thereafter,
all of the Preferred Stock shall, at the option of the Holder, be
convertible.
A-5
<PAGE>
(b)Conversion Price. The conversion price per share (the "Conversion
Price") shall be equal to the lesser of subsections (i) and (ii) below.
(i) $2.25;
(ii) Seventy-five (75%) of the Average Quoted Price.
c)Conversion at Option of Corporation. At any time after the close of
business on the second (2nd) year anniversary of the date on which the
Securities and Exchange Commission declares effective the registration
statement registering the shares of Common Stock issuable upon conversion
of the Series RR Preferred Stock, all of the shares of Series RR Preferred
Stock shall be convertible, at the option of the Corporation, into such
number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series RR Preferred Stock
outstanding on the Mandatory Conversion Date (as defined below) by a
fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the applicable Conversion Price.
The Corporation shall give notice of its exercise of such conversion option
to all holders of Series RR Preferred Stock no later than five (5) trading days
before the date as of which the Corporation has elected to make such conversion
effective (such effective date of the conversion, the "Mandatory Conversion
Date"). Each holder of Series RR Preferred Stock as of the Mandatory Conversion
Date shall, promptly after such date, surrender for conversion to the
Corporation at its principal office or to any transfer agent for the Series RR
Preferred Stock or the Common Stock all certificates representing all shares of
Series RR Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names in which such holder wishes the certificate(s) for
shares of Common Stock to be issued.
Effective as of the close of business on the Mandatory Conversion Date,
each share of Series RR Preferred Stock then outstanding shall be (and be deemed
to have been) converted automatically, without any further action by the holders
thereof, into shares of Common Stock. Such conversion shall be deemed to have
occurred whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
(d)Limitation on Number of Shares. Additionally, notwithstanding
anything set forth in this Section 5 to the contrary:
(i)in no event shall any holder of Series RR Preferred Stock,
prior to earlier to occur of the Mandatory Conversion Date or the date
of the consummation or closing of a Fundamental Change, be entitled to
convert Series RR Preferred Stock into shares of Common Stock to the
extent that (x) the number of shares of the Corporation's Common Stock
beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through
the ownership of the unconverted portion of the shares of Series RR
Preferred Stock held by such holder) plus (y) the number of shares of
Common Stock issuable upon such conversion would result in beneficial
ownership by the holder and its affiliates of more than 9.9% of the
shares of Common Stock then outstanding. For purposes of this Section
5(d), beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D and 13G promulgated thereunder, except as otherwise
provided in clause (x) of this Section 5(d). Each holder shall, upon
delivering to the Corporation a notice of election to convert shares
of Series RR Preferred Stock in accordance with Section 5(j) hereof,
be required to provide the Corporation with a certification in form
and substance reasonably satisfactory to the Corporation, that the
conversion of the Series RR Preferred Stock being converted will not
result in such holder and its affiliates beneficially holding more
than 9.9%, determined as heretofore provided, of the outstanding
shares of Common Stock on such Conversion Date. If the holder cannot
make such certification, the shares of Series RR Preferred Stock to be
converted shall not be convertible. Notwithstanding the foregoing,
upon the Mandatory Conversion Date or upon the consummation or closing
of a Fundamental Change, all such shares of Series RR Preferred Stock
then outstanding shall be converted into Common Stock in accordance
with Section 5(c) or 5(h), as applicable.
A-6
<PAGE>
(ii)the maximum number of shares which will be issued on
conversion of the Series RR Preferred Stock and exercise of the
Redemption Warrants, if any, is 3,600,000 (the "Share Cap")
unless and until the shareholders of the Corporation shall have
approved the issuance of shares of Common Stock beyond the Cap,
subject to the redemption rights of the holders of the Series RR
Preferred Stock set forth in Sections 4(i)(x) and (y) of the
Securities Purchase Agreement.
(e)Equitable Adjustment. If the Corporation at any time subdivides (by
any stock split, stock dividend or otherwise) its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price shall be
proportionately reduced, and, conversely, if the outstanding shares of
Common Stock are combined into a smaller number of shares, the Conversion
Price shall be proportionately increased.
(f)Dividends Other Than Common Stock Dividends. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common
Stock payable in (i) securities of the Corporation other than shares of
Common Stock, or (ii) other assets (excluding cash dividends or
distributions), then and in each such event provision shall be made so that
the holders of the Series RR Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
thereupon, the number of securities or such other assets of the Corporation
which they would have received had their Series RR Preferred Stock been
converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the Conversion Date, retained such securities or such other assets
receivable by them during such period, giving application to all other
adjustments called for during such period under this Section 5 with respect
to the rights of the holders of the Series RR Preferred Stock.
A-7
<PAGE>
(g)Capital Reorganization or Reclassification. If the Common Stock
issuable upon the conversion of the Series RR Preferred Stock shall be
changed into the same or different number of shares of any class or classes
of capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for elsewhere in this Section 5, or the
sale of all or substantially all of the Corporation's capital stock or
assets to any other person), then and in each such event the holders of
Series RR Preferred Stock shall have the right thereafter to convert such
shares into the kind and amount of shares of capital stock and other
securities and property receivable upon such reorganization,
recapitalization, reclassification or other change by the holders of the
number of shares of Common Stock into which such shares of Series RR
Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject
to further adjustment as provided herein.
(h)Mandatory Conversion - Fundamental Change. If any Fundamental
Change shall occur, then each share of Series RR Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be
(and be deemed to have been) converted automatically, without any further
action by the holders thereof, into such number of fully paid and
nonassessable shares of Common Stock as shall be determined by multiplying
the number of shares of Series RR Preferred Stock outstanding on the date
of such consummation or closing date by a fraction, the numerator of which
is the Original Issue Price, and the denominator of which is the applicable
Conversion Price. Such conversion shall be deemed to have occurred whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated Fundamental
Change to all holders of the Series RR Preferred Stock not later than ten (10)
trading days before the expected closing or consummation of such Fundamental
Change. The Corporation also shall give prompt notice of the closing or
consummation of such Fundamental Change to all holders of record of the Series
RR Preferred Stock as of the date of such closing or consummation. Each holder
of Series RR Preferred Stock shall thereupon promptly surrender for conversion,
to the Corporation at its principal office or to any transfer agent for the
Series RR Preferred Stock or the Common Stock, all certificates representing all
shares of Series RR Preferred Stock held by such holder, accompanied by a
written notice specifying the name or names in which such holder wishes the
certificate(s) for shares of Common Stock to be issued.
(i)Certificate as to Adjustments; Notice by Corporation. In each case
of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series RR Preferred
Stock so affected with a certificate prepared by an officer of the
Corporation, showing such adjustment or readjustment, and stating in detail
the facts upon which such adjustment or readjustment is based.
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(j)Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series RR Preferred Stock shall give written notice
by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series RR Preferred Stock and shall
thereafter surrender the original certificate(s) representing the shares
being converted to the Corporation at its principal office together with an
originally executed copy of such notice. Such notice shall also state the
name or names (with its address or addresses, as well as the address(es)
for delivery) in which the certificate(s) for shares of Common Stock
issuable upon such conversion shall be issued. The certificate(s) for the
shares of Series RR Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. As
promptly as practicable after the Corporation receives the original
certificate(s) for the shares of Series RR Preferred Stock surrendered for
conversion, the proper assignment thereof to the Corporation or in blank
and the original notice of conversion (collectively, the "Original
Documentation"), but in no event more than three (3) trading days after the
Corporation's receipt of the Original Documentation, the Corporation shall
issue and deliver to the holder of the shares of Series RR Preferred Stock
being converted, at the addresses set forth therefor by the holder, such
certificate(s) as it may request for the number of whole shares of Common
Stock issuable upon the conversion of such shares of Series RR Preferred
Stock in accordance with the provisions of this Section 5. Such conversion
shall be deemed to have been effected immediately prior to the close of
business on the Conversion Date, and at such time the rights of the holder
as holder of the converted shares of Series RR Preferred Stock shall cease
and the person(s) in whose name(s) any certificate(s) for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become
the holder(s) of record of the shares of Common Stock represented thereby.
If the Corporation fails to issue and deliver to such holder such
certificate(s) for shares of Common Stock within three (3) trading days
after the Corporation's receipt of the Original Documentation, the
Corporation shall pay the liquidated damages set forth in Section 5 of the
Stock Purchase Agreement between the Corporation and the initial purchasers
of the Series RR Preferred Stock.
(k)Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon the conversion of
shares of Series RR Preferred Stock. Instead of any fractional shares of
Common Stock that would otherwise be issuable upon conversion of Series RR
Preferred Stock, the number of shares issuable upon conversion shall be
rounded up or down to the nearest whole share.
(l)Partial Conversion. In the event some but not all of the shares of
Series RR Preferred Stock represented by a certificate(s) surrendered by a
holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series RR Preferred Stock
which were not converted. Such new certificate shall be so delivered on or
prior to the date set forth in Section 5(j) for the delivery of
certificates for shares of Common Stock.
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(m)Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series RR Preferred Stock, 200% of such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series RR Preferred Stock
(including any shares of Series RR Preferred Stock represented by any
warrants, options, subscription or purchase rights for the Series RR
Preferred Stock), and if at any time the number of authorized but unissued
shares of Common Stock shall not be 200% of the number of such shares
sufficient to effect the conversion of all then outstanding shares of the
Series RR Preferred Stock (including any shares of Series RR Preferred
Stock represented by any warrants, options, subscriptions or purchase
rights for the Series RR Preferred Stock), then the Corporation shall be
deemed to be in breach and default of its obligations hereunder, and in
addition to all charges, claims and rights at law or in equity that each
holder shall be entitled to, the Corporation shall use all means reasonably
available to it, and promptly take any and all actions as may be necessary,
to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be 200% of the amount sufficient for such
purpose.
6. Redemption and Repurchase Rights. The Corporation shall have no right to
redeem and holders of shares of Series RR Preferred Stock shall have no right to
cause the Corporation to redeem, any or all of the outstanding shares of Series
RR Preferred Stock, except as follows:
(a)in the event that a holder of shares of Series RR Preferred Stock
submits Original Documentation relating to the conversion of shares of
Series RR Preferred Stock in the manner provided for in Section 5(j) and
the number of shares of Common Stock issuable upon such conversion is
limited by reason of the Share Cap described in Section 5(d)(ii), the
Corporation shall, on demand of any holder of Series RR Preferred Stock,
redeem any portion of the Series RR Preferred Stock not exercisable as a
result of such limitation at a redemption price equal to $1,200 per share
plus accrued dividends (the "Share Cap Redemption Price"). The Share Cap
Redemption Price shall be payable within five (5) business days after
demand for such redemption is made.
(b)in the event that the Corporation enters into a New Transaction (as
defined in the Securities Purchase Agreement [the "Securities Purchase
Agreement"]) pursuant to which the shares of Series RR Preferred Stock are
being offered) and the holders elect not to exercise their Right of First
Refusal (as defined in the Securities Purchase Agreement"), the Corporation
shall redeem the outstanding shares of Series RR Preferred Stock then held
(the "Outstanding Preferred Stock") for an amount equal to (i) the sum of
one hundred twenty-five percent (125%) of the liquidation preference of the
Outstanding Preferred Stock plus all accrued but unpaid dividends on the
Outstanding Preferred Stock (the "Redemption Amount"), and (ii) in the
event the average of the closing bid price of the Common Stock of the
Corporation as reported by the Nasdaq SmallCap Market or Nasdaq National
Market or, if the Corporation's Common Stock is no longer traded on a
Nasdaqmarket, such other exchange on which the Corporation's Common Stock
is then traded, for the five (5) trading days immediately preceding the
closing date of the New Transaction exceeds $3.25 per share, the issuance
of warrants (the "Redemption Warrants") exercisable to purchase a number of
shares of Common Stock of the Corporation equal to 461,539 multiple by a
fraction the numerator of which is the number of shares of Outstanding
Preferred Stock and the denominator of which is 1,500. The Redemption
Warrants shall be exercisable at $3.25 per share (subject to equitable
adjustment in the case of stock splits, stock dividends, mergers or similar
transactions after the date hereof), shall have piggyback registration
rights and shall be exercisable for a period of two years from the date a
registration statement is filed in which the shares of Common Stock
underlying the Redemption Warrants are registered. The Redemption Amount
and Redemption Warrant shall be delivered to the holders within five
business days following the expiration of the Right of First Refusal.
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7. Notices of Record Date. In the event of any:
-----------------------
(a)taking by the Corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of
any class or any other securities or property, or to receive any other
right, or
(b)capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially
all of the assets of the Corporation to any other Corporation, or any other
entity or person, or
(c) voluntary or involuntary dissolution, liquidation or winding up of
the Corporation,
then and in each such event the Corporation shall telecopy and thereafter
mail or cause to be mailed to each holder of Series RR Preferred Stock a
notice specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and a description of
such dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected
to become effective, and (iii) the time, if any, that is to be fixed, as to
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be telecopied and
thereafter mailed by first class mail, postage prepaid, or by express
overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
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8. General.
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(a)Replacement of Certificates. Upon the Corporation's receipt, from
the holder of any certificate evidencing shares of Series RR Preferred
Stock, of evidence reasonably satisfactory to the Corporation (an affidavit
of such holder will be satisfactory) of the ownership and the loss, theft,
destruction or mutilation of such certificate, and in the case of any such
loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation,
upon surrender of such certificate, the Corporation (at its expense) shall
execute and deliver to such holder, in lieu of such certificate, a new
certificate that represents the number of shares represented by, is dated
the date of, is issued in the name of the holder of, and is substantially
identical in form of, such lost, stolen, destroyed or mutilated
certificate.
(b)Payment of Taxes. The Corporation shall pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed
in connection with the issuance or delivery of any shares of Common Stock
(or other of the Corporation's securities) that results from (i) the
conversion of shares of Series RR Preferred Stock pursuant to this
Certificate of Designations or (ii) the application of Section 2(a)(v)
hereof. Notwithstanding the foregoing, if the Corporation, pursuant to a
notice from a holder of any shares of Series RR Preferred Stock, effects
the issuance or delivery of any shares of Common Stock (or other of the
Corporation's securities) in any name(s) other than such holder's name,
then such holder shall deliver to the Corporation with the aforesaid notice
(A) all transfer taxes and other governmental charges payable upon the
issuance or delivery of securities in such other name(s) or (B) evidence
satisfactory to the Corporation that such taxes and charges have been or
shall be paid in full.
(c)Status of Redeemed or Converted Shares. Shares of Series RR
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be
canceled and upon cancellation (i) shall no longer be deemed to be
outstanding, (ii) shall become authorized but unissued shares of preferred
stock undesignated as to series and (iii) may be reissued as part of
another series of preferred stock.
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 10th, 1998 (this
"Agreement"), is made by and between IDM ENVIRONMENTAL CORP., a New Jersey
corporation (the "Company"), and the entity named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of August 10th, 1998, between the Initial Investor
and the Company (the "Securities Purchase Agreement"; capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor $1,500,000 liquidation preference of 6% Convertible Preferred
Stock, par value $1.00 per share, of the Company (the "Preferred Stock," which
term, as used herein shall have the meaning ascribed to it in the Securities
Purchase Agreement); and
WHEREAS, the Preferred Stock is convertible into shares of Common Stock
(the "Conversion Shares") upon the terms and subject to the conditions contained
in the Certificate of Designations; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Investor" means the Initial Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement
in accordance with Section 9 hereof.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure
in a registration statement, which shall be evidenced by determinations in
good faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the
business and affairs of the Company; or (ii) any material engagement or
activity by the Company which would, in the good faith determination of the
Board of Directors of the Company, be adversely affected by disclosure in a
registration statement at such time, which determination shall be
accompanied by a good faith determination by the Board of Directors of the
Company that the registration statement would be materially misleading
absent the inclusion of such information.
<PAGE>
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United
States Securities and Exchange Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares.
(e) "Registration Statement" means a registration statement of the
Company under the Securities Act.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with
the SEC, as soon as possible after the Closing Date, but no later than
thirty (30) days following the Closing Date, either a Registration
Statement on Form S-3 or an amendment to any such pending Registration
Statement registering for resale by the Investor all of the Registrable
Securities, but in no event less than the aggregate number of shares into
(i) which the Preferred Stock would be convertible at the time of filing of
the Form S-3 (assuming for such purposes that all shares of Preferred Stock
had been eligible to be converted, and had been converted, into Conversion
Shares in accordance with their terms, whether or not such eligibility or
conversion had in fact occurred as of such date). The Registration
Statement or amended Registration Statement shall state that, in accordance
with Rule 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock resulting from adjustment
in the Conversion Price, or to prevent dilution resulting from stock
splits, or stock dividends. The Company will use commercially reasonable
efforts to cause such Registration Statement to be declared effective the
earlier of (a) five (5) days after notice by the SEC that it may be
declared effective, or (b) ninety (90) days after the Closing Date. If at
any time the number of shares of Common Stock into which the Preferred
Stock may be converted exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within ten (10) business days
after receipt of a written notice from any Investor, either (i) amend the
Registration Statement filed by the Company pursuant to the preceding
sentence, if such Registration Statement has not been declared effective by
the SEC at that time, to register all shares of Common Stock into which the
Preferred Stock may currently or in the future be converted, or (ii) if
such Registration Statement has been declared effective by the SEC at that
time, file with the SEC an additional Registration Statement on Form S-3,
as may be appropriate, to register the shares of Common Stock into which
the Preferred Stock may currently or in the future be converted that exceed
the aggregate number of shares of Common Stock already registered. Such
Registration Statement shall not include any shares other than the
Registrable Securities and the shares specifically listed on Exhibit 1
without the consent of the Investor.
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<PAGE>
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable Securities
is not filed in proper form with the SEC on or before thirty (30) days
after the Closing Date (the "Required Filing Date"), then the Company shall
pay the Initial Investor a late filing penalty (collectively "Late Filing
Penalties"), (A) on the first day after the Required Filing Date, an amount
equal to three (3%) percent of the purchase price paid by the Initial
Investor for all Preferred Stock (purchased pursuant to the Securities
Purchase Agreement) which is then outstanding (the "Purchase Price"), and
(B) on each subsequent monthly anniversary of the Required Filing Date, if
the Registration Statement has not been filed in proper form on or before
such date, an amount equal to two (2%) percent of the Purchase Price.
(ii) If the Registration Statement covering the Registrable Securities
is not effective within the earlier of (A) five (5) days after notice by
the SEC that it may be declared effective, or (B) ninety (90) days
following the Closing Date (the "Required Effective Date"), then the
Company shall pay the Initial Investor a late effective date penalty
(collectively "Late Effective Date Penalties") (sometimes Late Filing
Penalties and Late Effective Penalties are collectively referred to as
"Late Penalties"), (I) on the first day after the Required Effective Date,
an amount equal to three (3%) percent of the Purchase Price, (II) on each
subsequent monthly anniversary of the Required Effective Date, if the
Registration Statement has not been declared effective on or before such
date, an amount equal to two (2%) percent of the Purchase Price.
(iii) By way of illustration and not in limitation of the foregoing,
assuming a Closing Date of August 3 (X) if the Registration Statement is
timely filed but is not declared effective until January 15, 1999 (assuming
for the purpose of this example that the SEC has not previously provided
notice that it may be declared effective), the aggregate Late Effective
Date Penalty will equal seven (7%) percent of the Purchase Price (3% on
November 2, the 91st day after the Closing Date, plus 2% on December 1 and
January 1), or (Y) if the Registration is filed on October 10 and is not
declared effective until November 15 (assuming for the purpose of this
example that the SEC has not previously provided notice that it may be
declared effective), the aggregate Late Filing Penalty will equal five (5%)
percent of the Purchase Price (3% on September 3, the 31st day after the
Closing Date, plus 2% on October 2), and the aggregate Late Effective Date
Penalty will equal three (3%) percent of the Purchase Price (3% on November
2, the 91st day after the Closing Date).
(iv) Additionally, if (A) the Registration Statement is not filed
within sixty (60) days from the Closing Date or (B) the Required Effective
Date is greater than one hundred fifty (150) days after the Closing Date,
or (C) the effectiveness of the Registration Statement is not maintained
during the Registration Period as hereinafter defined, Purchaser may, at
its option, require the Company to redeem the Preferred Stock in full,
within three (3) days, in cash, in accordance with Section 4(i)(y) of the
Securities Purchase Agreement.
(v) Late Penalties will be payable to the Investor by the Company in
cash or other immediately available funds on the date such Late Penalty is
incurred.
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(vi) The parties acknowledge that the damages which may be incurred by
the Investor if the Registration Statement is not filed by the Required
Filing Date or if the Registration Statement has not been declared
effective by the Required Registration Date may be difficult to ascertain.
The parties agree that the Late Penalties represent a reasonable estimate
on the part of the parties, as of the date of this Agreement, of the amount
of such damages. The payment of the Late Penalties to the Investor shall
not limit the Investor's other rights and remedies hereunder or under any
other document entered into in connection herewith.
(vii) Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this provision shall not be payable to the extent any
delay in the effectiveness of the Registration Statement occurs because of
an act of, or a failure to act or to act timely by the Initial Investor or
its counsel if the Company timely forwards to counsel any required
documents or in the event all of the Registrable Securities may be sold
pursuant to Rule 144 or another available exemption under the Act.
3. Obligations of the Company. In connection with the registration of
the Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC by the Required Filing
Date, a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use
commercially reasonable efforts to cause each Registration Statement
relating to Registrable Securities to become effective by the Required
Effective Date and keep the Registration Statement effective at all times
until the earliest (the "Registration Period") of (i) the date that is two
(2) years after the Closing Date, (ii) the date when the Investors may sell
all Registrable Securities under Rule 144 or (iii) the date the Investors
no longer own any of the Registrable Securities, which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement
and the prospectus used in connection with the Registration Statement as
may be necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not
less than three (3) business days) prior to their filing with the SEC, and
not file any document in a form to which such counsel reasonably objects.
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(d) Notify the Holders of Registrable Securities to be sold, their
counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than
one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration
Statement is proposed to be filed; (B) whenever the SEC notifies the
Company whether there will be a "review" of such Registration Statement;
(C) whenever the Company receives (or representatives of the Company
receive on its behalf) any oral or written comments from the SEC in respect
of a Registration Statement (copies or, in the case of oral comments,
summaries of such comments shall be promptly furnished by the Company to
the Holders); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or
for additional information; (iii) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement covering
any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) if at any time any of the
representations or warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be
true and correct in all material respects; (v) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening
of any Proceeding for such purpose; and (vi) of the occurrence of any event
that to the best knowledge of the Company makes any statement made in the
Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or
other documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In addition, the
Company shall furnish the Holders with copies of all intended written
responses to the comments contemplated in clause (C) of this Section 3(d)
not later than one (1) Business Day in advance of the filing of such
responses with the SEC so that the Holders shall have the opportunity to
comment thereon.
(e) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed,
filed with the SEC, or received by the Company, one (1) copy of the
Registration Statement, each preliminary Prospectus (as defined in the
Securities Act) and Prospectus, and each amendment or supplement thereto,
and (ii) such number of copies of a Prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the Prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement
or other appropriate filing with the SEC to correct such untrue statement
or omission, and deliver a number of copies of such supplement or amendment
to each Investor as such Investor may reasonably request;
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<PAGE>
(g) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Investor receives written notice from
the Company that such Potential Material Event either has been disclosed to
the public or no longer constitutes a Potential Material Event; provided,
however, that the Company may not so suspend the right to such holders of
Registrable Securities for more than two ten (10) day periods in the
aggregate during any 12-month period ("Suspension Period") with at least a
ten (10) business day interval between such periods, during the periods the
Registration Statement is required to be in effect;
(i) Maintain NASDAQ/National Market authorization and quotation for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities;
(j) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of
the Registration Statement;
(k) Cooperate with the Investors who hold Registrable Securities (or,
subject to receipt by the Company of appropriate notice and documentation,
as may be required by the Securities Purchase Agreement, the Certificate of
Designations or this Agreement, securities convertible into Registrable
Securities) being offered to facilitate the timely preparation and delivery
of certificates for the Registrable Securities to be offered pursuant to
the Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as
the Investors may reasonably request, and, within three (3) business days
after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause
legal counsel selected by the Company to deliver, to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities or securities convertible into Registrable Securities are
included in such Registration Statement) an appropriate instruction and
opinion of such counsel; provided, however, that nothing in this
subparagraph (j) shall be deemed to waive any of the provisions regarding
the conditions or method of conversion of Preferred Stock into Registrable
Securities; and
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(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the Registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding itself,
the Registrable Securities held by it, and the intended method of
disposition of the Registrable Securities held by it, as shall be
reasonably required to effect the Registration of such Registrable
Securities and shall execute such documents in connection with such
Registration as the Company may reasonably request. At least five (5) days
prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company
requires from each such Investor (the "Requested Information") if such
Investor elects to have any of such Investor's Registrable Securities
included in the Registration Statement. If at least two (2) business days
prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(e) or 3(f)
and, if so directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Investor's
possession, of the Prospectus covering such Registrable Securities current
at the time of receipt of such notice.
5. Expenses of Registration. (a) All reasonable expenses (other than
underwriting discounts and commissions of, and fees of counsel for, the
Investor) incurred in connection with Registrations, filings or
qualifications pursuant to Section 3, including, without limitation, all
Registration, listing, and qualifications fees, printers and accounting
fees, the fees and disbursements of counsel for the Company, shall be borne
by the Company.
7
<PAGE>
(b) Neither the Company nor any of its subsidiaries has, as of the
date hereof, nor shall the Company nor any of its subsidiaries, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that conflicts with the rights granted to the Investors in this
Agreement or otherwise conflicts with the provisions hereof. Except as and
to the extent specifically disclosed in any of its filings with the SEC,
neither the Company nor any of its subsidiaries has previously entered into
any agreement granting any Registration rights with respect to any of its
securities to any Person. Without limiting the generality of the foregoing,
without the written consent of the Investors holding a majority of the then
outstanding Registrable Securities, the Company shall not grant to any
person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights in full of the Investors set forth
herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such
Investor, each person, if any, who controls any Investor within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (each, an "Indemnified Person" or "Indemnified
Party"), against any losses, claims, damages, liabilities or expenses
(joint or several) incurred (collectively, "Claims") to which any of them
may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration
Statement, or any post-effective amendment thereof, or any Prospectus
included therein: (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final Prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to
state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state securities
law or any rule or regulation under the Securities Act, the Exchange Act or
any state securities law (the matters in the foregoing clauses (i) through
(iii) being, collectively, "Violations"). Subject to clause (b) of this
Section 6, the Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(a) shall not (I) apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Indemnified
Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to
Section 3(c) hereof; (II) be available to the extent such Claim is based on
a failure of the Investor to deliver or cause to be delivered the
prospectus made available by the Company; or (III) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Each Investor will indemnify the Company and its officers,
directors and agents against any claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Investor,
expressly for use in connection with the preparation of the Registration
Statement, subject to such limitations and conditions as are applicable to
the Indemnification provided by the Company to this Section 6. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
8
<PAGE>
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against the
Company under this Section 6, deliver to the Company a written notice of
the commencement thereof and the Company shall have the right to
participate in, and, to the extent the Company so desires, jointly with any
other person similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the Company and the Indemnified
Person or the Indemnified Party, as the case may be. In case any such
action is brought against any Indemnified Person or Indemnified Party, and
it notifies the Company of the commencement thereof, the Company will be
entitled to participate in, and, to the extent that it may wish, jointly
with any other person similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the Company
to such Indemnified Person or Indemnified Party of its election so to
assume the defense thereof, the Company will not be liable to such
Indemnified Person or Indemnified Party under this Section 6 for any legal
or other reasonable out-of-pocket expenses subsequently incurred by such
Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the Company
shall not pursue the action of its final conclusion. The Indemnified Person
or Indemnified Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and
reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the Company if the Company has assumed the defense of the action
with counsel reasonably satisfactory to the Indemnified Person or
Indemnified Party. The failure to deliver written notice to the Company
within a reasonable time of the commencement of any such action shall not
relieve the Company of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
Company is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7. Contribution. To the extent any indemnification by the Company is
prohibited or limited by law, the Company agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where
the Company would not have been liable for indemnification under the fault
standards set forth in Section 6; (b) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
9
<PAGE>
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities
Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so
filed by the Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule
144 without registration.
9. Assignment of the Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the
Registrable Securities (or all or any portion of any Preferred Stock of the
Company which is convertible into such securities) permitted or allowable
by the terms of the Securities Purchase Agreement only if: (a) the Investor
agrees in writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (i) the name and address of such transferee or assignee and (ii)
the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state
securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee
or assignee agrees in writing with or in favor of the Company to be bound
by all of the provisions contained herein, a copy of which shall be
provided to the Company. The copies referred to in clauses (a) and (d) of
the immediately preceding sentence may be redacted to delete certain
financial and other details of the transaction between the Investor and the
transferee if the same is included in the document to be provided to the
Company. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall
not be liable for any damages arising from such delay, or the payments set
forth in Section 2(b) hereof.
10
<PAGE>
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively),
only with the written consent of the Company and Investors who hold an
eighty (80%) percent interest of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon
each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return
receipt requested, properly addressed and with proper postage pre-paid (i)
if to the Company, IDM ENVIRONMENTAL CORP., 396 Whitehead Avenue, South
River, New Jersey 08882 ATTN: Michael B. Killeen, Chief Financial Officer,
Telecopier No.: (732) 390-9545; (ii) if to the Initial Investor, at the
address set forth under its name in the Securities Purchase Agreement, with
a copy to Michael Rosenblum, Esq., 1875 Century Park East, Suite 700, Los
Angeles, California, Telecopier No.: (310) 286-3010; and (iii) if to any
other Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall
be effective, when personally delivered, upon receipt and, when so sent by
registered or certified mail, four (4) calendar days after deposit with the
United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New Jersey for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting
in the City of New York in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non coveniens, to the
bringing of any such proceeding in such jurisdictions.
11
<PAGE>
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any other
jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party
so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees
that, in addition to any other liability the Company may have by reason of
such failure or delay, the Company shall be liable for all direct damages
caused by any such failure or delay, unless the same is the result of force
majeure. Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior agreements
and understandings among the parties hereto with respect to the subject
matter hereof. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
-----------------------------------
Joel A. Freedman
Title: President
--------------------------------
THE ISOSCELES FUND LIMITED
By:
----------------------------------
Name:Intercaribbean Services (Bahamas) Ltd.
Title: Director
13
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