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, 1999
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 (IRS Employer Identification No.)
of incorporation or organization)
396 Whitehead Avenue, South River, New Jersey 08882
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(Address of principal executive offices)
(732) 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 13, 1999, 3,311,085 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, 1999 and
December 31, 1998............................................. 3
Consolidated Statements of Operations - For the six
months ended June 30, 1999 and 1998........................... 4
Consolidated Statements of Operations - For the three
months ended June 30, 1999 and 1998........................... 5
Consolidated Statements of Cash Flows - For the six
months ended June 30, 1999 and 1998 .......................... 6
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 18
PART II - OTHER INFORMATION
Item 2. Changes in Securities.......................................... 18
Item 4. Submission of Matters to a Vote of Security Holders............ 18
Item 6. Exhibits and Reports on Form 8-K............................... 19
SIGNATURES . . . . . . ................................................. 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
Unaudited
June 30, December 31,
1999 1998
----------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,307 $ 384,292
Accounts receivable 2,668,756 2,572,951
Notes receivable - current 179,198 367,198
Inventory 582,517 582,517
Costs and estimated earnings in excess of billings 922,035 1,900,336
Prepaid expenses and other current assets 1,212,175 906,137
--------- ---------
Total Current Assets 5,573,988 6,713,431
Investments in and Advances to Unconsolidated Affiliates 1,666,717 2,454,521
Investment in Affiliate, at cost 1,853,125 1,853,125
Debt Discount and Issuance Costs - 16,124
Property, Plant and Equipment 2,475,241 3,133,404
Other Assets 979,925 979,925
---------- ----------
$ 12,548,996 $ 15,150,530
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 414,485 $ 622,794
Accounts payable and accrued expenses 7,561,885 6,578,070
Billings in excess of costs and estimated earnings 455,906 -
Due to Officers 313,904 -
---------- ---------
Total Current Liabilities 8,746,180 7,200,864
Long-Term Debt 28,709 64,544
---------- ---------
Total Liabilities 8,774,889 7,265,408
---------- ---------
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 7,500,000 shares $.01 par value, issued
and outstanding 3,180,295 in 1999 and 2,947,298 in 1998 31,803 29,473
Additional paid-in capital 57,512,892 57,215,536
Convertible preferred stock, authorized 1,000,000 shares $1.00 par value
Series RR, Issued and outstanding 215 shares in 1999 and in 1998,
stated at a conversion value of $1,000 per share 215,000 215,000
Retained earnings (deficit) (53,985,588) (49,574,887)
---------- ----------
3,774,107 7,885,122
---------- ----------
$ 12,548,996 $ 15,150,530
========== ==========
</TABLE>
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The accompanying notes are an integral part of these consolidated
financial statements.
3
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IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Six Months Ended June 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenue:
Contract income $ 4,575,816 $10,015,549
- -
---------- ----------
4,575,816 10,015,549
---------- ----------
Cost of Sales:
Direct job costs 5,141,760 11,494,348
5,141,760 11,494,348
---------- ----------
Gross Profit (Loss) (565,944) (1,478,799)
---------- ----------
Operating Expenses:
General and administrative expenses 3,555,908 6,380,722
Depreciation and amortization 227,439 318,246
Equity in net loss of unconsolidated partnerships 8,711 -
---------- ----------
3,792,058 6,698,968
---------- ----------
Loss from Operations (4,358,002) (8,177,767)
Other Income (Expense):
Interest income (expense) (45,173) (4,322,684)
---------- ----------
Loss before Provision (Credit) for Income Taxes (4,403,175) (12,500,451)
Provision (Credit) for Income Taxes - (400,000)
---------- ----------
Net Loss (4,403,175) (12,100,451)
Preferred Stock Dividends including amortization of beneficial
conversion feature of $0 in 1999 and $3,330,000 in 1998. 7,526 3,447,043
---------- ----------
Net Loss on Common Stock $ (4,410,701) $(15,547,494)
========== ==========
Loss per Share:
Basic Loss per share $ (1.45) $ (9.08)
========== ==========
Diluted Loss per share $ (1.45) $ (9.08)
========== ==========
Basic common shares outstanding 3,034,835 1,712,623
========== ==========
Diluted common shares outstanding 3,034,835 1,712,623
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Three Months Ended June 30,
1999 1998
--------- ----------
<S> <C> <C>
Revenue:
Contract income $ 2,146,938 $ 4,846,791
2,146,938 4,846,791
---------- ----------
Cost of Sales:
Direct job costs 2,865,758 6,742,025
2,865,758 6,742,025
---------- ----------
Gross Profit (Loss) (718,820) (1,895,234)
---------- ----------
Operating Expenses:
General and administrative expenses 1,735,034 2,533,107
Depreciation and amortization 99,924 184,466
---------- ----------
1,834,958 2,717,573
---------- ----------
Loss from Operations (2,553,778) (4,612,807)
Other Income (Expense):
Interest income (expense) (30,286) (1,145,998)
---------- ----------
Loss before Credit for Income Taxes (2,584,064) (5,758,805)
Credit for Income Taxes - -
---------- ----------
Net Loss (2,584,064) (5,758,805)
Preferred Stock Dividends including amortization of beneficial
conversion feature of $0 in 1999 and $3,226,000 in 1998. 3,763 3,289,000
---------- ----------
Net Loss on Common Stock $ (2,587,827) $(9,047,805)
========== ==========
Loss per Share:
Basic Loss per share $ (0.83) $ (5.10)
========== ==========
Diluted Loss per share $ (0.83) $ (5.10)
========== ==========
Basic common shares outstanding 3,101,998 1,774,749
========== ==========
Diluted common shares outstanding 3,101,998 1,774,749
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Six Months Ended June 30,
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss on Common Stock $(4,410,701) $(15,547,494)
Adjustments to reconcile net loss to net cash used in
operating activities:
Deferred income taxes - (400,000)
Depreciation and amortization 282,996 325,649
Amortization of debt discount and beneficial conversion feature 16,124 7,636,786
Dividend on convertible preferred stock 7,526 117,043
Compensation cost of consultant stock options - 1,871,400
Equity in net loss of unconsolidated affiliates 8,711 -
Decrease (Increase) In:
Accounts receivable (95,805) (1,206,756)
Notes receivable 188,000 7,652
Costs and estimated earnings in excess of billings 978,301 301,352
Prepaid expenses and other current assets (306,038) 19,068
Bonding deposits - 9,157
Increase (Decrease) In:
Accounts payable and accrued expenses 836,903 208,928
Billings in excess of costs and estimated earnings 455,906 780,964
--------- ---------
Net cash used in operating activities (2,038,077) (5,876,251)
--------- ---------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment - (472,328)
Disposal of property, plant and equipment 375,167 -
Investment in and advances from (to) unconsolidated affiliates 779,093 990,813
Acquisition of other assets - (178,125)
Loans and advances from (to) officers 313,904 (74,958)
--------- ---------
Net cash provided by in investing activities 1,468,164 265,402
--------- ---------
Cash Flows from Financing Activities:
Net proceeds from convertible preferred stock issuance - 3,240,000
Long term debt borrowing - 156,238
Short term borrowing 400,000 -
Principal payments on long-term debt (239,636) (340,146)
Proceeds from exercise of stock options and warrants 34,564 2,072,415
--------- ---------
Net cash provided by financing activities 194,928 5,128,507
--------- ---------
Net (Decrease) in Cash and Cash Equivalents (374,985) (482,342)
Cash and Cash Equivalents, beginning of period 384,292 602,242
--------- ---------
Cash and Cash Equivalents, end of period $ 9,307 $ 119,900
========= =========
</TABLE>
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The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Continued)
<TABLE>
For the Six Months Ended June 30,
1999 1998
--------- ---------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 46,146 $ 231,205
======= =======
Income taxes $ - $ -
======= =======
Supplemental Disclosure of Noncash Investing and Financing Activities:
Repayment of stockholder's loan through issuance of common stock $265,122 $ -
======= =======
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.
7
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED 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 it's wholly owned and
majority owned subsidiary companies. The December 31, 1998 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, 1998. 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, 1999.
2. CONTINGENCIES
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and
Health Administration ("OSHA") issued wilful 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 on the Company's
consolidated financial statement.
In July of 1998, the Company, it's subsidiary, Global Waste & Energy and
certain affiliates and officers were named as co-defendants in a cause of
action styled Kasterka Vrtriebs GmbH v. IDM Environmental Corp., et al,
filed in the Court of Queen's Bench of Alberta, Judicial District of
Calgary. The plaintiff, Kasterka, has alleged that the Company and it's
affiliates breached a marketing agreement that had been entered between
Kasterka and Enviropower. The plaintiff has alleged that the defendants
failed to supply the required plans and specifications relating to the
gasification technology originally developed by Enviropower and that, as a
result, Kasterka was unable to manufacture and market gasification units in
the territories designated in the marketing agreement. Kasterka has
asserted a variety of claims for damages in the aggregate amount of
approximately $42 million. The Company believes the suit is without merit
and intends to vigorously contest the cause of action.
8
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. CONTINGENCIES (Continued)
In September of 1998, the Company was named as a defendant in a cause of
action styled Balerna Concrete Corporation, et al. v. IDM Environmental
Corp., et al, filed in the United States District Court of Massachusetts
(Case No. 98CV11883ML). The plaintiffs alleged that the Company, and
others, engaged in a pattern of illegal conduct to divert funds from the
plaintiffs through the operation of a concrete finishing business. The
plaintiffs have asserted various claims under RICO, common law fraud,
conversion, breach of contract and others basis seeking damages in an
amount expected to exceed $450,000. The Company believes the suit is
without merit and intends to vigorously contest the cause of action.
3. CONVERTIBLE PREFERRED STOCK SERIES RR
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 Series RR Preferred Shares are convertible into Common Stock at the
lesser of (i) $22.50 per share or (ii) 75% of the average closing bid price
of the Common Stock during the five trading days prior to conversion. The
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. During the year ended December 31, 1998, 1,285 shares of Series RR
Preferred Stock were converted into 359,981 shares of the Company's common
stock. Subsequent to December 31, 1998, demand for conversion or redemption
of the remaining 215 shares of Series RR Preferred Stock had been
submitted. At the annual shareholders meeting, on June 10, 1999, the
shareholders approved a proposal to authorize issuance of common shares in
excess of 360,000 on the conversion of outstanding Series RR Preferred
Stock. On July 26, 1999, the Company reached agreement with the holder of
the remaining 215 shares of Series RR Preferred Stock to allow conversion
into 130,788 common shares in full and final settlement of the 215 Series
RR Preferred Shares.
4. EARNINGS PER SHARE
The Company is calculating earnings per share to comply with the 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. Earnings per share as reported for the
period ended June 30, 1998 reflect the following:
-- The beneficial conversion feature of the Company's Series C Preferred
Stock and related warrants was $3,330,000 and was amortized as a
dividend from February 13, 1998, the issue date, to June 22, 1998, the
date the Registration Statement of the underlying stock was declared
effective. $104,000 was recorded for the three months ended March 31,
1998, and $3,226,000 for the three months ended June 30, 1998.
9
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. STOCKHOLDERS' EQUITY
Reverse Stock Split
-------------------
On March 11, 1999, the Company's Board of Directors authorized a 1 for 10
reverse stock split of its common stock effective April 16, 1999 for
shareholders of record at the close of business on April 16, 1999 and
amended the par value of the common stock to $.01. All shares and per-share
amounts in the accompanying consolidated financial statements have been
restated to give effect to the 1 for 10 reverse stock split.
Reverse Split and Extension of Class A Warrants
-----------------------------------------------
In April 1999, the Company's Board of Directors authorized a 1 for 10
reverse split of the Company's outstanding Class A Warrants effective April
16, 1999 and extended the term of those warrants to April 2000.
Loans by Warrant Holders
------------------------
During November, 1998, the holders of certain $30.00 Warrants, Lock-Up
Warrants and Reload Warrants loaned $671,023 to the Company. The loans may
be credited against the exercise price of those Warrants. As of December
31, 1998, $265,122 was still outstanding. During March, 1999, 97,525 of the
$30.00 warrants were converted into 97,525 shares of common stock. The
exercise price of the warrants paid in full the loan outstanding.
6. SUBSEQUENT EVENTS
Approved Actions by the Board of Directors
------------------------------------------
On July 18, 1999, the Board of Directors of the Corporation approved the
following resolutions:
(1) A proposal to reduce the exercise price of a consultant's option from
$37.19 per share to $6.75 per share for 112,500 shares. The market
price of The Company's Common Stock at the date of this action was
$1.156 and the additional compensation expense recognized under FASB
123 is expected to be minimal.
(2) A proposal authorizing the Company's Chief Executive Officer ("CEO")
and Chief Operating Officer ("COO") to negotiate a proposed
acquisition of Fusion Networks, Inc.
On July 26, 1999, the Company announced that it had entered into a
non-binding letter of intent to acquire Fusion Networks, Inc., based
in Miami, Florida.
Fusion Networks is a newly formed company which is in the process of
building a portal-type web site with an initial emphasis on Latin
America and the Hispanic market in the United States. The president of
Fusion Networks, Hernando Bahamon, has previously established a number
of web-sites for companies based in Latin America.
Pursuant to the letter of intent, it is contemplated that IDM will
acquire Fusion Networks in exchange for approximately 600,000 shares
of common stock plus shares of non-voting redeemable preferred stock
of IDM which, upon approval by IDM's shareholders, would automatically
convert into approximately 26 million shares of common stock.
10
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. SUBSEQUENT EVENTS (Continued)
Approved Actions by the Board of Directors (Continued)
------------------------------------------------------
The proposed acquisition is subject to a number of conditions,
including receipt by the Company's board of directors of a "fairness
opinion" from an investment banking firm, the receipt of all necessary
regulatory approvals and the negotiation and execution of definitive
documentation. There can be no assurance that the acquisition will be
successfully implemented or that there will not be modifications to
the acquisition terms.
(3) A proposal increasing the number of shares by 1,600,000 under the
Company's 1998 Stock Option Plan ("1998 Plan") subject to shareholder
approval.
(4) A proposal granting 1,000,000 options under the 1998 Plan to various
officers, directors and consultants and granting 400,000 options
outside of the 1998 Plan to a consultant.
Redemption of 215 shares of Series RR Preferred Stock
-----------------------------------------------------
On July 26, 1999, The Company reached agreement with the holder of the
remaining 215 shares of Series RR Preferred Stock to allow conversion into
130,788 shares of The Company's Common Stock in full and final settlement
of the 215 Preferred RR shares.
11
<PAGE>
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
1954. 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.
Material Changes in the Results of Operations for the Three Months ended June
30, 1999 Compared with the Three Months ended June 30, 1998
Revenues. The Company's total revenues decreased by approximately 55.7% from
$4,847,000 for the quarter ended June 30, 1998 to $2,147,000 for the quarter
ended June 30, 1999. The decrease in contract income in 1999 from 1998 was
primarily attributable to a reduction in the number and size of contracts
performed during the current period as compared to the same period in 1998,
including, in particular, the East Dam project which was completed in 1998 and
which produced revenues of approximately $1.7 million during the second quarter
of 1998 as compared to none for the second quarter of 1999.
Revenues for the quarter included $1 million associated with the DOE project in
Los Alamos, New Mexico which was completed in 1997 and $650,000 associated with
the East Dam project which was completed in 1998. The payment for the Los Alamos
DOE project was for full settlement of the Company's change order claim in the
approximate amount of $2.8 million. The payment for the East Dam project was
consideration to the Company for assignment to the contractor on the project of
the Company's claim for additional compensation associated with change orders in
the approximate amount of $10 million. The contractor will pursue the claim,
paying all direct claim costs, including costs of experts. In the event the
claim results in a payment to the contractor, the payment will be distributed
70% to the contractor and 30% to the Company after deducting direct claim costs
and the $650,000 paid by the contractor.
Cost of Sales. Direct job costs decreased by approximately the same percentage
as the revenue 57.5% from $6,742,000 for the quarter ended June 30, 1998 to
$2,866,000 for the same period in 1999. The decrease in job costs was primarily
attributable to completion during 1998 of the East Dam project, which reduction
was partially offset by additional job cost charges associated with two
contracts in the Company's Oak Ridge, Tennessee office. The first project is an
asset recovery contract where the value of the equipment salvaged pays for the
Company's cost of dismantling and removing the equipment. During the quarter,
the Company became aware of several previously undisclosed problems that reduced
the value of the equipment and increased the costs to decontaminate and remove
the equipment. As a result of the unforseen problems, the Company recorded a
negative $1.1 million dollar gross margin on the contract during the quarter.
The Company intends to aggressively pursue contract change orders. Any revenue
received from the change order will be recorded when realized.
The second project was a waste disposal project on which the Company planned to
decontaminate and sell the scrap steel from the project. During the quarter, the
Company became aware that the waste had PCB's which resulted in an increase in
the disposal cost and the contractor imposed additional conditions which
resulted in the scrap steel being disposed of at a cost to the Company in lieu
of being able to sell the same. As a result of these unforseen problems, the
Company recorded $1.2 million negative gross margin for this contract during the
quarter. The Company intends to pursue change orders against the contractor. Any
revenue received from the change order will be recorded when realized.
General and Administrative Expenses. While total revenues decreased by 55.7% for
the quarter, general and administrative expenses decreased 31.5% from $2,533,000
during the quarter ended June 30, 1998 to $1,735,000 during the same period in
1999. The decrease in general and administrative expense was primarily
attributable to a decrease in variable overhead due to lower business levels.
Depreciation and amortization. Depreciation and amortization expense decreased
by approximately 46% from $185,000 in 1998 to $100,000 in 1999. The decrease
depreciation and amortization expense was primarily attributable to a decrease
in amortization of deferred issuance costs.
12
<PAGE>
Interest Expense. In addition to its operating income and expenses, the Company
reported net interest expense of $30,000 for the quarter ended June 30, 1999 as
compared to net interest expense of $1,146,000 for the same period in 1998. 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.
Miscellaneous. During the second quarter of years 1998 and 1999, no provision
was made for post retirement benefits subject to FAS 106.
As a result of the foregoing, the Company reported a loss before and after taxes
of $2,584,000 for the quarter ended June 30, 1999 as compared to a net loss of
$5,759,000 for the same quarter in 1998.
The net loss attributable to common stock was increased by the preferred stock
dividends totaling $4,000 in 1999 and $63,000 in 1998, and an accounting "deemed
dividend" of $3,226,000 in 1998 arising from the amortization of the beneficial
conversion feature of the Company's Preferred Stock Series C. The Company is
calculating earning per share to comply with the SEC staff position on
accounting for securities issued with beneficial conversion features. This
accounting required 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 in 1998) and amortized the dividend from
the issue date for the Series C Preferred, February 13, 1998 to June 22, 1998,
the date the Registration Statement of the underlying stock was declared
effective.
Six Months ended June 30, 1999 Compared with Six Months Ended June 30, 1998.
Revenues. Total revenues decreased by approximately 54.3% from $10,015,000 for
the six months ended June 30, 1998 to $4,576,000 for the same period in 1999.
The decrease was primarily attributable to the lower volume of business. Also,
see the quarterly comparison for a discussion of some of the factors.
Cost of Sales. Direct job costs decreased by approximately 55.3% from
$11,494,000 for the six months ended June 30, 1998 to $5,142,000 for the same
period in 1999 and is primarily attributable to the lower revenue volume.
General and Administrative Expenses. General and administrative expenses
decreased 55.7% from $6,381,000 during the six months ended June 30, 1998 to
$3,556,000 during the same period in 1999. The decrease in general and
administrative expense was attributable to $1.9 million expense recorded in
February, 1998 for options granted to consultants to purchase 122,000 shares of
common stock of the Company at the market price of the Company's common stock at
the date of the grant and lower volume.
Interest Expense. The Company reported a decrease in net interest expense from
$4,323,000 for the six months ended June 30, 1998 to $45,000 expense for the
same period in 1999. See the quarterly comparison for discussion of the factors
contributing to the decreased 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 and after taxes of $4,403,000 for the
same period in 1999.
The net loss attributable to common stock was increased by $8,000 and $117,000
in preferred stock dividends and $0 and $3,330,000 amortization of the
beneficial conversion feature in 1999 and 1998 respectively.
13
<PAGE>
Liquidity and Capital Resources
At June 30, 1999, the Company had a working capital deficit of approximately
$3.2 million and a cash balance of $9,000. This compares to a deficit in working
capital of $0.5 million and a cash balance of $0.4 million at December 31, 1998.
The changes in working capital and cash were primarily attributable to a
combination of the loss incurred during 1999 and the effects of (1) an increase
in accounts payable of $0.8 million, and (2) a cash flow from the investment and
advances from an unconsolidated affiliate of $0.8 million.
Approximately $0.9 million of working capital consisted of unbilled costs and
estimated earnings on ongoing projects. Such amounts are expected to be received
during 1999 as projects progress with all such amounts being payable to the
Company by the completion of such projects.
Also included in the working capital balance at June 30, 1999, 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, 1998. The 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 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 our intent to incorporate this inventory in future
projects.
At December 31, 1998, we had approximately $30 million of operating loss
carry-forwards that may be applied against future taxable income. $2.3 million
of such losses expire in the year 2010, $9.1 million in the year 2011, $8.6
million in the year 2012 and the balance ($10.0 million) the following year.
Based on our continuing operating losses, we wrote-off our deferred tax asset
during 1998 and no such assets was reflected at June 30, 1999.
We require substantial working capital to support our ongoing operations. As is
common in the environmental services industry, payment for services rendered are
generally received pursuant to specific draw schedules after services are
rendered. Thus, pending the receipt of payments for services rendered, we 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.
Operations were historically funded through a combination of operating cash
flow, term notes and bank lines of credit. Since April of 1994, we have carried
no bank debt and have funded operations principally through the sale of equity
securities and securities convertible into equity securities. At June 30, 1999,
we had no bank debt and no significant long-term debt and were funding
operations entirely through cash on hand and operating cash flow.
Other than funds provided by operations and the potential receipt of funds from
the exercise of outstanding warrants, we presently have no sources of financing
or commitments to provide financing. A total of approximately 34,000 Class A
Warrants (after giving effect to the April 1999 reverse split) issued in
connection with our initial public offering were outstanding and exercisable at
June 30, 1999. Such warrants are exercisable to purchase two shares of common
stock each for a price of $90.00, or $45.00 per share. The warrants were
originally exercisable until April of 1999 unless earlier called. We declared a
1-for-10 reverse split of our Common Stock and Class A Warrants effective April
16, 1999 and extended the term of the Class A Warrants to April of 2000.
Exercise of the warrants would provide gross proceeds of approximately $3.1
million and result in the issuance of approximately 70,000 shares after giving
effect to the reverse split. However, given the current price of the Company's
Common Stock, it is not expected that the Class A Warrants will be exercised in
the near future.
14
<PAGE>
In November of 1998, we paid $600,000 to acquire a 49% interest in Kortman
Polonia, a Polish company with substantial real estate holdings. Kortmann
Polonia has initiated discussions with various real estate developers and major
U.S. retailers with respect to the sale of various real estate tracts and the
development and leasing of the remaining tracts.
In addition to funding requirements to support ongoing operations, we have
committed substantial capital resources to implementation of the strategic
initiative known as "Vision 2000." The focus of Vision 2000 is to position the
Company as a leading participant in the global energy and waste treatment 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 and can be expected to continue to require
substantial capital expenditures in the future. Direct investments in potential
energy and waste treatment projects undertaken under the Vision 2000 initiative,
excluding corporate overhead allocable to such initiative, totaled approximately
$9 million at December 31, 1998. Capital expenditures and other outlays to bring
proposed projects to an operational state are expected to far exceed the
investment to date. In particular, the proposed El Salvador Power Project, is
expected to cost approximately $55 million to develop and will require
substantial funding beyond that which the Company can presently provide. We have
entered into discussions with several potential equity investors in the El
Salvador Power Project. Similarly, in connection with our acquisition of a
controlling interest in the Georgia Power Project, we agreed to perform a
technical evaluation on the facility and, depending on the results of that
evaluation, to invest up to $9 million over the life of the facility for repairs
and rehabilitation. The ability to successfully bring the El Salvador Power
Project, and other similar projects, on line, carry out any required repairs and
rehabilitation on the Georgia Power Project and implement other Vision 2000
initiatives is substantially dependent upon our ability to secure project
financing and other financing. While we believe that we will be able to attract
adequate financing to develop the El Salvador Power Project and other
anticipated projects, we have 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 bonding and other job costs, we
do not anticipate any substantial demands on our liquidity or capital resources
during the following twelve months.
In March of 1999, our management appeared before a Nasdaq hearing panel
regarding the possible de-listing of our common stock for failure to maintain a
minimum bid price of at least $1.00. In order to address the deficiency in
minimum bid price, we proposed and have approved a 1-for-10 reverse split of our
common stock and warrants to be effective April 16, 1999. On May 7, 1999, NASDAQ
informed us of their decision that because of the Company's failure to comply
with the minimum $5,000,000 market value of public float requirement for the
past 37 consecutive trading days as of that date, that effective with the open
of business of May 11, 1999, the company's securities were transferred from the
National Market to the Small Cap Market, pursuant to the maintenance criteria.
Subsequent to June 30, 1999, we received payments of $1 million from the
settlement of our change order claims on the Los Alamos DOE project and $650,000
from assignment to our contractor of our change order claims on the East Dam
project. The contractor will pursue the East Dam claim, paying all direct claim
costs, including costs of experts. In the event the claim results in a payment
to the contractor, the payment will be distributed 70% to the contractor and 30%
to the Company after deducting direct claim costs and the $650,000 paid by the
contractor. We also expect to be able to close on the sale of one or more
parcels held by Kortmann Polonia during 1999. Given our current financial
position, we are evaluating opportunities to sell part, or all, of our interest
in proposed power projects in El Salvador and elsewhere.
We believe that our working capital, including funds received from our Los
Alamos DOE and East Dam claims, combined with the expected receipt of funds from
the resolution of certain other change orders and litigation and the possible
sale of a portion of our equity interest in various projects, is sufficient to
meet our 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 there is no assurance as to
the timing or amount of the receipt of funds from change orders, litigation or
other sources, we may be required to seek new bank lines of credit or other
financing in order to facilitate the performance of jobs. While we are
conducting ongoing discussions with various potential lenders with a view to
establishing available credit facilities, we presently have no commitments from
any bank or other lender to provide financing if such financing becomes
necessary to support operations.
15
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Year 2000 Issue
We recognize the need to ensure that our operations, as well as those of third
parties with whom we conduct business, will not be adversely impacted by Year
2000 software failures. Software failures due to processing errors potentially
arising from calculations using the year 2000 date are a known risk. We are
addressing this risk to the availability and integrity of financial systems and
the reliability of operational systems through a combination of actions
including a review of all software applications, desktop equipment network, and
telecommunications products used by the Company to determine if they are Year
2000 compliant. We will also send questionnaires to our major customers and
suppliers to assess their Year 2000 readiness, review all contacts for year 2000
liability and will develop remediation and contingency plans where appropriate.
We expect to complete this work by the end of the third quarter 1999.
The costs of achieving Year 2000 compliance to date have been immaterial to our
financial position, results of operations or cash flows. We do not anticipate
that additional amounts incurred in connection with our Year 2000 compliance
program will be material to our financial condition or results of operations.
Due to the uncertainties involved, we cannot predict the impact of the Year 2000
on our operations. Achieving Year 2000 compliance is dependent on many factors,
some of which are not within our control, including without limitation, the
continuity of service provided by the government, utilities, transportation
industry and other service providers. Should one of these systems fail, or
should our internal systems or the internal systems of one or more significant
vendors or suppliers fail to achieve Year 2000 compliance, our business and
results of operations could be adversely affected.
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. 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: uncertainty with respect to the continued listing of our
Common Stock on Nasdaq; uncertainty with respect to our ability to finance
continued operating losses and future growth initiatives pursuant to "Vision
2000"; possible fluctuations in the growth and demand for energy and waste
treatment services in markets in which the Company may seek to establish energy
production and waste treatment operations; intense competition for establishment
of energy production, waste treatment and similar operations in growing
economies; currency, economic, financing and other risks inherent in
establishing 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; uncertainty as to our
ability to realize sufficient proceeds from the sale of interests in various
projects to support current operations; and other factors generally affecting
the timing and financing of projects. In addition to the foregoing, the
following specific factors may affect future operating results.
At June 30, 1999, we had a backlog of approximately $6 million of signed
services contracts as compared to a backlog of approximately $8 million at
December 31, 1998. The largest project in our backlog at June 30, 1999, was the
North Rim project, with an estimated value for the balance of services to be
performed of $2.5 million. The North Rim project began in May 1999 and is
scheduled to be completed during 1999. However, the elapsed time from the award
of a contract to commencement of services, and completion of performance, may be
two or more years. The backlog at June 30, 1999 does not include services
expected to be rendered under the EWN project in Germany. The total German
government funding for the EWN project is approximately $3.65 billion. We
anticipate that we will perform as much as $700 million of services at the EWN
site over a ten-year period. We expect to finalize a comprehensive agreement for
the revitalization of the EWN site during the second half of 1999 and to be
performing remediation services during the fourth quarter of 1999. Because of
the uncertainty as to the actual start date for services at the EWN site, no
estimate can be made as to the value of services expected to be rendered during
1999.
16
<PAGE>
In addition to existing contracts, we are presently bidding on, or propose to
bid on, numerous projects in order to replace revenues from projects which will
be completed during 1999 and to increase the total dollar volume of projects
under contract. We anticipate that efforts to bid on and secure new contracts
will focus on projects which can be readily serviced from the regional offices
as well as certain large international plant relocation projects and nuclear
decommissioning projects which we intend to pursue. Our regional offices,
particularly the Oak Ridge, Tennessee 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, we believe that our existing presence on adjacent
projects combined with our proven expertise and resources will allow us to
successfully bid on and perform substantial additional projects based out of our
regional offices.
In addition to remediation and plant relocation projects on which we are
presently bidding or negotiating, during 1997 and 1998 we entered the energy
production and waste treatment services market. We expect to begin energy
production and sales at our Georgia Power Project during the third quarter of
1999 and expect to begin operations at, and to receive revenues from various
other energy and waste treatment projects and nuclear decommissioning projects
at various sites by as early as the second half of 1999.
While we anticipate that entry into the energy production, waste treatment 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, waste treatment 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. We do not currently have the necessary capital resources to undertake
such ventures without third-party financing. We anticipate that we will take on
equity partners and seek third party debt financing to finance substantial
portions of the projects which we expects to undertake. While we have been
successful in attracting substantial partners in carrying out various phases of
the EWN nuclear decommissioning/site revitalization project, we have 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 we commence future projects.
There is substantial uncertain as to our ability to continue to operate as a
result of continuing losses and a lack of currently available resources to fund
future operations. In an effort to deal with these concerns, we are presently
evaluating the sale or other liquidation of various long-term assets which we
believe can provide adequate funding to support future operations. In March of
1999, we agreed to accept $300,000 in full settlement of our note receivable
from UPE relating to the sale of our surplus equipment inventory. $150,000 was
paid at closing with the balance payable in monthly installments over eight
months. We are presently evaluating the sale of properties in Poland as sources
of additional funds. We believe that adequate funding will be provided from the
efforts described to support our operations for the foreseeable future. However,
in the absence of receipt of adequate funding from those, or other, sources, our
ability to continue to operate at the current level is in doubt.
In light of continued uncertainty effecting the Company's operations at the end
of the second quarter of 1999, management has evaluated various options outside
of its traditional businesses to return the Company to profitability and to
increase shareholder value. Pursuant to those efforts, in July 1999, the Company
entered into a letter of intent to acquire Fusion Networks, Inc. in exchange for
approximately 600,000 shares of common stock plus shares of non-voting
redeemable preferred stock of IDM which, upon approval by IDM's shareholders,
would automatically convert into approximately 26 million shares of common
stock. Fusion Networks is a newly formed company which is in the process of
building a portal-type web site with an initial emphasis on Latin America and
the Hispanic market in the United States. The proposed acquisition is subject to
a number of conditions, including receipt by the Company's board of directors of
a "fairness opinion" from an investment banking firm, the receipt of all
necessary regulatory approvals and the negotiation and execution of definitive
documentation. There can be no assurance that the acquisition will be
successfully implemented or that there will not be modifications to the
acquisition terms.
17
<PAGE>
Impact of Inflation
Inflation has not been a major factor in our business since inception. There can
be no assurances that this will continue. However, it is anticipated that any
increases in costs can be passed on to 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 June 2, 1999, the Company sold $400,000 of 6.5% Promissory Notes
and 125,000 shares of Common Stock.
(b) The securities were issued to one accredited investor.
(c) The aggregate sales price of such securities was $400,000. No
commissions 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 Promissory Notes are due in 60 days with interest at 6.5%. In the
event the company does not pay the Promissory Notes at maturity, the
holder has the right, among other remedies, to convert the amounts due
on the Promissory Notes into Common Stock at the lesser of (i) $1.50
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 Promissory Notes in the event of default is subject to the
issuance of a maximum of 486,058 shares of Common Stock on conversion
unless the shareholders of the Company have approved issuance beyond
that level upon conversion.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 10, 1999, an annual meeting of shareholders of IDM
Environmental Corp. was held.
(b) The following directors were elected (by the vote indicated) at such
meeting:
Joel Freedman 2,440,744 For 154,904 Withheld
Frank Falco 2,440,544 For 155,104 Withheld
In addition to the foregoing directors, Michael Killeen, Robert McGuinness,
Mark Franceschini, Richard Keller 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 issuances of shares in excess of 360,000 on
conversion of outstanding Series RR Preferred Stock (324,400 For,
169,019 Against, 27,746 Abstain)
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -------------
10.1 Form of 6.5% Promissory Note
10.2 Registration Rights Agreement re: 6.5% Promissory Notes
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, dated May 21, 1999, was filed reporting under Item 5 the
resignation of four officers and the retention of the same persons as
consultants to the company.
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 16, 1999 By: /s/ Joel Freedman
--------------------------
Joel Freedman, President
Dated: August 16, 1999 By: /s/ Michael Killeen
--------------------------
Michael B. Killeen, Principal
Financial and Accounting Officer
19
PROMISSORY NOTE
$400,000 South River, N.J.
May 27, 1999
FOR VALUE RECEIVED, and intended to be legally bound hereby, IDM
ENVIRONMENTAL CORP. ("Maker") promises to pay to the order of LAURA
HUBERFELD/NAOMI BODNER PARTNERSHIP ("Payee"), at its offices at 152 West 57th
Street, 54th Floor, New York, New York 10019 or at such place as Payee may
direct, the principal sum of Four Hundred Thousand Dollars ($400,000), together
with interest upon the unpaid balance from the date of this Note at the rate of
Six and 50/100 (6.50%) percent per annum. The Maker shall make one lump sum
payment of principal and interest in the amount of $404,772.60 on August 2,
1999.
Acceleration Upon Default. The unpaid principal sum of this Note and all
other sums owing hereunder may be declared immediately due and payable by Payee
at its option if Maker makes an assignment for the benefit of creditors or if
there is the commencement of a cause by or against Maker under any bankruptcy,
rehabilitation, reorganization, debt adjustment, liquidation or receivership
law, state or federal.
Late Charge. If any payment is not paid when due, the amount thereof shall
bear an additional late charge at a rate of five (5%) percent per annum until
paid, but in no event shall such late charge exceed the maximum permitted under
applicable law.
No Right of Set-Off. This Note shall not be subject to any right of
set-off, counterclaim, defense, abatement, suspension, deferment or reduction,
and the Maker shall not have the right to be released, relieved or discharged
from the obligation and liability under this Note for any reason whatsoever
except by full timely payment in cash or by conversion of the debt arising under
this Note into registered securities of Maker pursuant to that certain agreement
made on the date hereof by and between Maker and Payee (the "Agreement") to
which this Promissory Note is attached as Exhibit A thereto.
Waiver of Notice. Maker hereby waives any requirement of presentment,
notice of protest and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note.
No Waiver of Right or Remedy. No delay, failure or omission by the Payee or
any subsequent holder in respect of the exercise of any right or remedy granted
to the Payee or other holder or allowed to the Payee or other holder by law,
herein, under said Note or otherwise, shall constitute a waiver of the right to
exercise the right or remedy at that or any future time or in the same or other
circumstance.
<PAGE>
Notice. Notices and demands hereunder on the Maker may be given in writing
at the address below:
IDM Environmental Corp.
396 Whitehead Avenue
South River, New Jersey 08882
Attention: Joel Freedman, President
Subsequent Certifications. Each of the Maker and Payee, within five (5)
days after request by the other, shall certify to such person as the requesting
party may designate, the amount of principal, interest or other sums payable
hereunder, the date to which the same shall have been paid, whether this Note
has been modified or amended, whether any default exists under this Note, and in
the case of Maker, whether any set-offs or defenses exist against this Note or
the obligations of the Maker hereunder.
Applicable Law. All rights and obligations hereunder shall be governed by
the laws of the State of New York. This Note shall be binding upon Maker and
inure to the benefit of Payee and its respective assigns and successors.
Default. In the event Maker does not repay in full and on a timely basis
the amount then due and owing under this Note, then Maker shall be in default
under this Note and Payee shall be entitled to all of its rights set forth in
the Agreement including the right, at the Payee's option, to either enforce
payment of all amounts owing hereunder or to convert such amounts, from time to
time, into common stock of the Maker in the manner set forth in Section 4.6 of
the Agreement.
In the event that the Payee elects to exercise its conversion rights
following an Event of Default, the Payee's right to convert Promissory Notes
shall be limited such that Payee at no time will be deemed to be the beneficial
owner of more than 4.99% of the then outstanding common stock of the Company.
Beneficial ownership shall be defined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. The opinion of counsel to the Payee shall
prevail in the event of any dispute on the calculation of Payee's beneficial
ownership.
The terms and provisions of the Agreement are expressly incorporated herein
and made a part hereof. All terms not defined herein shall have the meaning
ascribed thereto in the Agreement.
Maker acknowledges that this Note has been delivered to Payee pursuant to a
commercial transaction and that nothing herein contained shall be construed as
constituting the Payee a partner of or joint venturer with the Maker.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed and
delivered by a duly authorized officer of Maker as of the day and year first
above written.
IDM ENVIRONMENTAL CORP.
By:
-------------------------
JOEL FREEDMAN, President
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into the ____ day of __________ 1999, by and between IDM Environmental Corp., a
New Jersey corporation (the "Company"), and the purchaser whose name and address
is set forth on the signature page hereof (the "Purchaser").
This Agreement is made pursuant to the Agreement, dated as of the date
hereof, between the Company and the Purchaser (the "Subscription Agreement"). In
order to induce the Purchaser to enter into the Subscription Agreement, the
Company has agreed to provide for the benefit of the Purchaser and the Other
Purchasers (as defined below) of the Offered Securities (as defined the
Subscription Agreement), and any subsequent holders of Registrable Securities
(as defined below), the registration rights set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Subscription
Agreement.
The Company proposes to enter into substantially this same form of
registration rights agreement with certain other investors (the "Other
Purchasers") and expects to complete sales of Offered Securities to them. The
Purchaser and the Other Purchasers are hereinafter sometimes collectively
referred to as the "Purchasers," and this Agreement and the registration rights
agreements executed by the Company and the Other Purchasers are hereinafter
sometimes collectively referred to as the "Agreements."
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Closing Date: Has the meaning such term is given in the Subscription
Agreement.
Common Shares: The shares of Common Stock of the Company issued to the
Purchaser and constituting a portion of the Offered Securities.
Common Stock: The shares of common stock, par value $.001 per share of the
Company.
Conversion Notice: The notice called for by Section 4.6(b) of the
Subscription Agreement.
Conversion Price: The price determined in accordance with Section 4.6(a) of
the Subscription Agreement.
<PAGE>
Conversion Shares: Shares of Common Stock, if any, issuable upon the
conversion of the Promissory Notes. Each Promissory Note will be convertible
under certain circumstances into the number of Conversion Shares determined by
dividing the amount of the Promissory Note to be converted by the Conversion
Price.
Effective Date: The date that the Registration Statement is declared
effective by the SEC.
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
time.
Holder: Each beneficial holder from time to time of Registrable Securities.
Indemnified Holder: See Section 6(a).
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
Promissory Notes: The Promissory Notes issued by the Company to the
Purchaser and comprising a portion of the Offered Securities issued pursuant to
the Subscription Agreement.
Registrable Securities: The Common Shares and Conversion Shares; provided
that each of those securities cease to be a Registrable Security when it (i) has
been effectively registered under Section 5 of the Securities Act and disposed
of in accordance with any Registration Statement, (ii) has been distributed to
the public pursuant to Rule 144 under the Securities Act ("Rule 144") (or any
similar provisions then in force) or (iii) is eligible for distribution to the
public by the Holder pursuant to Rule 144(k) (or any similar provisions then in
force).
Registration Expenses: See Section 5.
Registration Statement: Any registration statement of the Company which, in
accordance with Section 3 hereof, covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such Registration Statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such Registration Statement.
Securities Act: The Securities Act of 1933, as amended from time to time.
SEC: The Securities and Exchange Commission.
Subscription Date: June 2, 1999.
2
<PAGE>
2. Securities Subject to this Agreement
Each holder from time to time of Registrable Securities shall be entitled
to the benefits of this Agreement. A Person is deemed to be a Holder of
Registrable Securities whenever such Person is the beneficial owner of
Registrable Securities. The Company is entitled to treat the record holder of
Registrable Securities as beneficial owner of Registrable Securities unless
otherwise notified by such holder.
3. Registration Statement: Timing of Filing, Effectiveness and Period of
Usability
Subject to the provisions of Section 4 hereof, the Company shall, as soon
as possible after the Closing Date, but not later than 90 days following the
Closing Date, prepare and file with the SEC a Registration Statement on Form S-3
(or any other form of registration statement on which it may file for
registration under the Securities Act) registering resales of the Common Shares
and Conversion Shares by the Holders from time to time through the automated
quotation system of the Nasdaq Small Cap Market or the facilities of any
national securities exchange or the Nasdaq National Market if the Common Stock
is then listed or quoted thereon or in privately-negotiated transactions. The
Registration Statement shall register (i) all of the Common Shares and
Conversion Shares and (ii) such number of additional shares of Common Stock as
may become issuable as Common Shares or Conversion Shares as a result of the
anti-dilution provisions of the Promissory Notes. The Company will use its best
efforts to cause the initial Registration Statement to be declared effective by
the SEC as soon as possible after the Closing Date. The Company hereby agrees
that it shall (i) prepare and file such post-amendments to the initial
Registration Statement and/or such additional Registration Statements as may be
necessary to ensure that at all times there shall be registered with the SEC for
resale by the Holders from time to time as provided in this Section 3 sufficient
shares of Common Stock to account for all Common Shares and Conversion Shares
which become issuable from time to time with respect to the Offered Securities
(as a result of changes in the Conversion Price), and (ii) cause such
post-effective amendments to the initial Registration Statement and/or such
additional Registration Statements to be declared effective by the SEC prior to
the issuance of any shares of Common Stock covered thereby.
If the Registration Statement has not been filed with the SEC within 90
days following the Closing Date and/or is not effective within 120 days
following the Closing Date, the Company will have the obligation to pay to the
Purchaser penalty payments consisting of (1) $.02 per Common Share and
Conversion Share held per month, plus (2) two percent (2%) per month of the
unpaid balance, if any, including accrued but unpaid interest, on the Promissory
Notes.
3
<PAGE>
The first penalty payment shall be payable on the earlier to occur of the
120th calendar day following the Closing Date or the date the Registration
Statement is declared effective. Subsequent penalty payments shall be payable
each 30-days thereafter, except if the Registration Statement shall be declared
effective prior thereto in which case the subsequent penalty payment shall be
made concurrently with such effectiveness. The penalty payment shall accrue and
be prorated for partial months, assuming a 360-day year of twelve 30-day months.
The Company agrees to use diligent efforts to cause the Registration
Statement to be declared effective as soon as possible and to keep the
Registration Statement(s) continuously effective and usable for resale of
Registrable Securities until one year (the "Effectiveness Period") from the
Closing Date or such shorter period which will terminate when all Common Shares
and Conversion Shares have ceased to be Registrable Securities.
4. Registration Procedures
In connection with the Company's obligation to file Registration Statements
as provided in Section 3 hereof, the Company will as expeditiously as possible:
(a) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be required by the rules, regulations or instructions
applicable to the registration form utilized by the Company or by the
Securities Act or rules and regulations thereunder for shelf registration
or otherwise necessary to keep the Registration Statement effective for the
applicable period and cause the Prospectus as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the methods of disposition by the sellers thereof
set forth in such Registration Statement or supplement to the Prospectus;
(b) notify Purchaser and the Holders of Registrable Securities
promptly, and confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same
has become effective,
(2) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, and
4
<PAGE>
(3) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(c) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(d) furnish, without charge, to Purchaser and, upon request, each
Holder of Registrable Securities, at least one conformed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(e) deliver to Purchaser and each Holder of Registrable Securities
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each Purchaser and
each Holder of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(f) use its reasonable efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such governmental agencies or authorities as may be necessary to enable the
Holders thereof to consummate the disposition of such Registrable
Securities in such jurisdictions as the Holders may reasonably specify in
response to inquiries to be made by the Company, provided that the Company
will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process in any such jurisdiction
where it is not then so subject;
(g) if any event shall occur as a result of which it is necessary, in
the opinion of counsel for the Company, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of
the circumstances existing at the time it is delivered by a Holder, prepare
a supplement or post-effective amendment to the Registration Statement or
the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
Holders of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
5
<PAGE>
(h) obtain a CUSIP number for all Registrable Securities (unless
already obtained), not later than the Effective Date;
(i) make available for inspection during normal business hours by a
representative of the Holders of a majority of the Registrable Securities
and any attorney or accountant retained by such representative, all
financial and other records, pertinent corporate documents and properties
of the Company, and cause the Company's officers, directors and employees
to supply all information reasonably requested by such Holders or any such
attorney or accountant in connection with the Registration Statement;
provided that all such records, information or documents shall be kept
confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order or is generally
available to the public other than as a result of disclosure in violation
of this paragraph (i);
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC;
(k) if at any time an event of the kind described in Section 4(g)
shall occur, notify Purchaser and the Holders of Registrable Securities
that the use of the Prospectus must be discontinued (the Company will not
declare any such "black-out" periods in excess of twenty business days
during any twelve month period, unless otherwise required); and
(l) on or prior to the date the Registration Statement is declared
effective by the SEC, cause all of the Common Shares and Conversion Shares
to be listed for trading on the Nasdaq Small Cap Market (or on any other
national securities exchange) on which the Company's Common Stock is then
listed.
Each Holder of Registrable Securities as to which any registration is being
effected agrees, as a condition to the registration obligations with respect to
such Holder provided herein, to furnish to the Company such information
regarding the distribution of such Registrable Securities as the Company may
from time to time reasonably request in writing.
6
<PAGE>
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company
described in this paragraph 4(k), such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 4(g) hereof,
or until it is advised in writing by the Company (which notice the Company shall
give as promptly as possible), that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus, and, if so directed by the Company,
such Holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice.
5. Registration Expenses
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation:
(1) all registration, filing and listing fees;
(2) the Company's printing, messenger, telephone and delivery expenses;
(3) fees and disbursements of counsel for the Company;
(4) fees and disbursements of all independent certified public accountants
of the Company (including the expenses of any special audit necessary to satisfy
the requirements of the Securities Act); and
(5) fees and expenses associated with any NASD filing required to be made
in connection with the Registration Statement.
(all such expenses being herein called "Registration Expenses") will be borne by
the Company, regardless of whether the Registration Statement becomes effective.
The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on a securities exchange or the Nasdaq Small Cap Market.
6. Indemnification and Contribution
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
employees and agents and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being sometimes hereinafter referred to as an "Indemnified
Holder") from and against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and legal expenses) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission thereof based upon information
furnished in writing to the Company by such Holder or its agent expressly for
use therein; provided further, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission was completely corrected
in an amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such Holder thereafter fails to deliver such Prospectus
as so amended or supplemented, prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage, liability
or expense who purchased such Registrable Security which is the subject thereof
from such Holder. This indemnity will be in addition to any liability which the
Company may otherwise have.
7
<PAGE>
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against any Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing (but the omission to so notify the
Company shall not relieve it of any liability that it may have against any
Indemnified Holder otherwise than under this subsection), and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all expenses.
Indemnified Holders shall have the right, collectively, to employ their own
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be the expense of the Indemnified
Holders unless (a) the Company has agreed to pay such fees and expenses or (b)
the Company shall have failed to assume the defense of such action or proceeding
and have failed to employ counsel reasonably satisfactory to the Indemnified
Holders in any such action or proceeding or (c) the named parties to any such
action or proceeding (including any impleaded parties) include the Indemnified
Holders and the Company, and the Indemnified Holders shall have been advised by
counsel that there may be one or more legal defenses available to the
Indemnified Holders which are different from or additional to those available to
the Company (in which case, if the Indemnified Holders notify the Company in
writing that they elect to employ their own counsel at the expense of the
Company, the Company shall not have the right to assume the defense of such
action or proceeding on behalf of the Indemnified Holders, it being understood,
however, that the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for the Indemnified Holders which firm shall be designated in writing by
the Indemnified Holders representing at least a majority of the aggregate
principal amount of the outstanding Registrable Securities). Any such fees and
expenses payable by the Company shall be paid to the Indemnified Holders
entitled thereto as incurred by the Indemnified Holders. The Company shall not
be liable for any settlement of any such action or proceeding effected without
its written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the Company
agrees to indemnify and hold harmless the Indemnified Holders from and against
any loss or liability by reason of such settlement or judgment.
8
<PAGE>
(b) Indemnification by Holder of Registrable Securities. Each Holder of
Registrable Securities agrees to indemnify and hold harmless the Company, its
respective directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such Holder, but only with respect to information relating to such
Holder furnished in writing by such Holder expressly for use in any Registration
Statement or Prospectus, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be brought
against the Company or its respective directors or officers or any such
controlling person, in respect of which indemnity may be sought against a Holder
of Registrable Securities, such Holder shall have the rights and duties given
the Company, and the Company or its respective directors or officers or such
controlling person shall have the rights and duties given to each holder by the
preceding paragraph. In no event shall the liability of any Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Contribution. If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses, (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company from the sale of the Offered Securities to Purchaser pursuant to the
Subscription Agreement on the one hand and each Holder of Registrable Securities
from the offering of the Registrable Securities by such Holder, on the other
hand, or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and each Holder of Registrable Securities on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, or liabilities, as well as the other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and each Holder of Registrable Securities on the other shall be deemed to be in
the same proportion as the aggregate amount paid by Purchaser to the Company
pursuant to the Subscription Agreement for the Registrable Securities purchased
by such Holder that were sold pursuant to the Registration Statement bears to
the difference (the "Difference") between the amount such Holder paid for the
Registrable Securities that were sold pursuant to the Registration Statement and
the amount received by such Holder from such sale. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the particular
Holder and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Holders of Registrable Securities agree that it would not be just and
equitable if contributions pursuant to this subsection (c) were to be determined
by pro rata allocation or by any other method of allocation that does not take
account of the equitable consideration referred to in the first sentence of this
subsection (c). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
subsection (c) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigation or defending
against any action or claim that is the subject of this subsection (c).
Notwithstanding the provisions of this subsection (c), each Holder of
Registrable Securities shall not be required to contribute any amount in excess
of the amount by which the Difference exceeds the amount of any damages that
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act), shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9
<PAGE>
7. Rule 144 and Rule 144A
For so long as the Company is subject to the reporting requirements of
Section 13 or 15 of the Exchange Act, the Company covenants that it will file
the reports required to be filed by it under the Securities Act and Section
13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the
SEC thereunder. If the Company is not subject to the reporting requirements of
Section 13 or 15 of the Exchange Act, the Company also covenants that it will
provide the information required pursuant to Rule 144A(d)(4) under the
Securities Act upon the request of any Holder of Registrable Securities which
continue to be "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act and it will take such further action as any holder of
such Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell its Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, so long as such provision does not require the
public filing of information relating to the Company which the Company is not
otherwise required to file, (b) Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or (c) any similar rule or regulation
hereafter adopted by the SEC that does not require the public filing of
information relating to the Company. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
10
<PAGE>
8. Miscellaneous
(a) No Inconsistent Agreements. The Company will not on or after the date
of this Agreement enter into any agreement with respect to their securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders of Registrable Securities hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any such agreements.
(b) Adjustments Affecting Registrable Securities. The Company will not take
any action, or permit any change to occur, with respect to the Registrable
Securities which would adversely affect the ability of the Holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of a majority of
the Registrable Securities.
(d) Notices. All notices, requests, consents and other communications
hereunder shall be by telecopier, with a copy being mailed by a nationally
recognized overnight express courier, and shall be deemed given when receipt is
acknowledged by transmit confirmation report, and shall be delivered as
addressed as follows:
(1) if to the Purchaser, at the most current address given by the
Purchaser to the Company in accordance with the provisions of this Section
8(d), which address initially is as set forth on the signature page hereto;
(2) if to a Holder of Registrable Securities, at its address of record
as indicated on the books of the transfer agent and registrar for the
Registrable Securities; and
11
<PAGE>
(3) if to the Company, initially at its address set forth in Section 9
of the Subscription Agreement and thereafter at such other addresses,
notice of which is given in accordance with the provisions of this Section
8(d).
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ITS
RULES AS TO CONFLICTS OF LAW) AND THE FEDERAL LAW OF THE UNITED STATES OF
AMERICA.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Subscription Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Calculation of Majority. For purposes of determining whether the
Holders of a majority of the Registrable Securities have taken action pursuant
thereto, any Promissory Notes then outstanding shall be deemed to have been
converted into Conversion Shares, which shares shall be treated as outstanding
for purposes hereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
IDM ENVIRONMENTAL CORP.
By:
---------------------------
Name: Joel A. Freedman
Title: President
Print or Type:
Name of Purchaser
(Individual or Institution):
---------------------------------
Name of Individual representing
Purchaser (if an Institution):
---------------------------------
Title of Individual representing
Purchaser (if an Institution):
---------------------------------
Signature by:
Individual Purchaser or Individual
representing Purchaser:
--------------------------------
Address:
-----------------------
Telephone:
---------------------
Telecopier:
--------------------
13
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,307
<SECURITIES> 0
<RECEIVABLES> 2,668,756
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<INVENTORY> 582,517
<CURRENT-ASSETS> 5,573,988
<PP&E> 2,475,241
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0
215,000
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<OTHER-SE> 3,527,304
<TOTAL-LIABILITY-AND-EQUITY> 12,548,996
<SALES> 4,573,816
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<CGS> 5,141,760
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<OTHER-EXPENSES> 3,792,058
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<INCOME-PRETAX> (4,403,175)
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<INCOME-CONTINUING> (4,403,175)
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