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 September 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.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2194790
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
396 Whitehead Avenue, South River, New Jersey 08882
-----------------------------------------------------
(Address of principal executive offices)
(732) 390-9550
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
-----------------------------------------------------
(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 November 8, 1999, 3,546,043 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 - September 30, 1999 and
December 31, 1998.......................................... 3
Consolidated Statements of Operations - For the nine months
ended September 30, 1999 and September 30, 1998............ 4
Consolidated Statements of Operations - For the three months
ended September 30, 1999 and September 30, 1998............ 5
Consolidated Statements of Cash Flows - For the nine months
ended September 30, 1999 and September 30, 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. 19
PART II - OTHER INFORMATION
Item 2. Changes in Securities...................................... 20
Item 6. Exhibits and Reports on Form 8-K........................... 20
SIGNATURES ............................................................. 21
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
Unaudited
September 30, December 31,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 130,284 $ 384,292
Accounts receivable 2,310,741 2,572,951
Notes receivable - current 141,198 367,198
Inventory - 582,517
Costs and estimated earnings in excess of billings 23,171 1,900,336
Recoverable income taxes 1,200,000 -
Prepaid expenses and other current assets 1,083,530 906,137
---------- ----------
Total Current Assets 4,888,924 6,713,431
Investments in and Advances to Unconsolidated Affiliates 1,275,211 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 2,362,743 3,133,404
Deposit in Lieu of Bond 200,000 -
Other Assets 979,925 979,925
---------- ----------
$ 11,559,928 $ 15,150,530
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $214,485 $ 622,794
Accounts payable and accrued expenses 7,497,248 6,578,070
Billings in excess of costs and estimated earnings 1,222,224 -
Due to Officers 248,686 -
---------- ----------
Total Current Liabilities 9,182,643 7,200,864
Long-Term Debt 23,881 64,544
---------- ----------
Total Liabilities 9,206,524 7,265,408
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 7,500,000 shares $.01 par value, issued
and outstanding 3,424,520 in 1999 and 2,947,298 in 1998 34,245 29,473
Additional paid-in capital 58,357,613 57,215,536
Convertible preferred stock, authorized 1,000,000 shares $1.00 par value
Series RR, Issued and outstanding 215 shares in 1998,
stated at a conversion value of $1,000 per share - 215,000
Retained earnings (deficit) (56,038,454) (49,574,887)
---------- ----------
2,353,404 7,885,122
---------- ----------
$ 11,559,928 $ 15,150,530
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Nine Months Ended September 30,
1999 1998
------------- ------------
<S> <C> <C>
Revenue:
Contract income $7,556,608 $14,547,358
---------- ----------
7,556,608 14,547,358
---------- ----------
Cost of Sales:
Direct job costs 9,008,924 15,843,676
Write-down of inventory surplus 582,517 -
---------- ----------
9,591,441 15,843,676
---------- ----------
Gross Profit (Loss) (2,034,833) ( 1,296,318)
---------- ----------
Operating Expenses:
General and administrative expenses 5,236,925 8,774,586
Depreciation and amortization 268,098 483,328
Equity in net loss of unconsolidated affiliates 35,854 -
---------- ----------
5,540,877 9,257,914
---------- ----------
Loss from Operations (7,575,710) (10,554,232)
Other Income (Expense):
Interest income (expense) ( 76,568) ( 4,418,305)
---------- ----------
Loss before Provision (Credit) for Income Taxes (7,652,278) (14,972,537)
Provision (Credit) for Income Taxes (1,200,000) ( 400,000)
---------- ----------
Net Loss ( 6,452,278) ( 14,572,537)
Preferred Stock Dividends including amortization of beneficial
conversion feature of $ 0 in 1999 and $ 3,630,000 in 1998. 11,289 3,798,966
---------- ----------
Net Loss on Common Stock $(6,463,567) $(18,371,503)
========== ==========
Loss per Share:
Basic Loss per share $ (2.07) $ (10.32)
========== ==========
Diluted Loss per share $ (2.07) $ (10.32)
========== ==========
Basic common shares outstanding 3,120,383 1,780,221
========== ==========
Diluted common shares outstanding 3,120,383 1,780,221
========== ==========
</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 September 30,
1999 1998
---------- ----------
<S> <C> <C>
Revenue:
Contract income $ 2,980,792 $4,531,809
---------- ----------
2,980,792 4,531,809
---------- ----------
Cost of Sales:
Direct job costs 3,867,164 4,349,328
Write-down of inventory surplus 582,517 -
---------- ----------
4,449,681 4,349,328
---------- ----------
Gross Profit (Loss) (1,468,889) 182,481
---------- ----------
Operating Expenses:
General and administrative expenses 1,681,017 2,393,864
Depreciation and amortization 40,659 165,082
Equity in net loss of unconsolidated affiliates 27,143 -
---------- ----------
1,748,819 2,558,946
---------- ----------
Loss from Operations (3,217,708) (2,376,465)
Other Income (Expense):
Interest income (expense) (31,395) (95,621)
---------- ----------
Loss before Credit for Income Taxes (3,249,103) (2,472,086)
Credit for Income Taxes (1,200,000) -
---------- ----------
Net Loss (2,049,103) (2,472,086)
Preferred Stock Dividends including amortization of beneficial
conversion feature of $ 0 in 1999 and $300,000 in 1998. 3,763 351,923
---------- ----------
Net Loss on Common Stock $(2,052,866) $(2,824,009)
========== ==========
Loss per Share:
Basic Loss per share $ (.62) $ (1.48)
========== ==========
Diluted Loss per share $ (.62) $ (1.48)
========== ==========
Basic common shares outstanding 3,288,689 1,913,213
========== ==========
Diluted common shares outstanding 3,288,689 1,913,213
========== ==========
</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 Nine Months Ended September 30,
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss on Common Stock $(6,463,567) $(18,371,503)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes - (400,000)
Depreciation and amortization 372,310 479,656
Amortization of debt discount and beneficial conversion feature 16,124 7,987,013
Amortization of beneficial conversion feature on issuance
of restricted common stock 109,380 -
Dividend on convertible preferred stock 11,289 168,966
Compensation cost of consultant stock options - 1,871,400
Equity in net loss of unconsolidated affiliates 35,854 -
Decrease (Increase) In:
Accounts receivable 262,210 101,470
Notes receivable 226,000 7,652
Inventory 582,517 -
Costs and estimated earnings in excess of billings 1,877,165 (249,579)
Prepaid expenses and other current assets (177,393) 308,728
Bonding deposits - 9,157
Recoverable income taxes (1,200,000) -
Increase (Decrease) In:
Accounts payable and accrued expenses 1,091,286 1,404,361
Billings in excess of costs and estimated earnings 1,222,224 4,903
---------- ----------
Net cash used in operating activities (2,034,601) (6,677,776)
---------- ----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (1,944) (472,328)
Proceeds from disposal of property, plant and equipment 400,295 -
Investment in and advances from (to) unconsolidated affiliates 1,143,456 946,076
Acquisition of other assets - (178,125)
Loans and advances from (to) officers 248,686 (112,331)
---------- ----------
Net cash provided by (used in) in investing activities 1,790,493 183,292
---------- ----------
Cash Flows from Financing Activities:
Net proceeds from convertible preferred stock issuance - 4,590,000
Long term debt borrowing - 156,238
Short term borrowing 400,000 -
Principal payments on long-term debt (444,464) (488,912)
Proceeds from exercise of stock options and warrants 34,564 2,119,535
---------- ----------
Net cash (used in) provided by financing activities (9,900) 6,376,861
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (254,008) (117,623)
Cash and Cash Equivalents, beginning of period 384,292 602,242
---------- ----------
Cash and Cash Equivalents, end of period $130,284 $484,619
========== ==========
</TABLE>
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 Nine Months Ended September 30,
1999 1998
-------- --------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 64,321 $ 249,648
======= =========
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 $215,000 $ 5,496,000
======= =========
Beneficial conversion feature of convertible preferred stock $ - $ 3,830,000
======= =========
Beneficial conversion feature of issuance of restricted common stock $109,380 $ -
======= =========
Issuance of restricted common stock for a deposit in lieu of bond $200,000 $ -
======= =========
Issuance of restricted common stock for debt $322,784 $ -
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
7
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. These statements include the
accounts of IDM Environmental Corp. and all of 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.
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
8
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. CONTINGENCIES (Continued)
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
Preferred RR 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.
-- The beneficial conversion feature of the series RR preferred stock was
$500,000 and is being amortized as a dividend from the issue date
August 11, 1998, to November 12, 1998, the date the Registration
Statement of the underlying stock was declared effective. $300,000 was
recorded for the three months ended September 30, 1998.
9
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. PLAN OF REORGANIZATION AND MERGER -- FUSION NETWORKS, INC.
On August 18, 1999, the Company entered into a Plan of Reorganization and
Merger and an Agreement and Plan of Merger (collectively, the "Plan of
Reorganization") with Fusion Networks, Inc. ("Fusion Networks"). Pursuant
to the terms of the Plan of Reorganization, the Company will form a new
holding company (the "Holding Company"). The Company will merge with a
wholly-owned subsidiary of the Holding Company with the shareholders of the
Company receiving one share of common stock of the Holding Company for each
share of common stock of the Company held immediately prior to the
reorganization. Fusion Networks will merge into another wholly-owned
subsidiary of the Holding Company with the shareholders of Fusion Networks
receiving 17.733 shares of common stock of the Holding Company for each
share of common stock of Fusion Networks held immediately prior to the
reorganization. Following the reorganization, the shareholders of the
Company are expected to own approximately 10% of the common stock of the
Holding Company with the shareholders of Fusion Networks owning
approximately 90% of the common stock of the Holding Company.
Fusion Networks is a newly formed company, based in Miami, Florida, 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.
Fusion Networks launched its initial site, on a pilot basis, in Bogota,
Colombia, in October, 1999.
The proposed reorganization is subject to a number of conditions, including
approval by the shareholders of both the Company and Fusion Networks,
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 reorganization will be successfully implemented or
that there will not be modifications to the terms of the reorganization.
6. 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.
10
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Issuance of Stock for Services and In Lieu of Bond
During the three months ended September 30, 1999, the Company issued 79,133
shares of common stock to certain vendors in settlement of amounts owed to
those vendors totaling $322,784. Additionally, the Company issued 62,000
shares of common stock as a deposit in lieu of a bond in the amount of
$200,000.
Stock Options
The exercise price of a consultant's option for 112,500 shares was reduced
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.
In conjunction with the proposed Fusion Networks transaction, the board of
directors approved an amendment' to the Company's 1998 Stock Option Plan
("1998 Plan") increasing the shares reserved for issuance by 1,600,000
shares. The amendment to the 1998 Plan is subject to shareholder approval.
In conjunction with the proposed Fusion Networks transaction and the
amendment of the 1998 Plan, the board of directors approved grants of a
total of 1,000,000 stock options at $1.156 per share vesting 10% in 90 days
and 90% in 150 days. Of the options granted, 400,000 were granted to each
of the Company's Chairman and Chief Operating Officer and the Company's
President and Chief Executive Officer, both vesting 100% in 150 days.
In conjunction with the proposed Fusion Networks transaction, the board of
directors approved the grant of 400,000 options at $1.156 per share to a
consultant. This option is not under any of the Company's stock option
plans.
7. INVENTORY
As a result of continued delays in the commencement of active energy
projects on which the Company planned to deploy its generator inventory,
coupled with continued losses and limited resources to pursue those
projects, during the quarter ended September 30, 1999, the Company wrote
down the balance of its generator inventory in the amount of $582,517.
8. RECOVERABLE INCOME TAXES
The Company has been notified by the New Jersey Economic Development
Authority that its application to participate in the Technology Certificate
Transfer Program was approved. As a result, during the quarter ended
September 30, 1999, the Company recorded a $1,200,000 tax benefit relating
to its New Jersey net operating losses ("NOL").
11
<PAGE>
Item 2. Management's Discussion and Analysis Of Financial Condition And Results
Of Operations.
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 with
regard to the ultimate consummation of the combination with Fusion Networks; and
other factors generally affecting the timing and financing of projects.
Overview
Our business has evolved, and continues to evolve, to capitalize on market
opportunities. We have added strategic capabilities and resources through the
years, and continued to do so during 1998, to move our business from its roots
as a demolition and deconstruction company to a full service environmental
remediation company and plant relocation services company and, now, an energy
project developer and manager. Our revenues were historically derived primarily
from (1) contract decontamination and decommissioning services in a broad range
of industrial and environmentally sensitive settings, including, but not limited
to, plant dismantlement and relocation services, asbestos abatement services,
and remediation of contaminated soil and groundwater; and (2) equipment and
scrap sales. Our operations have been characterized by fluctuations in revenues
and operating profits as projects begin and end. With the implementation of a
strategic shift in our business in 1997, we expect to generate a growing base of
recurring revenues and operating profits from energy and waste treatment
projects and long-term nuclear facilities decommissioning and remediation
projects while supplementing such revenues and profits with revenues from our
traditional environmental services and plant relocation services projects.
Recent Developments
Due to continued difficult conditions in the environmental services markets and
limited resources, we have experienced a decline in the number of traditional
environmental service projects on which we have bid and performed services
during the first three quarters of 1999. In response to those conditions, we
have concentrated our efforts on securing specialty contracts, efforts to
participate in nuclear remediation projects and efforts to finalize arrangements
and commence services on our EWN project in Germany. At September 30, 1999, we
had a backlog of approximately $3.5 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 September 30, 1999, was the Bound Brook
project, with an estimated value for the balance of services to be performed of
$3.0 million. The Bound Brook project began in August 1999 and is scheduled to
be completed during the year 2002. 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 September 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, and to begin 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.
12
<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 fourth 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 end 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 our operations at the end of the
third 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, we entered into a
letter of intent, and subsequently a merger agreement to acquire Fusion
Networks, Inc. in exchange for 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 approval of the acquisition by the shareholders of both
the Company and Fusion Networks, receipt by our 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.
13
<PAGE>
During 1999, our principal contract services have related to, and substantially
all of our revenues were derived from, our East Dam Project and Oak Ridge
Project and a number of smaller projects. The Oak Ridge Project is a DOE managed
site and was our most significant remediation project during 1999. During the
second quarter of 1999, we completed work on the phase of the Oak Ridge Project
which was begun during 1998. Commencement of additional services at the Oak
Ridge Project has been delayed and future services are in doubt as a result of
disputes relating to two contracts at the Oak Ridge site. The first dispute
relates to an asset recovery contract, where the value of the equipment salvaged
pays for our cost of dismantling and removing the equipment. During the second
quarter of 1999, we became aware of several previously undisclosed problems that
reduced the value of the equipment and increased the costs to decontaminate and
remove the equipment. During September 1999, we were terminated from the project
by the contractor. We have filed a request for arbitration which if successful
would probably be determined in December. The second dispute relates to our
determination during the second quarter of 1999 that the waste we were required
to dispose of had to be buried in a mixed waste cell at a higher cost than the
low-level waste cell it was supposed to go to because the waste had undisclosed
PCB's. Also, we were planning on decontaminating the steel and selling it for
scrap which would avoid disposal costs. Because the contractor said we had to
remove all the paint from the steel before they would release it, it became more
cost effective to dispose of the steel in a low-level waste facility. We intend
to pursue change orders against the contractor. Because of these disputes and
because we have been terminated from the job, our revenues at the Oak Ridge
Project have been curtailed and we have incurred losses on that project.
Revenues recognized and jobs costs attributable to our contract services during
1998 were adversely affected by unforeseeable developments at the East Dam
Project and on our project at the Boston State Hospital (the "Boston State
Hospital Project"). On the East Dam Project, the scope of our services, and our
bid, was based on preliminary project specifications established by the project
owner. The amount payable with respect to our services on that project was
subject to adjustment, up or down, based on the actual conditions encountered.
As a result of the conditions encountered, the actual drill footage of the
project was substantially less than the footage initially bid based on the
specifications provided by the project owner. At the same time, we provided
substantial additional services, as called for by the contract, as a result of
change orders. Pursuant to the contract, compensation payable with respect to
additional services resulting from change orders is subject to documentation and
negotiation at the end of the project. The reduction in drill footage resulted
in a decrease in estimated project revenues (not giving effect to amounts owing
respect to change orders). As a result, estimated revenues to be recognized from
the East Dam Project were reduced from approximately $20 million to $15 million.
While total project revenues and 1998 revenues from the East Dam Project were
less than anticipated as a result of the reduction in drill footage, job costs
attributable thereto were substantially higher than originally anticipated as a
result of the performance of additional services related to change orders. We
submitted a claim for approximately $10.8 million as additional compensation and
cost reimbursement attributable to change orders. Pending payment for services
related to change orders, during 1998, we recognized, as additional job costs,
all costs attributable to the performance of those services but did not
recognize any revenues which might be realized from those services. We will
recognize as additional revenues, without any corresponding job costs, all
amounts received, if any, with respect to change orders at such time as such
amount is actually received. In July of 1999, we assigned our claim with respect
to the East Dam Project to our contractor for $650,000. 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 us after deducting direct claim
costs and the $650,000 paid by the contractor.
On the Boston State Hospital Project, we subcontracted certain portions of the
project to Dockside Dismantling Corporation ("Dockside"). Dockside defaulted on
its subcontract and abandoned the work for which it was responsible. In
addition, we were notified of certain work deficiencies for which Dockside and,
derivatively, the Company were allegedly responsible. We estimated the
additional costs to complete and correct the work of Dockside at $1.2 million
and reflected additional job costs in that amount. We made a claim against the
bond ($500,000 performance and $500,000 payment) provided by Dockside's surety
company. The surety company disclaimed coverage and litigation to collect on the
bond was initiated. In January of 1999, we settled our claim against Dockside's
surety company for $375,000 for the performance bond of which we received
$300,000 after legal fees. The $500,000 payment bond was paid directly to
Dockside's vendors and we received no funds from the payment bond. The results
of the settlement were reflected in fourth quarter 1998 results.
14
<PAGE>
In the recurring revenue project arena, during 1998, we continued to invest
substantial resources in our efforts to acquire and/or build, start-up, own and
operate energy, waste treatment and other similar projects. We incurred
approximately $4 million in direct costs during 1998 in connection with our
efforts to enter those markets. At December 31, 1998, we were in advanced levels
of discussions with respect to more than a dozen potential energy, waste
treatment and similar projects and in February of 1999 we acquired our first
operating energy facility, a 42 MW hydroelectric power plant in the Republic of
Georgia. We expect to begin recognizing revenue from the Georgia Power Project
by the fourth quarter of 1999. Additionally, we continue in our efforts to
complete development of, and to begin realizing revenues from, one or more other
energy and/or waste treatment facilities. However, given the capital
requirements and time required to bring energy projects operational, we are
exploring various options to minimize our costs in pursuing those projects,
including selling substantial equity positions in our energy projects while
retaining smaller minority positions or, where appropriate, selling our
positions outright in exchange for recovery of our investments plus a
development fee.
We performed no plant relocation projects during 1998 or the first nine months
of 1999. With the financial crises in Asia and other lesser developed regions
and a dramatic downturn in the price of oil, the demand for plant relocation
services was curtailed in 1998 and the first half of 1999 and is expected to
continue to be curtailed until an improvement occurs in those regions.
In addition to our core operations, we have entered into selected strategic
investments and undertakings. Those investments and undertakings, as of the
third quarter of 1999, include (1) an equity investment in Life International,
(2) our formation of Seven Star to distribute Life water products in southeast
Asia and to pursue other opportunities in southeast Asia, (3) acquisition by
Seven Star of a license covering the bottling rights and distribution of the
Life superoxygenation process in southeast Asia, and (4) our acquisition of an
interest in Kortmann Polonia. During 1998, we invested approximately $1.1
million in these ventures. We did not recognize any revenues from those ventures
during 1998 but expect to begin realizing revenues from the water distribution
operations of Seven Star and from the sale of certain real estate holdings of
Kortmann Polonia during 1999.
Results of Operations
Three and Nine Months ended September 30, 1999 and 1998
Revenues. Our total revenues decreased by approximately 34.2% from $4,532,000
for the quarter ended September 30, 1998 to $2,981,000 for the quarter ended
September 30, 1999. Total revenues decreased by approximately 48.1% from
$14,547,000 for the nine months ended September 30, 1998 to $7,557,000 for the
same period in 1999. The decrease in contract income in 1999 from 1998 was
primarily attributable to (1) curtailment in services at the Oak Ridge office
which accounted for $2,736,000 of revenues during the third quarter of 1998 and
$6,647,000 of revenues during the nine month period in 1998 as compared to
$930,000 of revenues during the third quarter of 1999 and $3,120,000 of revenues
during the nine month period in 1999, and (2) 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 $100,000 during the third
quarter of 1998 as compared to none for the third quarter of 1999.
Revenues for the 1999 nine month period 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 our change order claim
in the approximate amount of $2.8 million. The payment for the East Dam project
was consideration for assignment to the contractor on the project of our 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 us after deducting direct claim costs and the $650,000 paid by the
contractor.
15
<PAGE>
Cost of Sales. Direct job costs decreased by approximately 11.1% from $4,349,000
for the quarter ended September 30, 1998 to $3,867,000 for the same period in
1999. Direct job costs decreased by approximately 43.1% from $15,844,000 for the
nine months ended September 30, 1998 to $9,009,000 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 the two disputed contracts in our Oak Ridge,
Tennessee office and settlement of the Boston State Hospital project. As a
result of the unforseen problems, we recorded a negative $1.1 million dollar
gross margin on the Oak Ridge asset recovery contract during the second quarter
of 1999. Because we have been terminated from the job and have not been allowed
to salvage certain wire, we recorded additional direct costs of $300,000 during
the third quarter of 1999. We recorded negative $1.2 million of gross margin on
the Oak Ridge waste disposal contract during the second quarter of 1999. Because
of price increases from our subcontractor associated with the waste disposal, we
recorded additional direct costs of $400,000 during the third quarter of 1999.
We intend to aggressively pursue contract change orders. Any revenue received
from the change order will be recorded when realized. Subsequent to September
30, 1999, we settled disputes relating to our Boston State Hospital project. As
a result of that settlement, we recorded additional direct costs of $300,000
during the third quarter of 1999.
In addition to direct job costs, during the quarter and nine months ended
September 30, 1999, our cost of sales included the write down of our generator
inventory in the amount of $582,517. The write down of that inventory resulted
from continued delays in the commencement of active energy projects on which we
planned to deploy the generator inventory, coupled with continued losses and
limited resources to pursue those projects.
General and Administrative Expenses. While total revenues decreased by 34.2% for
the quarter, general and administrative expenses decreased 29.8% from $2,394,000
during the quarter ended September 30, 1998 to $1,681,000 during the same period
in 1999. General and administrative expenses decreased 40.3% from $8,775,000
during the nine months ended September 30, 1998 to $5,237,000 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 and
to a $1.9 million expense recorded in February, 1998 for options granted to
consultants to purchase 122,000 shares of common stock at the market price of
our common stock at the date of the grant.
Depreciation and amortization. Depreciation and amortization expense decreased
by approximately 75.2% from $165,000 in the 1998 quarter to $41,000 in the 1999
quarter. Depreciation and amortization expense decreased by approximately 44.5%
from $483,000 during the nine month period ended September 30, 1998 to $268,000
during the nine month period ended September 30, 1999. The decrease depreciation
and amortization expense was primarily attributable to a decrease in
amortization of deferred issuance costs.
Interest Expense. In addition to its operating income and expenses, we reported
net interest expense of $31,000 for the quarter ended September 30, 1999 as
compared to net interest expense of $96,000 for the same period in 1998. We
reported a decrease in net interest expense from $4,418,000 for the nine months
ended September 30, 1998 to $77,000 expense for the same period in 1999. The
decrease in net interest expense for the quarter was attributable to foreign
exchange losses on a Canadian contract in the 1998 quarter. The decrease in net
interest expense for the nine months was primarily attributable to $4,169,000 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 first nine months of 1998 and 1999, no provision was
made for post retirement benefits subject to FAS 106.
Credit for Income Taxes. During the 1999 quarter and nine month periods, the
Company reported a credit for income taxes of $1,200,000 compared to a credit
for income taxes of $400,000 for the 1998 nine month period and no credit for
the quarter ended September 30, 1998. As a result of our continuing losses, we
have recorded no credit for federal income taxes since 1998. The current period
credit for income taxes is attributable to the tax benefit relating to our New
Jersey net operating loss. We applied for participation in the Technology
Certificate Transfer Program sponsored by the New Jersey Economic Development
Authority and have been notified that our application has been approved.
16
<PAGE>
Net loss. As a result of the foregoing, we reported a loss after taxes of
$2,049,000 for the quarter ended September 30, 1999 as compared to a net loss of
$2,472,000 for the same quarter in 1998. We reported a loss after taxes of
$6,452,000 for the nine months ended September 30, 1999 as compared to a loss
after taxes of $14,573,000 for the same period in 1998.
Net loss attributable to common stock. The net loss attributable to common stock
was increased by the preferred stock dividends totaling $4,000 in the 1999
quarter and $52,000 in the 1998 quarter, and an accounting "deemed dividend" of
$300,000 in the 1998 quarter arising from the amortization of the beneficial
conversion feature of our Preferred Stock Series RR. The net loss attributable
to common stock was increased by $11,000 and $169,000 in preferred stock
dividends during the first nine months of 1999 and 1998 and by $0 in 1999 and
$3,630,000 in 1998 arising from the amortization of the beneficial conversion
feature of the Series RR Preferred Stock ($300,000) and the Series C Preferred
Stock ($3,330,000). We are calculating earning per share to comply with the SEC
staff position on accounting for securities issued with beneficial conversion
features. This accounting required that we reflect the difference between the
market price of our 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 with respect to the Series C Preferred
Stock and $500,000 with respect to the Series RR Preferred Stock 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 and from the issue date of the Series RR Preferred
Stock, August 11, 1998 to November 12, 1998, the date the Registration Statement
of the underlying stock was declared effective.
Liquidity and Capital Resources
At September 30, 1999, we had a working capital deficit of approximately $4.3
million and a cash balance of $130,000. 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 (1) the loss incurred during 1999, including the write down of
our generator inventory, (2) the effects of an increase in accounts payable of
$1.1 million and (3) an adverse change in costs and estimated expenses in excess
of billings of $3.1 million, which were partially offset by (1) cash flow from
the investment and advances from an unconsolidated affiliate of $1.1 million,
(2) the issuance of stock to pay certain vendors and to pay a deposit in lieu of
a bond in the aggregate amount of $523,000 and (3) a $1,200,000 credit for New
Jersey income tax.
Approximately $23,000 of working capital at September 30, 1999 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 us by the completion of such projects. Unbilled costs and
estimated earnings at December 31, 1998 totaled $1.9 million. Billings in excess
of costs and estimated earnings totaled $1.2 million at September 30, 1999 as
compared to $0 at December 31, 1998. The adverse change was primarily
attributable to unfavorable developments with respect to the two disputed
contracts at the Oak Ridge project.
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. During the third quarter of 1999 we recorded a $1,200,000 tax
benefit from the New Jersey NOL. We expect to realize cash from our New Jersey
tax credit in early 2000.
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.
17
<PAGE>
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 September 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 which was
supplemented by various borrowings and issuances of stock.
In order to meet working capital needs during 1999, we have borrowed funds from
various parties, including officers, and have issued stock in payment of certain
trade payables. At September 30, 1999, we owed a total of $249,000 primarily to
our two principal officers for funds advanced. There are no definitive repayment
terms on such amounts. In June 1999, we borrowed $400,000 from existing
stockholders. That loan was repayable in August 1999 with interest at 6.5%. As
inducement for making that loan, we issued 125,000 shares of common stock to the
lenders. $200,000 of the loan had been repaid at September 30, 1999 and the
balance of that loan was paid after the quarter. During the quarter ended
September 30, 1999, we issued 79,133 shares of common stock in settlement of
$323,000 of accounts payable and issued 62,000 shares of common stock as
collateral to our surety in lieu of a $200,000 performance bond.
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
September 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.
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 us 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 we can presently provide. We have entered
into discussions with several potential equity investors in, and have signed a
Memorandum of Understanding with a potential purchaser of, 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.
18
<PAGE>
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 our 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, our securities were transferred from the National
Market to the Small Cap Market, pursuant to the maintenance criteria.
We believe that our working capital, combined with the expected receipt of funds
from the resolution of certain change orders and litigation, 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. 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.
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 fourth 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.
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 3A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
19
<PAGE>
PART II-OTHER INFORMATION
ITEM 2. Changes in Securities
(a) On August 18, 1999, the Company established a reserve of 350,000 shares
of common stock for issuance to various vendors in payment for services provided
to the Company. At various dates during the quarter ended September 30, 1999,
the Company issued an aggregate of 141,133 shares of its common stock pursuant
to that reserve.
(b) The securities were issued, without an underwriter, to a total of six
vendors of the Company and to one bonding company.
(c) The securities were issued in satisfaction of amounts owed to vendors
of the Company totaling $322,784 and as a deposit in lieu of a bonding to a
bonding company in the amount of $200,000. No commissions were paid in
connection with the issuance of the securities
(d) The securities were issued pursuant to the exemption from registration
set forth in Section 4(2) of the Securities Act of 1933. The securities
issuances were privately negotiated pursuant to settlement efforts with selected
vendors without any general solicitation or advertising. The securities bear
legends restricting the resale thereof.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ------------- -------------
2.1 Plan of Reorganization and Merger dated as of August 18, 1999 by and
among the Company, IDM Merger Subsidiary and IDM/Fusion Holdings, Inc.
2.2 Agreement and Plan of Merger dated as of August 18, 1999 by and among
the Company, Fusion Networks, Inc., IDM/Fusion Holdings, Inc. and IDM/
FNI
Acquisition Corporation
2.3 First Amendment to Agreement and Plan of Merger dated as of August 31,
1999
2.4 Second Amendment to Agreement and Plan of Merger dated as of September
21, 1999
2.5 Third Amendment to Agreement and Plan of Merger dated as of November 2,
1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IDM ENVIRONMENTAL CORP.
Dated: November 22, 1999 By: /s/ Joel Freedman
-------------------------------
Joel Freedman, President
Dated: November 22, 1999 By: /s/ Michael Killeen
-------------------------------
Michael B. Killeen, Principal
Financial and Accounting Officer
21
<PAGE>
PLAN OF REORGANIZATION AND MERGER
PLAN OF REORGANIZATION AND MERGER ("Agreement"), dated as of August 18,
1999, among IDM ENVIRONMENTAL CORP., a New Jersey corporation (the "Company"),
IDM/FUSION HOLDINGS, INC., a Delaware corporation ("Holdings") and a direct,
wholly-owned subsidiary of the Company, and IDM MERGER SUBSIDIARY., INC., a
Delaware corporation ("Mergeco") and a direct, wholly-owned subsidiary of
Holdings.
RECITALS
WHEREAS, as of the close of business on August 18, 1999, the authorized
capital stock of the Company consisted of 7,500,000 shares of common stock, par
value $.01 per share ("Company Common Stock"), and 1,000,000 shares of preferred
stock, par value $1.00 per share ("Company Preferred Stock"). As of August 18,
1999 (i) 3,331,085 shares of Company Common Stock were issued and outstanding;
(ii) 47,500 shares of Company Common Stock were reserved for issuance under the
Company's 1993 Stock Option Plan (the "1993 Plan"), of which 40,110 shares were
subject to outstanding options; (iii) 50,000 shares of Company Common Stock were
reserved for issuance pursuant to Company's 1995 Stock Option Plan (the "1995
Plan"), of which 46,900 shares were subject to outstanding options; (iv)
1,700,000 shares of Company Common Stock were reserved for issuance pursuant to
Company's 1998 Stock Option Plan (the "1998 Plan"), including 1,600,000 shares
reserved for issuance under the 1998 Plan which are subject to approval by the
Company stockholders relating to an amendment to increase the shares reserved
under the 1998 Plan in said amount, of which 1,040,880 shares were subject to
outstanding options; (v) 350,000 shares were reserved for issuance to various
consultants in payment for past and future services, and (vi) shares of Company
Common Stock were reserved and subject to issuance under various other options,
warrants and convertible notes (the "Other Derivative Securities") in the
amounts listed in Schedule 1 attached hereto. As of the date hereof, no shares
of Company Common Stock were held in treasury, no shares of Company Preferred
Stock are issued and outstanding and 200,000 shares of Company Preferred Stock
are reserved for issuance upon exercise of the Company Rights pursuant to the
Company Rights Agreement.
WHEREAS, as of the date hereof, the authorized capital stock of Holdings
consists of 200 shares of common stock, no par value ("Holdings Common Stock"),
of which 1 share is issued and outstanding and no shares are held in treasury.
WHEREAS, the designations, rights, powers and preferences, and the
qualifications, limitations and restrictions thereof, of the Holdings Common
Stock are the same as those of the Company Common Stock.
WHEREAS, the Certificate of Incorporation and the By-laws of Holdings
immediately after the Effective Time (as hereinafter defined) will contain
provisions identical to the Amended Certificate of Incorporation and By-laws of
the Company immediately before the Effective Time.
WHEREAS, the directors of the Company immediately prior to the Merger (as
hereinafter defined) will be the directors of Holdings as of the Effective Time.
WHEREAS, Holdings and Mergeco are newly formed corporations organized for
the purpose of participating in the transactions herein contemplated.
WHEREAS, the Company desires to create a new holding company structure by
merging Mergeco with and into the Company with the Company being the surviving
corporation (sometimes hereinafter referred to as the "Surviving Corporation"),
and converting each outstanding share of Company Common Stock into one share of
Holdings Common Stock, all in accordance with the terms of this Agreement.
WHEREAS, the Boards of Directors of Holdings , Mergeco and the Company have
approved this Agreement and the merger of Mergeco with and into the Company upon
the terms and subject to the conditions set forth in this Agreement (the
"Merger") and has directed that the Merger be submitted to a vote of the
stockholders of the Company at a special meeting to be called for the purpose of
approving the Merger.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained in this Agreement, and intending to be legally bound
hereby, the Company, Holdings and Mergeco hereby agree as follows:
1
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Merger. In accordance with the Delaware General Corporation
Law ("DGCL") and the New Jersey Business Corporation Act ("NJBCA") and subject
to and upon the terms and conditions of this Agreement, Mergeco shall, at the
Effective Time, be merged with and into the Company, the separate corporate
existence of Mergeco shall cease and the Company shall continue as the surviving
corporation. The Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation." At the
Effective Time, the effect of the Merger shall be as provided in the DGCL and
NJBCA.
Section 1.2 Effective Time. The Merger shall become effective upon the
filing of a copy of this Agreement with the Secretary of State of the State of
Delaware and the Secretary of State of the State of New Jersey (the time of such
filing being referred to herein as the "Effective Time").
Section 1.3 Amended and Restated Certificate of Incorporation of the
Surviving Corporation. From and after the Effective Time, the Amended and
Restated Certificate of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be the certificate of incorporation of the
Surviving Corporation until thereafter amended as provided by law; provided,
however, that, from and after the Effective Time, Article III shall be amended
so as to read in its entirety as described in Schedule 2 attached hereto.
Section 1.4 By-laws. From and after the Effective Time, the By-laws of the
Company, as in effect immediately prior to the Effective Time, shall be the
By-laws of the Surviving Corporation until thereafter amended as provided
therein or by applicable law.
Section 1.5 Directors. The directors of the Company immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
and will hold office from the Effective Time until their successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and the By-laws of the Surviving Corporation or as otherwise
provided by law.
Section 1.6 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
will hold office from the Effective Time until their successors are duly elected
or appointed and qualified in the manner provided in the Certificate of
Incorporation and the By-laws of the Surviving Corporation or as otherwise
provided by law.
Section 1.7 Additional Actions. Subject to the terms of this Agreement, the
parties hereto shall take all such reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger. If, at any time
after the Effective Time, the Surviving Corporation shall consider or be advised
that any deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of either of Mergeco or the
Company acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger or otherwise to carry out this Agreement, the
officers of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of Mergeco and the Company, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of Mergeco and the Company or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement.
Section 1.8 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Holdings, Mergeco, the Company
or the holder of any of the following securities:
(a) Each issued and outstanding share of Holdings Common Stock owned of
record by the Company immediately prior to the Effective Time shall be cancelled
and retired without payment of any consideration therefor and shall cease to
exist and no Company Common Stock or other consideration shall be delivered in
exchange for any such Holdings Common Stock.
2
<PAGE>
(b) Each share or fraction of a share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into one,
or an equal fraction of one, duly issued, fully paid and nonassessable share of
Holdings Common Stock.
(c) Each share of common stock, par value $0.01 per share, of Mergeco
issued and outstanding immediately prior to the Effective Time shall be
converted into and thereafter represent one duly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share, of the Surviving
Corporation.
(d) From and after the Effective Time, holders of certificates formerly
evidencing Company Common Stock shall cease to have any rights as stockholders
of the Company, except as provided by law; provided, however, that such holders
shall have the rights set forth in Section 1.9 herein.
Section 1.9 No Surrender of Certificates; Stock Transfer Books. At the
Effective Time, the designations, rights, powers and preferences, and
qualifications, limitations and restrictions thereof, of the capital stock of
Holdings, will, in each case, be identical with those of the Company immediately
prior to the Effective Time. Accordingly, until thereafter surrendered for
transfer or exchange in the ordinary course, each outstanding certificate that,
immediately prior to the Effective Time, evidenced Company Common Stock shall,
from the Effective Time, be deemed and treated for all corporate purposes to
evidence the ownership of the same number of shares of Holdings Common Stock.
ARTICLE II
ACTIONS TO BE TAKEN IN
CONNECTION WITH THE MERGER
Section 2.1 Assumption of Plans. Holdings and the Company hereby agree that
they will, at the Effective Time, execute, acknowledge and deliver an assumption
agreement pursuant to which Holdings will, from and after the Effective Time,
assume and agree to perform all obligations of the Company pursuant to (a) the
Company's 1993, (b) the Company's 1995 Plan, (c) the Company's 1998 Plan, and
(d) the Company's Other Derivative Securities listed on Schedule 1 attached
hereto.
Section 2.2 Reservation of Shares. On or prior to the Effective Time,
Holdings will reserve sufficient shares of Holdings Common Stock to provide for
the issuance of Holdings Common Stock upon exercise of options outstanding under
the 1993 Plan, the 1995 Plan and the 1998 Plan, and the exercise or conversion
of all Other Derivative Securities.
ARTICLE III
CONDITIONS OF MERGER
Section 3.1 Conditions Precedent. The obligations of the parties to this
Agreement to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to fulfillment or waiver by the parties hereto at or
prior to the Effective Time of each of the following conditions:
(a) No order, statute, rule, regulation, executive order, injunction, stay,
decree, judgment or restraining order that is in effect shall have been enacted,
entered, promulgated or enforced by any court or governmental or regulatory
authority or instrumentality which prohibits or makes illegal the consummation
of the Merger or the transactions contemplated hereby.
(b) Friedman Siegelbaum LLP , special tax counsel to the Company, shall not
have withdrawn its opinion that holders of the Company Common Stock will not
recognize gain or loss for United States federal income tax purposes as a result
of the Merger.
(c) The Merger shall have received approval by the holders of the Company
Common Stock in the manner required by the Bylaws and Certificate of
Incorporation of the Company and the NJBCA.
3
<PAGE>
ARTICLE IV
COVENANTS
Section 4.1 Further Actions. Prior to the Effective Time, the Company, in
its capacity as the sole stockholder of Holdings, will, if necessary to comply
with the NJBCA and the DGCL, take all actions reasonably necessary to carry out
the purposes of this agreement.
Section 4.3 The Plans and Other Derivative Securities. The Company and
Holdings will take or cause to be taken all actions necessary or desirable in
order for Holdings to assume the 1993 Plan, the 1995 Plan and the 1998 Plan and
the obligations under the Other Derivative Securities.
ARTICLE V
TERMINATION AND AMENDMENT
Section 5.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time by
action of the Board of Directors of the Company, the Board of Directors of
Holdings or the Board of Directors of Mergeco if such Board of Directors should
determine that for any reason the completion of the transactions provided for
herein would be inadvisable or not in the best interest of such corporation or
its stockholders. In the event of such termination and abandonment, this
Agreement shall become void and neither the Company, Holdings or Mergeco nor
their respective stockholders, directors or officers shall have any liability
with respect to such termination and abandonment.
Section 5.2 Amendment. This Agreement may be supplemented, amended or
modified by the mutual consent of the Boards of Directors of the parties to this
Agreement to the fullest extent permitted by law.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Governing Law. This Agreement shall be governed by and
construed and enforced under the laws of the State of New Jersey.
Section 6.2 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed to be an original but
all of which shall constitute one and the same agreement.
Section 6.3 Entire Agreement. This Agreement, including the documents and
instruments referred to herein, constitutes the entire agreement and supersedes
all other prior agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof.
IN WITNESS WHEREOF, Holdings, Mergeco and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
IDM ENVIRONMENTAL CORP. IDM MERGER SUBSIDIARY., INC.
a New Jersey corporation (the "Company") a Delaware corporation ("Mergco")
By: /S/ JOEL FREEDMAN By: /S/ JOEL FREEDMAN
------------------------ ------------------------
Joel Freedman, President Joel Freedman, President
IDM/FUSION HOLDINGS, INC.
a Delaware corporation ("Holdings")
By: /S/ JOEL FREEDMAN
-------------------------
Joel Freedman, President
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 18, 1999 is among
FUSION NETWORKS, INC., a Delaware corporation (the "Fusion"), IDM ENVIRONMENTAL
CORP., a New Jersey corporation ("IDM"), IDM/FUSION HOLDINGS, INC. ("Parent"),
and IDM/FNI ACQUISITION CORPORATION, a Delaware corporation and a direct wholly
owned subsidiary of Parent (the "Merger Subsidiary").
WHEREAS, Fusion is a newly formed corporation, formed and capitalized
pursuant to a business plan, a copy of which has been provided to IDM and Parent
(the "Business Plan");
WHEREAS, IDM is a diversified services and project development company;
WHEREAS, management of IDM and Fusion have entered into negotiations and
agreed in principle as to the terms on which IDM would form Parent and Merger
Subsidiary for the purpose of forming a holding company structure under which
IDM would become a wholly-owned subsidiary of Parent and Merger Subsidiary would
merge with and into Fusion causing Fusion to become a wholly-owned subsidiary of
Parent;
WHEREAS, it is contemplated that on or prior to the Effective Time of the
Merger pursuant to this Merger Agreement, the following will have occurred:
Pursuant to a Plan of Reorganization and Merger (the "IDM Reorganization") dated
August 18, 1999, among IDM, Parent and IDM Merger Subsidiary, Inc., IDM will
have been restructured into a holding company structure pursuant to which Parent
will be the sole owner of all outstanding IDM capital stock and the holders of
IDM stock will be stockholders of Parent (for purposes hereof, the IDM
Reorganization shall be assumed to have been consummated prior to the Effective
Time and all representations and undertakings of Parent hereunder shall be
deemed to be representations and undertakings of IDM for periods prior to
consummation of the IDM Reorganization);
WHEREAS, the respective Boards of Directors of the Fusion, Parent and the
Merger Subsidiary, and Parent as the sole stockholder of the Merger Subsidiary,
each have, in light of and subject to the terms and conditions set forth herein,
resolved to deem this Agreement and the transactions contemplated hereby,
including the Merger (as defined in Section 1.1), taken together, advisable and
fair to, and in the best interests of, their respective stockholders; and
WHEREAS, for federal income Tax (as defined in Section 3.16) purposes, it
is intended that the Merger shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Fusion, Parent and the Merger Subsidiary hereby agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. At the Effective Time (as defined in Section 1.2),
upon the terms and subject to the conditions of this Agreement and in accordance
with the Delaware General Corporation Law (the "DGCL"), the Merger Subsidiary
shall be merged with and into the Fusion ("Merger"). Following the Merger, the
Fusion shall continue as the surviving corporation (the "Surviving Corporation")
and shall continue its corporate existence under the DGCL, and the separate
corporate existence of the Merger Subsidiary shall cease.
SECTION 1.2 Effective Time. Subject to the provisions of this Agreement,
Parent, the Merger Subsidiary and the Fusion shall cause the Merger to be
consummated by (i) filing a certificate of merger complying with the DGCL with
the Secretary of State of the State of Delaware (the "Certificate of Merger") as
soon as practicable on or after the Closing Date (as defined in Section 1.3).
The Merger shall become effective upon the later of such filing or at such time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
SECTION 1.3 Closing of the Merger. The closing of the Merger (the "Closing")
will take place at a time and on a date (the "Closing Date") to be specified by
the parties, which shall be no later than the fifteenth business day after
satisfaction or waiver of the conditions set forth in Article VII (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions), at the offices of
Oscar D. Folger, Esq., 521 Fifth Avenue, New York, New York 10175, unless
another time, date or place is agreed to in writing by the parties hereto.
1
<PAGE>
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges,
immunities, powers and franchises of the Fusion and the Merger Subsidiary shall
vest in the Surviving Corporation, and all debts, liabilities, obligations and
duties of the Fusion and the Merger Subsidiary shall become the debts,
liabilities, obligations and duties of the Surviving Corporation.
SECTION 1.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of the Fusion in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation, until
amended in accordance with such Certificate of Incorporation and the DGCL. The
Bylaws of the Fusion in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation, until amended in accordance with such
Bylaws, the Certificate of Incorporation and the DGCL.
SECTION 1.6 Directors. The directors of the Merger Subsidiary immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation until such director's
successor is duly elected or appointed and qualified.
SECTION 1.7 Officers. The officers of Fusion at the Effective Time shall be
the initial officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of any of the parties hereto or
any holder of shares of Fusion Common Stock (as defined in Section 2.1(c)):
(a) Securities of the Merger Subsidiary and Parent. The issued and
outstanding securities of Fusion shall remain outstanding and shall be unchanged
as a result of the Merger (except that ownership of the Fusion shares shall pass
to Parent pursuant to Section 2.1(c)). The issued and outstanding securities of
Parent shall remain outstanding and shall be unchanged as a result of the
Merger.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each share of
Merger Subsidiary Common Stock issued and outstanding immediately prior to the
Effective Time that is owned by Fusion, or by Parent, the Merger Subsidiary or
any other subsidiary of Parent (other than shares in trust accounts, managed
accounts, custodial accounts and the like that are beneficially owned by third
parties) shall automatically be cancelled and shall cease to exist, and no
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Fusion Common Stock. Each share of common stock of Fusion
("Fusion Common Stock") issued and outstanding immediately prior to the
Effective Time (individually, a "Share" and collectively, the "Shares") shall be
converted into and be exchangeable for the right to receive 17,733.333 fully
paid and non-assessable shares of common stock, par value $.01 per share, of
Parent, or an aggregate of 26,600,000 shares of Parent Common Stock; provided,
however, that the aggregate number of shares of Parent Common Stock issuable
pursuant to the Merger shall be increased proportionately to the extent that
Fusion issues additional shares of common stock as permitted by Section 5.1(b)
hereof.
2
<PAGE>
(d) Certain Adjustments. If between the date of this Agreement and the
Effective Time the outstanding shares of Parent Common Stock shall have been
changed into a different number of shares or a different class by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares or any similar event, the amount of shares of
Parent Common Stock to be issued pursuant to Section 2.1(c) above shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares or
such similar event.
SECTION 2.2 No Fractional Shares of Parent Common Stock. No certificates or
scrip of shares of Parent Common Stock representing fractional shares of Parent
Common Stock or book-entry credit of the same shall be issued upon the surrender
for exchange of certificates representing outstanding Shares and such fractional
share interests will not entitle the owner thereof to vote or to have any rights
of a shareholder of Parent or a holder of shares of Parent Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FUSION
Except as set forth in the disclosure schedule delivered by Fusion to
Parent prior to the execution of this Agreement (the "Fusion Disclosure
Schedule") (each Section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein), Fusion
hereby represents and warrants to each of Parent, IDM and the Merger Subsidiary
as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) Fusion and each of its subsidiaries is a corporation or legal entity
duly organized, validly existing and in good standing under the Laws (as defined
in Section 3.9) of the jurisdiction of its incorporation and has all requisite
corporate, partnership or similar power and authority to own, lease and operate
its properties and to carry on its businesses as now conducted and proposed by
Fusion to be conducted.
(b) Section 3.1 of the Fusion Disclosure Schedule sets forth a list of all
subsidiaries of Fusion. Except as listed in Section 3.1 of the Fusion Disclosure
Schedule, Fusion does not own, directly or indirectly, beneficially or of
record, any shares of capital stock or other security of any other entity or any
other investment in any other entity.
(c) Each of Fusion and its subsidiaries is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Fusion.
(d) Fusion has heretofore delivered to Parent accurate and complete copies
of the articles or certificate of incorporation and codes of regulations, bylaws
or other similar organizational documents, as currently in effect, of each of
Fusion and each of its subsidiaries.
SECTION 3.2 Capitalization of Fusion and Its Subsidiaries.
(a) The authorized capital stock of Fusion consists of 3,000 shares of
Fusion Common Stock. As of August 18, 1999, 1,500 shares of Fusion Common Stock
were issued and outstanding; and (ii) no shares of Fusion Common Stock were
issued and held in the treasury of Fusion. All the outstanding shares of Fusion
Common Stock are duly authorized, validly issued, fully paid and non-assessable.
Except as set forth above or in Section 3.2(a) of the Fusion Disclosure Schedule
(1) there are no shares of capital stock or other voting securities of Fusion
authorized, issued or outstanding, (2) there are no outstanding options,
warrants, calls, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock or other voting securities of Fusion or any of its subsidiaries,
obligating Fusion or any of its subsidiaries to issue, transfer or sell or cause
to be issued, transferred or sold any shares of capital stock, voting securities
or other equity interest in Fusion or any of its subsidiaries or securities
convertible into or exchangeable for such shares or equity interests, or
obligating Fusion or any of its subsidiaries to grant, extend or enter into any
such option, warrant, call, subscription or other right, agreement, arrangement
or commitment, or (3) there are no outstanding contractual obligations of Fusion
or any of its subsidiaries to repurchase, redeem or otherwise acquire any Shares
or other capital stock of Fusion or any subsidiary or to provide funds to make
any investment (in the form of a loan, capital contribution or otherwise) in any
subsidiary or any other entity other than loans to Subsidiaries in the ordinary
course of business. There are no stockholder agreements, voting trusts or other
agreements or understandings to which Fusion or any of its subsidiaries is a
party or by which it is bound relating to the voting of any shares of capital
stock of Fusion.
3
<PAGE>
(b) All of the outstanding capital stock of Fusion's subsidiaries is owned
by Fusion, directly or indirectly, free and clear of any Lien (as hereinafter
defined) or any other limitation or restriction (including any restriction on
the right to vote, transfer or sell the same, except as may be provided as a
matter of Law). There are no securities of Fusion or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire from
Fusion or its subsidiaries, and no other contract, understanding, arrangement or
obligation (whether or not contingent) providing for the issuance or sale,
directly or indirectly of, any capital stock or other ownership interests in, or
any other securities of, any subsidiary of Fusion. There are no outstanding
contractual obligations of Fusion or its subsidiaries to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of Fusion. For purposes of this Agreement, "Lien"
means, with respect to any asset (including, without limitation, any security)
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset.
SECTION 3.3 Authority Relative to This Agreement; Consents and Approvals.
(a) Fusion has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and no other corporate proceedings on the part of Fusion are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than, with respect to the Merger and this Agreement, the Fusion Requisite
Vote (as hereinafter defined)). This Agreement has been duly and validly
executed and delivered by Fusion and, assuming the due authorization, execution
and delivery hereof by each of Parent and the Merger Subsidiary, constitutes a
valid, legal and binding agreement of Fusion, enforceable against Fusion in
accordance with its terms.
(b) The Board of Directors of Fusion (the "Fusion Board") has duly and
validly authorized the execution and delivery of this Agreement and approved the
consummation of the transactions contemplated hereby, and taken all corporate
actions required to be taken by the Fusion Board for the consummation of the
transactions, including the Merger, contemplated hereby and has resolved (i) to
deem this Agreement and the transactions contemplated hereby, including the
Merger, taken together, advisable and fair to, and in the best interests of,
Fusion and its stockholders; and (ii) to recommend that the stockholders of
Fusion approve and adopt this Agreement. The Fusion Board has directed that this
Agreement be submitted to the stockholders of Fusion for their approval by
written consent or at a meeting to be held for that purpose. The affirmative
vote of the holders of a majority of the voting stock of Fusion (which is
comprised solely of Fusion Common Stock (the "Voting Shares"))(the "Fusion
Requisite Vote") are the only votes of the holders of any class or series of
capital stock of Fusion necessary to adopt this Agreement and approve the
transactions contemplated hereby, including the Merger. No other vote of the
stockholders of Fusion is required by law, the articles of incorporation or the
code of regulations of Fusion or otherwise in order for Fusion to approve and
adopt this Agreement or to consummate the transactions contemplated hereby.
SECTION 3.4 Business Plan. Fusion has been formed, capitalized and operated
to date, and until the Effective Time will be capitalized and operated,
consistent with the Business Plan.
SECTION 3.5 Financial Statements. Fusion is newly formed and, except as
contemplated in the Business Plan, has no material assets and, through the date
hereof, has had no material operations and has not completed a fiscal quarter
for purposes of preparing financial statements. If requested, by Parent, Fusion
will prepare and deliver to Parent unaudited financial statements and such other
financial statements, whether audited or unaudited, as may be required by Parent
to comply with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Any such financial statements so
delivered by Fusion shall be prepared in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP").
4
<PAGE>
SECTION 3.6 No Undisclosed Liabilities. Neither Fusion nor any of its
subsidiaries has any material liabilities or obligations of any nature, whether
or not accrued, contingent or otherwise, and there is no existing condition,
situation or set of circumstances known to Fusion which could be expected to
result in such a liability or obligation, except (a) liabilities or obligations
reflected in Fusion financial statements and (b) liabilities or obligations
incurred in the ordinary course of business which do not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Fusion.
SECTION 3.7 Absence of Changes. Except as and to the extent disclosed to
Parent, as set forth in Section 3.7 of the Fusion Disclosure Schedule or as
permitted by Section 5.1, since inception Fusion and its subsidiaries have
conducted their business in the ordinary and usual course consistent with
Business Plan and there has not been:
(a) any event, change, occurrence or development which does or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Fusion;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Fusion or any
repurchase, redemption or other acquisition by Fusion or any subsidiary of any
Fusion securities;
(c) any amendment of any term of any outstanding security of Fusion or any
subsidiary;
(d) (i) any incurrence or assumption by Fusion or any subsidiary of any
indebtedness for borrowed money (A) other than in the ordinary and usual course
of business consistent with the Business Plan or (B) in connection with any
acquisition or capital expenditure permitted by Section 5.1 or (ii) any
guarantee, endorsement or other incurrence or assumption of liability (whether
directly, contingently or otherwise) by Fusion or any subsidiary for the
obligations of any other person (other than any wholly owned subsidiary of
Fusion), other than in the ordinary and usual course of business consistent with
the Business Plan;
(e) any creation or assumption by Fusion or any subsidiary of any Lien on
any material asset of Fusion or any subsidiary other than in the ordinary and
usual course of business consistent with past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any person by Fusion or any subsidiary other than (i) any
acquisition permitted by Section 5.1, (ii) loans, advances or capital
contributions to or investments in wholly owned subsidiaries of Fusion or (iii)
loans or advances to employees of Fusion or any subsidiary made in the ordinary
and usual course of business consistent with the Business Plan;
(g) (i) any contract or agreement entered into by Fusion or any subsidiary
on or prior to the date hereof relating to any material acquisition or
disposition of any assets or business or (ii) any modification, amendment,
assignment, termination or relinquishment by Fusion or any subsidiary of any
contract, license or other right that does or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Fusion,
other than, in the case of (i) and (ii), transactions, commitments, contracts or
agreements in the ordinary and usual course of business consistent with the
Business Plan and those contemplated by this Agreement;
(h) any material change in any method of accounting or accounting
principles or practice by Fusion or any subsidiary, except for any such change
required by reason of a change in GAAP; or
(i) any (i) grant of any severance or termination pay to any director,
officer or employee of Fusion or any of its subsidiaries; (ii) entering into of
any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of Fusion or any of its subsidiaries (it being acknowledged and agreed that the
hiring of employees in the ordinary course of business on an at-will basis shall
not be deemed the entering into of an employment or similar agreement); (iii)
increase in benefits payable under any existing severance or termination pay
policies or employment agreements; or (iv) increase in compensation, bonus or
other benefits payable to directors, officers or employees of Fusion or any of
its subsidiaries other than, in the case of clause (iv) only, increases in
compensation, bonus or other benefits payable to employees of Fusion or any of
its subsidiaries in the ordinary and usual course of business consistent with
the Business Plan or merit increases in salaries of employees at regularly
scheduled times in customary amounts consistent with past practices. SECTION 3.8
Information Supplied. None of the information supplied or to be supplied by
Fusion for inclusion or incorporation by reference in the proxy statement
relating to the Parent Stockholder Meeting (as defined in Section 6.1) (the
"Proxy Statement"), including but not limited to the Business Plan, will, at the
date mailed to stockholders and at the time of the meeting of stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Parent Stockholder Meeting any event
with respect to Fusion, its officers and directors or any of its subsidiaries
should occur which is required to be described in an amendment of, or a
supplement to, the Proxy Statement, Fusion shall promptly so advise Parent and
such event shall be so described, and such amendment or supplement shall be
promptly filed with the SEC and, as required by Law, disseminated to the
stockholders of the Parent.
5
<PAGE>
SECTION 3.9 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Nasdaq SmallCap Market, the Securities
Act, the Exchange Act, state securities or blue sky Laws, and any other
applicable state regulatory agency, the filing and recordation of the
Certificate of Merger as required by the DGCL and as otherwise set forth in
Section 3.9 to Fusion Disclosure Schedule (collectively, the "Fusion Required
Approvals"), no filing with or notice to, and no permit, authorization, consent
or approval of, any court or tribunal or administrative, governmental or
regulatory body, agency or authority is necessary for the execution and delivery
by Fusion of this Agreement or the consummation by Fusion of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice does not and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Fusion. Neither the execution,
delivery and performance of this Agreement by Fusion nor the consummation by
Fusion of the transactions contemplated hereby will (i) conflict with or result
in any breach of any provision of the respective articles or certificate of
incorporation or code of regulations or bylaws (or similar governing documents)
of Fusion or any of its subsidiaries, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Fusion or any of its subsidiaries is a party
or by which any of them or any of their respective properties or assets may be
bound (collectively, the "Fusion Agreements"), or (iii) violate any Law
applicable to Fusion or any of its subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults which do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Fusion. Section
3.9 of the Fusion Disclosure Schedule sets forth a list of all material third
party consents and approvals required to be obtained under the Fusion Agreements
prior to the consummation of the transactions contemplated by this Agreement.
SECTION 3.10 No Default. Neither Fusion nor any of its subsidiaries is in
violation of any term of (i) its articles or certificate of incorporation, code
of regulations, bylaws or other organizational documents, (ii) any agreement or
instrument related to indebtedness for borrowed money or any other agreement to
which it is a party or by which it is bound, or (iii) any foreign or domestic
law, order, writ, injunction, decree, ordinance, award, stipulation, statute,
judicial or administrative doctrine, rule or regulation entered by a
Governmental Entity ("Law") applicable to Fusion, its subsidiaries or any of
their respective properties or assets, except, in the case of (ii) and (iii),
for violations which do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Fusion or to
prevent or materially delay the performance of this Agreement by Fusion.
SECTION 3.11 Real Property.
(a) Fusion owns no fee interest in any real property.
(b) Section 3.11(b) of the Fusion Disclosure Schedule sets forth all
leases, subleases and other agreements (the "Real Property Leases") under which
Fusion or any of its subsidiaries uses or occupies or has the right to use or
occupy, now or in the future, any real property that is material to the conduct
of the business of Fusion and its subsidiaries, taken as a whole. Fusion has
heretofore delivered to Parent true, correct and complete copies of all Real
Property Leases (and all modifications, amendments and supplements thereto and
all side letters to which Fusion or any of its subsidiaries is a party affecting
the obligations of any party thereunder). Each Real Property Lease constitutes
the valid and legally binding obligation of Fusion or its subsidiaries,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar Laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and is in full
force and effect. All rent and other sums and charges payable by Fusion and its
subsidiaries as tenants under each Real Property Lease are current, no
termination event or condition or uncured default of a material nature on the
part of Fusion or any such subsidiary or, to Fusion's knowledge, the landlord,
exists under any Real Property Lease. Each of Fusion and its subsidiaries has a
good and valid leasehold interest in each parcel of real property leased by it
free and clear of all Liens, except (i) Taxes and general and special
assessments not in default and payable without penalty and interest, and (ii)
other liens, mortgages, pledges, encumbrances and security interests which do
not materially interfere with Fusion's or any of its subsidiaries' use and
enjoyment of such real property or materially detract from or diminish the value
thereof.
6
<PAGE>
(c) No party to any such Real Property Leases has given notice to Fusion or
any of its subsidiaries of or made a claim against Fusion or any of its
subsidiaries with respect to any material breach or default thereunder.
SECTION 3.12 Litigation. Except as and to the extent disclosed in Section
3.12 of the Fusion Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to Fusion's knowledge, threatened
against Fusion or any of its subsidiaries or any of their respective properties
or assets which (a) does or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Fusion or (b) as of the date
hereof, questions the validity of this Agreement or any action to be taken by
Fusion in connection with the consummation of the transactions contemplated
hereby or could otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as and to the extent publicly disclosed
by Fusion in Section 3.12 of the Fusion Disclosure Schedule, there is no
judgment, order, writ, injunction or decree outstanding against Fusion or its
subsidiaries which does or would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Fusion.
SECTION 3.13 Fusion Permits; Compliance with Applicable Laws. Fusion and
its subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Fusion Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which do not or
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Fusion. Fusion and its subsidiaries are in compliance
in all material aspects with the terms of the Fusion Permits, except where the
failure to so comply does not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Fusion. The
businesses of Fusion and its subsidiaries are not being conducted in violation
of any Law applicable to Fusion or its subsidiaries, except for violations or
possible violations which do not and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Fusion. To
Fusion's knowledge, no investigation or review by any Governmental Entity with
respect to Fusion or its subsidiaries is pending or threatened, nor, to Fusion's
knowledge, has any Governmental Entity indicated an intention to conduct the
same.
SECTION 3.14 Employee Plans.
(a) Except as and to the extent disclosed in Section 3.14(a) of the Fusion
Disclosure Schedule there are no "employee benefit plans," as defined in Section
3(3) of ERISA, employment, executive compensation, consulting or other
compensation agreements, and stock option, stock award, stock purchase or other
equity-based compensation, deferred compensation, severance, salary
continuation, life insurance, bonus or other incentive compensation programs or
arrangements, and directors' benefit, bonus or other incentive compensation
arrangements, for which Fusion or any of its subsidiaries has any obligation to
or liability, contingent or otherwise (each, an "Employee Benefit Plan" and
collectively, the "Employee Benefit Plans")
(f) Except as set forth in Section 3.14(b) of the Fusion Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will by itself or in
combination with any other event (i) result in any payment becoming due, or
increase the amount of compensation due, to any current or former employee of
Fusion or any of its subsidiaries; (ii) increase any benefits otherwise payable
under any Employee Benefit Plan; or (iii) result in the acceleration of the time
of payment or vesting of any such benefits.
7
<PAGE>
SECTION 3.15 Labor Matters.
(a) Except as set forth in Section 3.15(a) of the Fusion Disclosure, there
are no employment, labor or collective bargaining agreements which pertain to
employees of Fusion or any of its subsidiaries. Fusion has heretofore delivered
to Parent true and complete copies of (i) the employment agreements listed on
Section 3.15(a) of the Fusion Disclosure Schedule and (ii) the labor or
collective bargaining agreements listed on Section 3.15(a) of the Fusion
Disclosure Schedule, together with all material amendments, modifications and
supplements thereto and side letters materially affecting the duties, rights and
obligations of any party thereunder.
(b) Fusion and each of its subsidiaries is in compliance in all material
respects with all Laws relating to the employment of labor, including all such
Laws and orders relating to wages, hours, collective bargaining, discrimination,
civil rights, safety and health workers' compensation and the collection and
payment of withholding and/or Social Security Taxes and similar Taxes.
SECTION 3.16 Environmental Matters. Except as set forth in Section 3.16 of
the Fusion Disclosure Schedule, the operations of Fusion and its subsidiaries
have been and, as of the Closing Date, will be, in compliance with all
applicable environmental Laws, except for noncompliance that does not and would
not reasonably be expected to result in Fusion and its subsidiaries incurring
material environmental costs and liabilities, and Fusion is not aware of any
facts, circumstances or conditions, which without significant capital
expenditures, would prevent material compliance in the future.
SECTION 3.17 Taxes.
(a) As of the date hereof, Fusion has not been required to file any Tax
Returns and has not paid, or been required to pay, any material taxes and is not
subject to, and has not been subject to, any audits, administrative or court
proceedings or claims with respect to Taxes.
(b) In the event the Operating files a Tax Return or pays any material
taxes on or before the Effective Date, Fusion shall provide a true and complete
copy of each such Tax Return to Parent and shall provide prompt written notice
of any Taxes paid.
(c) For purposes of this Agreement:
"Taxes" includes all forms of taxation, whenever created or imposed,
and whether of the United States or elsewhere, and whether imposed by a
local, municipal, governmental, state, foreign, Federal or other
Governmental Entity, or in connection with any agreement with respect to
Taxes including all interest, penalties and additions imposed with respect
to such amounts.
"Tax Returns" means all Federal, state, local, provincial and foreign
Tax returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax return relating to Taxes.
SECTION 3.18 Absence of Questionable Payments.
(a) Neither Fusion nor any of its subsidiaries nor, to Fusion's knowledge,
any director, officer, agent, employee or other person acting on behalf of
Fusion or any of its subsidiaries, has used any corporate or other funds for
unlawful contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Exchange Act. Neither Fusion nor any of its subsidiaries nor,
to Fusion's knowledge, any director, officer, agent, employee or other person
acting on behalf of Fusion or any of its subsidiaries, has accepted or received
any unlawful contributions, payments, gifts, or expenditures.
8
<PAGE>
SECTION 3.19 Material Contracts.
(a) Section 3.19 of the Fusion Disclosure Schedule sets forth a list of all
Material Contracts (as hereinafter defined). Fusion has heretofore made
available to Parent true, correct and complete copies of all written or oral
contracts and agreements (and all material amendments, modifications and
supplements thereto and all side letters to which Fusion or any of its
subsidiaries is a party materially affecting the obligations of any party
thereunder) to which Fusion or any of its subsidiaries is a party or by which
any of its properties or assets are bound that are material to the business,
properties or assets of Fusion and its subsidiaries taken as a whole, including,
without limitation, all: (i) employment, severance, personal services or
consulting contracts (other than any such contracts that are terminable without
penalty upon not more than 90 days notice), and all non-competition or
indemnification contracts with current or former directors, officers or
employees of Fusion or any of its subsidiaries (including, without limitation,
any contract to which Fusion or any of its subsidiaries is a party involving
employees of Fusion); (ii) material license agreements relating to Intellectual
Property (as defined in Section 3.21) granting to Fusion a license to practice
technology used in the conduct of its current or planned operations; (iii)
contracts granting a right of first refusal or first negotiation for essential
properties, services or supplies, or material sales not in the ordinary course;
(iv) partnership or joint venture agreements; (v) agreements for the
acquisition, sale or lease (including leases in connection with financing
transactions) of any properties or assets of Fusion with a value in excess of
$5,000 (by merger, purchase or sale of assets or stock or otherwise) entered
into since inception; (vi) material contracts or agreements with any
Governmental Entity; (vii) loan or credit agreements, mortgages, indentures or
other agreements or instruments evidencing (A) indebtedness for borrowed money
by Fusion or any of its subsidiaries or any such agreement pursuant to which
indebtedness for borrowed money may be incurred (including guaranties) or (B)
Liens securing any such indebtedness; (viii) agreements that purport to limit,
curtail or restrict the ability of Fusion or any of its subsidiaries, or would
restrict the ability of Parent or any of its subsidiaries, to compete in any
geographic area or line of business; (ix) agreements or arrangements, including
but not limited to hedges, options, swaps, caps and collars, designed to protect
Fusion or any of its subsidiaries against fluctuations in interest rates,
currency exchange rates or the prices of certain commodities and raw materials;
(x) to the extent not otherwise required to be disclosed pursuant to any other
clause of this Section 3.19(a), contracts or agreements that would be required
to be filed as an exhibit to a Form 10-K filed by the Parent with the SEC; and
(xi) commitments and agreements to enter into any of the foregoing
(collectively, together with any such contracts entered into in accordance with
Section 5.1 hereof, the "Material Contracts"). Except as set forth in Section
3.19 of the Fusion Disclosure Schedule, neither Fusion nor any of its
subsidiaries is a party to or bound by any severance or other agreement with any
employee or consultant pursuant to which such person would be entitled to
receive any additional compensation or an accelerated payment of compensation as
a result of (x) the consummation of the transactions contemplated hereby or (y)
the termination of such employment or consulting following such consummation.
(b) Each of the Material Contracts is in full force and effect. There is no
breach or default under any Material Contract either by Fusion or, to Fusion's
knowledge, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a breach or
default thereunder by Fusion or, to Fusion's knowledge, any other party, except
for any such breach or default as does not or would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on Fusion.
(c) No party to any such Material Contract has given notice to Fusion of or
made a claim against Fusion with respect to any breach or default thereunder,
except for any such breach or default as does not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Fusion.
SECTION 3.20 Insurance. Section 3.20 of the Fusion Disclosure Schedule sets
forth a list of insurance policies (including information on the scope and
amount of the coverage and deductibles provided thereunder) maintained by Fusion
or any of its subsidiaries which policies have been issued by insurers, which,
to Fusion's knowledge, are reputable and financially sound and provide coverage
for the operations conducted by Fusion and its subsidiaries of a scope and
coverage consistent with customary industry practice. Fusion has delivered to
Parent a true and correct copy of the claims history under such policies from
inception through the date hereof.
9
<PAGE>
SECTION 3.21 Intellectual Property.
(a) Section 3.21 of the Fusion Disclosure Schedule sets forth a list of all
patents, patent rights, invention disclosure statements, trademarks, trademark
rights, trade names, trade name rights, service marks, and all applications for
any of the foregoing, of Fusion and its subsidiaries the absence of which would
reasonably be expected to have a Material Adverse Effect with respect to Fusion.
Except as set forth in Section 3.21 of the Fusion Disclosure Schedule, neither
Fusion nor any of its subsidiaries is entitled to receive or obligated to pay
any royalties or similar payments in respect of Intellectual Property.
(b) Fusion and its subsidiaries own or possess adequate licenses or other
valid rights to use (in each case, free and clear of any Liens), all
Intellectual Property (as hereinafter defined) used or held for use in
connection with the business of Fusion and its subsidiaries as currently
conducted or as contemplated to be conducted and the absence of which ownership
or rights would reasonably be expected to have a Material Adverse Effect with
respect to Fusion.
(c) The use of any Intellectual Property by Fusion and its subsidiaries
does not infringe on, or otherwise violate the rights of any person and is in
accordance with any applicable license pursuant to which Fusion or any of its
subsidiaries acquired the right to use any material Intellectual Property,
except where the result of such infringement, violation or failure does not and
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to Fusion.
(d) No person is challenging or, to the knowledge of Fusion, infringing on
or otherwise violating any right of Fusion or any of its subsidiaries with
respect to any Intellectual Property owned by and/or licensed to Fusion or its
subsidiaries, except where the result of such challenge, infringement or
violation does not and would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect with respect to Fusion.
(e) Neither Fusion nor any of its subsidiaries has received any notice
(written or otherwise) of any assertion or claim, pending or not, with respect
to any Intellectual Property used by Fusion or its subsidiaries, except where
the result of such assertion or claim does not and would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect with
respect to Fusion.
(f) No material Intellectual Property owned/or licensed by Fusion or its
subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property,
other than as does not and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Fusion.
For purposes of this Agreement, "Intellectual Property" means (i) all
trademarks, trademark rights, trade names, trade name rights, trade dress and
other indications of origin, corporate names, brand names, logos, certification
rights, service marks, applications for trademarks and for service marks,
know-how and other proprietary rights and information, the goodwill associated
with the foregoing and registration in any jurisdiction of, and applications in
any jurisdictions to register, the foregoing, including any extension,
modification or renewal of any such registration or application; (ii) all
inventions, discoveries and ideas (whether patentable or unpatentable and
whether or not reduced to practice), in any jurisdiction, all improvements
thereto, and all patents, patent rights, applications for patents (including,
without limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; (iii) all licenses (whether Fusion is licensor or licensee) and
other agreements relating to any Intellectual Property described in (i) or (ii);
(iv) nonpublic information, trade secrets and confidential information and
rights in any jurisdiction to limit the use or disclosure thereof by any person;
(v) writings and other works, whether copyrightable or not, in any jurisdiction,
and all registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; (vi) all mask works and
all applications, registrations and renewals in connection therewith, in any
jurisdiction; (vii) all computer software (including data and related
documentation); (viii) any similar intellectual property or proprietary rights;
and (ix) all copies and tangible documentation thereof and any claims or causes
of action arising out of or relating to any infringement or misappropriation of
any of the foregoing.
10
<PAGE>
SECTION 3.22 Year 2000. Fusion and its subsidiaries are not subject to any
known the Year 2000 issues which, to the knowledge of Fusion, are material to
Fusion and its subsidiaries, including issues relating to internal information
systems and process control risks, embedded circuitry risks and third party
risks.
SECTION 3.23 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission or expense reimbursement in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Fusion or any of its affiliates.
SECTION 3.24 Tax Treatment. Neither Fusion nor any of its affiliates or
stockholders has taken or agreed to take any action or is aware of any fact or
circumstance that would prevent the Merger from qualifying as a reorganization
under Section 368 of the Code.
SECTION 3.25 Takeover Statutes. Fusion has taken all action required to be
taken by it in order to exempt this Agreement and the transactions contemplated
hereby from, and this Agreement and the transactions contemplated hereby (the
"Covered Transactions") are exempt from, the requirements of any "moratorium,"
"control share," "fair price," "affiliate transaction," "business combination"
or other antitakeover Laws and regulations of any state (collectively, "Takeover
Statutes"), including, without limitation, any antitakeover provision in
Fusion's articles of incorporation or code of regulations (the "Control Shares
Acquisition Law").
SECTION 3.26 Investment Intent; Investigation. By execution of this Merger
Agreement and approval of the same by the stockholders of Fusion, Fusion and
each of its stockholders:
(a) Will acquire the shares issuable by Parent, except as otherwise
permitted hereunder, only for his/hers/its own account, for investment and
without a view to the distribution thereof;
(b) Has reviewed all filings of the Parent, and IDM, with the Securities
and Exchange Commission or with other public agencies and has been given the
opportunity to ask questions of management of the Parent and IDM to the extent
he/she/it deems necessary to enter into the transactions contemplated hereby and
has the requisite knowledge and experience in financial and other matters to
make an informed decision regarding the same;
(c) Understands that he/she/it may sell or otherwise transfer the
Securities only if such transaction is duly registered under the Securities Act
of 1933, as amended (the "Securities Act"), or pursuant to an opinion of
counsel, satisfactory to the Parent and its counsel, to the effect that such
sale or other transfer may be made in the absence of registration under the
Securities Act.
(d) Acknowledges that, except as otherwise permitted hereunder, the
certificates representing the Securities will be legended to reflect the
restrictions of Section 3.26(c), and stop transfer instructions will apply; and
(e) Realizes that the Securities are not a liquid investment, and that
he/she/it may lose his/her/its entire investment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
Except as set forth in the disclosure schedule delivered by Parent to
Fusion prior to the execution of this Agreement (the "Parent Disclosure
Schedule") (each Section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein), and
qualified, where appropriate to give effect to the IDM Reorganization, Parent
and the Merger Subsidiary hereby represent and warrant to Fusion as follows:
11
<PAGE>
SECTION 4.1 Organization.
(a) Each of Parent and Merger Subsidiary is a corporation duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its businesses as now conducted or
proposed by Parent or the Merger Subsidiary to be conducted, except where the
failure to be duly organized, existing and in good standing or to have such
power and authority would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent or Merger Subsidiary.
(b) Each of Parent and Merger Subsidiary is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent or Merger Subsidiary.
(c) Parent has heretofore delivered to Fusion accurate and complete copies
of the articles of incorporation and bylaws of Parent and Merger Subsidiary as
currently in effect.
SECTION 4.2 Capitalization of Parent.
(a) The authorized capital stock of the Parent consists of 7,500,000 shares
of Parent Common Stock, par value $.01 per share, and 1,000,000 shares of
preferred stock, par value $1.00 per share ("Parent Preferred Stock"). As of
August 13, 1999, and giving effect to the IDM Reorganization, (i) 3,331,085
shares of Parent Common Stock were issued and outstanding; (ii) 47,500 shares of
Parent Common Stock were reserved for issuance under the Parent's 1993 Stock
Option Plan (the "1993 Plan"), of which 40,110 shares were subject to
outstanding options; (iii) 50,000 shares of Parent Common Stock were reserved
for issuance pursuant to Parent's 1995 Stock Option Plan (the "1995 Plan"), of
which 46,900 shares were subject to outstanding options; (iv) 1,700,000 shares
of Parent Common Stock were reserved for issuance pursuant to Parent's 1998
Stock Option Plan (the "1998 Plan"), including 1,600,000 shares reserved for
issuance under the 1998 Plan which are subject to approval by the Parent
stockholders relating to an amendment to increase the shares reserved under the
1998 Plan in said amount, of which 1,040,880 shares were subject to outstanding
options; (v) 350,000 shares were reserved for issuance to various consultants in
payment for past and future services, and (vi) shares of Parent Common Stock
were reserved and subject to issuance under various other options, warrants and
convertible notes (the "Other Derivative Securities") in the amounts listed in
Section 4.2(a) of the Parent Disclosure Schedule. As of the date hereof, no
shares of Parent Common Stock were held in treasury, no shares of Parent
Preferred Stock are issued and outstanding and 200,000 shares of Parent
Preferred Stock are reserved for issuance upon exercise of the Parent Rights
pursuant to the Parent Rights Agreement. All the outstanding shares of Parent
Common Stock are, and all shares to be issued as part of the Common Merger
Consideration will be, when issued in accordance with the terms hereof, duly
authorized, validly issued, fully paid and non-assessable. Except as set forth
above, and except for the transactions contemplated by this Agreement and
Parent's obligations under the Parent Rights Agreement, as of the date of this
Agreement (1) there are no shares of capital stock or other voting securities of
Parent authorized, issued or outstanding, (2) there are no authorized or
outstanding options, warrants, calls, preemptive rights, subscriptions or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock or other voting securities of Parent,
obligating Parent to issue, transfer or sell or cause to be issued, transferred
or sold any shares of capital stock, voting securities or other equity interest
in Parent or securities convertible into or exchangeable for such shares or
equity interests, or obligating Parent to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement, arrangement or
commitment, (3) there are no outstanding contractual obligations of Parent to
repurchase, redeem or otherwise acquire any capital stock of Parent. Except as
set forth in Section 4.2(a) of the Parent Disclosure Schedule, here are no
stockholder agreements, voting trusts or other agreements or understandings to
which Parent is a party or by which it is bound relating to the voting of any
shares of capital stock of Parent.
12
<PAGE>
(b) All of the outstanding capital stock of the Merger Subsidiary is owned
by Parent free and clear of any Lien or any other limitation or restriction
(including any restriction on the right to vote or sell the same, except as may
be provided as a matter of Law). There are no securities of Parent or its
subsidiaries convertible into or exchangeable for, no options or other rights to
acquire from Parent or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the issuance
or sale, directly or indirectly, of any capital stock or other ownership
interests in, or any other securities of, Merger Subsidiary. There are no
outstanding contractual obligations of Parent or Merger Subsidiary to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in Merger Subsidiary.
SECTION 4.3 Authority Relative to This Agreement.
(a) Each of Parent and the Merger Subsidiary has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. No other corporate proceedings on the part of
Parent or the Merger Subsidiary are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to the
Parent Requisite Vote (as hereinafter defined)). This Agreement has been duly
and validly executed and delivered by each of Parent and the Merger Subsidiary
and, assuming the due authorization, execution and delivery hereof by Fusion,
constitutes a valid, legal and binding agreement of each of Parent and the
Merger Subsidiary, enforceable against each of Parent and the Merger Subsidiary
in accordance with its terms.
13
<PAGE>
(b) The Boards of Directors of Parent (the "Parent Board") and Merger
Subsidiary, and the Parent as the sole stockholder of the Merger Subsidiary,
have duly and validly authorized the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and taken all
corporate actions required to be taken by such Boards of Directors and Parent as
the sole stockholder of the Merger Subsidiary for the consummation of the
transactions. The affirmative approval of the holders of Parent Common Stock
representing a majority vote of stockholders present at the Parent Stockholders
Meeting (as hereinafter defined) (the "Parent Requisite Vote") is the only vote
of the holders of any class or series of capital stock of Parent necessary to
approve the items anticipated to be submitted for approval at the Parent
Shareholder Meeting (as hereinafter defined).
SECTION 4.4 SEC Reports; Financial Statements. Parent, including for
purposes of this Section 4.4 IDM, has filed all required forms, reports and
documents with the SEC since January 1, 1998, each of which has complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act, each as in effect on the dates such forms, reports and documents
were filed. Parent has heretofore provided to Fusion, and the stockholders of
Fusion, access to all reports, proxy statements and other filings with the SEC
(including any amendments thereto)(the "Parent SEC Reports"). None of such
forms, reports or documents, including, without limitation, any financial
statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements included in the Parent SEC Reports complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto and fairly present, in
conformity with GAAP on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments). Since January 1, 1999, there has not been any change, or
any application or request for any change, by Parent or any of its subsidiaries
in accounting principles, methods or policies for financial accounting or Tax
purposes.
SECTION 4.5 No Undisclosed Liabilities. Neither the Parent nor the Merger
Subsidiary has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and there is no existing condition, situation
or set of circumstances known to Parent which could be expected to result in
such a liability or obligation, except (a) liabilities or obligations reflected
in the Parent SEC Reports filed prior to the date hereof, (b) liabilities or
obligations incurred in the ordinary course of business which do not and would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Parent and (c) liabilities or obligations incurred in
connection with the transactions contemplated hereby.
14
<PAGE>
SECTION 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Reports filed prior to the date hereof or as set forth in Section
4.6 of the Parent Disclosure Schedule, since March 31, 1999 (a) the businesses
of the Parent and the Merger Subsidiary have been conducted in the ordinary
course consistent with past practice, and (b) there has not been any event,
change, occurrence or development that has had, or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Parent or
Merger Subsidiary.
SECTION 4.7 Information Supplied. None of the information supplied or to be
supplied by Parent or the Merger Subsidiary for inclusion or incorporation by
reference in the Proxy Statement will, at the date mailed to stockholders and at
the time of the Parent Stockholder Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Parent Stockholder Meeting any event with respect to Parent, its officers
and directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the Proxy Statement, Parent
shall promptly so advise Fusion and such event shall be so described, and such
amendment or supplement (which Fusion shall have a reasonable opportunity to
review) shall be promptly filed with the SEC and, as required by Law,
disseminated to the stockholders of Parent. The Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act and the
respective rules and regulations thereunder.
SECTION 4.8 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the filing and recordation of certificates of
merger as required by the DGCL and as otherwise set forth in Section 4.8 to the
Parent Disclosure Schedule (the "Parent Required Approvals"), no filing with or
notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution and delivery by Parent or the
Merger Subsidiary of this Agreement or the consummation by Parent or the Merger
Subsidiary of the transactions contemplated hereby, except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings or give such notice do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. Neither
the execution, delivery and performance of this Agreement by Parent or the
Merger Subsidiary nor the consummation by Parent or the Merger Subsidiary of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the respective articles of incorporation or bylaws (or
similar governing documents) of Parent or the Merger Subsidiary or any of
Parent's subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or Lien)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Parent or the Merger Subsidiary or any of Parent's subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound (collectively, the "Parent and Merger Subsidiary Agreements") or
(iii) violate any Law applicable to Parent or the Merger Subsidiary or any of
Parent's subsidiaries or any of their respective properties or assets, except in
the case of (ii) or (iii) for violations, breaches or defaults which do not or
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent. Section 4.8 of the Parent Disclosure Schedule
sets forth a list of all material third party consents and approvals required to
be obtained under the Parent and Merger Subsidiary Agreements prior to the
consummation of the transactions contemplated by this Agreement.
SECTION 4.9 Litigation. Except as and to the extent disclosed in Section
4.9 of the Parent Company Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the Parent's knowledge, threatened
against the Parent or the Merger Subsidiary or any of their respective
properties or assets which (a) does or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Parent or (b)
as of the date hereof, questions the validity of this Agreement or any action to
be taken by the Parent in connection with the consummation of the transactions
contemplated hereby or could otherwise prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as and to the extent
publicly disclosed by the Parent in Section 4.9 of the Parent Disclosure
Schedule, there is no judgment, order, writ, injunction or decree outstanding
against the Parent or the Merger Subsidiary which does or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Parent or the Merger Subsidiary.
15
<PAGE>
SECTION 4.10 Compliance with Applicable Laws. Except as and to the extent
publicly disclosed by Parent in the Parent SEC Reports filed prior to the date
hereof, the businesses of Parent and the Merger subsidiary are not being
conducted in violation of any Law, ordinance or regulation of any Governmental
Entity, except for violations or possible violations which do not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. To Parent's knowledge, no investigation or review by
any Governmental Entity with respect to Parent or the Merger subsidiary is
pending or threatened, nor, to Parent's knowledge, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those
which Parent reasonably believes do not or would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent or
the Merger Subsidiary.
SECTION 4.11 Absence of Questionable Payments. Neither Parent nor the
Merger Subsidiary nor, to Parent's knowledge, any director, officer, agent,
employee or other person acting on behalf of Parent or the Merger Subsidiary,
has used any corporate or other funds for unlawful contributions, payments,
gifts, or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others or established or maintained any
unlawful or unrecorded funds in violation of Section 30A of the Exchange Act.
Neither Parent nor the Merger Subsidiary nor, to Parent's knowledge, any
director, officer, agent, employee or other person acting on behalf of Parent or
the Merger Subsidiary, has accepted or received any unlawful contributions,
payments, gifts, or expenditures.
SECTION 4.12 Employee Plans. Except as and to the extent disclosed in
Section 4.12 of the Parent Disclosure Schedule there are no "employee benefit
plans," as defined in Section 3(3) of ERISA, employment, executive compensation,
consulting or other compensation agreements, and stock option, stock award,
stock purchase or other equity-based compensation, deferred compensation,
severance, salary continuation, life insurance, bonus or other incentive
compensation programs or arrangements, and directors' benefit, bonus or other
incentive compensation arrangements, for which the Parent or the Merger
Subsidiary has any obligation to or liability, contingent or otherwise.
SECTION 4.13 Material Contracts.
(a) Section 4.13 of the Parent Disclosure Schedule sets forth a list of all
Material Contracts (as hereinafter defined). The Parent has heretofore made
available to Fusion true, correct and complete copies of all written or oral
contracts and agreements (and all material amendments, modifications and
supplements thereto and all side letters to which Parent or the Merger
Subsidiary is a party materially affecting the obligations of any party
thereunder) to which the Parent or the Merger Subsidiary is a party or by which
any of its properties or assets are bound that are material to the business,
properties or assets of the Parent and the Merger Subsidiary taken as a whole,
including, without limitation, all: (i) employment, severance, personal services
or consulting contracts (other than any such contracts that are terminable
without penalty upon not more than 90 days notice), and all non-competition or
indemnification contracts with current or former directors, officers or
employees of the Parent or the Merger Subsidiary (including, without limitation,
any contract to which Parent or the Merger Subsidiary is a party involving
employees of the Parent); (ii) material license agreements relating to
Intellectual Property granting to the Parent a license to practice technology
used in the conduct of its current or planned operations; (iii) contracts
granting a right of first refusal or first negotiation for essential properties,
services or supplies, or material sales not in the ordinary course; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease (including leases in connection with financing transactions) of
any properties or assets of the Parent with a value in excess of $5,000 (by
merger, purchase or sale of assets or stock or otherwise) entered into since
March 31, 1999; (vi) material contracts or agreements with any Governmental
Entity; (vii) loan or credit agreements, mortgages, indentures or other
agreements or instruments evidencing (A) indebtedness for borrowed money by the
Parent or the Merger Subsidiary or any such agreement pursuant to which
indebtedness for borrowed money may be incurred (including guaranties) or (B)
Liens securing any such indebtedness; (viii) agreements that purport to limit,
curtail or restrict the ability of the Parent or the Merger Subsidiary, or would
restrict the ability of Parent or the Merger Subsidiary, to compete in any
geographic area or line of business; (ix) agreements or arrangements, including
but not limited to hedges, options, swaps, caps and collars, designed to protect
the Parent or the Merger Subsidiary against fluctuations in interest rates,
currency exchange rates or the prices of certain commodities and raw materials;
and (x) commitments and agreements to enter into any of the foregoing
(collectively, together with any such contracts entered into in accordance with
Section 5.1 hereof, the "Material Contracts"). Except as set forth in Section
4.13 of the Parent Disclosure Schedule, neither the Parent nor the Merger
Subsidiary is a party to or bound by any severance or other agreement with any
employee or consultant pursuant to which such person would be entitled to
receive any additional compensation or an accelerated payment of compensation as
a result of (x) the consummation of the transactions contemplated hereby or (y)
the termination of such employment or consulting following such consummation.
(b) Each of the Material Contracts is in full force and effect. There is no
breach or default under any Material Contract either by the Parent or, to the
Parent's knowledge, by any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute a breach
or default thereunder by the Parent or, to the Parent's knowledge, any other
party, except for any such breach or default as does not or would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Parent.
16
<PAGE>
(c) No party to any such Material Contract has given notice to the Parent
of or made a claim against the Parent with respect to any breach or default
thereunder, except for any such breach or default as does not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Parent.
SECTION 4.14 Year 2000. Parent and its subsidiaries have developed and are
executing a plan with respect to Year 2000 readiness (the "Parent Year 2000
Plan").The Parent Year 2000 Plan addresses the Year 2000 issues which, to the
knowledge of Parent, are material to Parent and its subsidiaries, including
internal information systems and process control risks, embedded circuitry risks
and third party risks.
SECTION 4.15 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Parent or the Merger Subsidiary or any of their affiliates.
SECTION 4.16 Tax Treatment. Neither Parent nor any of its affiliates has
taken or agreed to take any action or is aware of any fact or circumstance that
would prevent the Merger from qualifying as a reorganization under Section 368
of the Code.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of Fusion. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time, Fusion
will, and will cause each of its subsidiaries to, conduct its operations in the
ordinary and usual course of business consistent with the Business Plan and, to
the extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve intact its current
business organizations, seek to keep available the service of its current
officers and employees and seek to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement or in Section 5.1 of the Fusion Disclosure Schedule,
prior to the Effective Time, neither Fusion nor any of its subsidiaries will,
without the prior written consent of Parent:
(a) amend its certificate of incorporation or bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities convertible into or exchangeable for any
stock or any equity equivalents (including, without limitation, any stock
options or stock appreciation rights); provided, however, that it is
specifically contemplated by the Business Plan, and Fusion is authorized
hereunder, to issue, sell, deliver or agree or commit to issue, sell or deliver,
shares of its common stock or securities convertible into or exchangeable for
common stock of Fusion, as deemed appropriate by management of Fusion to carry
out Fusion's Business Plan and provided that Fusion will notify management of
Parent prior to any such issuance or commitment to issue securities;
(c) (i) split, combine or reclassify any shares of its capital stock; (ii)
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(iii) make any other actual, constructive or deemed distribution in respect of
any shares of its capital stock or otherwise make any payments to stockholders
in their capacity as such; or (iv) redeem, repurchase or otherwise acquire any
of its securities or any securities of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of Fusion
or any of its subsidiaries (other than the Merger);
17
<PAGE>
(e) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities, except for borrowings under existing lines of credit in the ordinary
and usual course of business consistent with past practice (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary and usual course of business consistent with the Business Plan and
in amounts not material to Fusion and its subsidiaries, taken as a whole, and
except for obligations of the wholly owned subsidiaries of Fusion; (iii) make
any loans, advances or capital contributions to, or investments in, any other
person (other than to the wholly owned subsidiaries of Fusion or customary loans
or advances to employees in the ordinary and usual course of business consistent
with the Business Plan and in amounts not material to the maker of such loan or
advance); (iv) pledge or otherwise encumber shares of capital stock of Fusion or
its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible
or intangible, or create or suffer to be created any material Lien thereupon;
(g) except as may be required by Law, enter into, adopt, amend, extend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, labor, collective bargaining, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee in any manner, or
increase in any manner the compensation or fringe benefits of any director,
officer or (except as required under agreements existing on the date hereof and
except for increases in compensation, bonus or other benefits payable to
employees of Fusion or any of its subsidiaries in the ordinary and usual course
of business consistent with the Business Plan) employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights or
performance units);
(h) acquire, sell, lease or dispose of any assets outside the ordinary and
usual course of business consistent with the Business Plan or any assets which
in the aggregate are material to Fusion and its subsidiaries taken as a whole,
enter into any commitment or transaction outside the ordinary and usual course
of business consistent with the Business Plan or grant any exclusive
distribution rights;
(i) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary and usual course of business consistent
with Business Plan or as required by GAAP;
(k) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof
or any equity interest therein; (ii) enter into any material contract or
agreement, other than in the ordinary and usual course of business consistent
with the Business Plan or amend in any material respect any of the Material
Contracts or the agreements referred to in Section 3.18; or (iii) enter into or
amend any contract, agreement, commitment or arrangement providing for the
taking of any action that would be prohibited hereunder;
(l) make or revoke any Tax election, or settle or compromise any Tax
liability in excess of amounts reserved therefor on the consolidated balance
sheet of Fusion as at the Audit Date, or change (or make a request to any Taxing
authority to change) any aspect of its method of accounting for Tax purposes;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
and usual course of business consistent with the Business Plan;
(n) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which Fusion or any of its
subsidiaries is a party;
18
<PAGE>
(o) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
(p) take any action (including any action otherwise permitted by this
Section 5.1) that would prevent or impede the Merger from qualifying as a
reorganization under Section 368(a) of the Code;
(q) enter into any agreement or arrangement that limits or otherwise
restricts Fusion or any of its subsidiaries or any successor thereto or that
could, after the Effective Time, limit or restrict the Surviving Corporation and
its affiliates (including Parent) or any successor thereto, from engaging or
competing in any line of business or in any geographic area;
(r) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through 5.1(q) or any action which
would (y) make any of the representations or warranties of Fusion contained in
this Agreement (i) which are qualified as to materiality untrue or incorrect or
(ii) which are not so qualified untrue or incorrect in any material respect or
(z) result in any of the conditions to the Merger set forth in Article VII
hereof not being satisfied.
SECTION 5.2 Conduct of Business of Parent and IDM. Except as otherwise
expressly provided in this Agreement or as set forth in Section 5.2 of the
Parent Disclosure Schedule, prior to the Effective Time, neither Parent, nor IDM
nor the Merger Subsidiary will, without the prior written consent of Fusion:
(a) amend its certificate of incorporation (or other similar governing
instrument) in any manner that would be materially adverse to the holders of
Parent Common Stock;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities convertible into or exchangeable for any
stock or any equity equivalents (including, without limitation, any stock
options or stock appreciation rights);
(c) (i) declare, set aside or pay any dividend or other distribution in
respect of its capital stock, (ii) make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or otherwise make any
payments to stockholders in their capacity as such or (iii) redeem, repurchase
or otherwise acquire any shares of Parent Common Stock;
(d) take any action (including any action otherwise permitted by this
Section 5.2) that would prevent or impede the Merger from qualifying as a
reorganization under Section 368(a) of the Code; or
(e) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Section 2.1(e) or Sections 5.2(a) through 5.2(d) or any
action which (y) would make the representations or warranties of Parent and the
Merger Subsidiary in this Agreement (i) which are qualified as to materiality
untrue or incorrect or (ii) which are not so qualified untrue in any material
respect or (z) result in any of the conditions to the Merger set forth in
Article VII hereof not being satisfied.
SECTION 5.3 Access to Information.
(a) Between the date hereof and the Effective Time, Fusion will give Parent
and the Merger Subsidiary and their authorized representatives (including
counsel, financial advisors and auditors) reasonable access during normal
business hours to all employees, offices and other facilities and to all books
and records of Fusion and its subsidiaries, will permit Parent and the Merger
Subsidiary to make such inspections as Parent and the Merger Subsidiary may
reasonably require and will cause Fusion's officers and those of its
subsidiaries to furnish Parent with such financial and operating data and other
information with respect to the business, properties and personnel of Fusion and
its subsidiaries as Parent or the Merger Subsidiary may from time to time
reasonably request, provided that no investigation pursuant to this Section
5.3(a) shall affect or be deemed to modify any of the representations or
warranties made by Fusion in this Agreement.
19
<PAGE>
(b) Between the date hereof and the Effective Time, Parent and the Merger
Subsidiary will give Fusion and its authorized representatives (including
counsel, financial advisors and auditors) reasonable access during normal
business hours to all employees, plants, offices, warehouses and other
facilities and to all books and records of Parent and its subsidiaries, will
permit Fusion to make such inspections as Fusion may reasonably require and will
cause Parent's officers and those of its subsidiaries to furnish Fusion with
such financial and operating data and other information with respect to the
business, properties and personnel of Parent and its subsidiaries as Fusion may
from time to time reasonably request, provided that no investigation pursuant to
this Section 5.3(b) shall affect or be deemed to modify any of the
representations or warranties made by Parent or the Merger Subsidiary in this
Agreement.
(c) Between the date hereof and the Effective Time, Fusion shall furnish to
Parent and the Merger Subsidiary, concurrently with the deliveries thereof to
management or Fusion Board, such monthly financial statements and data as are
regularly prepared for distribution to Fusion management or the Fusion Board.
(d) Until the Effective Time, each of Parent and the Merger Subsidiary will
hold and will cause its authorized representatives to hold in confidence all
documents and information concerning Fusion and its subsidiaries furnished to
Parent or the Merger Subsidiary in connection with the transactions contemplated
by this Agreement except to the extent such documents and information are
required to be disclosed by Law, including disclosure required by federal and
state securities laws.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholder Meetings.
(a) Fusion shall take all lawful action to (i) cause the stockholders of
Fusion to execute a unanimous consent approving the terms of this Agreement, or
(ii) cause a special meeting of its stockholders (the "Fusion Stockholder
Meeting") to be duly called and held as soon as practicable after the date of
this Agreement for the purpose of voting on the approval and adoption of this
Agreement and (iii) solicit proxies from its stockholders to obtain the Fusion
Requisite Vote for the approval and adoption of this Agreement. The Fusion Board
shall recommend approval and adoption of this Agreement and the Merger by
Fusion's stockholders and the Fusion Board shall not withdraw, amend or modify
in a manner adverse to Parent such recommendation (or announce publicly its
intention to do so).
(b) Parent, as sole stockholder of Merger Subsidiary, shall execute a
written consent or otherwise take such steps as may be necessary to satisfy
applicable stockholder approval requirements relating to the Merger.
(c) Parent and IDM shall take all lawful action to (i) cause a special
meeting of the stockholders of IDM (the "Parent Stockholder Meeting") to be duly
called and held as soon as practicable after the date of this Agreement for the
purpose of voting on the approval of the Action Items (as defined in Section 6.4
below) and (ii) solicit proxies from IDM's stockholders to obtain the Parent
Requisite Vote. IDM's Board shall recommend approval of the Action Items by
IDM's stockholders and, except as required to comply with their fiduciary duty
under applicable Law, IDM's Board shall not be permitted to withdraw, amend or
modify in a manner adverse to Fusion such recommendation (or announce publicly
its intention to do so).
SECTION 6.2 Registration of Securities to be Issued.
(a) As soon as practicable after the date hereof, Parent shall file with
the Securities and Exchange Commission a registration statement (the
"Registration Statement") on Form S-4, or such other form as may be appropriate
for the purpose of registering the Parent Common Stock to be issued to the
Fusion shareholders pursuant to the Merger and seeking proxies in connection
with the vote of the stockholders of the Parent with respect to the Action
Items. Parent shall use all reasonable efforts to cause the Registration
Statement to become effective as soon as possible. Prior to filing, Parent shall
consult with Fusion and provide Fusion with a full opportunity to review and
comment on all portions of the Prospectus/Proxy Statement and Registration
Statement. Fusion shall cooperate with Parent and its counsel in the preparation
of the Registration Statement and shall provide all information and documents
reasonably requested, including financial statements as shall be required, in
connection with preparation of such Registration Statement.
20
<PAGE>
(b) If, and to the extent necessary to facilitate the resale of shares
received in the Merger free of the limitations of Rule 144 or Rule 145, Parent
shall file with the SEC an additional registration statement (the "Resale
Registration Statement") on Form S-3, or such other form as may be appropriate,
for the purpose of registering the resale by non-management shareholders of
Fusion of up to 7,300,000 shares of Parent Common Stock to be issued in the
Merger. Parent shall use all reasonable efforts to cause the Resale Registration
Statement to become effective as soon as possible following the Effective Time.
Fusion shall provide a list of selling shareholders who desire to have shares
included in the Resale Registration Statement and Fusion, and such selling
shareholders, shall cooperate fully with Parent and its counsel in the
preparation of the Resale Registration Statement.
SECTION 6.3 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate the Merger
and the other transactions contemplated by this Agreement.
SECTION 6.4 Action Items. The Parent's Board and IDM's board shall approve,
and submit to IDM's stockholders for approval, a single proposal to (i) approve
the terms of the Merger; (ii) approve the terms of the IDM Reorganization; (iii)
amend the Parent Certificate of Incorporation to increase the authorized shares
of Common Stock of the Parent to 100,000,000 shares; (iv) amend the Parent
Certificate of Incorporation to decrease the par value of the Parent Common
Stock to $0.001 per share; (v) amend the Parent Certificate of Incorporation to
change the name of the Parent to a name to be determined by the Parent Board
after consultation with management of Fusion; (vi) approve, a proposal, as
previously approved by the Parent's Board, to increase the number of shares
reserved for issuance pursuant to Parent's 1998 Plan by 1,600,000 shares
(collectively, the foregoing items (i) through (vi) submitted for approval at
the Parent Stockholder Meeting are referred to as the "Action Items") and (vii)
carry out such other matters as management of Parent shall reasonably deem
necessary. The Action Items shall be voted on, and approved or rejected, by the
Parent stockholders as a single proposal and not individually. Joel Freedman and
Frank Falco, as the principal officers and shareholders of Parent, agree to vote
for the Action Items at the Parent Stockholder Meeting.
SECTION 6.5. Grants of Options. Parent's Board is specifically authorized
under this Merger Agreement to grant additional options in an aggregate amount
up to the total shares reserved for issuance under Parent's 1993 Plan, 1995 Plan
and 1998 Plan, as increased.
SECTION 6.6. Parent Directors. On, or as soon as practical following, the
Effective Time, Parent shall decrease the size of its board of directors to five
persons with three of such directors to be designated by Fusion and two of such
directors to be designated by IDM.
SECTION 6.7. Undertakings of Fusion and Parent Relating to IDM. Parent and
Fusion agree: (i) to guarantee, for a period of three years following the
Effective Time, the salary of Joel Freedman and Frank Falco, pursuant to their
existing employment agreements with IDM, in the amount of $50,000 per year each;
(ii) to cause fifty percent (50%) of all proceeds received from the conversion
or exercise of options or warrants of IDM or Parent outstanding on the Effective
Time to be contributed to the capital of IDM and fifty percent (50%) of such
proceeds to be contributed to the capital of Fusion; and (iii) to nominate and
recommend the election of Joel Freedman and Frank Falco to the board of Parent
for a minimum of five years following the Parent Stockholder Meeting.
SECTION 6.8. Approval of Issuances of Shares in Payment of Expenses. The
Parent's Board is hereby authorized under this Merger Agreement to issue up to
350,000 shares of Parent Common Stock, currently reserved for issuance, in
payment of certain amounts owed by IDM to consultants and service providers.
SECTION 6.9 No Solicitation; Acquisition Proposals. From the date hereof
until the termination hereof, and except as expressly permitted by the following
provisions of this Section 6.9, Fusion will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant or other advisor or
representative of, Fusion or any of its subsidiaries to, directly or indirectly,
(i) solicit, initiate or encourage the submission of any Acquisition Proposal
(as defined in Section 9.12(a)), (ii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to Fusion or any of its subsidiaries, or take any other action to
facilitate, any Acquisition Proposal or any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal or (iii) enter into any agreement with respect to an
Acquisition Proposal.
21
<PAGE>
SECTION 6.10 Public Announcements. Each of Parent, the Merger Subsidiary
and Fusion will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable Law or by
obligations pursuant to any listing agreement with the Nasdaq SmallCap Market,
as determined by Parent, the Merger Subsidiary or Fusion, as the case may be.
SECTION 6.11 Notification of Certain Matters. Fusion shall, upon obtaining
knowledge of any of the following, give prompt notice to Parent and the Merger
Subsidiary, and Parent and the Merger Subsidiary shall, upon obtaining knowledge
of any of the following, give prompt notice to Fusion, of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement,
which is qualified as to materiality, to be untrue or inaccurate, or any
representation or warranty not so qualified, to be untrue or inaccurate in any
material respect at or prior to the Effective Time, (ii) any material failure of
Fusion, Parent or the Merger Subsidiary, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder, (iii) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any condition to the
obligations of any party to the effect of the transactions contemplated hereby
not to be satisfied, (iv) any notice of, or other communication relating to, a
default or event which, with notice or lapse of time or both, would become a
default, received by it or any of its subsidiaries subsequent to the date of
this Agreement and prior to the Effective Time, under any contract or agreement
material to the financial condition, properties, businesses, results of
operations or prospects of it and its subsidiaries taken as a whole to which it
or any of its subsidiaries is a party or is subject, (v) any notice or other
communication from any Governmental Entity in connection with the Merger, (vi)
any actions, suits, claims, investigations or other proceedings (or
communications indicating that the same may be contemplated) commenced or
threatened against Fusion or any of its subsidiaries which, if pending on the
date of this Agreement, would have been required to have been disclosed pursuant
to Section 3.12 or which relate to the consummation of the Merger, (vii) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, or (viii) any Material Adverse Effect in their
respective financial condition, properties, businesses, results of operations or
prospects, taken as a whole; provided, however, that the delivery of any notice
pursuant to this Section 6.13 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.11 Tax-Free Reorganization Treatment. Fusion, Parent and the
Merger Subsidiary shall execute and deliver to Friedman Siegelbaum LLP, special
tax counsel to the Parent, certificates substantially in the forms agreed to on
or prior to the date hereof at such time or times as reasonably requested by
such law firm in connection with the delivery of an opinion with respect to the
transactions contemplated hereby. Prior to the Effective Time, none of Fusion,
Parent or the Merger Subsidiary shall take or cause to be taken any action which
would cause to be untrue (or fail to take or cause not to be taken any action
which would cause to be untrue) any of the representations in such certificates.
SECTION 6.12 Employee Matters. Parent will cause the Surviving Corporation
to honor the obligations of Fusion or any of its subsidiaries under the
provisions of all employment, consulting, termination, severance, change in
control and indemnification agreements disclosed in Section 6.12 of Fusion
Disclosure Schedule between and among Fusion or any of its subsidiaries and any
current or former officer, director, consultant or employee of Fusion or any of
its subsidiaries.
SECTION 6.13 SEC Filings. Parent shall furnish to Fusion copies of all
reports, proxy statements and prospectuses of the type referred to in Section
4.4 which it files with the SEC on or after the date hereof, and Parent
represents and warrants that as of the respective dates thereof, such reports
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and the unaudited
consolidated interim financial statements included in such reports (including
any related notes and schedules) will fairly present the financial position of
Parent and its consolidated Subsidiaries as of the dates thereof and the results
of operations and cash flows or other information included therein for the
periods or as of the date then ended (subject, in the case of the interim
financial statements, to normal, recurring year-end adjustments), in each case
in accordance with past practice and GAAP consistently applied during the
periods involved (except as otherwise disclosed in the notes thereto).
22
<PAGE>
SECTION 6.14 Listing of Stock. Parent shall use its best efforts to cause
the shares of Parent Common Stock to be issued in connection with the Merger to
be approved for listing on the Nasdaq SmallCap Market on or prior to the Closing
Date, subject to official notice of issuance.
SECTION 6.15 Antitakeover Statutes. If any Takeover Statute is or may
become applicable to the Merger, each of Parent and Fusion shall take such
actions as are necessary so that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of any Takeover Statute
on the Merger.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger.
The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Effective Time of each of the following conditions, any or all of which may be
waived in whole or in part by the party being benefitted thereby, to the extent
permitted by applicable Law:
(a) This Agreement shall have been approved and adopted by the unanimous
vote of the stockholders of Fusion and the Merger Subsidiary and the Action
Items shall have been approved by the stockholders of IDM;
(b) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement or permitting
such consummation only subject to any condition or restriction that has or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Fusion or Parent and no Governmental Entity shall have
instituted any proceeding which continues to be pending seeking any such Law;
and
(c) All necessary approvals under state securities Laws or the Securities
Act or Exchange Act relating to the issuance or trading of the Parent Common
Stock shall have been received.
SECTION 7.2 Conditions to the Obligations of the Parent and the Merger
Subsidiary. The respective obligations of Parent and the Merger Subsidiary to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or prior to the Effective Time of each of the following
additional conditions, any or all of which may be waived in whole or part by
Parent and the Merger Subsidiary, as the case may be, to the extent permitted by
applicable Law:
(a) The representations and warranties of Fusion contained herein or
otherwise required to be made after the date hereof in a writing expressly
referred to herein by or on behalf of Fusion pursuant to this Agreement, to the
extent qualified by materiality or Material Adverse Effect, shall have been true
and, to the extent not qualified by materiality or Material Adverse Effect,
shall have been true in all material respects, in each case when made and on and
as of the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be true,
or true in all material respects, as the case may be, only as of the specified
date).
(b) Fusion shall have performed or complied in all material respects with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) Fusion shall have delivered to Parent a certificate, dated the date of
the Closing, signed by the President or any Vice President of Fusion (but
without personal liability thereto), certifying as to the fulfillment of the
conditions specified in Sections 7.2(a) and 7.2(b).
(d) Parent shall have received an opinion of Friedman Siegelbaum LLP, dated
the Effective Time, based on the representations of Parent, the Merger
Subsidiary and Fusion, referred to in Section 6.11, to the effect that the
Merger will be treated for Federal income Tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
23
<PAGE>
(e) (i) All authorizations, consents or approvals of a Governmental Entity
(other than those specified in Section 7.1(b) hereof) required in connection
with the execution and delivery of this Agreement and the performance of the
obligations hereunder shall have been made or obtained, without any limitation,
restriction or condition that has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Fusion or Parent,
except for such authorizations, consents or approvals, the failure of which to
have been made or obtained does not and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Fusion or
Parent.
(ii) There shall not be pending or threatened by any Governmental
Entity any suit, action or proceeding (A) seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions
contemplated by this Agreement or seeking to obtain from Fusion or Parent
any damages that are material in relation to Fusion and its subsidiaries
taken as a whole or Parent and its subsidiaries taken as a whole, as
applicable, (B) seeking to (1) prohibit or limit the ownership or operation
by Fusion, Parent or any of their respective subsidiaries of any material
portion of the business or assets of Fusion and its subsidiaries, taken as
a whole, or Parent and its subsidiaries, taken as a whole, as applicable,
(2) compel Fusion, Parent or any of their respective subsidiaries to
dispose of or "hold separate" any material portion of the business or
assets of Fusion and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as applicable, as a result of the Merger or
any of the other transactions contemplated by this Agreement or (3) impose
any other significant restrictions upon, or the making of any material
accommodation (financial or otherwise) in respect of, the transactions
contemplated hereby or the conduct of the business of the Surviving
Corporation or the Parent (including any agreement not to compete in any
geographic area or line of business), (C) seeking to impose limitations on
the ability of Parent to acquire or hold, or exercise full rights of
ownership of, any shares of capital stock of Fusion or the Surviving
Corporation, including the right to vote the common stock of the Surviving
Corporation, on all matters properly presented to the stockholders of the
Surviving Corporation, (D) seeking to prohibit Parent and its subsidiaries
from effectively controlling in any material respect the business or
operations of Fusion and its subsidiaries, taken as a whole, (E) which
would result in the abrogation or diminishment of any authority or license
granted by any Governmental Entity or (F) which otherwise could reasonably
be expected to have a Material Adverse Effect on Fusion or Material Adverse
Effect on Parent.
(e) Fusion shall have obtained (i) the consents and approvals set forth in
Sections 3.3 and 3.8 of the Fusion Disclosure Schedule and (ii) the consent or
approval of each person whose consent or approval shall be required under any
Material Contract, Real Property Lease or other obligation to which Fusion or
any of its subsidiaries is a party, except those for which the failure to obtain
such consents or approvals does not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Fusion and would
not prevent or materially impair the ability of Fusion to consummate the
transactions contemplated by this Agreement.
(f) The Board of Directors of the Parent shall have received an opinion of
Chartered Capital Advisers, Inc., dated the date of this Agreement, to the
effect that, as of such date, the terms of the Merger are fair to the Parent and
its stockholders from a financial point of view and, as of the Closing Date,
such opinion has not been withdrawn or modified in a manner adverse to Parent.
SECTION 7.3 Conditions to the Obligations of Fusion. The obligations of
Fusion to consummate the transactions contemplated by this Agreement are subject
to the fulfillment at or prior to the Effective Time of each of the following
conditions, any or all of which may be waived in whole or in part by Fusion to
the extent permitted by applicable Law:
(a) The representations and warranties of Parent and the Merger Subsidiary
contained herein or otherwise required to be made after the date hereof in a
writing expressly referred to herein by or on behalf of Parent and the Merger
Subsidiary pursuant to this Agreement, to the extent qualified by materiality or
Material Adverse Effect, shall have been true and, to the extent not qualified
by materiality or Material Adverse Effect, shall have been true in all material
respects, in each case when made and on and as of the Closing Date as though
made on and as of the Closing Date (except for representations and warranties
made as of a specified date, which need be true, or true in all material
respects, as the case may be, only as of the specified date).
(b) Parent shall have performed or complied in all material respects with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
24
<PAGE>
(c) Parent shall have delivered to Fusion a certificate, dated the date of
the Closing, signed by the President or any Vice President of Parent (but
without personal liability thereto), certifying as to the fulfillment of the
conditions specified in Section 7.3(a) and 7.3(b).
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval of the Merger by the vote referred to
in Section 7.1(a), by mutual written consent of Fusion and Parent by action of
their respective Boards of Directors.
SECTION 8.2 Termination by Either Parent or Fusion. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or Fusion if:
(a) the Merger shall not have been consummated by March 31, 2000, whether
such date is before or after the date of approval of the Merger by the vote
referred to in Section 7.1(a)(the "Termination Date"); provided, however, that
if either Parent or Fusion determines that additional time is necessary in
connection with obtaining any consent, registration, approval, permit or
authorization required to be obtained from any Governmental Entity, the
Termination Date may be extended by Parent or Fusion from time to time by
written notice to the other party to a date not beyond June 30, 2000;
(b) the requisite vote of the stockholders of IDM shall not have been
obtained at the Parent Stockholder Meeting or at any adjournment or postponement
thereof;
(c) any Law permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether before
or after the approval of the Merger by the stockholders of Fusion); or
(e) any Governmental Entity shall have failed to issue an order, decree or
ruling or to take any other action which is necessary to fulfill the conditions
set forth in Sections 7.1(b), and 7.2(e), as applicable, and such denial of a
request to issue such order, decree, ruling or take such other action shall have
been final and nonappealable; provided, that the right to terminate this
Agreement pursuant to this Section 8.2 shall not be available to any party that
has breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
of the Merger to be consummated.
SECTION 8.3 Termination by Fusion. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval of the Merger by Fusion stockholders referred to in
Section 7.1(a), by action of the Fusion Board if there is a breach by Parent or
the Merger Subsidiary of any representation, warranty, covenant or agreement
contained in this Agreement that would give rise to a failure of a condition set
forth in Section 7.3(a) or 7.3(b), which has not been cured within 15 business
days following receipt by Parent of written notice of such breach;
SECTION 8.4 Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval of the Merger by the Parent Requisite Vote referred to in
Section 7.1(a) if there is a breach by Fusion of any representation, warranty,
covenant or agreement contained in this Agreement that would give rise to a
failure of a condition set forth in Section 7.2(a) or 7.2(b), which has not been
cured within 15 business days following receipt by Fusion of written notice of
such breach
25
<PAGE>
SECTION 8.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than this Section 8.5 and Sections 5.3(d),
6.14 and Article IX) shall become void and of no effect with no liability on the
part of any party hereto (or of any of its directors, officers, employees,
agents, legal and financial advisors or other representatives); provided,
however, except as otherwise provided in this Section 8.5, no such termination
shall relieve any party hereto of any liability or damages resulting from (i)
any willful breach of any representations or warranties contained in this
Agreement or (ii) any breach of any covenant or agreement contained in this
Agreement.
SECTION 8.6 Amendment. This Agreement may be amended by action taken by
Fusion, Parent and the Merger Subsidiary at any time before or after approval of
the Merger by the Fusion stockholders and the Parent Requisite Vote but, after
any such approval, no amendment shall be made which requires the approval of
such stockholders under applicable Law without such approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of the
parties hereto.
SECTION 8.7 Extension; Waiver. At any time prior to the Effective Time,
each party hereto (for these purposes, Parent and the Merger Subsidiary shall
together be deemed one party and Fusion shall be deemed the other party) may (i)
extend the time for the performance of any of the obligations or other acts of
the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto, or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of either party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of either party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time, except for those covenants and agreements
contained herein and therein that by their terms apply or are to be performed in
whole or in part after the Effective Time and this Article IX. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.2 Entire Agreement; Assignment.
(a) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including, but not limited to,
by merger or consolidation) or otherwise; provided, however, that Fusion may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent or the Merger Subsidiary of
its obligations hereunder if such assignee does not perform such obligations.
Any assignment in violation of the preceding sentence shall be void. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 9.3 Notices. All notices, requests, instructions or other documents
to be given under this Agreement shall be in writing and shall be deemed given,
(i) five business days following sending by registered or certified mail,
postage prepaid, (ii) when sent if sent by facsimile; provided that the fax is
promptly confirmed by telephone confirmation thereof, (iii) when delivered, if
delivered personally to the intended recipient and (iv) one business day
following sending by overnight delivery via a national courier service, and in
each case, addressed to a party at the following address for such party:
26
<PAGE>
if to Parent or to Merger Subsidiary, to: IDM Environmental Corp.
396 Whitehead Avenue
South River, New Jersey 08882
Attn: Joel Freedman, President
Facsimile: (732) 390-9545
with a copy to: Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, Texas 77002
Attn: Michael Sanders, Esq.
Facsimile: (713) 547-8910
if to Fusion, to: Fusion Networks, Inc.
8115 N. W. 29th Avenue
Miami, Florida 33122
Attn: Hernando Bahamon
Facsimile: (305) 477-6703
with a copy to: Oscar D. Folger, Esq.
Fifth Avenue - 24th Floor
New York, New York 10175
Facsimile: (212) 697-9570
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 Governing Law. Except to the extent that Delaware Law is
mandatorily applicable to the Merger and for the rights of the shareholders of
Fusion, this Agreement shall be governed by and construed in accordance with the
Laws of the State of New York, without regard to the principles of conflicts of
Law thereof.
SECTION 9.5 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and
except as provided in Section 6.7(c) inure solely to the benefit of each party
hereto and its successors and permitted assigns, and, except as provided in
Section 6.7(c), nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
SECTION 9.7 Indemnification. Each of Fusion, Parent and Merger Subsidiary
(each, an "Indemnitor") hereby jointly and severally agrees to indemnify the
other, and their respective officers, directors, employees, attorneys and agents
(each, an "Indemnitee") and hold them harmless against and in respect of (i) any
and all loss, liability or damage suffered or incurred by the Indemnitee by
reason of any untrue representation, breach of warranty or non-fulfillment of
any covenant by the Indemnitor; and (ii) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs and expenses,
including, without limitation, legal fees and expenses, incident to any of the
foregoing or incurred in investigating or attempting to avoid the same or to
oppose the imposition thereof, or in enforcing this indemnity.
SECTION 9.8 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
27
<PAGE>
SECTION 9.9 Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Southern District of the State of New York or in New York state
court, this being in addition to any other remedy to which they are entitled at
Law or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of the courts of the United States for the
Southern District of New York or any New York state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated hereby in any other court.
SECTION 9.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.11 Interpretation.
(a) The words "hereof," "herein" and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." All terms defined in this Agreement shall have the defined meanings
contained herein when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time, amended, qualified
or supplemented, including (in the case of agreements and instruments) by waiver
or consent and (in the case of statutes) by succession of comparable successor
statutes and all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
(b) The phrases "the date of this Agreement," "the date hereof" and terms
of similar import, unless the context otherwise requires, shall be deemed to
refer to August 18, 1999. The phrase "made available" in this agreement shall
mean that the information referred to has been actually delivered to the party
to whom such information is to be made available.
(c) The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 9.12 Definitions.
(a) "Acquisition Proposal" means an inquiry, offer or proposal regarding
any of the following (other than the transactions contemplated by this
Agreement) involving Fusion: (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or
substantially all the assets of Fusion and its subsidiaries, taken as a whole,
in a single transaction or series of related transactions; (iii) any tender
offer or exchange offer for 20 percent or more of the outstanding Shares or the
filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
(b) "beneficial ownership" or "beneficially own" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
28
<PAGE>
(c) "know" or "knowledge" means, with respect to any party, the knowledge
of such party's executive officers after due inquiry, including inquiry of such
party's counsel and other officers or employees of such party responsible for
the relevant matter.
(d) "Material Adverse Effect" means with respect to any entity, any change,
circumstance or effect that, individually or in the aggregate with all other
changes, circumstances and effects, is or is reasonably likely to be materially
adverse to (i) the assets, properties, business, condition (financial or
otherwise) or results of operations of such entity and its subsidiaries taken as
a whole or (ii) the ability of such party to consummate the transactions
contemplated by this Agreement.
(e) "person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(f) "subsidiary" means, when used with reference to any entity, any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other subsidiary of such party is a general or
managing partner or (ii) the outstanding voting securities or interests of,
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization, is directly or indirectly owned or controlled
by such party or by any one or more of its subsidiaries.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
IDM ENVIRONMENTAL CORP. IDM/FNI ACQUISITION CORPORATION
By: /S/ JOEL FREEDMAN By: /S/ JOEL FREEDMAN
------------------------- ----------------------------
Name: Joel Freedman Name: Joel Freedman
Title: President and Title: President and
Chief Executive Officer Chief Executive Officer
IDM/FUSION HOLDINGS, INC FUSION NETWORKS, INC.
By: /S/ JOEL FREEDMAN By: /S/ HERNANDO BAHAMON
------------------------- ----------------------------
Name: Joel Freedman Name: Hernando Bahamon
Title: President and Title: President
Chief Executive Officer
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of August
31,1999 is among FUSION NETWORKS, INC., a Delaware corporation ("Fusion"), IDM
ENVIRONMENTAL CORP., a New Jersey corporation ("IDM"), IDM/FUSION HOLDINGS,
INC., a Delaware corporation ("Parent"), and IDM/FNI ACQUISITION CORPORATION, a
Delaware corporation and a direct wholly owned subsidiary of Parent (the "Merger
Subsidiary").
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger
dated August 18, 1999 (the "Agreement"). Capitalized terms used and not
otherwise defined herein shall have the meaning set forth in the Agreement.
WHEREAS, the parties hereto desire to amend the Agreement in the following
respects.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as follow:
1. Amendment of Section 1.6. Section 1.6 of the Agreement is hereby deleted
in its entirety and replaced with the following:
"SECTION 1.6 Directors. The directors of Fusion immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation until such director's successor is duly
elected or appointed and qualified."
2. Amendment to Section 2.1(c). Section 2.1 of the Agreement is amended to
reflect a 1,000-for-1 stock split implemented by Fusion subsequent to the date
of the Agreement and the reference appearing therein to the right to receive
"17,733.333" fully paid and non-assessable shares is hereby deleted and replaced
with "17.733."
3. Amendment to Sections 6.1(c) and 6.4. Sections 6.1(c) and 6.4 of the
Agreement are amended to add the following language at the end of those
provisions:
"Notwithstanding the requirement that IDM submit each of the Action Items
to its stockholders for approval at the Parent Stockholder Meeting, IDM, as
the sole stockholder of Parent prior to the Effective Date, may, at its
discretion, approve and carry out the Action Items referred to in Section
6.4(iii), (iv) and (v) prior to the Parent Stockholder Meeting without
submitting the same to a vote of the IDM stockholders."
4. New Section 6.16. The Agreement is amended to add new Section 6.16 which
shall read in full as follows:
"SECTION 6.16 Assumption of Warrants and Options.
(a) At the Effective Time, the Parent shall assume all obligations (a)
under the 1993 Plan, the 1995 Plan and the 1998 Plan of IDM, as described
in Section 4.2(a) (collectively, the "IDM Option Plans") and (b) under each
of the outstanding Other Derivative Securities of IDM as described in
Section 4.2(a). At the Effective Time, each outstanding option under the
IDM Plans and Other Derivative Securities to purchase shares of IDM Common
Stock, whether vested or unvested, shall be deemed to constitute an option,
warrant or derivative security to acquire, on the same terms and conditions
as were applicable under the IDM Option Plans or the Other Derivative
Securities the same number of shares of Parent Common Stock as the holder
of such options or derivative securities would have been entitled to
receive pursuant to the Merger had such holder exercised such option or
derivative security in full immediately prior to the Effective Time
(rounded
1
<PAGE>
downward to the nearest whole number), at a price per share (rounded
downward to the nearest whole cent) equal to (y) the aggregate price
payable for the shares of IDM Common Stock purchasable pursuant to such
options or derivative securities immediately prior to the Effective Time
divided by (z) the number of full shares of Parent Common Stock deemed
purchasable pursuant to such options or derivative securities in accordance
with the foregoing.
(b) At the Effective Time, the Parent shall assume all obligations
under each warrant issued by Fusion (the "Fusion Warrants") on or before
the Effective Time pursuant to Fusion's ongoing capital raising efforts, as
permitted by Section 5.1(b) of the Agreement. At the Effective Time, each
outstanding Fusion Warrant to purchase shares of Fusion Common Stock shall
be deemed to constitute a warrant to acquire, on the same terms and
conditions as were applicable under the Fusion Warrants, the same number of
shares of Parent Common Stock as the holder of such Fusion Warrants would
have been entitled to receive pursuant to the Merger had such holder
exercised such warrants in full immediately prior to the Effective Time
(rounded downward to the nearest whole number), at a price per share
(rounded downward to the nearest whole cent) equal to (y) the aggregate
price payable for the shares of Fusion Common Stock purchasable pursuant to
the Fusion Warrants immediately prior to the Effective Time divided by (z)
the number of full shares of Parent Common Stock deemed purchasable
pursuant to the Fusion Warrants in accordance with the foregoing.
5. Amendment of Section 7.1(a). The reference in Section 7.1(a) of the
Agreement to the "unanimous vote of the stockholders of Fusion" is hereby
deleted and replaced with "majority vote of the stockholders of Fusion."
6. Ratification of Remaining Terms. Except as amended hereby, all other
terms of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf on the day and year first above written.
IDM ENVIRONMENTAL CORP. IDM/FNI ACQUISITION CORPORATION
By: /S/ JOEL FREEDMAN By: /S/ JOEL FREEDMAN
------------------------ --------------------------
Name: Joel Freedman Name: Joel Freedman
Title:President and Title:President and
Chief Executive Officer Chief Executive Officer
IDM/FUSION HOLDINGS, INC. FUSION NETWORKS, INC.
By: /S/ JOEL FREEDMAN By: /S/ HERNANDO BAHAMON
------------------------ -------------------------
Name: Joel Freedman Name: Hernando Bahamon
Title:President and Title:President and
Chief Executive Officer Chief Executive Officer
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of
September 16,1999 is among FUSION NETWORKS, INC., a Delaware corporation
("Fusion"), IDM ENVIRONMENTAL CORP., a New Jersey corporation ("IDM"),
IDM/FUSION HOLDINGS, INC., a Delaware corporation ("Parent"), and IDM/FNI
ACQUISITION CORPORATION, a Delaware corporation and a direct wholly owned
subsidiary of Parent (the "Merger Subsidiary").
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger
dated August 18, 1999 (the "Agreement") and a First Amendment to Agreement and
Plan of Merger dated August 30, 1999 (the "First Amendment"). Capitalized terms
used and not otherwise defined herein shall have the meaning set forth in the
Agreement.
WHEREAS, the parties hereto desire to amend the Agreement in the following
respects.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as follow:
1. Amendment of Section 6.2. Section 6.2(b) of the Agreement is hereby
deleted in its entirety.
2. Amendment to Section 6.6. Section 6.6 of the Agreement is amended to an
increase in the post-closing board of directors from five persons to six persons
and the reference appearing therein to "decrease the size of its board of
directors to five persons" is hereby deleted and replaced with "increase the
size of its board of directors to six persons."
3. Ratification of Remaining Terms. Except as amended hereby, all other
terms of the Agreement and First Amendment shall remain in full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf on the day and year first above written.
IDM ENVIRONMENTAL CORP. IDM/FNI ACQUISITION CORPORATION
By: /S/ JOEL FREEDMAN By: /S/ JOEL FREEDMAN
------------------------ ---------------------------
Name: Joel Freedman Name: Joel Freedman
Title:President and Title:President and
Chief Executive Officer Chief Executive Officer
IDM/FUSION HOLDINGS, INC. FUSION NETWORKS, INC.
By: /S/ JOEL FREEDMAN By: /S/ HERNANDO BAHAMON
------------------------ ---------------------------
Name: Joel Freedman Name: Hernando Bahamon
Title:President and Title:President and
Chief Executive Officer Chief Executive Officer
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of November
2,1999 is among FUSION NETWORKS, INC., a Delaware corporation ("Fusion"), IDM
ENVIRONMENTAL CORP., a New Jersey corporation ("IDM"), IDM/FUSION HOLDINGS,
INC., a Delaware corporation ("Parent"), and IDM/FNI ACQUISITION CORPORATION, a
Delaware corporation and a direct wholly owned subsidiary of Parent (the "Merger
Subsidiary").
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger
dated August 18, 1999 (the "Agreement"), a First Amendment to Agreement and Plan
of Merger dated August 30, 1999 (the "First Amendment") and a Second Amendment
to Agreement and Plan of Merger dated September 21, 1999 (the "Second
Amendment"). Capitalized terms used and not otherwise defined herein shall have
the meaning set forth in the Agreement.
WHEREAS, the parties hereto desire to amend the Agreement in the following
respects.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as follow:
1. Amendment to Section 6.16(b). Section 6.16(b) of the Agreement is hereby
amended to read in full as follows:
(b) At the Effective Time, the Parent shall assume all obligations
under (a) under the Fusion Networks 1999 Stock Option Plan and (b) each
warrant issued by Fusion (the "Fusion Warrants") on or before the Effective
Time pursuant to Fusion's ongoing capital raising efforts, as permitted by
Section 5.1(b) of the Agreement. At the Effective Time, each outstanding
option under the Fusion Plan and each Fusion Warrant to purchase shares of
Fusion Common Stock shall be deemed to constitute an option or warrant to
acquire, on the same terms and conditions as were applicable under the
Fusion Plan and the Fusion Warrants, the same number of shares of Parent
Common Stock as the holder of such options or Fusion Warrants would have
been entitled to receive pursuant to the Merger had such holder exercised
such options or warrants in full immediately prior to the Effective Time
(rounded downward to the nearest whole number), at a price per share
(rounded downward to the nearest whole cent) equal to (y) the aggregate
price payable for the shares of Fusion Common Stock purchasable pursuant to
such options or the Fusion Warrants immediately prior to the Effective Time
divided by (z) the number of full shares of Parent Common Stock deemed
purchasable pursuant to such options or the Fusion Warrants in accordance
with the foregoing.
2. Ratification of Remaining Terms. Except as amended hereby, all other
terms of the Agreement, the First Amendment and the Second Amendment shall
remain in full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf on the day and year first above written.
IDM ENVIRONMENTAL CORP. IDM/FNI ACQUISITION CORPORATION
By: /S/ JOEL FREEDMAN By: /S/ JOEL FREEDMAN
------------------------ ----------------------------
Name: Joel Freedman Name: Joel Freedman
Title:President and Title:President and
Chief Executive Officer Chief Executive Officer
IDM/FUSION HOLDINGS, INC. FUSION NETWORKS, INC.
By: /S/ JOEL FREEDMAN By: /S/ HERNANDO BAHAMON
------------------------- ----------------------------
Name: Joel Freedman Name: Hernando Bahamon
Title:President and Title:President and
Chief Executive Officer Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 130,284
<SECURITIES> 0
<RECEIVABLES> 2,310,741
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,888,924
<PP&E> 2,364,743
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,559,928
<CURRENT-LIABILITIES> 9,182,643
<BONDS> 0
0
0
<COMMON> 34,245
<OTHER-SE> 2,319,159
<TOTAL-LIABILITY-AND-EQUITY> 11,559,928
<SALES> 7,556,608
<TOTAL-REVENUES> 7,556,608
<CGS> 9,008,924
<TOTAL-COSTS> 9,591,441
<OTHER-EXPENSES> 5,540,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,568
<INCOME-PRETAX> (7,652,278)
<INCOME-TAX> (1,200,000)
<INCOME-CONTINUING> (6,452,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,463,567)
<EPS-BASIC> (2.07)
<EPS-DILUTED> (2.07)
</TABLE>
