AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ERD WASTE CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 7389
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE NUMBER)
11-3121813
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
937 E. HAZELWOOD AVENUE
RAHWAY, NJ 07065
(908) 381-9229
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
JOSEPH J. WISNESKI, PRESIDENT AND CHIEF OPERATING OFFICER
ERD WASTE CORP.
937 E. HAZELWOOD AVENUE
BUILDING 2
RAHWAY, NJ 07065
(908) 381-9229
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
RICHARD MARLIN, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
_____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities to be Amount To Be Offering Aggregate Registration
Registered (1) Registered (2) Price (2) Offering Price (2) Fee
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WaUnits ("Units"), consisting of shares of Common Stock,
par value $.001 per share ("Common Stock") and Warrants
to purchase an additional
share of Common Stock ("Warrants") (3)................... 102.58 $25,000 $2,564,500 $777.12
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Common Stock included as part of the Units (3)........... 1,463,859.64 -- -- (4)
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Warrants included as part of the Units (3)............... 1,463,859.64 -- -- (4)
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Common Stock issuable upon exercise of the
Warrants included in the Units........................... 1,463,859.64 $2.25 $3,293,684.10 $998.09
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Placement Agent Unit Purchase Warrants to
purchase Units........................................... 8.258 $25,000 $ 206,450 $62.56
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Total.............................................................................................................. $1,837.77
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(1) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), this Registration Statement also covers
such indeterminable additional shares of Common Stock as may be issuable
as a result of any future anti-dilution adjustments made in accordance
with the terms of the Warrants included in the Units.
(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act.
(3) The number of shares of Common Stock and the number of Warrants included
as part of the Units is determined by dividing the purchase price per
Unit of $25,000 by 90% of the average closing bid price for the Common
Stock for the 10 trading days immediately preceding the date of the
closing of the relevant offering of the Units.
(4) No separate registration fee required pursuant to Rule 457(i) promulgated
under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- ii -
ERD WASTE CORP.
CROSS-REFERENCE SHEET
(SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2)
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS
- --------------------------- ----------------------
1. Front of Registration Statement and
Outside Front Cover of Prospectus..... Facing Page; Prospectus Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Prospectus Cover Page; Prospectus Back Cover Page
3. Summary Information and Risk Factors.... Prospectus Summary; Risk Factors
4. Use of Proceeds......................... Not Applicable
5. Determination of Offering Price........ Prospectus Cover Page
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Selling Securityholders
8. Plan of Distribution................... Prospectus Cover Page; Selling Securityholders;
Plan of Distribution
9. Legal Proceedings...................... Business
10. Directors, Executive Officers,
Promoters and Control Persons........ Management
11. Security Ownership of Certain
Beneficial Owners and Management..... Principal Stockholders
12. Description of Securities.............. Description of Securities
13. Interest of Named Experts and Counsel.. Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities...................... Not Applicable
15. Organization Within Five Years........ Not Applicable
16. Description of Business............... Business
17. Management's Discussion and Analysis
or Plan of Operation................ Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property............... Business
19. Certain Relations and Related
Transactions........................ Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters................. Prospectus Cover Page; Description of
Securities; Dividend Policy; Price Range of Securities
21. Executive Compensation................ Management
22. Financial Statements.................. Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure................ Not Applicable
- iii -
SUBJECT TO COMPLETION, DATED August 5, 1997
PROSPECTUS
102.58 UNITS
8.258 PLACEMENT AGENT WARRANTS
ERD WASTE CORP.
This prospectus ("Prospectus") covers the resale of certain units (the
"Units") of ERD Waste Corp. ("ERD") held or acquirable by certain persons named
in this Prospectus (the "Unitholders") and certain warrants to purchase Units
("Placement Agent Warrants") granted to M.S. Farrell & Co., Inc. and Network 1
Financial Securities, Inc. (together, the "Placement Agents") in connection with
the offering of such Units. The Unitholders and the Placements Agents are
referred to herein as the "Selling Securityholders." ERD will not receive any of
the proceeds from the sale of the Units or the Placement Agent Warrants. The
Units covered hereby consist of such number of shares of common stock, par value
$.001 (the "Common Stock") and warrants (the "Warrants"), determined by dividing
$25,000 by 90% of the average closing bid price for the Common Stock for the 10
trading days immediately preceding the respective date of the closing of the
relevant Offering (as defined below) of the Units (the "Average Closing Bid
Price"). The Units were purchased by accredited investors pursuant to a private
offering memorandum dated December 20, 1996, as supplemented (the "Memorandum")
at closings occurring on December 31, 1996, January 28, 1997, February 18, 1997,
March 25, 1997 and June 6, 1997 (the "Offerings"). The securities comprising the
Units will not be detachable or separately transferable, and may be traded only
as Units, until December 20, 1997 or such earlier date as the Placement Agents
in their sole discretion may determine (the "Separation Date").
The terms of the Offerings require that ERD register the Units, Common
Stock included as part of the Units, Warrants included as part of the Units, the
Common Stock issuable upon exercise of the Warrants included in the Units and
the Placement Agent Warrants (collectively, the "Securities") of the Selling
Securityholders pursuant to registration rights agreements dated the date of the
respective Offering (the "Registration Rights Agreements"). See "Selling
Securityholders." The Securities are being offered on a continuous basis
pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Securities Act"). No underwriting discounts, commissions or expenses are
payable or applicable in connection with the sale of such Securities by the
Selling Securityholders. The Common Stock of the Company is quoted on the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
SmallCap Market ("Nasdaq/SmallCap") under the symbol "ERDI". The Securities
offered hereby will be sold from time to time at then prevailing market prices,
at prices relating to prevailing market prices or at negotiated prices. The
Units, Warrants and Placement Agent Warrants are not currently quoted on
Nasdaq/SmallCap and there is no regular trading market for such Securities. On
July 31, 1997, the last reported sale price of the Common Stock on the
Nasdaq/SmallCap was $1-1/16 per share. This Prospectus may be used by the
Selling Securityholders or by any broker-dealer who may participate in sales of
the Securities covered hereby.
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THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=================================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS SECURITYHOLDERS (1)
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Per Security............................................... see text above none see text above
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Total...................................................... see text above none see text above
=================================================================================================================================
(1) The Securities offered hereby will be sold from time to time at the then
prevailing market prices, at prices relating to prevailing market prices
or at negotiated prices. ERD will pay the expenses of registration
estimated at $_______.
-------------------------
THE DATE OF THIS PROSPECTUS IS ________ __, 1997
AVAILABLE INFORMATION
ERD has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act, with respect to the Securities offered hereby. This prospectus
constitutes a part of the Registration Statement and does not contain all the
information set forth therein. Any statements contained herein concerning the
provisions of any contract or other document are not necessarily complete and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. For further information
regarding the Company and the securities offered hereby, reference is made to
the Registration Statement and to the exhibits thereto.
ERD is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. These reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024 of the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission, such as ERD. The address of such site
is http://www.sec.gov. ERD's Common Stock is listed on Nasdaq, and reports,
proxy statements and other information concerning ERD may be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by ERD with the Commission are
incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-KSB for the year ended
September 30, 1996.
2. The Company's Quarterly Report on Form 10-QSB for the quarter
ended December 31, 1997.
3. The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997.
All documents filed by ERD with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the securities
covered by this Prospectus shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. The Company will provide a copy of any and all of such documents
(exclusive of exhibits unless such exhibits are specifically incorporated by
reference therein) without charge to each person to whom a copy of this
Prospectus is delivered, upon written or oral request to ERD Waste Corp. at 937
East Hazelwood Avenue, Building 2, Rahway, New Jersey 07065, Attention: Joseph
Wisneski, telephone number: (908) 381-9229. Copies of exhibits will be made for
a nominal fee, which covers the Company's copying costs.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or replaced for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is incorporated or deemed to
be incorporated by reference herein modifies or replaces such statement. Any
statement so modified or replaced shall not be deemed, except as so modified or
replaced, to constitute a part of this Prospectus.
-2-
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, the
information in this Prospectus does not give effect to the issuance of shares of
Common Stock issuable upon exercise of the Warrants.
THE COMPANY
In May 1996, ERD Waste Corp. ("ERD") acquired over 90% of the common
stock and substantially all of the preferred stock of Environmental Services of
America, Inc. ("ENSA") pursuant to a tender offer and a related stock purchase
agreement (the "ENSA Acquisition"). References in this Prospectus to "ERD" shall
include ERD Waste Corp. and its historic subsidiaries prior to the ENSA
Acquisition; references to "ENSA" shall include ENSA and its historic
subsidiaries prior to the ENSA Acquisition; and references to the "Company"
shall include both ERD and ENSA.
The Company is a diversified waste management company providing
brokerage, advisory, consulting and technical services to the waste management
industry. The Company also operates treatment, storage and disposal facilities,
manufactures absorbent products, and recently commenced recycling oil filters.
On June 6, 1997, the Company concluded a private placement of the Units
to accredited investors and received net proceeds of approximately $1,756,155.
Such proceeds were used primarily to fund working capital requirements.
The Company was incorporated in the State of New York on May 29, 1992.
On March 1, 1994, the Company changed the state of its incorporation to the
State of Delaware. The Company's principal executive offices are located at 937
East Hazelwood Avenue, Building 2, Rahway, New Jersey 07065, and its telephone
number is (908) 381-9229. The Company has announced its intention to relocate
its principal executive offices to Chicago in the near future.
-3-
RISK FACTORS
The securities being offered hereby are highly speculative in nature
and involve a high degree of risk. In addition to the other information included
in this Prospectus, the following factors should be considered carefully in
evaluating the Company and its business before purchasing the securities offered
hereby.
FINANCING. The Company did not obtain sufficient funds from the
Offerings to meet its immediate requirements and will have to seek additional
funding elsewhere (as to which there can be no assurance of success) and stretch
further the time the Company takes to pay its vendors and other creditors. The
inability of the Company to obtain sufficient funds has adversely affected the
Company's ability to obtain sufficient credit from its vendors and to operate at
full capacity. In addition, the Company is aware of additional commitments which
will have to be met over the next twelve months which include construction
commitments, permitting obligations, settlement expenses and the operational
needs of the Company as a result of internal growth. The Company will also have
to expend substantial amounts to conduct remediation and environmental
compliance at the Company's facilities. The Company needs additional financing
(of which there can be no assurance) to support its operations.
CESSATION OF OPERATIONS AT THE LONG BEACH FACILITY. The New York
Department of Environmental Conservation ("NYSDEC") filed an administrative
complaint against the Company in September 1996 alleging various violations of
the Company's facility permits and environmental laws and regulations at its
facility in Long Beach, New York. On April 10, 1997, the Company entered into a
Consent Order with the Attorney General of the State of New York and the NYSDEC.
The Consent Order provided that the Company would permanently cease operation of
its Long Beach, New York facility both as an incinerator and a solid waste
transfer station, effective April 10, 1997. The Consent Order also defined the
obligations of the Company with respect to the closure of the site pursuant to
its permit. Upon completion and approval of the implementation of the closure
plan provided for in the Consent Order, the Company will receive a Release and
Covenant Not to Sue by the NYSDEC for any investigation or remediation of site
conditions addressed by the closure plan. There can be no assurance that the
Company will be able to comply with the closure plan and receive the Release and
Covenant Not to Sue from the NYSDEC.
The Company previously reported a write-down of the value of the Long
Beach facility's assets and recorded a net loss of $7,167,998 from discontinued
operations in its fiscal year ended September 30, 1996. The sales and net income
before taxes of the Long Beach facility represented approximately 18% and 74%,
respectively, of the Company's total sales and net income before taxes for the
eight months ended September 30, 1996 and 12% and 5% respectively, of the
Company's total sales and net loss before taxes for the six months ended March
31, 1997. There can be no assurance that the Company will find sufficient
alternative sources of income.
The Company is currently in litigation with the City of Long Beach
regarding the contract it entered into with Long Beach Recycling & Recovery
Corp. dated May 13, 1992 (the "Disposal Agreement") as well as leases of the
facility premises dated May 13, 1992 and November 16, 1984 (the "Leases"). The
Company has reflected a net receivable of approximately $600,000 due from the
City of Long Beach on its balance sheet. There can be no assurance that the
Company will be successful on the merits of its litigation with the City of Long
Beach. See also "Legal Proceedings."
CURRENT MAJOR INDEBTEDNESS. In connection with the ENSA Acquisition,
the Company entered into a loan agreement dated March 29, 1996 with Chemical
Bank (the "Bank") for a $7.5 million credit facility which matures April 1, 1998
(the "Loan Agreement"). Substantially all of the proceeds of the Loan Agreement
were used by the Company in connection with the purchase of shares of ENSA in
the Company's tender offer. The Company subsequently borrowed an additional $4.4
million, secured by a letter of credit, from the Bank, which matures in May
1998, to replace approximately the same amount of financing that had been
available to ENSA through its bank. The Company will need to secure financing of
a comparable amount upon maturity of these loans. These substantial levels of
indebtedness are significantly higher than ERD carried in the past. In addition
to generating revenues and profits sufficient to meet its other operating
expenses, the Company will have to generate revenues and profits to service this
new debt. The Company is actively seeking to renegotiate or refinance its
current debt structure.
-4-
DEFAULTS IN CREDIT AGREEMENT. As a result of the write-down and the
anticipated losses from the discontinued incinerator operations at the Long
Beach facility, the Company was not in compliance with certain of the financial
covenants of the Loan Agreement. The Bank has agreed to waivers of such
covenants for each of the last three fiscal quarters (most recently at March 31,
1997) but there can be no assurance that the Bank will agree to future waivers
in the event of further breaches.
EROSION OF NET WORTH. At July 31, 1996, the Company's consolidated net
worth was $15,051,025. As a result of the discontinuation of the incinerator
operations at the Long Beach facility, in the period ended September 30, 1996,
the Company recorded a substantial loss of approximately $12,500,000 and a
decrease in stockholders' equity of approximately $7,500,000, net of a deferred
tax benefit. It is not possible at this time to predict the impact of these
losses on the Company's ability to sustain its current financing, bonding and
insurance requirements.
FINANCIAL UNCERTAINTIES RESULTING FROM ENSA ACQUISITION; WORKING
CAPITAL DEFICIENCY. ENSA, which was acquired on May 5, 1996, had a net loss of
$982,240 for its year ended December 31, 1995, and a net loss of $783,458 for
its first quarter ended March 31, 1996. While the Company has taken steps to
reduce or eliminate the losses incurred by ENSA, the Company incurred
substantial indebtedness in making the ENSA Acquisition. There can be no
assurance that the Company will be able satisfactorily to improve ENSA's
operations to the point of profitability, or that operating profits will be
sufficient to offset the increased costs of servicing the Company's debt. As a
result of the ENSA Acquisition and subsequent investments in new and existing
facilities, the Company currently is suffering from a shortage in working
capital. Prior to the ENSA Acquisition, at April 30, 1996, the working capital
of the Company was approximately $4,500, and, at March 31, 1997, the working
capital of the Company was approximately $1,023,648, a change in large part due
to the Offerings. There can be no assurances that there will not be working
capital deficiencies of the Company in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
FAILURE TO TIMELY FILE CERTAIN EXCHANGE ACT REPORTS. The Company failed
to timely file its Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996 and its Quarterly Report on Form 10-QSB for the period ended
December 31, 1996. The Company filed these reports on February 14, 1997, and
February 21, 1997, respectively. The Company failed to timely file its Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1997. The Company filed
this report on May 21, 1997. Under regulations of the Commission, registration
statements may not be filed on Form S-3 for twelve months after any such
untimely filing. As a result, the Company has registered the securities offered
hereby on Form SB-2 which could result in delays, increased costs to the Company
for registering such securities and an increased possibility that the
effectiveness of any such registration statement may lapse.
-5-
RECENT EXPIRATION OF "LOCK UP" AGREEMENT ON RESTRICTED SHARES.
Approximately 3,321,324 shares of the Company's Common Stock were released in
November 1996 from the provisions of a "lock-up" agreement restricting their
sale entered into with Hampshire Securities Corporation ("Hampshire"), as the
representative of the underwriters of ERD's initial public offering of Common
Stock. In January 1997, the restrictions imposed by Rule 144 on these and other
restricted shares effectively terminated for all persons who are not affiliates
of the Company because the holding period mandated by paragraph (k) of Rule 144
has expired. The expiration of the "lock-up" agreement and expiration of the
restrictions imposed by Rule 144 may tend to release a significant number of
shares into the market and the presence of those shares in the market could have
an adverse effect on the market price of the Common Stock and its marketability.
ENVIRONMENTAL ISSUES.
The Company is involved in the processing, transportation, storage and
disposal of non-hazardous and hazardous wastes. The Company is subject to
extensive and evolving federal, state and local environmental laws and
regulations, which have become increasingly stringent in recent years as a
result of greater public interest in protecting and cleaning up the environment,
including the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA" or "Superfund") and the Resource Conservation and Recovery
Act of 1976 ("RCRA"). These laws and regulations affect the Company's business
in many ways, including as set forth below. See "Business - Environmental
Regulations" for further information concerning the matters set forth below.
Remediation. Several of the treatment, storage and disposal ("TSD")
facilities operated by ENSA are on sites that have been contaminated as a result
of operations at the site or by uses at an adjacent property. Costs associated
with investigating and remediating environmental contamination can be
significant. The Company is cooperating with the governmental regulatory
agencies that have jurisdiction over its facilities to investigate, assess, and
implement appropriate remediation measures to address these environmental
conditions. The Company has evaluated the potential economic impact of
addressing those conditions.
Extensive Permitting Requirements. In order to develop and operate a
hazardous waste management facility, it is necessary to obtain and maintain in
effect one or more facility permits and other governmental approvals. These
permits may be difficult and time consuming to obtain and renew. The Company's
three TSD facilities are required to be permitted pursuant to RCRA and related
state statutes. Although the Company believes that its permits will be renewed,
there can be no guarantee that such renewals will be issued. The Company also
will be required to incur additional capital costs and expenses to assure
compliance with existing and anticipated regulatory requirements.
Potential Liabilities. There may be various adverse consequences to the
Company if a facility owned or operated by the Company (or a predecessor owner
or operator) causes environmental damage, or waste transported by the Company
(or a predecessor) causes environmental damage at another site,or the Company
fails (or a predecessor failed) to comply with applicable environmental laws and
regulations or the terms of a permit or outstanding consent order, or in the
event that the Company's owned or operated facility or the soil or groundwater
thereunder is, or becomes contaminated. Such adverse consequences may include
the imposition of substantial monetary penalties on the Company; the issuance of
an order requiring the curtailment or cessation of the operations involved or
affected; the revocation or denial of permits or other approvals necessary for
continued operations; the imposition of liability on the Company in respect of
any environmental damages caused to adjacent landowners or at sites to which the
Company has transported waste; the imposition of liability under CERCLA or
comparable state laws; and criminal liability for the Company and its officers.
Any of the foregoing could materially adversely affect the Company's business,
financial condition and results of operations.
As described under "Business -- Environmental Regulations," CERCLA and analogous
state laws impose retroactive, strict, joint and several liability on various
parties that are, or have been, associated with a site from which there has been
or is threatened a release of hazardous substances into the environment.
Liability under RCRA,CERCLA and analogous state laws can be very substantial
and, if imposed upon the Company, could materially adversely affect the
Company's business, financial condition or results of operations.
-6-
Waste Fuel Disposal. The Company's TSD facilities produce waste fuel
mixtures which are used as fuel by cement kilns. Should future regulations limit
the ability of cement kilns to accept such waste mixtures, the Company may be
adversely affected as a result of higher disposal costs.
Other. The Company's three TSD facilities are required to maintain
bonds in the event of "closure of the facilities," as required by their
respective states. The Company has posted bonds supported by approximately
$425,000 in cash, as collateral in the event of closure, totalling $1.5 million.
The Company has renewed these bonds in the past, and intends to renew them in
the future. However, there can be no assurance that the Company will be able to
continue to renew the bonds. In the event of the closing of a facility, the
Company's operations will be materially adversely affected.
COMPETITION. Competition among hazardous and non-hazardous waste
service providers is intense. The Company competes with, and expects to continue
to compete with, numerous waste brokers, national waste management companies,
and local and regional companies, many of which have significantly larger
operations and greater financial, marketing, human, and other resources than the
Company. During the 1990's, the industry entered a period of merger and
consolidation at a time when demand for remediation and waste services was
dropping. As a result of the mergers, the industry as a whole is experiencing
increased competition from companies with improved operating efficiencies, while
at the same time facing a lower demand for its services. While the Company
believes that it is well-positioned to compete in such a market due to its
ability to offer both hazardous and non-hazardous services, the Company expects
the competitive marketplace to continue to exist in the foreseeable future. See
"Business."
DEPENDENCE UPON KEY EMPLOYEES; RECRUITMENT OF ADDITIONAL PERSONNEL. The
Company is dependent upon the efforts and abilities of Joseph J. Wisneski, its
President and Chief Operating Officer, Robert M. Rubin, its Chairman of the
Board and Chief Executive Officer, Joseph Jacobsen, an Executive Vice President
and President of ERD Environmental Inc., and Marc McMenamin, Chief Operations
Manager of the Company. Each of Messrs. Wisneski, Rubin, Jacobsen and McMenamin
is a substantial stockholder of the Company. Messrs. Wisneski, Jacobsen and
Rubin have entered into employment agreements with the Company which terminate
on December 31, 1997, May 1999, and December 31, 1997, respectively. Mr.
McMenamin's contract is continuing from year to year on a calendar year basis.
Mr. Jon Colin, who was the President of ENSA, was discharged effective as of
June 7, 1996, and the Company has not yet found a suitable replacement. The loss
or unavailability of the services of any of the aforementioned employees for any
significant period of time could have a material adverse effect on the Company's
business. In addition, Mr. Rubin has interests in a number of other businesses
and his employment agreement does not require him to devote any minimum amount
of time to the affairs of the Company. See "Management."
The ability of the Company to attract and retain highly skilled
personnel is critical to the operations of the Company. To date, the Company has
been able to attract and retain the personnel necessary for its operations.
However, there can be no assurances that the Company will be able to do so in
the future. If the Company is unable to attract and retain personnel with the
necessary skills when needed, its business could be materially adversely
affected.
LACK OF DIVIDENDS. The Company has not paid any dividends on the Common
Stock since inception and does not intend to pay any dividends to its
stockholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. See
"Dividend Policy" and "Description of Securities--Common Stock."
-7-
SUBSTANTIAL OPTIONS AND WARRANTS RESERVED; CONTINGENT ISSUANCES OF
COMMON STOCK. The Company has reserved from the authorized, but unissued, Common
Stock 500,000 shares of Common Stock for issuance to key employees, officers and
consultants pursuant to the Company's 1994 Stock Option Plan (the "Plan"). To
date, options exercisable for an aggregate of 445,000 shares of Common Stock
have been granted under the Plan. The Company has also granted options for
60,000 shares to Joseph T. Jacobsen. The Board of Directors has approved an
increase in the number of shares authorized under the Plan from 500,000 shares
to 1,000,000 shares, subject to stockholder approval. See "Management--Stock
Option Plan." The Company also sold to the Placement Agents in connection with
the Offerings for nominal consideration, the Placement Agents Warrants, which
warrants are exercisable until January 31, 2002. The Company has agreed to grant
to each of the Placement Agents warrants to purchase 50,000 shares of Common
Stock in consideration of investment banking services, in addition to those
rendered in connection with the Offerings. In addition, the Company granted to
Hampshire in connection with the initial public offering of the Company on May
17, 1995, warrants exercisable for 120,000 shares of Common Stock (the
"Representative's Warrants"), which warrants are exercisable until May 17, 2000.
Hampshire presently holds 101,059 of such warrants after having assigned 18,941
to unrelated individuals. The existence of the Warrants, the Placement Agent
Warrants, the Representative's Warrants, any outstanding options issued under
the Plan, the additional options to Mr. Jacobsen, and other options or warrants
may prove to be a hindrance to future financings, since the holders of such
warrants and options may be expected to exercise them at a time when the Company
would otherwise be able to obtain additional equity capital on terms more
favorable to the Company. See "Management."
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS. The Company's
Certificate of Incorporation, as amended, authorizes the board of directors (the
"Board of Directors") to issue up to 2,000,000 shares of preferred stock, par
value $.001 per share. The preferred stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include, among other
things, voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and redemption
rights, and sinking fund provisions. No preferred stock is currently
outstanding, and the Company has no present plans for the issuance of any
preferred stock. However, the issuance of any such preferred stock could
materially adversely affect the rights of holders of Common Stock and,
therefore, could reduce the value of the Common Stock. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
the Company's ability to merge with, or sell its assets to, a third party. The
ability of the Board of Directors to issue preferred stock could discourage,
delay, or prevent a takeover of the Company, thereby preserving control of the
Company by the current stockholders. See "Description of Securities."
SEASONALITY. Severe winter weather conditions have an impact on the
Company's revenues by affecting the ability to (i) perform site remediation and
field service activities, and (ii) transport waste to its TSD facilities for
treatment. This has resulted in the postponement of projects and a decline in
revenues primarily during the months of January and February.
NO PUBLIC MARKET FOR SECURITIES. The Units, Warrants and Placement
Agent Warrants are not currently quoted on Nasdaq/SmallCap and there is no
regular trading market for such Securities. Although the Company has agreed to
use its best efforts to have such Securities listed on the same exchange on
which any other securities of the Company is then listed, there can be no
assurance that it will be successful in having such Securities listed.
Therefore, prices for the Units, Warrants and Placement Agent Warrants may be
difficult to obtain and purchasers of such Securities may be unable to resell
all or part of the Securities offered hereby at or near their original offering
price or at any price.
-8-
SELLING SECURITYHOLDERS
The Units consist of shares of Common Stock and Warrants. The
Securities are all being registered for resale under the Registration Statement,
of which this Prospectus forms a part. The Securities comprising the Units are
not detachable or separately transferable until December 20, 1997 or such
earlier date as the Placement Agents in their sole discretion may determine. The
resale of the Securities is subject to prospectus delivery and other
requirements of the Securities Act. If the Placement Agents allow the detachment
of such Securities, then sales of the Securities, as well as the potential of
such sales at any time, may have an adverse effect on the market prices of the
Common Stock. None of the Selling Securityholders have held any position or
office, or have had other material relationship, with the Company. However, Carl
Frischling is a director of the Company and a member of the New York law firm
Kramer, Levin, Naftalis & Frankel ("Kramer Levin"), one of the Selling
Securityholders.
NUMBER OF COMMON STOCK
SHARES OF NUMBER OF OWNED NUMBER OF
COMMON STOCK WARRANTS PRIOR TO SHARES COMMON STOCK OWNED
UNDERLYING UNDERLYING OFFERINGS(1) TO BE AFTER OFFERING (1)
NAME OF INVESTOR UNITS UNITS UNITS NUMBER PERCENT OFFERED(2) NUMBER PERCENT
- ----------------- ----- ----- ----- ------ ------- ---------- ------ -------
Kramer, Levin, Naftalis &
Frankel(3) 20 200,000 200,000 0 0 400,000 400,000 4.41
The Gunther Hufnagl Living
Trust 4 54,368 54,368 0 0 108,736 108,736 1.20
Arno and Cornelia Ruben
Family Trust 4 54,368 54,368 0 0 108,736 108,736 1.20
Repro Media Money
Purchase Pension Plan 2 26,327 26,327 0 0 52,654 52,654 *
Dennis R. Johnson & Gayle
E. Johnson 1 13,592 13,592 0 0 27,184 27,184 *
David Abel 4 54,368 54,368 0 0 108,736 108,736 1.20
Steven Falk, M.D. 1 13,592 13,592 0 0 27,184 27,184 *
Bay Area Obstetrics &
Gynecology P.A. 401(k) 1 13,592 13,592 0 0 27,184 27,184 *
Michael Garnick 4 54,368 54,368 0 0 108,736 108,736 1.20
Michael Garnick & Denise
Garnick 2 25,470 25,470 0 0 50,940 50,940 *
John & Susan Panichello .4 5,094 5,094 0 0 10,188 10,188 *
Richard Darnell 1 12,735 12,735 0 0 25,470 25,470 *
Donald L. Garrett 1 12,735 12,735 0 0 25,470 25,470 *
Richard M. Selkow 1 12,735 12,735 0 0 25,470 25,470 *
George Fluss 1 12,735 12,735 0 0 25,470 25,470 *
Robert S. Silva, M.D.
Integrated Profit Sharing
Plan 1 12,735 12,735 0 0 25,470 25,470 *
City National bank, Trustee
of the Loma Linda
University Radiology
Medical Group, Inc. MP
Pension, FBO Richard
D. Dunbar, M.D. 1 12,735 12,735 0 0 25,470 25,470 *
Nathan Schwartz 1 12,735 12,735 0 0 25,470 25,470 *
Fred Kassner 8 107,744 107,744 0 0 215,488 215,488 2.38
Stanton M. Cole 1 13,468 13,468 0 0 26,936 26,936 *
Copesetic Ventures, Inc. .5 6,734 6,734 0 0 13,468 13,468 *
Stanley A. Kaplan 1 13,468 13,468 0 0 26,936 26,936 *
Richard Sickels 1 13,468 13,468 0 0 26,936 26,936 *
Mahendra & Rita Sanghavi
JTWROS 1 14,477 14,477 0 0 28,954 28,954 *
Thomas Ryan IRA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
Susan J. Edwards .5 7,238.5 7,238.5 0 0 14,477 14,477 *
Marc A. Fegley and Teresa
Hart-Fegley JTWROS .5 7,238.5 7,238.5 0 0 14,477 14,477 *
Mildred S. Christian .5 7,238.5 7,238.5 0 0 14,477 14,477 *
Robert M. Diener .5 7,238.5 7,238.5 0 0 14,477 14,477 *
L. Bart Thomas 1 14,477 14,477 0 0 28,954 28,954 *
Steven Romeo .5 7,238.5 7,238.5 0 0 14,477 14,477 *
First Trust C/F Robert J.
Verhoven IRA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
-9-
First Trust C/F David
Whittington IRA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
First Trust C/F Ngoon Goon
IRA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
Ngoon Goon C/F Andrew
Joseph Goon UGMA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
Ngoon Goon C/F Robert
James Goon UGMA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
John Scagnelli C/F Kara
Scagnelli UGMA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
John Scagnelli C/F John
Scagnelli UGMA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
First Trust C/F Guy T.
Barbagelata IRA .5 7,238.5 7,238.5 0 0 14,477 14,477 *
Michel Rapoport 4 57,908 57,908 0 0 115,816 115,816 1.28
M. Jenkins Cromwell, Jr. 1 14,477 14,477 0 0 28,954 28,954 *
Newtech Electronics 1.6 23,163.2 23,163.2 0 0 46,326.4 46,326.4 *
Joe L. Wheeler 1 14,477 14,477 0 0 28,954 28,954 *
Edward T. Yau 1 14,477 14,477 0 0 28,954 28,954 *
John & Mary Cummings 1 19,493 19,493 0 0 38,986 38,986 *
Rick B. Western and Terri
L. Western 1 19,493 19,493 0 0 38,986 38,986 *
Timothy W. Radder &
Janice Radder 1 19,493 19,493 0 0 38,986 38,986 *
Timothy M. Mlsna IRA 2 38,986 38,986 0 0 77,972 77,972 *
Gregory M. Dold & Marie
A. Dold 1 19,493 19,493 0 0 38,986 38,986 *
David Thuermer .5 9,746.5 9,746.5 0 0 19,493 19,493 *
James Eldridge & Janice
Eldridge 1 19,493 19,493 0 0 38,986 38,986 *
Ledco Inc. Deferred
Compensation Plan 1 19,493 19,493 0 0 38,986 38,986 *
Malcolm C. Davenport V.
Family Trust 1.2 23,391.6 23,391.6 0 0 46,783.2 46,783.2 *
Geoffrey H. Gray .4 7,797.2 7,797.2 0 0 15,594.4 15,594.4 *
Edward P. Griffiths and
Carole S. Griffiths .4 7,797.2 7,797.2 0 0 15,594.4 15,594.4 *
Charles B. Wilson 5 97,465 97,465 0 0 194,930 194,930 2.15
Wayne England and La
Donna England 2 38,986 38,986 0 0 77,972 77,972 *
Jeffrey D. Kosmo 2 38,986 38,986 0 0 77,972 77,972 *
Richard V. Grazi 1 19,493 19,493 0 0 38,986 38,986 *
Neil S. Kessler .18 3,508.74 3,508.74 0 0 7,017.48 7,017.48 *
Howard Lundeen 2 38,986 38,986 0 0 77,972 77,972 *
Laurie A. & Thomas Bado .4 7,797.2 7,797.2 0 0 15,594.4 15,594.4 *
M.S. Farrell Holdings, Inc. 3.729 57,805.782 57,805.782 0 0 115,611.564 115,611.564 1.28
Martin F. Schacker 1.8645 28,902.891 28,902.891 0 0 57,805.782 57,805.782 *
Douglas Gass 1.8645 28,902.891 28,902.891 0 0 57,805.782 57,805.782 *
Network 1 Financial
Securities .8 10,774.4 10,774.4 0 0 21,548.8 21,548.8 *
------ ------------ ------------ ------------ -----
Total ................... 110.838 1,590,245.604 1,590,245.604 3,180,491.208 3,180,491.208
======== ============== ============== ============= =============
- -------------------------
* less than 1%
(1) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Common Stock which such
person has the right to acquire after the date of this Prospectus. For
purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security
which such person or persons has or have the right to acquire after the
date of this Prospectus is deemed to be outstanding but is not deemed to
be outstanding for the purpose of computing the percentage ownership of
any other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the Company believes
based on information supplied by such persons, that the persons named in
this table have sole voting power with respect to all shares of Common
Stock which they beneficially own.
-10-
(2) Includes the shares of Common Stock included in the Units and the shares
of Common Stock underlying the Warrants included in the Units.
(3) Does not include 8,000 shares of Common Stock owned by Carl Frischling, a
member of Kramer Levin, of which shares Kramer Levin disclaims beneficial
ownership.
The Securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of Securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of Securities. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Securities Act with respect to
the Securities offered, and any profits realized or commission received may be
deemed underwriting compensation.
Under the Exchange Act and the regulations thereto, any person engaged
in a distribution of the Securities offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities during the applicable "cooling off" period (nine days) prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder in connection with
transactions in such securities, which provisions may limit the timing of
purchases and sales of such securities by the Selling Securityholders.
-11-
PLAN OF DISTRIBUTION
The registration statement of which this Prospectus forms a part has
been filed pursuant to the Registration Rights Agreements. To the Company's
knowledge, as of the date hereof, no Selling Securityholder has entered into any
agreement, arrangement or understanding with any particular broker or market
maker with respect to the Securities offered by, nor does the Company know the
identity of the brokers or market makers which will participate in the offering.
The Securities covered hereby may be offered and sold from time to time
by the Selling Securityholders; provided that the Securities comprising the
Units are not detachable or separately transferable until December 20, 1997 (or
such earlier date as determined by the Placement Agents). The Selling
Securityholders will act independently of the Company in making decisions with
respect to the timing, manner and size of each sale. Such sale may be made on
the Nasdaq/SmallCap (with respect to the Common Stock) or otherwise, at prices
and on terms then prevailing or at prices related to the then market price, or
in negotiated transactions. The Securities may be sold by one or more of the
following methods: (a) a block trade in which the broker-dealer engaged by the
Selling Securityholder will attempt to sell the Securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by the broker-dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
To the Company's knowledge, the Selling Securityholders have not, as of the date
hereof, entered into any arrangement with a broker-dealer for the sale of
Securities through a block trade, special offering, or secondary distribution of
a purchase by a broker-dealer. In effecting sales, broker-dealers engaged by the
Selling Securityholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or discounts from the Selling
Securityholders in amounts to be negotiated.
In offering the Securities, the Selling Securityholders and any
broker-dealers who execute sales for the Selling Securityholders may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales, and any profits realized by the Selling Securityholders and the
compensation of such broker-dealer may be deemed to be underwriting discounts
and commissions.
This offering will terminate as to each Selling Securityholder on the
earlier of (a) June 6, 2000, or (b) the date on which all Securities offered
hereby have been sold by the Selling Securityholders. There can be no assurance
that any of the Selling Securityholders will sell any or all of the Securities
offered hereby.
-12-
PRICE RANGE OF SECURITIES
The Company's Common Stock is traded on the Nasdaq/SmallCap under the
symbol "ERDI". Prior to May 9, 1997, the Company's Common Stock traded on the
Nasdaq National Market System ("Nasdaq/NMS"). The following table sets forth the
range of reported high and low "bid" prices for the Common Stock, as quoted on
Nasdaq/NMS or Nasdaq SmallCap for the periods indicated. The quotations reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
necessarily represent actual transactions. The trading volume of the Company's
securities fluctuates and may be limited during certain periods. As a result,
the liquidity of an investment in the Company's securities may be adversely
affected.
HIGH LOW
---- ---
1995
Second Quarter $ 8 3/4 $6 1/2
(trading started on
May 7, 1995)
Third Quarter $10 1/8 $7
Fourth Quarter $ 8 7/8 $6 3/4
1996
First Quarter $ 9 3/4 $7 3/8
Second Quarter $10 1/2 $7 5/8
Third Quarter $ 9 1/4 $3 3/8
Fourth Quarter $ 4 7/8 $1 5/8
1997
First Quarter $2 7/16 $1 1/2
Second Quarter $2 3/16 $7/8
On July 31, 1997, the closing bid price of the Common Stock as quoted
on Nasdaq/SmallCap was $1-1/16 per share. As of such date, there were
approximately 120 holders of record and approximately 500 beneficial holders of
the Company's Common Stock.
DIVIDEND POLICY
The Company has never paid or declared any dividends upon its Common
Stock and does not contemplate or anticipate paying any dividends upon its
Common Stock in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. The
declaration of dividends in the future will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions, and other pertinent
factors. Pursuant to the Loan Agreement, the Company may not declare or pay any
dividends during the life of the loan without the written consent of the Bank.
-13-
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997.
as of March 31, 1997
Short term debt.................................................... $ 3,185,264
===========
Long term debt..................................................... $14,159,164
Stockholders' Equity:
Preferred Stock -- $.001 par value,
authorized -- 2,000,000 shares; no shares issued and
outstanding --
Common Stock -- $.001 par value, authorized --
15,000,000 shares; issued and outstanding 6,896,743 shares;
(pro forma 9,063,273 shares).................................... 6,897
Capital in excess of par value.......................................... 12,186,269
Retained earnings (deficit)............................................. (4,563,950)
-------------
Total stockholders' equity.............................................. 7,629,216
---------------
Total capitalization.................................................... $21,788,380
===============
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a diversified waste management company providing
brokerage, advisory, consulting and technical services to the waste management
industry. The Company also operates treatment, storage and disposal facilities,
manufactures absorbent products, and recently commenced recycling oil filters.
The Company has grown primarily through acquisitions which occurred
between 1994 and 1996. In May 1996, the Company acquired more than 90% of the
common stock and substantially all of the Preferred Stock of ENSA. The Company's
operations are conducted through the parent corporation and its subsidiaries
including ENSA and its subsidiaries. All of such acquisitions were accounted for
as purchases. Accordingly, the Company's results of operations include the
operations of each acquired entity from the respective dates of each
acquisition. The ENSA Acquisition dramatically impacted the results of
operations due to the size of the operating entities acquired. ERD reported net
revenues of $5,011,000 (exclusive of $10,205,000 from discontinued operations)
for the fiscal year ended January 31, 1996 while ENSA reported net revenues of
$36,559,000 for the fiscal year ended December 31, 1995. Additionally, the
closure of the Long Beach facility had an adverse effect on the results of
operations for the six month period ended March 31, 1997.
The Company changed its fiscal year end from January 31 to September 30
effective with the eight months ended September 30, 1996. Accordingly, the
Company's financial statements present the operating results for the six month
period ended March 31, 1997, the eight month period ended September 30, 1996 and
the twelve months ended January 31, 1996.
RESULTS OF OPERATIONS:
The following table sets forth certain summary operating data of the
Company, excluding the operations of ENSA prior to the date of acquisition, as a
percentage of revenues for the periods indicated
Six Months Eight Months
Ended Ended Year Ended
March 31, 1997 September 30, 1996 January 31, 1996
-------------- ------------------ ----------------
Revenues 100.0% 100.0% 100.0%
Cost of Sales 62.5 63.5 64.9
---- ----
Gross profit 37.5 36.5 35.1
Operating expenses 38.5 33.2 31.3
------ ---- ----
Income from operations (1.0) 3.3 3.8
Other income and
(expenses) (2.6) (2.4) .9
------- --- ----
Income from continuing
operations before income
taxes (3.6) .9 4.7
Provision for income taxes (1.4) .3 1.9
------- --- ----
Income from continuing
operations (2.2) .6 2.8
Discontinued operations -- (35.6) 41.6
---- ---- ----
Net Income (loss) (2.2)% (35.0)% 44.4%
===== ==== ====
-15-
SIX MONTHS ENDED MARCH 31, 1997 VS. SIX MONTHS ENDED MARCH 31, 1996
Revenues
For the first six months of fiscal 1997, revenues were $16,671,256, an
increase of $11,177,204 over revenues from the same period of the previous year.
The increase in sales was primarily due to the ENSA Acquisition. The Company
typically reports reduced revenues during the winter months. Revenues during the
winter months of 1997 were further reduced primarily as a result of adverse
industry reaction to the discontinuance of the Company's Long Beach facility as
well as the strain on the Company's resources, both in terms of the expenses
incurred and the management time required, in addressing the issues related to
the Long Beach facility. The Company believes it has adequately addressed the
issues and does not anticipate continued adverse reaction.
A summary of consolidated revenues by business segment is as follows
Six Months Ended Six Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
$ % $ %
--- --- --- --
ERD of Illinois, Inc. ("ERD-IL") 531,585 3.2 827,401 37.6
Absorbent Manufacturing & Technologies, 384,103 2.3 642,556 29.2
Inc. ("AMTI")
ERD Waste Corp. (Indiana) ("ERD - IN") 650,000 3.9 125,430 5.7
TSD Facilities 5,460,977 32.8 -- 0.0
Consulting 6,960,119 41.7 -- 0.0
Remediation 2,684,472 16.1 605,147 27.5
--------- ---- ------- ----
$16,671,256 100.0 $2,200,534 100.0%
=========== ===== -========= ======
On a proforma basis, sales for the six months ended March 31, 1997
declined approximately $5,500,000 from the comparable period the prior year.
Management believes the decline in sales is due, in part, to the negative
publicity generated from the closure of the Long Beach facility.
The following summarized proforma financial information from continuing
operations assumes the acquisitions occurred at October 1, 1995, and does not
purport to be indicative of what would have occurred had the acquisitions been
made as of that date:
Six Months Ended Six Months Ended
March 31, 1997 March 31, 1996
---------------- ---------------
Net Sales $ 16,671,256 $ 21,105,549
Net Loss $ (358,708) $ (509,445)
Loss per common share $ (.06) $ (.09)
Cost of Sales
For the six months ended March 31, 1997, cost of sales rose $8,493,943
over the comparable period for the prior year. The increase is primarily due to
the increased sales. In addition, the businesses started and acquired by the
Company over the last year operate with higher direct costs as a percentage of
sales compared to the Company's other businesses. The Company also encountered
higher than expected costs during the winter months of 1997. The Company does
not expect this trend to continue.
-16-
Gross Profit
Compared to the same period of the prior year, gross profit on sales
increased $2,683,261 to $6,257,668 in the first six months of fiscal 1997, as a
result of the increase in sales. Gross profit margins declined, however, from
65.1 percent of sales to 37.5 percent of sales. The decline in the margin
percentage was primarily due to the Company's new acquisitions which operate at
lower profit margins.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $5,779,265 in the
first six months of fiscal 1997, compared to $2,171,858 in the same period of
the previous fiscal year. As a percentage of sales, selling, general, and
administrative expenses declined from 39.5 percent in the first six months of
fiscal 1996 to 34.7 percent in the first six months of fiscal 1997.
The Company reduced operating expenses as a percentage of sales by
staff reductions, consolidation of duplicative administrative/accounting
departments, and the implementation of strict fiscal controls at the acquired
entities. Similar efforts are expected to continue.
Depreciation and Amortization
Depreciation and amortization rose from $267,522 in the first six
months of fiscal 1996 to $639,677 in fiscal 1997.
Interest Expense
Interest expense rose $506,521 in the first six months of fiscal 1997
as compared to the same period of fiscal 1996. The increase in interest expense
is primarily due to additional bank borrowings of $11,900,000 and indebtedness
of ENSA of approximately $1,039,000 which the Company assumed upon acquisition.
Net Income from Continuing Operations
For the six months ended March 31, 1997, net loss was $358,708 ($.06
per share) as compared to net income of $620,846 ($.10 per share) for the six
months ended March 31, 1996, a 158 percent decrease. The decrease is primarily
attributable to the increase in the Company's interest expense and increased
costs during the winter months.
Discontinued Operations
For the six months ended March 31, 1997, net loss from discontinued
operations amounted to $19,463, net of income taxes of approximately $12,976 on
revenues of $2,359,906. At September 30, 1996, the Company had recorded a loss
on disposal of its Long Beach facility amounting to $7,500,000 which included an
estimate of operating income through the termination date. As a result of this
accrual at September 30, 1996, the net loss from discontinued operations for the
six months ended March 31, 1997 has been reflected as a decrease in accrued
expenses payable.
EIGHT MONTHS ENDED SEPTEMBER 30, 1996 VS. YEAR ENDED JANUARY 31, 1996
Revenues
During the eight months ended September 30, 1996, revenues from
continuing operations were $20,130,375, an increase of $15,119,410 over revenues
for the year ended January 31, 1996. The increase in revenues occurred primarily
as a result of the ENSA Acquisition.
Revenues from the Company's incinerator operations of $4,312,224 for
the eight months ended September 30, 1996 and $3,847,707 for the year ended
January 31, 1996 are not included in revenues. Those revenues, along
-17-
with relevant operating expenses are classified as part of discontinued
operations in the Company's consolidated statements of operations.
A summary of consolidated revenues by business segment is as follows:
Eight Months Twelve Months
Ended Ended
September 30, 1996 January 31, 1996
------------------ ----------------
$ % $ %
--- --- --- ---
EDR-IL 2,287,360 11.4 3,626,732 72.4
AMTI 1,940,072 9.6 1,053,122 21.0
ERD-IN 501,580 2.5 331,111 6.6
TSD Facilities 4,981,522 24.7 -- 0.0
Consulting 8,339,345 41.4 -- 0.0
Remediation 2,080,496 10.4 -- 0.0
--------- ---- -- ------
20,130,375 100.0 5,010,965 100.0
=========== ===== ========= ======
Cost of Sales
For the eight months ended September 30, 1996, cost of sales was
$12,778,257 or 63.5% of revenues which compares to cost of sales of $3,253,046
or 64.9% of revenues for the twelve months ended January 31, 1996. The increase
of $9,525,211 is primarily attributed to costs associated with the ENSA
Acquisition.
Cost of sales includes direct labor, transportation, as well as the
costs of disposal of waste and subcontractor's costs. Cost of sales does not
include any expenditures related to incineration which are included in
discontinued operations.
Operating Expenses
During the eight months ended September 30, 1996, operating expenses
were $6,681,725. The primary reason for the increase in operating expenses over
prior periods is the ENSA Acquisition. For the period May through September,
1996, ENSA's operating expenses totalled $3,863,670. In addition, goodwill
generated from the acquisition is currently recorded at $9,097,051 which will be
expensed over 30 years beginning in May, 1996. Amortization of goodwill expense
included in the eight month statement of operations was $127,141.
Operating expenses also include two transactions of a nonrecurring
nature. In August, 1996, the Company's transfer station for non-hazardous waste
located in Indiana was destroyed in a fire. The Company made claims seeking
recovery of its losses and recovered substantially all of such losses. The
Company has transferred its nonhazardous waste operation to its facility in
South Bend, Indiana. The Company wrote off all assets and start up costs
associated with the transfer station, amounting to $423,352 during the eight
months ended September 30, 1996.
Also included in operating expenses are $437,241 of operating expenses
related to the Company's start up of ERD Resource Recovery, Inc. ("ERD-RR"), the
Company's oil recycling facility in Waco, Texas which began operations in
September, 1996.
Income from Operations
Income from operations was $670,393 or 3.3 percent of revenues for the
eight months ended September 30, 1996, as compared to $189,507 or 3.8 percent of
revenues for the twelve months ended January 31, 1996.
Income from continuing operations for the eight month period ended
September 30, 1996 was $194,583 ($0.02 per share) as compared to $238,712 ($0.03
per share) for the fiscal year ended January 31, 1996. As a result
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of the Company's substantial growth in sales, it has incurred additional
borrowings as discussed above. Such borrowings have significantly increased the
Company's interest expense, which has impacted income from continuing
operations.
Interest Expense
Interest expense was $602,407 for the eight month period ended
September 30, 1996, as compared to $62,765 for the twelve months ended January
31, 1996. The Company's indebtedness to the Bank was initially $7,500,000. The
$7,500,000 was used to finance the acquisition of ENSA. The $7,500,000
indebtedness was subsequently increased through additional loans to $11,900,000.
There are no current plans to reduce the amount of borrowings outstanding. The
Company currently pays approximately $90,000 per month in interest to the Bank.
Discontinued Operations
The Company shut down its Long Beach, New York incinerator on April 14,
1997. As a result of the shutdown, the Company has recorded a $7,167,998 loss
from discontinued operations for the eight months ended September 30, 1996.
The Company has also recorded a loss on disposal of the facility of
$7,500,000 calculated as follows:
Net book value of Long Beach facility $ 11,500,000
Costs to dismantle and professional fees 2,000,000
Estimated salvage value of equipment (500,000)
Operating profits through termination date (500,000)
12,500,000
Estimated income taxes 5,000,000
7,500,000
Net income (loss)
For the eight months ended September 30, 1996 the Company's net loss
was $7,051,081 ($1.20 per share) as compared to net income of $2,227,631 ($0.41
per share) for the fiscal year ended January 31, 1996.
The largest factor influencing the Company's results in the current
period was the loss from discontinued operations of the Long Beach facility.
LIQUIDITY AND CAPITAL RESOURCES:
In May 1996 the Company acquired over 90% of the common stock and
substantially all of the preferred stock of ENSA for an aggregate purchase price
of $7,166,577. Funds for the purchase were obtained from a $7.5 million
revolving credit loan from the Bank. An additional $520,000 will be required to
purchase the remaining outstanding capital stock of ENSA. Such funds are not
presently available to the Company. The Company is currently investigating other
methods of acquiring the remaining outstanding capital stock of ENSA. On June 6,
1996, the Company received an additional $4,000,000 loan from the Bank and on
August 20, 1996, the Bank loaned an additional $400,000. The proceeds were used
to fully pay and discharge all principal, interest, fees, and other financial
obligations owed by ENSA to United Jersey Bank.
At March 31, 1997, the Company's working capital was $1,026,648 as
compared to working capital of $318,676 at September 30, 1996 and $32,132 at
January 31, 1996. Included in working capital is a deferred tax benefit of
$750,000 representing refunds received in the fiscal year ending September 30,
1997 for carryback of net operating losses and refunds of estimated payments
made.
-19-
The Company's unrestricted cash declined $1,360,489 to $61,725 over the
eight month period ending September 30, 1996. During the eight months, the
largest uses of cash were the May 1996 acquisition of ENSA and capital
expenditures of $2,149,472, of which $935,242 was for improvements at the
Company's now discontinued incinerator.
In order to provide working capital to the Company during 1996 Messrs.
Rubin and Wisneski, officers and directors of the Company, made various loans
evidenced by interest bearing notes. The outstanding loans from Mr. Rubin at
September 30, 1996 and December 31, 1996 are zero and $300,000 respectively. The
outstanding loans from Mr. Wisneski are $500,000 at September 30, 1996, $400,000
at December 31, 1996 and $100,000 at July 31, 1997. Mr. Rubin's note was due on
January 17, 1997, but has been extended. The remainder on Mr. Wisneski's notes
are due in 1998.
In addition, Messrs. Rubin, Wisneski, and Marc McMenamin (the Company's
chief operations manager) deferred the payment of certain compensation and
related expense payments to which they were contractually entitled. During 1996,
these amounts totalled $107,692, $80,769, and $13,462 for Messrs. Rubin,
Wisneski and McMenamin, respectively. Such amounts remain unpaid and are accrued
in the Company's financial statements.
At March 31, 1997 the Company did not meet some of its covenants under
the loan agreement with the Bank, which default the Bank waived. During the six
months ended March 31, 1997, the Company utilized approximately $2,160,000 of
cash in its operating activities. This was primarily a result of the reduction
in accounts payable and accrued expenses amounting to approximately $3,860,000.
This reduction was partially funded by equity funds raised in the Offerings,
loans from principals and affiliates and collection of accounts receivable.
The Company's final Offering occurred on June 6, 1997. The Company
received net proceeds amounting to $1,756,155 from the Offerings out of an
anticipated $3,262,500 had the complete offering amount been sold. The inability
of the Company to raise the remaining $1,500,000 from the Offerings has
adversely affected the Company's ability to obtain sufficient credit from its
vendors, and to operate at full capacity.
The Company is currently seeking to refinance its long term credit
facility and provide the Company with additional working capital. The Company
needs additional financing to support its operations. The Company is presently
seeking other sources of funds needed to complete the purchase of the remaining
ENSA common stock, as well as to provide necessary working capital to enable the
Company to continue operating its businesses. Among the sources of funds being
pursued by the Company are:
1. Private placement of common stock;
2. Additional funding from commercial banks;
3. Replacement of restricted certificates of deposits with payment
bonds;
4. Conversion of current liabilities into equity; and
5. Subordinated and/or convertible debt financing.
-20-
BUSINESS
The Company is a diversified waste management company providing
brokerage, advisory, consulting and technical services to the waste management
industry. The Company also operates treatment, storage and disposal facilities,
manufactures absorbent products, and recently commenced recycling oil filters.
(A) BUSINESS DEVELOPMENT
Background
The Company was formed in May 1992 and initially provided brokerage,
consolidation, and other services to generators, transporters, and brokers of
non-hazardous industrial and commercial solid waste. .
On April 1, 1994, the Company acquired Environmental Controls
Technology, Inc., an Illinois corporation ("ECT"), and changed ECT's name to
Environmental Resources and Disposal of Illinois, Inc. ("ERD-IL"). ERD-IL
provides brokerage, advisory, consulting and technical services to generators of
non-hazardous industrial and commercial solid waste and hazardous waste.
In January, 1995, the Company acquired secured indebtedness of
Envirovision, Inc. ("Envirovision") and subsequently foreclosed upon the
collateral securing such indebtedness primarily accounts receivable and
contracts in process. Pursuant to the acquisition of Envirovision's assets, the
Company began storage tank management (removal and installation) consulting,
remediation, and ancillary operations in Congers, New York and Baltimore,
Maryland.
In October, 1995 the Company, through its subsidiary AMTI, purchased
substantially all of the assets of Environmental Absorbent Technologies, Inc.
("EATI"), an absorbent materials manufacturer.
In May 1996, the Company acquired over 90% of the common stock and
substantially all of the preferred stock of ENSA pursuant to the ENSA
Acquisition.
(B) BUSINESS OF THE COMPANY
SERVICES OF THE COMPANY
The Company, through its subsidiaries, currently provides the following
services:
1. Hazardous Waste Management Services;
2. Environmental Remediation Services;
3. Environmental Engineering, Air Testing, Air Monitoring and
Consulting Services;
4. Manufacture and Distribution of Absorbent Products; and
5. Oil Filter Recycling.
1. HAZARDOUS WASTE MANAGEMENT SERVICES
The Company's hazardous waste management services include waste
treatment and resource recovery, transportation, and transfer, storage and
disposal coordination. These services are provided through Northeast
Environmental Services, Inc. ("NES"), Environmental Services of America - IN,
Inc. ("ENSA-IN") and Environmental Services of America - MO, Inc. ("ENSA-MO")
and, to a lesser extent, by ENSI, Inc. ("ENSI") and TRI-S, Incorporated
("TRI-S")(transportation and disposal coordination). The wastes handled by the
Company include substances which are classified as "hazardous" by RCRA and/or
exhibit the characteristics of a hazardous substance, i.e., corrosive,
ignitable, reactive or toxic properties, as well as other
-21-
substances subject to federal and state environmental regulations, other than
radioactive wastes, explosive materials and infectious wastes.
The Company provides the following hazardous waste management services:
(a) Treatment, Storage and Disposal Facilities
At the present time, the Company owns three TSD facilities. NES is
located in Canastota, New York. ENSA-IN is located in South Bend, Indiana.
ENSA-MO is located in Scott City, Missouri. When one of the Company's TSD
facilities is designated as the treatment and disposal facility for a particular
waste, prior to acceptance of the waste by the Company's facility, a
representative sample of the waste is analyzed in order to insure that it
conforms to the customer's waste profile sheet. Once the waste materials have
been characterized, compatible groups of waste are consolidated to achieve
economies in storage, handling, transportation and ultimate treatment and
disposal.
The Company uses its TSD facilities to conduct treatment operations and
temporarily store waste material for later off-site resource recovery,
incineration and disposal. Facilities engaged in the treatment, storage and
disposal of hazardous waste are subject to the licensing procedures established
under RCRA and the regulations promulgated thereunder. On November 1, 1991 the
state and federal permits required by RCRA for the operation of the NES facility
became effective. On January 22, 1993 ENSA-IN was issued its RCRA Part B
Hazardous Waste Management permit ("Part B Permit"), and on January 10, 1994
ENSA-MO was issued its Part B Permit. See "-Environmental Regulation" below,
for additional information regarding the TSD facilities and their state and
federal permits. Currently, NES is processing a permit renewal application.
The Company uses physical methods such as decanting, blending and
acid-base neutralization in its treatment and resource recovery operations. The
nonrecoverable residual materials produced by the Company's treatment operations
are disposed off-site by either incineration or stabilization for subsequent
burial in secure disposal cells in licensed chemical secure landfills owned and
operated by unrelated businesses. The recoverable organic liquids from these
treatment operations which have sufficient heat value are blended by the Company
to meet strict specifications for use as supplemental fuels for cement kilns,
blast furnaces and other high-efficiency boilers. The Company has established
relationships with a number of supplemental fuel users that are licensed to
accept the blended fuel material. Although the Company pays a fee to the users
who accept this product from the Company, this disposal method is substantially
less costly than incineration at a commercial hazardous waste treatment
facility.
(b) Drummed Waste Handling and Repackaging
Drummed waste handling and repackaging projects involve the handling of
bulk drums and the handling and repackaging of laboratory packaged chemicals.
Drummed waste handling and repackaging services typically are performed
under service agreements or purchase orders that obligate the Company to accept
waste material from the customer conforming to the specifications in the
agreement. Before signing a service agreement with a customer, the Company
arranges to have a representative sample of the waste analyzed by the one of the
Company's three TSD facilities or another certified laboratory which has been
pre-qualified by the Company. The analytical profile of the waste material
enables the Company to recommend an appropriate method of transportation,
treatment and disposal and to designate a treatment and disposal facility
licensed to accept the waste.
(c) Transportation
Transportation and disposal is offered as an adjunct to the remediation
activities and on-going removal and disposal of industrial process waste. The
Company, through its subsidiaries, is presently licensed to transport hazardous
waste in approximately 45 states, including the New England states, New Jersey
and New York, as well as the Canadian provinces of Quebec and Ontario.
-22-
(d) Disposal Coordination
The Company does not own or operate any landfills or incinerators for
the disposal of hazardous waste. The Company arranges for disposal of its
customers' hazardous waste primarily at incinerators, chemical secure landfills
or other disposal facilities for treatment or reclamation operated by other
businesses.
2. ENVIRONMENTAL REMEDIATION SERVICES
Environmental remediation involves activities such as site assessment
and development of a management plan including clean-up, materials handling,
draining, flushing, decommissioning, packaging, loading, unloading, pumping and
preparing waste for storage, shipment and disposal. The Company's remediation
services are provided primarily to companies in the chemical, petroleum,
transportation and utility industries and to governmental agencies. The Company
provides environmental remediation services to industrial customers with
operations throughout New England and the Midwestern and Mid-Atlantic states.
The Company provides the following environmental remediation services:
(a) Surface Remediation
The Company's surface remediation projects generally involve the
planned clean-up of hazardous waste sites or the clean-up of accidental spills
and discharges of hazardous materials, such as those resulting from
transportation and industrial accidents. Some surface remediation projects
involve recurring maintenance and clean-up activities at industrial wastewater
treatment facilities. The Company also provides 24-hour emergency response
services for industrial entities, federal, state and local agencies in
connection with land-related and waterway incidents that require clean-up.
(b) Facilities Decontamination
Facilities decontamination involves the clean-up and restoration of
buildings and other property and related equipment that have been contaminated
by exposure to hazardous materials during a manufacturing process, or by fire,
process malfunction, spills or other accidents. The Company's projects have
included decontamination of chemical, metallurgical, industrial, manufacturing,
commercial, educational, and utility facilities.
(c) Underground Storage Tank Management
In regulations promulgated under RCRA which took effect during 1988,
leaks from underground storage tanks were identified as a serious environmental
hazard and specific timetables for the testing and monitoring of such tanks were
established. The Company provides a wide range of services to facilitate
compliance with such regulations, including services designed to locate and
evaluate the condition of underground tanks, detect and correct leaks, evaluate
groundwater and soil contamination and prevent, minimize, and/or remediate
impacted groundwater and soil and replace and upgrade tanks. In addition, the
Company provides assistance with governmental recordkeeping requirements.
3. ENVIRONMENTAL ENGINEERING, AIR TESTING, AIR MONITORING AND
CONSULTING SERVICES
The Company's environmental consulting services include: problem
definition, strategy development and investigation; remedial investigation and
feasibility studies; remedial design, project management and construction,
implementation, operations and maintenance of in-situ systems; monitoring and
recovery well design and installation; site closure planning and implementation;
waste minimization and alternative disposal assessments; hazardous waste and
discharge permit preparation; air discharge permit applications; site
assessments, geophysical investigations, regulatory planning and coordination;
groundwater restoration and resource development, underground and above-ground
storage tank design, upgrade and management, asbestos and lead sampling and
analysis. The Company's subsidiary, ERD Environmental, Inc. ("ERD-ENV"), employs
approximately 170 professional and technical personnel whose expertise includes
hydrogeology, engineering geology, geophysics, chemistry, biology, remedial
design and computer modeling.
-23-
In addition, the consulting group also provides indoor and outdoor air
management: field services, consulting, and continuous emissions monitoring
system design and monitoring. The field services include source emissions
testing and ambient air quality monitoring. Source emissions testing involves
the collection and analysis of samples of exhaust gases obtained from a wide
variety of industrial processes, including hazardous waste incinerators,
municipal waste incinerators, boilers, surface coating operations,
microelectronic manufacturing operations and various chemical plant and refinery
operations. Most often these services are performed to demonstrate compliance of
the process with applicable regulatory requirements. Ambient air quality
monitoring involves the evaluation of concentrations of various pollutants and
may be done for a number of reasons, including, without limitation, permitting
purposes and odor assessments, health and safety purposes, and asbestos and lead
monitoring. Additionally, each air office operates its own analytical laboratory
to support its field service activities.
Consulting Services and Brokerage of Waste
The Company, provides brokerage, advisory, consulting, and technical
services to generators of non-hazardous industrial and commercial solid waste
and hazardous waste. The focus of the Company's service business is to provide
cost-effective waste management solutions to its clients by (i) training clients
to implement non-hazardous and hazardous waste preparation techniques designed
to lower waste disposal costs, (ii) utilizing the Company's proprietary computer
database to determine the optimal hazardous waste disposal solution, and (iii)
coordinating all aspects of the preparation, removal, and disposal of the
client's waste and arranging with one or more qualified waste transporters for
delivery from the point of generation, through other jurisdictions, if
necessary, to disposal facilities for incineration, recycling, or other
disposal.
The Company's proprietary computer database contains profiles of the
hazardous waste of each customer, the location of such waste, licensed
transporters, and the authorized recycling and incineration facilities best
suited for the specific waste products in question. The Company believes that
this database provides the Company and its clients with increased flexibility in
determining the optimal hazardous waste disposal solution.
4. MANUFACTURE AND DISTRIBUTION OF ABSORBENT PRODUCTS
The Company, through its subsidiary AMTI, manufactures and distributes
absorbent products designed for the absorption and containment of commercial and
industrial liquid waste. These products include booms, socks, pads and bilge
balls. Examples of the use of these products include the containment of chemical
spills and the clean up of oil and chemicals in connection with automobiles,
boats and manufacturing operations. After the absorbent products are used, the
Company offers disposal services for the removal of the waste and the used
absorbent products. The Company has consolidated operations formerly conducted
at its Bedford Park, Illinois facility with its operations at its East
Stroudsburg, Pennsylvania facility and closed the Bedford Park facility.
5. OIL FILTER RECYCLING
The Company commenced operation of its oil filter recycling facility in
Waco, Texas in September 1996. The plant's processing line has been designed to
separate the individual components (metal, oil and filter media) from the used
filters and spent sorbents. The metals and oil are able to be recycled back into
usable materials while the oily filter media is reused as an alternative energy
source by local power utility. This process provides generators of used oil
filters and spent sorbents with a reasonable solution to potential environmental
liabilities. With a 60,000 square foot building located on five acres, the
facility is able to accept and process a substantial volume of waste product.
MARKETING
The Company's primary marketing areas include New England, the
Mid-Atlantic and the Mid-West States. In addition to "Fortune 500" companies
with facilities in the Company's marketing area, the Company has targeted small
and medium size businesses which typically do not possess internal environmental
departments and recognize the value of hiring a full service environmental and
hazardous waste management company. The Company has regionalized its marketing
program with offices in the East and Midwest, and uses its 20 person sales
force, trained
-24-
in cross-selling of various services, to promote all of the Company's services.
The Company's officers also devote a portion of their time to sales activities
on behalf of the Company.
The Company recognizes the market's need for "one-stop shopping" for
integrated services ranging from consulting and planning to actual "hands-on"
clean-up, treatment, transportation and disposal. The Company markets and
provides its services on an integrated basis and, in many instances, the
performance of services in one discipline has lead to the performance of
additional work in other disciplines. For example, the results of an
environmental consulting and sampling program could dictate the need for
excavation, transportation and disposal of contaminated material identified in
the site assessment. In addition, the Company provides turnkey services for lab
packs to hospitals, colleges and universities.
The Company, as well as other companies, have access through the
Freedom of Information Act to access hazardous waste activity reports in all
states in order to concentrate marketing efforts.
As part of its marketing efforts, the Company identifies projects by
accessing hazardous waste activity reports which are available under the Freedom
of Information Act. The Company advertises on local radio, in trade journals and
participates in regional trade and industry shows. The Company also relies upon
the recommendations of clients, subcontractors, affiliates, and the Company's
position on the "recommended contractors list" or "approved vendors list" of
various governmental agencies and "Fortune 500" companies.
SEASONALITY
The Company's revenues are impacted by severe winter weather conditions
which affect the ability to perform site remediation and field service
activities, and transport waste to its TSD facilities for treatment, i.e.,
equeous waste which can not be processed due to ambient freezing conditions.
This has resulted in the postponement of projects and a decline in revenues
primarily during the months of January and February. Other than severe winter
weather, Management does not believe the Company has experienced any significant
seasonality in its business in the past, and does not anticipate seasonality to
have a significant impact on its operations in the future.
CUSTOMERS
On a consolidated basis, the majority of the Company's revenues have
arisen out of competitive bid contracts awarded by customers involved in the
chemical industry and by customers in a wide range of manufacturing industries.
During 1995, a significant portion of the Company's revenues were derived from
customers who repeatedly utilize the Company's services.
The Waco, Texas facility, opened in September 1996, markets oil filter,
recycling services to national accounts. Although only currently servicing the
Southeast, the Company will continue its efforts to develop national contracts.
The customers of the Company's TSD facilities who require waste
handling and transportation services are a diverse mix of several hundred
industrial and manufacturing entities and a number of waste brokers. Since the
Company is approved under the Superfund Act (as defined below), a large portion
of the Company's TSD business is derived from government contracts. A
substantial portion of the revenue is originated from services performed by
other subsidiaries of the Company.
TRI-S and ENSI together service customers in need of transportation,
clean-up, consulting or remediation services throughout New England,
Metropolitan New York City and New Jersey. Typical customers are chemical
processing companies, industrial manufacturers, petroleum services, real estate
and lending institutions, and governmental agencies. The services provided range
from non-recurring projects to repeat service work requiring environmental
expertise such as technical in-plant services.
ERD-ENV performs environmental engineering, air testing, air monitoring
and consulting services for a diverse range of industrial and governmental
customers located primarily in New England, Mid Atlantic and Mid-West
-25-
states. In addition, ERD-ENV has worked for numerous civil engineering firms
involved in a wide variety of industries, as well as corporations in the
pharmaceutical, petrochemical, microelectronic and printing industries.
ERD-IL provides marketing services for the Waco, Texas facility as well
as the TSD facilities located in Scott City, Missouri and South Bend, Indiana.
It also provides remediation services and brokerage services for the disposal of
industrial and hazardous waste.
COMPETITION
The hazardous and non-hazardous waste management industry involves a
few large companies which provide integrated services and numerous smaller
companies which provide some or all of the same services. Large companies with
extensive resources are able to directly provide field services, waste
transportation and disposal through their own secure landfills and incineration
facilities. Examples of some of the Company's largest competitors are Chemical
Waste Management; Clean Harbors, Inc.; International Technology Corp.; Laidlaw
Environmental Services, Inc.; and Rollins Environmental Services. Other
competitors either provide one aspect of waste management, or, like the Company,
provide integrated services by subcontracting portions of their services to
other companies. Examples of some of the Company's comparably sized competitors
are Cycle Chem, Inc.; Philip Environmental; S&W Waste, Inc.; Advanced
Environmental Technology Corp.; Franklin Environmental; Northland Environmental;
Essex Waste Management, Inc.; PCIA, Inc.; EWR; Petrochem; and Safety Kleen. The
waste management and disposal industry is highly competitive and requires
substantial capital. Competition in the waste management industry is based
primarily on price, technical performance, services, and reliability.
The waste management consulting and remediation industry is also highly
competitive. Competition is based on the basis of price, experience, and custom
service and to a lesser extent, expertise.
ENVIRONMENTAL REGULATION
The Company is subject to extensive and evolving federal, state and
local environmental laws and regulations. These regulations are administered by
the U.S. Environmental Protection Agency ("EPA") and various other federal,
state and local environmental, transportation and health and safety agencies. As
the result of heightened sensitivity to environmental concerns, the Company
believes that there will continue to be increased regulation, legislation and
regulatory enforcement action relating to the hazardous and non-hazardous waste
management industry.
In order to operate its facilities, particularly its TSD facilities, the Company
typically must obtain one or more permits and go through governmental review
processes which may be difficult, costly and time consuming. Once obtained,
permits must be periodically reviewed and are subject to modification or
termination by the issuing agency.
The Company's operations are subject to certain operational, monitoring, site
maintenance, closure and post-closure and financial assurance obligations which
change from time to time and which could give rise to increased capital
expenditures and operating costs. During the ordinary course of operating its
facilities, the Company may receive notice from time to time from governmental
authorities that such operations are not in compliance with certain applicable
environmental laws and regulations. Failure to correct such violations to the
satisfaction of the authorities could lead to curtailed operations or even
closure of a facility.
The principal federal,state and local statutes and regulations applicable to the
Company's operations include:
The Resource Conservation and Recovery Act of 1976 ("RCRA"). RCRA
regulates the generation, treatment, storage, handling, transportation and
disposal of solid waste and requires states to develop programs to insure the
safe disposal of such waste. RCRA divides solid waste into two groups, hazardous
and non-hazardous. Wastes are generally classified as hazardous wastes if they:
(i) either (a) are specifically included on a list of hazardous wastes or (b)
exhibit certain hazardous characteristics; and (ii) are not specifically
designated as non-hazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as nonhazardous. By
closely tracking hazardous wastes from generation to disposal, RCRA reaches all
phases of hazardous waste generation and management. Every person who generates
or transports hazardous waste or who owns or
-26-
operates a TSD facility, must notify the EPA and the state agency (if the state
has implemented a state program) of all hazardous waste activities and obtain an
identification number.
Those engaged in the treatment, storage and disposal of hazardous waste
are subject to extensive and complicated standards. Regulatory requirements
under RCRA relating to TSD facilities include performance standards and
statutory minimum technology standards, as well as, standards relating to
location, design, construction, operations, maintenance, insurance and financial
requirements for such TSD facilities.
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("CERCLA"). CERCLA establishes a regulatory and remedial program
intended to provide for the investigation and cleanup of facilities from which
there has been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to impose
strict joint and several liability for cleanup of facilities on current owners
and operators of the site, former owners and operators of the site at the time
of the disposal of the hazardous substances, as well as the generators of the
hazardous substances and the transporters who arranged for disposal or
transportation of the hazardous substances. The costs of CERCLA investigation
and cleanup can be very substantial. Liability under CERCLA does not depend upon
the existence or disposal of "hazardous waste" but can also be founded upon the
existence of even very small amounts of the many hundreds of "hazardous
substances" listed by the EPA, many of which can be found in household waste. If
the Company were to be found to be a responsible party for a CERCLA cleanup,
either at one of the Company's owned or operated facilities, or at a site where
waste transported by the Company has been stored or disposed of, the Company
potentially could be liable for all costs associated with the contamination even
if others may also be liable. The Company's ability to obtain reimbursement from
others for their allocable share of such costs would be limited by the Company's
ability to find other responsible parties and prove the extent of their
responsibility and by the financial resources of such other parties.
1986 Superfund Amendment and Reauthorization Act ("SARA"). SARA amended
CERCLA by, among other things, authorizing another tax on the chemical industry
to refinance the Superfund to enable the EPA to undertake cleanup of sites where
hazardous substances have been or may be released into the environment when
private parties are unable or unwilling to do so. In addition, SARA includes the
SARA Emergency Planning and Community Right to Know Act which mandates extensive
reporting requirements for use or storage of hazardous substances and releases
of hazardous substances, either accidental or permitted into the environment.
The Federal Water Pollution Control Act of 1977, as amended (the "Clean
Water Act"). The Clean Water Act establishes rules regulating the discharge of
pollutants from a variety of sources, into waters of the United States. If
wastewater is discharged into waters of the United States, the Clean Water act
would require the Company to apply for and obtain a discharge permit, conduct
sampling and monitoring and, under certain circumstances, reduce the quantity of
pollutants in such discharge. Also, the Company's facilities are required to
comply with federal storm water regulations, which are designed to prevent
possibly contaminated storm water from flowing into surface waters. These
regulations required that applications for stormwater discharge permits be
submitted by October 1992. The Company is working with the appropriate
regulatory agencies to ensure that its facilities are in compliance with Clean
Water Act or comparable state-delegated programs. The Company believes that it
is substantial compliance with applicable permits.
The Clean Air Act. The Clean Air Act ("CAA"), including the 1990
amendments, provides for regulation, through state implementation of federal
requirements, of the emission of air pollutants from a variety of industrial
operations, public utilities, transportation systems and certain hazardous and
solid waste management operations. The Company's facilities located in areas
designated as having air pollution problems may be subject to even more
extensive air pollution controls and emission limitations.
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Each of the federal statutes described above contains provisions
authorizing, under certain circumstances, the bringing of lawsuits by private
citizens to enforce the provisions of the statutes. Continued funding for
implementation of RCRA, the Clean Water Act and CERCLA is scheduled for
re-authorization by Congress this year. Depending upon whether and how Congress
acts, it is possible that each of these laws may be changed in ways that may
significantly affect the Company's business.
The Hazardous Materials Transportation Act ("HMTA"). The HMTA and the
extensive regulations promulgated thereunder regulate the transportation of
"hazardous materials." This broad category of substances, includes but is not
limited to CERCLA "hazardous substances" and RCRA "hazardous wastes." The HMTA
and the regulations thereunder are enforced by the Department of Transportation
and specify labeling, placarding, shipping, papers, packaging, spill reporting
and employee training requirements which vary with the nature of the material
being shipped.
The Occupational Safety and Health Act of 1970 ("OSHA"). OSHA
establishes employer responsibilities and authorizes the promulgation by the
Occupational Safety and Health Administration of occupational health and safety
standards, including the obligation to maintain a workplace free of recognized
hazards likely to cause death or serious injury, to comply with adopted worker
protection standards, to maintain certain records, to provide workers with
required disclosures and to implement certain health and safety training
programs. Various of those promulgated standards may apply to the Company's
operations, including those standards concerning notices of hazards, safety in
excavation and demolition work, the handling of asbestos and asbestos-containing
materials, and worker training and emergency response programs. The Company's
employees are trained to respond appropriately in the event there is an
accidental spill or release of packaged asbestos-containing materials or other
regulated substances during transportation or disposal.
OSHA Hazard Communication Standard ("HCS"). The HCS was developed by
the Occupational Safety and Health Administration ("OSHA"). It requires the
identification and dissemination of information about hazardous chemicals to
employees in the workplace. The category of "hazardous chemicals" is extremely
broad. Employers are obligated to make available to their employees Material
Safety Data Sheets for each hazardous chemical used in the workplace. Containers
must also be properly labeled and employees trained in workplace safety.
The Company also provides consulting services with respect to
remediation and removal of asbestos and lead based paint from buildings. Federal
regulation of asbestos removal consists of the Asbestos Hazard Emergency
Response Act, 15 U.S.C. ss.2641 et. seq. which deals with asbestos in school
buildings, and regulations promulgated by both OSHA and EPA. OSHA administers
workplace and employee protection rules and EPA administers demolition and
removal rules. In addition, many states have enacted more stringent rules
including contractor certification and accreditation requirements.
State and Local Regulation. In addition to these federal laws, States
also have laws and regulations governing the generation, storage, treatment,
handling, transportation and disposal of hazardous waste, water and air
pollution and, in most cases, the siting, design, operation, maintenance,
closure and post-closure maintenance of TSD facilities. In addition, many states
have adopted "Superfund" statutes comparable to, and in some cases more
stringent than, CERCLA. These statutes impose requirements for investigation and
cleanup of contaminated sites and liability for costs and damages associated
with such sites, and some provide for the imposition of liens on property owned
by responsible parties. Furthermore, many municipalities also have ordinances,
local laws and regulations that may affect Company operations.
Remediation
The Company's three TSD facilities are on sites that have been
contaminated as a result of uses of the site or by prior uses at an adjacent
property. The Company has cooperated with the government agencies that have
jurisdiction over these facilities to investigate, assess, and implement
appropriate remediation measures to address these conditions. The Company has
projected potential expenditures that may be required to conduct further
investigations or studies and to remediate the sites to satisfy regulatory and
governmental agency requirements. In developing these projections, ERD has
relied on studies prepared by its subsidiary, ERD Environmental, Inc. and by
EMCON, an independent environmental engineering firm. Below is a summary of
environmental issues at each applicable facility.
Canastota, New York. This TSD facility has on-site soil and groundwater that
have been impacted by volatile organic chemicals. The extent of this impacted
soil and groundwater has been delineated and reported to the NYSDEC and
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EPA in RCRA Facility Investigation ("RFI") reports, as required by the Part B
Permit. The RFI reports for both soil and groundwater have been accepted by the
NYSDEC/EPA. Corrective action will continue until the NYSDEC/EPA confirms
completion of such corrective action.
Groundwater corrective action was begun in May of 1993, when a
remediation system was installed in accordance with a NYSDEC/EPA approved
Corrective Measures Implementation ("CMI") plan. Operation of this system
continues at present and reporting is made to the NYSDEC/EPA on a periodic basis
in accordance with the schedule in the CMI plan.
A CMI plan for soil remediation was submitted to the NYSDEC/EPA in June
of 1996 and was approved. Initial installation and startup of the remediation
system has commenced.
Scott City, Missouri. As required by the Part B Permit for this TSD facility, an
RFI is to be performed. This requirement was based upon the findings of a RCRA
Facility Assessment performed at the facility by a EPA contractor in September
of 1989. An RFI Work Plan has been approved by the Missouri Department of
National Resources ("MDNR")/EPA for investigation and sampling of soil and
groundwater in Areas of Concern outlined by the regulatory agencies. An RFI
report was submitted to MDNR indicating two minor, isolated areas of concern in
the soils and no groundwater report attributed to the Facility. A response to
the RFI report was received by the Company from MDNR. The Company is presently
performing quarterly groundwater monitoring and formulating a work plan to
address the two areas of impacted soil.
South Bend, Indiana. This TSD facility contains soils which are impacted
principally with volatile organic chemicals and petroleum hydrocarbons. These
occur primarily in the area known as the Old Tank Farm.
In December of 1994, a Revised Partial Closure Plan was submitted to
the Indiana Department of Environmental Management ("IDEM") for approval. This
plan included a conceptual design for remediation of these soils. IDEM's
response to this plan required inclusion of a work plan for a groundwater
investigation. The addended plan was submitted to IDEM on April 28, 1997. To
date no response has been received.
This facility has four on-site groundwater monitoring wells.
Groundwater samples collected from these wells have indicated that the
groundwater beneath the site has been impacted principally by volatile organic
chemicals. There is evidence to suggest that some of these volatile organic
chemicals have migrated from off-site sources. To date, there has been no
directive from IDEM requiring any action on the groundwater other than periodic
sampling and monitoring.
Because impacted soil and groundwater is present, the possibility
exists that IDEM or EPA may at some future date require an RFI and investigation
and corrective action additional to that outlined in the Revised Partial Closure
Plan.
Table 1 presents a summary of the projected expenditures in connection
with existing contamination at the TSD facilities. However, there is no set
timetable for incurring any of the projected expenses and no assurance can be
given that such projected expenses will not increase or decrease depending on
the circumstances.
Table 1
Projected Remedial Costs
South Bend, Indiana $ 942,000
Canastota, New York 1,427,000
Scott City, Missouri 100,000
-----------
Total $2,469,000
==========
In addition to expenditures associated with above referenced existing
site contamination, ERD will also be required to upgrade its TSD facilities to
meet new regulatory and permit requirements, including the installation of
emission controls for volatile organic compounds on the storage tanks at each of
these facilities to meet requirements with respect to air emissions. The
projected costs of meeting new regulatory and permit requirements are presented
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in Table 2, and as with Table 1, there is no set timetable for incurring any of
the projected expenses and no assurance can be given that such expenses will not
increase or decrease depending on the circumstances.
Table 2
Projected Compliance and Other Costs
South Bend, Indiana $ 430,000
Canastota, New York 330,000
Scott City, Missouri 496,000
----------
Total $1,256,000
==========
In addition, as a result of new regulations and/or operating needs, the
Company may be required to expend funds for capital improvements at any or all
of its facilities. No reserves have been established for these improvements
because management expects that any capital improvements would increase the
value of the facilities. However, there can be no assurance that required
expenditures would result in an increase in the property/facility value.
In addition to the TSD facilities, the Company may be liable for some
or all of the cost of potential remediation of the Long Beach, New York
facility. The real property on which that facility was located is owned by the
City of Long Beach. The only sampling that has been conducted concerning site
conditions at Long Beach, other than limited sampling of stained soils dates
from 1990 -- prior to the Company's involvement with the site.
Permitting
The Company operates three TSD facilities and an oil filter recycling
facility, which are subject to permitting, licenses and authorization required
for the operation of the facilities.
South Bend, Indiana. This TSD facility is required to obtain federal, state and
local licenses, permits, and/or approvals including a Part B Permit. On January
22, 1993, the IDEM, in conjunction with the EPA, granted this facility its Part
B Permit for a term of five years. Further, there are two permitted process air
pollution control units in operation at the facility, a wet scrubber and a bag
house.
Recent changes to the Clean Air Act may require upgrades to the
emission controls at the site. The facility has begun evaluating its
requirements under Title V of the CAA and an emissions inventory has been
performed. Assuming the significant air emission sources (the tank farm and drum
storage and processing area) continue to be in compliance with existing state
regulations and RCRA regulations found at 40 CFR Part 264 Subpart BB, the
regulations that likely will have the most significant impact on this facility
in the near future will be requirements under Title V (40 CFR Part 70 and
related state regulations) and RCRA 40 CFR 264 Subpart CC. A Title V application
(synthetic minor) was submitted to IDEM in December 1996. In July 1997, IDEM
requested additional information and the Company is in the process of providing
this.
Scott City, Missouri. This TSD facility is required to obtain federal, state and
local license, permits and approvals, including a Part B Permit. The MDNR, in
conjunction with the EPA, granted the facility its Part B Permit on January 10,
1994, for a term of ten years.
Recent changes to the Clean Air Act may require upgrades to the
emission controls at the site. The facility has begun evaluating its
requirements under Title V of the CAA and an emissions inventory has been
performed. Assuming the significant air emission sources are in compliance with
existing state regulations and RCRA regulations found at 40 CFR Part 264 Subpart
BB, the regulations that likely will have the most significant impact on this
facility in the near future will be Title V permitting (40 CFR Part 70 and
related state regulations) and RCRA 40 CFR 264 Subpart CC. A Title V application
(synthetic minor) was submitted to IDEM in July 1996 and is currently under
review.
On April 1, 1994, the MDNR issued an operating permit for stormwater
discharges from the facility. This permit expires on March 31, 1999, and covers
three outfalls. The three outfalls are basically the two ditches on either side
of the facility and stormwater which may be pumped from the secondary
containment unit on the above ground
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storage tank farm. The facility has, on occasion, exceeded its discharge limits
for total suspended solids and chemical oxygen demand. There has been no
historical enforcement action as a result of these occasions.
Canastota, New York. This TSD facility is required to obtain federal, state and
local licenses approvals and permits, including a Part B Permit, a State
Pollution Discharge Elimination System ("SPDES") permit, certain transporter
permits, and an air permit. The Company's SPDES permit expires August 1, 2001.
The Company's draft air permit with the NYSDEC is currently awaiting final
approval. The Company filed an application to renew the Part B Permit, which
expired on October 31, 1996.
This facility is responsible for complying with all Federal air
emission regulations and for determining if the facility is a potential major
source under the State and Federal Title V program. The Title V program requires
that a major source of Volatile Organic Compound or Hazardous Air Pollutants
submit a Title V permit for the facility. The anticipated deadline for
submission of this facility's Title V permit application is the latter part of
1997. Further, the air emission standards for equipment leaks and air emission
standards for tanks, surface impoundments and containers (40 CFR Part 264
Subpart BB and CC) may have a significant impact on the facility as may the
requirements under Title V. A Title V application (synthetic minor) was
submitted to the NYSDEC in June of 1997 and is currently under review.
Waco, Texas. The Company believes that the present operations at the Waco, Texas
facility are exempt from air quality permitting requirements.
TRANSPORTATION PERMITS
Any entity engaging in the transportation of hazardous wastes is
subject to regulation under various state and federal laws. Duties of hazardous
waste transporters include, but are not necessarily limited to, obtaining
hazardous waste and solid waste transporter licenses and the use and operation
of approved equipment. The Company, through NES and TRI-S, is a permitted
transporter of hazardous waste in forty-five (45) states and two provinces of
Canada. All of the transportation permits held by NES and TRI-S are subject to
annual renewal. Factors considered in evaluating a renewal application vary from
state to state, but include, among other things, the permitted entity's
compliance status, its record of traffic incidents, and the qualifications of
the personnel managing transportation operations. To the knowledge of the
Company's management, none of the Company's subsidiaries have ever been denied
renewal of any of their respective transportation permits. However, each such
permit is also subject to revocation in the event of a failure to comply with
the state's applicable rules and regulations. Of the transportation permits held
by the Company, those granted by the states of New York, Connecticut, New
Jersey, Indiana, Missouri, and Pennsylvania are most critical to operations.
INSURANCE
ERD, ERD-ENV, TRI-S, NES, ENSA-IN, ENSA-MO, ERD-IL, and ERD-RR are
included under one general liability insurance policy in the amount of $10
million per occurrence/$10 million dollars aggregate liability arising in
connection with their activities. Five million dollars of such insurance is
required by the State of New York in order to maintain NES' permit as a waste
transporter. Higher amounts of general liability insurance have been obtained
for specific customers/projects, where necessary. Additionally, these
subsidiaries have obtained pollution impairment liability and professional
liability insurance in the amount of $1 million per occurrence/$2 million
aggregate covering liability resulting from the sudden and non-sudden discharge
or release of hazardous substances related to their contracting and professional
service operations.
ERD and its subsidiaries are protected by a Contractors
Pollution/Professional Liability Policy better know as a Consultants
Environmental Liability Policy (CEL) with Limits of Liability of $5 million per
occurrence/$5 million aggregate. This policy would cover certain claims by
reason of any act, error or omission in professional services rendered or that
should have been rendered by the Company.
In addition to the above, NES, ENSA-IN, and ENSA-MO have obtained
pollution liability insurance for their TSD facilities in the amount of $1
million per occurrence/$2 million aggregate, covering liability resulting from
the sudden and non-sudden discharge or release of hazardous substances from the
facilities' premises. The facilities maintain all insurance required for the
maintenance of their permits, however, no assurance can be give that difficulty
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will not be encountered in maintaining such insurance in the future. Moreover,
if the facilities fail to maintain such insurance, permits could be revoked,
which could result in the closure of a facility and the cessation of substantial
operations.
All of the Company's vehicles are insured under a $5,000,000 commercial
automobile policy covering transportation of hazardous waste and other services
performed in Company vehicles. In addition, the Company maintains workers
compensation insurance as required from state to state.
EMPLOYEES
As of July 31, 1997, the Company and its subsidiaries had approximately
285 employees of which approximately 7 are employed at the Company's
discontinued operations.
PROPERTIES
The Company has offices at various owned and leased locations
throughout the United States. Each branch office is generally identified with
one of the Company's subsidiaries; however, most locations perform multiple
services. The table below summarizes the premises from which the Company
operates
Building Description and
Mortgage or Square Lease Annual Primary Services
Location Own/Rent Other Lien Footage Expires Rental (including condition)
-------- -------- ---------- ------- ------- ------ ---------------------
937 E. Hazelwood Rent N/A 10,000 Sep. '97 $ 50,000 Company headquarters consisting
Rahway, NJ of office space for executive
and administrative staff, along
with office, warehouse operations
and parking space for remediation
operations. The Company intends to
move its headquarters to Chicago
in the near future.
70 Water Street Rent None -- Dec. '07 173,644 Incinerator operations
Long Beach, NY discontinued as of April 10,
1997. The Company is currently
not paying rent at this
facility.
Canal Road Own None 30,000 - - - - TSD facility located on three
Wampsville, NY acres of land used for the
handling and storage of waste
materials; a small portion of
the building is devoted to
offices.
Marguerite Own None 4,000 - - - - Administrative office space on
Drive West approximately three acres near
Casastota, NY TSD facility.
604 Scott St. Own None 40,015 - - - - TSD facility used for the
South Bend, IN handling and storage of waste
materials; a portion of the
building is devoted to offices.
The facility has a Part B
Permit, and has a Tank Farm with
the capacity to hold
approximately 176,000 gallons.
3100 Industrial Own None 21,600 - - - - Part B equivalent permitted
Fuels Drive facility on approximately five
Scott City, MO acres of land.
6205 Route 611 Rent N/A 10,500 May '02 10,492 Offices and warehouse space
Pipersville, PA consulting operations and air
testing, consulting, and
monitoring.
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331 Route 9W Rent N/A 12,600 Mar. '98 102,600 Office and warehouse space for
Congers, NY consulting and remediation
operations.
205 Main Street Rent N/A 3,082 Dec. '98 23,000 Office and warehouse space for
Brattleboro, VT consulting services.
410 W. Chestnut Rent N/A 7,000 Aug. '97 48,000 Office and warehouse space for
Street consulting services.
Louisville, KY
826 North Road Rent N/A 9,000 Oct. '98 60,000 In January, 1997, the Company
Lewis Road terminated this lease for a lump
Royersford, PA sum payment of $30,000.
Personnel were relocated to a
nearby office.
465 East 170th Rent N/A 2,145 Oct. '97 28,956 Sales and administrative
South Holland, IL offices. This facility will
close in October 1997 and the
offices will be relocated to
South Bend, Indiana.
1 Foundry Street Rent N/A 13,200 Oct. '99 52,800 Manufacturing and warehouse site
Stroudsburg, PA East for the company's sorbent
products operation.
615 Forrest Rent N/A 42,894 Nov. '98 54,000 Recycling facility and storage
Waco, TX of used oil filters.
2480 Creekway Rent N/A 8,000 Dec. '98 28,000 Office and warehouse space for
Drive consulting services.
Columbus, OH
Madison Ave. & Rent N/A 4,420 Apr. '98 27,200 Office and warehouse space for
Eight Street W. consulting services.
Huntington, WV
25 and 34 Pinney Rent N/A 8,400 Dec. '98 23,000 The Company is currently in
Ellington, CT litigation and has not made rent
payments during 1996. It is
expected that the lease of 25
Pinney St. and 34 Pinney St.
will be terminated in 1997.
The Company believes that its facility is adequate for its current and
reasonably foreseeable future needs. The Company believes that additional
physical capacity at its current facility will accommodate expansion, if
required.
LEGAL PROCEEDINGS
The NYSDEC filed an administrative complaint against the Company in
September 1996 alleging various violations of the Company's facility permits and
environmental laws and regulations. On April 10, 1997, the Company entered into
a Consent Order with the Attorney General of the State of New York and the
NYSDEC. The Consent Order provided that the Company will permanently cease
operation of its Long Beach, New York facility both as an incinerator and a
solid waste transfer station, effective April 10, 1997. The Consent Order also
defined the obligations of the Company with respect to the closure of the site
pursuant to its permit. Upon completion and approval of the implementation of
the closure plan provided for in the Consent Order, the Company will receive a
Release and Covenant Not to Sue by the State for any investigation or
remediation of site conditions addressed by the closure plan. There can be no
assurance that the Company will be able to comply with the closure plan and
receive the Release and Covenant Not to Sue from the NYSDEC.
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On January 2, 1997, the City of Long Beach served Notices of Default
under the Disposal Agreement and the Leases. The Notices of Default sought to
terminate each of these agreements. Counsel for the Company and the City of Long
Beach agreed on January 14, 1997 to a three-week "standstill" during which the
time for cure of the alleged defaults and the initiation of litigation was
suspended pending settlement discussions between the parties. Effective February
28, 1997, the City of Long Beach terminated its "standstill" agreement with the
Company relating to its allegation of defaults under the Disposal Agreement and
the Leases. The Company is seeking damages under the contract regarding the
non-delivery of solid waste prior to the final closure of the Long Beach
facility as well as other damages and relief as a result of the breach of the
Disposal Agreement and the Leases. There can be no assurances that the Company
will be successful with respect to such actions.
In November 1994, P.J.V. Transport, Inc. ("PJV") and Concord Trucking
Inc. ("Concord") commenced an action in the New York Supreme Court, Nassau
County, against LBRR, ERD Management Corp. ("EMC") and the City of Long Beach,
New York. PJV has alleged non-payment in the amount of approximately $185,000
for services rendered in connection with the disposal by PJV of solid waste ash
generated at the LBRR facility pursuant to a contract among PJV, LBRR, and the
City of Long Beach (the "PJV Contract") and has alleged additional damages of
approximately $200,000 in lost profits under the PJV Contract. Concord has
alleged non-payment for services rendered in the amount of approximately $51,000
in connection with the leasing by LBRR of trailers for the storage of
incineration ash pursuant to a contract between Concord and LBRR. Upon motion by
PJV, summary judgment was entered against LBRR in the amount of $214,000. The
decision against LBRR was upheld on appeal, but was reversed with respect to EMC
and judgment dismissing the claims against EMC was granted by the appeals court.
By Order dated March 3, 1997, PJV obtained an Order of Attachment of the assets
of LBRR, EMC and ERD Waste Incineration , Inc. ("EWII"), to secure the judgment
it obtained against LBRR, in the amount of $214,052.15. Specifically included in
the attachment are all monies payable to the Company from the City of Long Beach
and Long Island Lighting Company. The Company intends to appeal this Order.
There can be no assurance, however, that the Company will be successful in
appealing the Order and the Company could be adversely affected as a result of
having to pay the judgment.
In March 1996, PJV commenced a separate lawsuit against LBRR, EMC and
EWII in Supreme Court, Nassau County. PJV alleged that the transfer of assets by
EMC (as successor in interest to LBRR) to EWII was a fraudulent conveyance in
order to frustrate the collection of the $214,000 judgment in favor of PJV. The
complaint also seeks punitive damages. The Company has denied all material
allegations of the complaint and intends to vigorously defend against this
lawsuit.
On February 16, 1989, 5200 Enterprises, Ltd. ("Enterprises") commenced
an action in the Supreme Court of Kings County, New York against ENSI, Inc.,
Environmental Services, Inc., and others. Enterprises, as the owner of a
building, sued the prior owner and all persons and companies hired by the prior
owner to clean-up contaminated spills existing on the property prior to sale
and, in connection therewith, to conduct certain tests. The suit contends that
the clean-up and/or the testing, some of which was done by ENSA subsidiaries,
was conducted negligently, and that misrepresentations were made by the prior
owner concerning the true level of remaining contamination. The suit seeks $3.5
million in damages. The Company is seeking indemnity from co-defendants for any
liability. A trial occurred in the spring of 1997 and the Company is currently
awaiting judgment. There can be no assurance that the Company will be successful
in its defense or in recovering any indemnification.
DEBT OBLIGATIONS
In order to partially finance the purchase of the ENSA capital stock,
in April 1996, the Company obtained a $7.5 million revolving credit facility
(the "Revolving Facility") from the Bank pursuant to the Loan Agreement. The
Loan Agreement provides, among other things, for the payment by the Company of a
commitment fee, payable monthly, computed at the rate of one quarter of one
percent (.25%) per annum (computed on the actual number of days elapsed over 360
days) on the average daily unused amount of the Bank's $7.5 million commitment.
The Loan Agreement provides for the granting by the Company and each of
EAC, LBRR, C&J, EWII, ERD-IL, AMTI, ERD-IN and EMC (collectively, the
"Subsidiaries") of a first priority security interest in all of the Company's
and the Subsidiaries' present and future accounts, contract rights, chattel
paper, general intangibles,
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instruments and documents then owned or thereafter acquired, and in all
machinery and equipment acquired by the Company and the Subsidiaries after the
date of the Loan Agreement.
Subject to the terms of the Loan Agreement, the Revolving Facility will
be available until April 1, 1998 (the "Conversion Date"), at which time all
outstanding principal and accrued interest under the Revolving Facility shall be
due and payable. At that time, the Company may, upon request, be granted a term
loan (the "Term Loan") in an amount equal to the lesser of the Bank's Commitment
(as defined) or the aggregate principal amount of the Revolving Facility then
outstanding. The maturity date of the Term Loan is the third anniversary date of
the Conversion Date. The proceeds of the Term Loan are to be used by ERD
exclusively to satisfy obligations to the Bank under any Revolving Facility
existing at the Conversion Date.
The Loan Agreement contains traditional and customary representations,
warranties, events of default and indemnification provisions and traditional and
customary conditions to making advances under the Revolving Facility. As a
result of the write-down and the anticipated losses from the discontinued
incinerator operations at the Long Beach facility, the Company was not in
compliance with certain of the financial covenants of the Company's loan
agreements. The Bank has agreed to waivers of such covenants for each of the
last three fiscal quarters (most recently at March 31, 1997) but there can be no
assurance that the Bank will agree to future waivers in the event of further
breaches.
On June 6, 1996, and in August 1996, the Company borrowed an
aggregate of $4.4 million from the Bank pursuant to a demand promissory note
(the "Note"). The Note bears interest at the rate of 1% above the Bank's Prime
Rate (as defined). The proceeds of this loan were used to satisfy all
obligations of ENSA and its subsidiaries to United Jersey Bank under a loan
agreement dated as of June 23, 1994, as amended.
The Note is secured by certain assets of the Company and its
subsidiaries, including ENSA and its subsidiaries, as well as by a stand-by
letter of credit issued in favor of the Bank (the "Letter of Credit"). The
Letter of Credit was obtained by American United Global, Inc. ("AUGI"), an
affiliate of Robert M. Rubin, on behalf of the Company. In consideration of AUGI
obtaining the Letter of Credit, the Company entered into an agreement with AUGI,
dated May 30, 1996, as amended and restated by letter agreement dated October 8,
1996 (the "Financial Accommodations Agreement"). Pursuant to the terms of the
Financial Accommodations Agreement, the Company agreed to (i) pay interest and
other charges to AUGI, for so long as the Letter of Credit remains outstanding,
in amounts equal to amounts of interest or other charges paid by AUGI to
Citibank, N.A. in connection with the Letter of Credit or any payments made by
Citibank, N.A. thereunder; (ii) pay all fees and disbursements of AUGI,
including $10,000 of legal fees to AUGI's counsel; and (iii) if and to the
extent the Letter of Credit is called for payment; the Company will issue to
AUGI a convertible note in the aggregate principal amount of the note payable at
12% interest due on the earliest of (a) May 31, 1999, (b) receipt of proceeds by
the Company from any public or private placement of debt or equity securities
subsequent to the calling of the Letter of Credit, or (c) completion of any bank
financing by the Company to the extent of all proceeds available after payment
of all other secured indebtedness, provided that any of the Company's notes
issued to AUGI will be convertible, at any time and at the option of AUGI, into
shares of common stock of the Company at a conversion price equal to $4.40 per
share. As security for the obligations of the Company under the Financial
Accommodations Agreement, ENSA and certain of its subsidiaries have agreed to
grant to AUGI a security interest, subordinate to the first priority security
interest granted to the Bank, in all of their machinery and equipment. On
February 5, 1997 AUGI loaned $500,000 to the Company evidenced by a short term
note bearing interest at 2% above the prime lending rate of the Bank. On
February 6, 1997 AUGI agreed to extend the Letter of Credit until May 1998. In
March 1997 the Board of Directors approved the issuance of 100,000 shares of
Common Stock to AUGI in partial consideration of posting the Letter of Credit
and for extending its term. Certain officers of the Company have also loaned
money to the Company. See "Certain Transactions."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages, along with certain biographical information (based
solely on information supplied by them), of the directors and executive officers
of the Company are as follows:
NAME AGE POSITION
- -------------------- ------ ------------------------------------------------
Joseph J. Wisneski 43 Director, President, and Chief Operating Officer
Robert M. Rubin 57 Chairman of the Board and Chief Executive Officer
Joseph T. Jacobsen 40 Director, Executive President
Carl Frischling 60 Director
Marc P. McMenamin 35 Chief Operations Manager
Each director is elected for a period of one year at the Company's
annual meeting of stockholders and serves until the next meeting and until his
successor is duly elected and qualified. Officers are elected by, and serve at
the discretion of, the Board of Directors. In consideration for serving as an
independent director, Mr. Frischling receives compensation of $5,000 per annum.
The Company has a Compensation Committee and an Audit Committee, each
consisting of Carl Frischling and Robert M. Rubin.
The following is a brief summary of the background of each director,
executive officer, and key employee of the Company:
JOSEPH J. WISNESKI has been President, Chief Operating Officer, and a
Director of the Company since February 1993, was Vice President of the
Company from November 1992 through January 1993, and was one of the
Company's founding stockholders. From April 1990 to November 1992, Mr.
Wisneski served as a senior manager for Superior Contractors Network,
Inc. ("Superior"), a private service broker in the general
construction field. From January 1987 to April 1990, he served as
President of Asbestos Services of America, a private marketing
company, and from July 1986 to January 1987, he served as President of
National Asbestos Removal Corporation, a private asbestos removal
company. From 1979 to 1986, Mr. Wisneski was a Vice President in the
lending divisions of a number of commercial banks, including European
American Bank, Chase Manhattan Bank, and National Westminster Bank.
Mr. Wisneski holds a B.B.A. degree from Pace University and a Masters
of Business Administration degree from Fordham University.
ROBERT M. RUBIN has served as the Chairman of the Board and Chief
Executive Officer of the Company since February 1993. Mr. Rubin has
served since October 1990 as Chairman of the Board, Chief Executive
Officer and President of AUGI, a public company engaged in the
manufacture and distribution of sealing devices for automotive,
aerospace, and general industrial applications and a distributor of
Case construction equipment, and its subsidiaries. Mr. Rubin was the
founder, President, Chief Executive Officer, and a director of
Superior Care, Inc. ("Superior Care") from its inception in 1976 until
May 1986 and continued as a director of Superior Care (now known as
Olsten Corporation ("Olsten")) until the latter part of 1987. Olsten,
a New York Stock Exchange listed company, is engaged in providing home
care and institutional staffing services and health care management
services. Mr. Rubin is a former director and Vice-Chairman, and
currently a minority stockholder of American
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Complex Care, Incorporated ("ACC") (formerly Legend Foods, Inc.), a
public company formerly engaged in the provision of on-site health
care services, including intra-dermal infusion therapies. In April,
1995, ACC's operating subsidiaries made assignments of their assets
for the benefit of creditors without resort to bankruptcy proceedings.
Mr. Rubin is also the Chairman of the Board of Western Power &
Equipment Corp., a public company engaged in the distribution of
construction equipment, principally manufactured by Case Corporation.
Mr. Rubin is also a director and minority stockholder of Response USA,
Inc., a public company engaged in the sale and distribution of
personal emergency response systems; Diplomat Corporation, a public
company engaged in the manufacture and distribution of baby products;
Arzan International (1991) Ltd., a public company engaged in the food
distribution business; and Med Emerg International Inc., a company
involved in managing emergency rooms in Ontario, Canada.
JOSEPH T. JACOBSEN has served as a director of the Company since
November, 1996, and as an Executive Vice President of the Company and
as President of ERD-ENV, the Company's wholly-owned subsidiary which
specializes in air and environmental consulting, since May 1996. Prior
to that, Mr. Jacobsen served as Executive Vice President from November
1989, and as Secretary from June 1990, of ENSA. Since August 1994, Mr.
Jacobsen has been President of ENSA Environmental, Inc.(now
ERD-Environmental, Inc.), a wholly-owned subsidiary of ENSA which owns
and operates all consulting assets and activities of ENSA. Mr.
Jacobsen holds a Masters of Science degree from the School of
Engineering of the University of Pittsburgh, a B.S. degree in Business
from LaSalle University and a B.A. degree in Geology from Temple
University.
MARC P. MCMENAMIN has served as Chief Operations Manager of the
Company since June 1992. From February 1991 until June 1992, Mr.
McMenamin served as construction manager of, and was a partner in,
Superior. From March 1987 until February 1991, Mr. McMenamin served as
general manager of Romark Environmental Services, a private asbestos
abatement company. Mr. McMenamin holds a B.B.A. degree from Hofstra
University.
CARL FRISCHLING has served as a director of ERD since September 1995.
Mr. Frischling is a partner at Kramer Levin, which he joined in
September 1994. From September 1992 to August 1994, he was a partner
at the law firm of Reid & Priest. Prior to that, Mr. Frischling had
been a partner at the law firm of Spengler Carlson Gubar Brodsky &
Frischling from November 1979. Mr. Frischling holds B.A, Juris
Doctorate, and Masters of Business Administration degrees from
Columbia University.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table set forth the annual and long-term compensation for
services in all capacities to the Company for the eight months ended September
30, 1996 and the fiscal years ended January 31, 1996 and 1995 of the Chief
Executive Officer of the Company and the other executive officers of the Company
(together, the "Named Executive Officers") who received over $100,000 in
annualized compensation in the form of salary and bonus for the eight months
ended September 30, 1996.
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Annual Compensation Long Term Compensation
------------------- ----------------------
Other
Annual Restricted Long Term All Other
Name and Period Compen- Stock Options/ Incentive Compen-
Principal Position Ended Salary(1) Bonus sation(1) Awards SARs Plan Payouts sation
- ------------------ ------ --------- ----- --------- ----------- ---- ------------- ------
Robert M. Rubin 9-30-96 $30,769(2) -- -- -- -- -- --
Chairman of the Board 1-31-96 103,000
Chief Executive Officer 1-31-95 56,250 -- -- -- -- -- --
Joseph J. Wisneski 9-30-96 132,692(3) $55,000(4) $40,000(5) -- -- --
President & Chief 1-31-96 150,273 -- -- -- $125,000(4) --
Operating Officer 1-31-95 58,750 -- -- -- -- --
Marc McMenamin 9-30-96 67,692(6) 25,000(4) 4,000(5) -- -- -- --
Chief Operations 1-31-96 93,320 15,000(4) -- -- $100,000(6)
Officer 1-31-95 44,596 -- -- -- -- -- --
Joseph T. Jacobsen 9-30-96 (7) -- -- $2,600 -- -- --
Executive Vice President
(1) Data shown is for the eight months ended September 30, 1996, twelve months
ended January 31, 1996, and twelve months ended January 31, 1995.
(2) Effective January 1, 1997, Mr. Rubin is compensated at $160,000 per annum
(see "-- Employment Agreements"). During 1996 Mr. Rubin voluntarily
deferred compensation payments totalling $107,692.
(3) Effective January 1, 1997, Mr. Wisneski is compensated at $275,000 per
annum. (see "-- Employment Agreements"). During 1996 Mr. Wisneski
voluntarily deferred compensation payments of $80,769.
(4) Bonus relates to services rendered in the prior year fiscal period.
(5) Messrs. Wisneski, McMenamin and Jacobsen receive travel and entertainment
allowances of $5,000, $500, and $650 per month, respectively.
(6) Effective January 1997, Mr. McMenamin is compensated at $130,000 per annum
(see "-- Employment Agreements"). During 1996, Mr. McMenamin deferred
compensation payments of $13,462.
(7) Effective June 1996, Mr. Jacobsen is compensated at $125,000 per annum (See
"-- Employment Agreements").
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option
grants made during fiscal 1996 to the Named Executive Officers. These grants are
also reflected in the Summary Compensation Table. The Company has not granted
any stock appreciation rights in the last fiscal year.
Number of Securities Percent of Total Options Exercise or
Underlying Options Granted to Employees in Base Price per
Name Granted Fiscal Year Share Expiration Date
- ---- ------------------------ ----------------------------- ------------------ ---------------
Joseph T. Jacobsen (1) 60,000 40% $2.00 2002
(1) Options granted under the Plan.
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AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the number of
unexercised options and the fiscal 1996 year-end value of unexercised options on
an aggregated basis held by the Named Executive Officers. The Company has not
granted any stock appreciation rights and no options were exercised in fiscal
1996.
Number of Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired on Options at September 30, 1996 September 30, 1996
Names Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ----- -------- -------------- ------------------------- -------------------------
Robert M. Rubin
Chairman of the
Board and Chief
Executive Officer 0 $ 0 0 N/A
Joseph J. Wisneski
President and Chief
Operating Officer 0 $ 0 0 N/A
Marc McMenamin 0 $ 0 0 N/A
Joseph T. Jacobsen 0 $ 0 0 N/A
COMPENSATION OF DIRECTORS
Outside Directors are entitled to a $1,500 quarterly fee. No fees were
paid as of September 30, 1996. During 1996, no Director of the Company received
any compensation for his services in such capacity. Outside directors are
reimbursed for expenses incurred by them in connection with their activities on
behalf of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Joseph J.
Wisneski pursuant to which Mr. Wisneski has agreed to serve as President and
Chief Operating Officer of the Company through December 31, 1997. The agreement
provides for a base salary of $175,000 per annum from January 1 through December
31, 1995 with annual increases of $25,000 per annum in each year thereafter,
subject to additional increase by the Board of Directors in its discretion. The
agreement requires Mr. Wisneski to devote substantially all of his business time
to the performance of his duties and responsibilities to the Company. In May,
1996 Mr. Wisneski and the Company agreed to a one-year extension of the
employment agreement with a salary of $230,000 per annum in 1996 and $275,000
per annum in 1997.
The Company has entered into an employment agreement with Robert M.
Rubin, pursuant to which Mr. Rubin has agreed to serve as Chairman of the Board
and Chief Executive Officer of the Company from January 1, 1995 through December
31, 1998. The employment agreement, as amended, provides for a salary of
$100,000 per annum for 1995, $150,000 per annum for 1996, $160,000 per annum for
1997 and $170,000 per annum for 1998. Mr. Rubin has interests in a number of
other businesses which are not competitive with the Company. Under his
employment agreement, he is not required to spend any specific amount of time on
the Company's affairs. Mr. Rubin has not stated whether he intends to devote a
specific amount of time to the Company.
The Company has entered into an employment agreement with Joseph T.
Jacobsen pursuant to which Mr. Jacobsen will serve as Executive Vice President
of the Company and as President of ERD-ENV through May 1999, at a salary of
$125,000 per annum. Under his employment agreement Mr. Jacobsen has use of an
automobile and has received options to purchase 60,000 shares of Common Stock.
-39-
The Company has entered into an employment agreement with Marc
McMenamin, pursuant to which Mr. McMenamin will serve as President of EWII and
Chief of Operations of the Company. In 1995, Mr. McMenamin received $100,000 in
salary and options to purchase 100,000 shares of Common Stock. Mr. McMenamin's
salary was increased to $110,000 for 1996 and $130,000 for 1997.
STOCK OPTION PLAN
On March 2, 1994, the Board of Directors of the Company and
stockholders of the Company adopted the Plan. The Plan provides for the grant of
options to purchase up to 500,000 shares of Common Stock to employees of the
Company. Options granted under the Plan are "incentive stock options" within the
meaning of Section 422 of the United States Internal Revenue Code of 1986, as
amended. Incentive stock options may be granted only to employees of the
Company.
The Plan will be administered by "disinterested members" of the Board
of Directors (as defined by Rule 16b-3 under the Exchange Act), who determine,
among other things, those individuals who shall receive options, the time period
during which the options may be partially or fully exercised, the number of
shares of Common Stock issuable upon the exercise of each option, and the option
exercise price.
The exercise price per share of Common Stock subject to an incentive
option may not be less than the fair market value per share of Common Stock on
the date the option is granted. The aggregate fair market value (determined as
of the date the option is granted) of Common Stock for which any person may be
granted incentive stock options which first become exercisable in any calendar
year may not exceed $100,000. No person who owns, directly or indirectly, at the
time of the granting of an incentive stock option to such person, 10% or more of
the total combined voting power of all classes of stock of the Company (a "10%
Stockholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercisable only by the optionee. In the event of termination
of employment other than by death or disability, the optionee will have no more
than three months after such termination during which the optionee shall be
entitled to exercise the option, unless otherwise determined by the Board of
Directors. Upon termination of employment of an optionee by reason of death or
permanent and total disability, such optionee's options remain exercisable for
one year thereafter to the extent such options were exercisable on the date of
such termination.
Options under the Plan must be issued within ten years from the
effective date of the Plan. The effective date of the Plan is March 2, 1994.
Incentive stock options granted under the Plan cannot be exercised more than ten
years from the date of grant. Incentive stock options issued to a 10%
Stockholder are limited to five-year terms. Options granted under the Plan
generally provide for the payment of the exercise price in cash and may provide
for the payment of the exercise price by delivery to the Company of shares of
Common Stock already owned by the optionee having a fair market value equal to
the exercise price of the options being exercised, or by a combination of such
methods. Therefore, if so provided in an optionee's options, such optionee may
be able to tender shares of Common Stock to purchase additional shares of Common
Stock and may theoretically exercise all of his stock options with no additional
investment other than the purchase of his original shares.
Shares subject to unexercised options that expire or that terminate
upon an employee's ceasing to be employed by the Company become available again
for issuance under the Plan.
The Board of Directors has authorized, and will recommend that the
stockholders of the Company approve, an amendment to the Plan to (i) increase
the number of authorized options thereunder from 500,000 shares to 1,000,000
shares and (ii) permit the grant of non-qualified stock options.
-40-
CERTAIN TRANSACTIONS
On May 30, 1996, the Company entered into the Financial Accommodations
Agreement with AUGI, an affiliate of Robert M. Rubin, in connection with the
Letter of Credit issued on behalf of the Company by AUGI in favor of the Bank to
secure a $4.4 million loan from the Bank to the Company. In March 1997, the
Board of Directors approved the issuance of 100,000 shares to AUGI in partial
consideration for its posting the Letter of Credit and for the extension of the
Letter of Credit until May 1998. See "Business -- Debt Obligations."
During the quarter ended July 31, 1996, the Company's President and
Chief Operating Officer loaned the Company $600,000. The advances are evidenced
by notes in the amount of $500,000 and $100,000 from the Company bearing an
interest rate comparable to the interest rate charged by the Bank on its loan to
the Company. Interest and principal are due in full at maturity on July 12,
1998, and on June 10, 1998, for the $500,000 note and the $100,000 note
respectively. At July 31, 1997, an aggregate of $100,000 remains outstanding on
such notes.
On December 17, 1996, Robert M. Rubin, the Company's Chairman of the
Board and Chief Executive Officer loaned the Company $300,000 evidenced by a
note bearing interest at 2% above the prime lending rate of the Bank. The note
was due on January 17, 1997 but was extended. On February 5, 1997, AUGI loaned
$500,000 to the Company evidenced by a short term note, payable on October 5,
1997, bearing interest at 2% above the prime lending rate of the Bank.
On December 31, 1996 the Company issued Units, consisting of 200,000
shares of Common Stock and 200,000 Warrants to Kramer Levin, counsel to the
Company.
-41-
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 31, 1997, the ownership of
the Common Stock by (i) each person who is known by the Company to own of record
or beneficially more than 5% of the outstanding Common Stock, based on reports
filed with the Commission, (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated.
Percent Owned (1)
----------------------------------------------------
Name and Address Number
of Beneficial Owner of Shares Before Offerings (2) After Offerings (3)
- ------------------- --------- -------------------------- -----------------------
Robert M. Rubin (4) 1,397,225 23.75% 15.50%
Joseph J. Wisneski (4) 961,675(5) 16.35% 10.61%
Marc McMenamin (4) 137,475(6) 2.34% 1.52%
Carl Frischling 8,000 * *
170 East 83rd Street
New York, New York 10028
Joseph T. Jacobsen (4)(8) -- * *
All directors and executive officers 2,520,875 42.85% 27.81%
of the Company as a group (five
persons)(5)(6)(7)
Hampshire and affiliates (including
one related person) (8)
640 Fifth Avenue
New York, NY 10019 397,620 6.76% 4.39%
- --------------------
* Indicates beneficial ownership of less than one (1%) percent.
(1) For purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security
which such person or persons have or have the right to acquire within 60
days is deemed to be outstanding but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(2) Does not include (i) 200,000 shares of Common Stock included in the Units
issued to Kramer Levin and (ii) 200,000 shares of Common Stock issuable
upon the exercise of the Warrants included in the Units issued to Kramer
Levin, of which shares Mr. Frischling disclaims beneficial ownership.
(3) Assumes the exercise of all Warrants.
(4) The address of each of the referenced individuals is c/o ERD Waste Corp.,
937 East Hazelwood Avenue, Building 2, Rahway, New Jersey 07065.
(5) Does not include options to purchase 125,000 shares under the Plan, of
which 93,750 exercisable within 60 days of the date hereof.
(6) Does not include options to purchase 190,000 shares, in the aggregate,
granted under the Plan, of which 142,000 are exercisable within 60 days of
the date hereof.
-42-
(7) Includes 16,500 shares presently exercisable out of 60,000 shares to be
granted under the Plan.
(8) Does not include warrants to purchase 120,000 shares of Common Stock. Each
such individual disclaims beneficial ownership of the others' shares of
Common Stock.
-43-
DESCRIPTION OF SECURITIES
UNITS
The Units consist of a number of shares of Common Stock and Warrants,
determined by dividing $25,000 by 90% of the Average Closing Bid Price. The
Common Stock and the Warrants will not be separately transferable until the
Separation Date, subject to the restrictions upon transferability more fully
described herein. See "Risk Factors--No Public Market for Securities."
COMMON STOCK
The Company is authorized to issue up to 15,000,000 shares of Common
Stock, par value $.001 per share, of which 7,473,028 are outstanding as of July
31, 1997. Under the Plan, options to purchase 445,000 shares have been granted.
The Company's Board of Directors has authorized an increase in the Plan from
500,000 to 1,000,000 shares, which increase is subject to approval by the
Company's stockholders. Holders of Common Stock are entitled to one vote for
each share held of record on each matter submitted to a vote of stockholders.
There is no cumulative voting for election of directors. Subject to the prior
rights of any series of preferred stock which may from time to time be
outstanding, if any, holders of Common Stock are entitled to receive ratably,
dividends when, as, and if declared by the Board of Directors out of funds
legally available therefor and, upon the liquidation, dissolution, or winding up
of the Company, are entitled to share ratably in all assets remaining after
payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of Common Stock have no
preemptive rights and have no rights to convert their Common Stock into any
securities. The outstanding Common Stock is validly authorized and issued, fully
paid, and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, par value $.001 per share, of which no shares are outstanding as of the
date hereof. The preferred stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by stockholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such preferred stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of
the Common Stock. The ability of the Board of Directors to issue preferred stock
could discourage, delay or prevent a takeover of the Company. See "Risk
Factors--Preferred Stock; Possible Anti-Takeover Effects."
WARRANTS
The Warrants were issued pursuant to an agreement, dated December 31,
1996, as amended (the "Warrant Agreement"), between the Company and Continental
Stock Transfer and Trust Company, as warrant agent (the "Warrant Agent"). Each
Warrant is not exercisable until one year from the date of issuance. The
Warrants will not be detachable from the Common Stock included in the Units
until the Separation Date. Each Unit will include a Warrant entitling the holder
to purchase the Common Stock at an exercise price (the "Exercise Price") equal
to $2.25 per share for the Common Stock, subject to adjustment, at any time
until 5:00 P.M., New York City time, on January 31, 2002. The Warrants may be
exercised in whole or in part.
The Warrants are subject to redemption by the Company, upon 30 days'
written notice, at a price of $0.10 per Warrant, if the average closing bid
price for the Common Stock has been at least $6.00 for the 10 trading day period
ending on the fifteenth day prior to the date on which notice of redemption is
given (subject to adjustment). For these purposes, the closing bid price of the
Common Stock shall be determined by the closing bid price, as reported by
Nasdaq, so long as the Common Stock is quoted on Nasdaq and, if the Common Stock
is listed on a national securities exchange shall be determined by the last
reported sale price where such securities are primarily traded. Holders of
Warrants will automatically forfeit
-44-
their rights to purchase the shares of Common Stock issuable upon exercise of
such Warrants unless the Warrants are exercised before they are to be redeemed.
All of the outstanding Warrants must be redeemed if any portion of that class
are to be redeemed. A notice of redemption will be mailed to each of the
registered holders of the Warrants no later than 30 days before the date fixed
for redemption. The notice of redemption shall specify the redemption price, the
date fixed for redemption, the place where the Warrant certificates shall be
delivered and the date of expiration of the right to exercise the Warrants.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware, an anti-takeover law. In general, this
law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" is defined to include mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent and warrant agent for the Units, Common Stock and
Warrants is Continental Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
On July 31, 1997, the Company had 9,063,273 shares of Common Stock
outstanding if all the Warrants were exercised. Of such shares, 6,410,593 shares
are presently "restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act ("Rule 144").
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least one year is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the total number of outstanding shares or other units of
the same class or, if the Common Stock is quoted on Nasdaq, the average weekly
trading volume in the over-the-counter market or other exchange during the four
calendar weeks preceding such sale. A person who has not been an affiliate of
the Company for at least three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least two years is entitled to
sell such shares under Rule 144 without regard to any of the limitations
described above.
No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market price prevailing from time to time. The possibility that substantial
amounts of Common Stock may be sold in the public market, or sales of
substantial amounts of the Common Stock in the public market, is likely to have
a material adverse effect on the price of the Common Stock and could impair the
Company's ability to raise capital through the future sale of its equity
securities.
EXPERTS
The financial statements of the Company as at September 30, 1996 and
January 31, 1996 and for the two years and eight months ended September 30, 1996
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Feldman Radin & Co., P.C., independent auditors, as set forth in
their report with respect thereto, and are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
-45-
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Kramer,
Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022. Carl
Frischling, a member of the firm, is an outside director of the Company and owns
8,000 shares of Common Stock. In addition, members of the firm own Units
comprised of 200,000 shares of Common Stock and 200,000 Warrants.
-46-
ERD WASTE CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report ............................................................ F-2
Balance Sheets at September 30, 1996 and January 31, 1996 ............................... F-3
Statements of Operations for each of the two fiscal years ended January 31, 1996 and 1995
and for the eight month period ended September 30, 1996 ................................. F-4
Statements of Shareholders' Equity for each of the two fiscal years ended
January 31, 1996 and 1995 and for the eight months ended September 30, 1996 ............. F-5
Statements of Cash Flows for each of the two fiscal years ended January 31, 1996
and 1995 and for the eight month period ended September 30, 1996 ........................ F-6
Notes to Audited Financial Statements ................................................... F-7
Consolidated Balance Sheets - March 31, 1997 (Unaudited) and September 30, 1996 ......... F-20
Consolidated Statements of Operations - for the
six months ended March 31, 1997 and 1996 (Unaudited) .................................... F-21
Consolidated Statements of Operations - for the three months ended March 31, 1997
and 1996 (Unaudited) .................................................................... F-22
Consolidated Statements of Stockholders' Equity - March 31, 1997 (Unaudited) and
September 30, 1996 ...................................................................... F-23
Consolidated Statements of Cash Flows - for the six months ended March 31, 1997
and 1996 (Unaudited) .................................................................... F-24
Notes to Consolidated Financial Statements (Unaudited) .................................. F-25
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
ERD Waste Corp.
We have audited the accompanying balance sheet of ERD Waste Corp. and
Subsidiaries as of September 30, 1996 and January 31, 1996 and the related
statement of operations, stockholders' equity and cash flows for the eight
months ended September 30, 1996 and the years ended January 31, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ERD Waste Corp. and
Subsidiaries as of September 30, 1996 and January 31, 1996 and the results of
its operations and cash flows for the eight months ended September 30, 1996 and
the years ended January 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
January 22, 1997 (February 12, 1997 as to the eighth paragraph of Note 10)
F-2
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, January 31,
1996 1996
---- ----
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 61,725 $ 1,422,214
Restricted certificates of deposit 1,655,363 800,000
Accounts receivable, less allowance for doubtful
accounts of $1,042,833 and $90,000, respectively 11,631,456 2,491,731
Prepaid expenses and other current assets 1,991,860 168,393
Inventory 335,595 160,636
Deferred tax benefit 750,000 --
-------------------- ------------ -----------
TOTAL CURRENT ASSETS 16,425,999 5,042,974
------------ -----------
PROPERTY, PLANT and EQUIPMENT, less accumulated
depreciation of $1,547,016 and $617,547, respectively 8,315,235 11,687,575
------------ -----------
OTHER ASSETS:
Restricted certificates of deposit -- 950,000
Goodwill, less accumulated amortization 9,800,045 1,031,628
Covenants not to compete, less
accumulated amortization 214,665 316,938
Loan receivable - Environmental Services of America, Inc. -- 500,000
Deferred permit costs and other 315,638
Deferred tax benefit - less current portion 7,052,069 --
------------ -----------
TOTAL OTHER ASSETS 17,066,779 3,114,204
------------ -----------
$ 41,808,013 $19,844,753
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 8,863,276 $ 1,868,743
Accrued expenses and taxes payable 5,197,162 1,870,432
Current portion- notes payable 2,046,885 1,271,667
------------ -----------
TOTAL CURRENT LIABILITIES 16,107,323 5,010,842
------------ -----------
LONG-TERM DEBT, less current portion 14,255,499 1,244,488
------------ -----------
OTHER LONG TERM PAYABLES 5,088,000 --
------------ -----------
DEFERRED INCOME TAXES -- 250,000
------------ -----------
COMMITMENTS and CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, authorized
2,000,000 shares, $.001 par value;
none issued and outstanding -- --
Common stock, authorized 15,000,000
shares, $.001 par value;
5,882,782 and 5,832,782 shares
issued and outstanding, respectively 5,883 5,833
Additional paid in capital 10,556,550 10,487,751
Retained earnings (deficit) (4,205,242) 2,845,839
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 6,357,191 13,339,423
------------ -----------
$ 41,808,013 $19,844,753
============ ===========
See notes to financial statements
F-3
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Eight months
ended
September 30, Year ended January 31,
------------ ---------------------
1996 1996 1995
---- ---- ----
REVENUES:
s Net sales $ 20,130,375 $ 5,010,965 $ 2,860,502
COST OF SALES 12,778,257 3,253,046 1,637,195
------------ ------------ ------------
GROSS PROFIT 7,352,118 1,757,919 1,223,307
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and
administrative expenses 5,821,132 1,568,412 552,316
Fire loss 423,352 0 0
Start-up costs 437,241 0 0
------------ ------------ ------------
TOTAL OTHER OPERATING EXPENSES 6,681,725 1,568,412 552,316
------------ ------------ ------------
INCOME FROM OPERATIONS 670,393 189,507 670,991
------------ ------------ ------------
OTHER INCOME AND EXPENSES:
Interest and dividend income 72,091 99,652 0
Interest expense (602,407) (62,765) (46,588)
Other, net 54,506 12,318 0
------------ ------------ ------------
TOTAL OTHER INCOME AND EXPENSES (475,810) 49,205 (46,588)
------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 194,583 238,712 624,403
PROVISION FOR INCOME TAXES 77,666 95,500 250,000
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 116,917 143,212 374,403
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Income from operations, net of income taxes
of approximately $221,000, $1,385,000
and $277,000 respectively 332,002 2,084,419 416,890
Loss on disposal, net of income tax
benefit of $5,000,000 (7,500,000) 0 0
------------ ------------ ------------
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS (7,167,998) 2,084,419 416,890
------------ ------------ ------------
NET INCOME (LOSS) $ (7,051,081) $ 2,227,631 $ 791,293
============ ============ ============
INCOME (LOSS) PER SHARE:
INCOME FROM CONTINUING
OPERATIONS $ 0.02 $ 0.03 $ 0.09
============ ============ ============
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS $ (1.22) $ 0.38 $ 0.11
============ ============ ============
NET INCOME (LOSS) PER COMMON
SHARE $ (1.20) $ 0.41 $ 0.20
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES 5,857,782 5,490,487 $ 3,963,000
============ ============ ============
See notes to financial statements.
F-4
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
Balance- January 31, 1994 3,525,000 $ 3,500 $ -- $ (41,985) $ (38,485)
Common shares issued
in connection with
acquisitions 312,500 338 169,266 -- 169,604
Net income -- -- -- 791,293 791,293
---------- ------- ------------ ----------- ------------
Balance- January 31, 1995 3,837,500 3,838 169,266 749,308 922,412
Common shares issued
in connection with public
offering 2,250,000 2,250 12,110,720 -- 12,112,970
Reacquisition of common
shares (300,000) (300) (2,018,600) (131,100) (2,150,000)
Issuance of common shares
in connection with the
acquisition of EATS, Inc. 45,282 45 226,365 -- 226,410
Net income -- -- -- 2,227,631 2,227,631
---------- ------- ------------ ----------- ------------
Balance- January 31, 1996 5,832,782 5,833 10,487,751 2,845,839 13,339,423
Issuance of common stock 50,000 50 68,799 -- 68,849
Net income -- -- -- (7,051,081) (7,051,081)
---------- ------- ------------ ----------- ------------
Balance- September 30, 1996 5,882,782 $ 5,883 $ 10,556,550 $(4,205,242) $ 6,357,191
========== ======= ============ =========== ============
See notes to financial statements
F-5
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eight months
ended
September 30 Year ended January 31
------------ ---------------------
1996 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(7,051,081) $2,227,631 $791,293
---------- ----------- -----------
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation 930,604 441,719 160,000
Amortization 245,677 93,322 0
Provision for loss on discontinued 7,500,000 0 0
operations, net of tax benefit
Provision for deferred income taxes (2,670,782) (44,906) 527,000
Issuance of common stock for services 68,849 0 0
Changes in assets and liabilities
(net of effects from purchase of ENSA)
(Increase) decrease in accounts (1,870,836) (1,407,332) 191,200
(Increase) in inventory 367,908 (160,636) 0
(Increase) decrease in prepaid expenses
and other current assets (1,607,893) (123,870) 323,615
(Increase) in other assets (1,798,548) (442,325) (11,474)
Increase (decrease) in accounts payable
and accrued expenses 1,749,255 777,942 (282,532)
Increase in income taxes payable 0 507,918 0
---------- ----------- -----------
2,914,234 (358,168) 907,809
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (4,136,847) 1,869,463 1,699,102
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of ENSA (8,085,181) 0 0
Capital expenditures (2,149,472) (904,718) (1,642,230)
----------- ----------- -----------
10,234,653) (904,718) (1,642,230)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 12,916,275 (8,876,929) (48,906)
Borrowings 0 859,750 181,350
Issuance of common stock 0 10,444,190 31,807
Advances to Environmental Services of
America, Inc. 0 (500,000) 0
Decrease (Increase) in restricted
certificates of deposit 94,736 (1,750,000) 0
------------ ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,011,011 177,011 164,251
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH (1,360,489) 1,141,756 221,123
CASH, at beginning of period 1,422,214 280,458 59,335
------------ ----------- -----------
CASH, at end of period $61,725 $1,422,214 $280,458
============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 602,000 $ 51,030 $46,588
============ =========== ===========
Income taxes paid $ 0 $ 975,633 $ 0
============ =========== ===========
See notes to financial statements
F-6
ERD WASTE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EIGHT MONTHS ENDED SEPTEMBER 30, 1996 AND YEAR ENDED JANUARY 31, 1996
1. ORGANIZATION AND INITIAL PUBLIC OFFERING OF COMMON SHARES
On March 1, 1994, ERD Waste Corp., formerly Environmental
Resources and Disposal, Inc. ("ERD") merged with a Delaware corporation
organized for the purpose of changing the Company's situs to Delaware and
effecting a recapitalization of stock. In the merger and
recapitalization, each share of common stock was exchanged for 1,762.5
shares of common. All share amounts have been restated to give effect to
this recapitalization. ERD has adopted a fiscal year ended September 30.
The Company has authorized 2,000,000 shares of preferred stock
$.001 par value per share.
In May 1995, the Company completed an Initial Public Offering (the
Offering) of 2,250,000 shares of its Common Stock. Net proceeds to the
Company from the "Offering", after deduction of associated expenses, were
approximately $12,113,000.
2. LINE OF BUSINESS
As a result of the acquisition of Environmental Services of
America, Inc. ("ENSA") the Company operates as a diversified
environmental services company specializing in the identification,
management, treatment, transportation and disposal of hazardous and
non-hazardous waste, remediation of hazardous waste sites, air quality
testing and monitoring services and equipment, and consulting and
technical support services related to all of the foregoing.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation- The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions have been
eliminated.
b. Accounting Estimates- The preparation of financial statements
in conformity with generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
c. Revenue Recognition- Revenue is recognized at the date the
related service is rendered. Income is charged with an allowance for
doubtful receivables based on prior collection experience and a review of
the collectibility of specific accounts.
d. Cash and Cash Equivalents- Cash and cash equivalents consist of
cash and temporary investments with maturities of three months or less
when purchased.
e. Property, Plant and Equipment and Depreciation- Property, plant
and equipment are stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the asset. Assets range in
useful lives from 7 years for equipment to 30 years for building and
waste facility.
f. Earnings per share- Earnings per share is based upon the
average shares outstanding during the period increased by the effect, if
dilutive, of common stock equivalents. The options to purchase common
stock referred to in Note 11 are also included in the computation of
outstanding shares and common stock equivalents.
F-7
g. Stock options - In October 1995 the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation",
which is effective for the Company beginning with the fiscal year ending
January 31, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages
compensation cost to be measured based on the fair value for the equity
instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the instrument awarded. The Company continues to apply
APB Opinion No. 25 to its stock based compensation awards to employees.
h. Recent pronouncements - In March 1995 the FASB issued SFAS
No.121,"Accounting for the Impairment of Long Lived Assets and For
Long-Lived Assets to be Disposed Of", which is effective for fiscal years
beginning after December 15, 1995. This statement requires that
long-lived assets and certain identifiable intangible assets to be held
and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The adoption by the Company of this statement in the period
ended September 30, 1996 did not have a material impact on the
consolidated financial statements of the Company.
i. Fair value of financial instruments - The amounts reported in
the balance sheet for cash, trade receivables, accounts payable and
accrued expenses approximate fair value based on the short-term
maturities of these instruments.
4. BUSINESS COMBINATIONS
a. Effective May 1, 1996 the Company, ENSA Acquisition Corp.
("EAC"), and ENSA entered into an agreement and plan of merger (the
"Original Merger Agreement") whereby EAC would be merged with and into
ENSA, the result of which would be that ENSA would become a subsidiary of
the Company.
In January, 1996, simultaneously with the execution of the
Original Merger Agreement and in contemplation of the acquisition of ENSA
by the Company, the Company executed a securities purchase agreement (the
"Securities Purchase Agreement") providing for the loan by the Company to
ENSA (the "Bridge Loan") of $500,000 for working capital purposes. The
Securities Purchase Agreement also provided for the issuance to the
Company of 500,000 shares of common stock of ENSA.
In April 1996, the Company entered into an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") with ENSA. Pursuant
to the terms of the Merger Agreement, the Company, through its subsidiary
ENSA Acquisition Corp. ("EAC"), acquired ENSA and its subsidiaries
through the merger of EAC with and into ENSA. In order to facilitate the
acquisition of ENSA, the Company, through EAC, initiated a tender offer
(the "Offer") on April 4, 1996 for the purchase of shares of common stock
of ENSA at a purchase price of $1.66 per share. The aggregate purchase
price for all outstanding shares of common stock of ENSA, other than
shares currently owned by the Company is $6,358,718. The Offer is
conditioned upon, among other things, there being validly tendered and
not withdrawn prior to the expiration of the Offer, a number of shares of
common stock of ENSA representing at least a majority of the total number
of outstanding shares of ENSA, other than those shares held by the
Company, on a fully diluted basis as of the date such shares of common
stock are accepted for payment pursuant to the Offer.
Simultaneously with its entry into the Merger Agreement, the
Company entered into a stock purchase agreement with in excess of 90% of
the holders of each class of preferred stock of ENSA (the "Stock Purchase
Agreement"). The aggregate purchase price for the shares of preferred
stock of ENSA to be purchased pursuant to the Stock Purchase Agreement is
$1,253,614. The closing of the Stock Purchase Agreement was conditioned
upon, and closed simultaneously with, the consummation of the tender
offer.
On May 1, 1996, over 90% of ENSA's outstanding shares were
tendered to the Company. On May 6, 1996, the formal closing was held and
the Company made payment for the purchase of the tendered preferred and
common stock.
F-8
b. On April 16, 1994, ERD acquired ECT in a transaction accounted
for as a purchase. Results of ECT's operations subsequent to the date are
included in these consolidated financial statements. In the transaction,
ERD issued 312,500 of its common shares in exchange for all of ECT's
issued and outstanding common shares. The acquisition was recorded at the
historical cost of ECT's net assets acquired (approximately $170,000).
c. In October, 1995, a newly formed wholly owned subsidiary,
Absorption Manufacturing and Technologies, Inc. ("AMT"), acquired certain
assets and assumed certain liabilities of Environmental Absorbent
Technologies, Inc. in exchange for 45,282 shares of the Company's common
stock. These acquisition shares have not been registered under the
Securities Act of 1933 and may not be sold or transferred by the seller
otherwise than in compliance with the registration requirements of the
Securities Act of 1933 or pursuant to an exemption from such
requirements.
The following summarizes the amounts allocated to the assets acquired
and liabilities assumed in this transaction:
Current assets $ 313,115
Property and equipment 165,156
Value of goodwill acquired 1,044,000
Current liabilities (529,287)
Other liabilities (766,574)
--------
Value of ERD common shares $ 226,410
issued to EATS shareholders $
The aforementioned transactions have been accounted for as
purchases, and accordingly, the Company's results of operations includes
the results of the acquired entities from their respective dates of
acquisition. Pro-forma results of operations for the Company as if the
aforementioned acquisitions took place on February 1, 1994 are as
follows:
Eight months
ended Years Ended
---------------------- ------------------------------------------------
September 30, January 31, January 31
---------------------- ------------------- ------------------------
1996 1996 1995
---------------------- ------------------- ------------------------
Revenues $ 27,422,306 $ 46,538,810 $ 39,848,267
Net Income $ (8,621,533) $ (483,211) $ 753,469
Net Income per share $ (1.47) $ (0.09) $ 0.19
Number of shares used in calculation 5,882,782 5,490,487 3,963,000
5. STOCK REPURCHASE
On August 31, 1995 the Company entered into to an agreement to
reacquire the stock of two former officers of ECT. The Company purchased
300,000 common shares from these officers for $2,150,000. In connection
with the repurchase of such shares, the Company issued promissory notes
to the two former stockholders, each in the original amount of
$1,075,000. The promissory notes are collateralized by certificates
F-9
of deposit owned by the Company in the amount of $1,150,000 at September
30, 1996. The notes, which bear interest at 6% per annum, are repayable
in quarterly installments of $200,000 in the aggregate, with a final
installment of $150,000 due February 1998. As the Company makes the
required quarterly installments, an equal amount of collateral is
released and becomes available for the Company's general use. The
repurchased shares were not retired, and are available for future
issuance by the Company.
In connection with the stock repurchase the employees right to
exercise certain qualified options relative to 150,000 additional common
shares of the Company were canceled, except with respect to 10,000 shares
which remain available to each shareholder for exercise to and until
February 17, 1997, provided that the former stockholder is still serving
as a consultant to the Company, as provided in the settlement agreement.
6. DISCONTINUED OPERATIONS
On September 4, 1996, the Company received a complaint from the
New York State Department of Environmental Conservation ("DEC") citing a
number of alleged violations at the Company's Long Beach, New York
incinerator ("Facility"). The DEC's complaint also indicated its intent
to have the Facility closed. On November 7, 1996 the Company announced
that it had reached an agreement with the New York State Attorney General
acting on behalf of the DEC concerning the resolution of a complaint
filed by the DEC on September 4, 1996 regarding the Company's operation
of its incinerator in Long Beach, New York ("Facility"). The agreement
reached on November 7, 1996 includes a voluntary discontinuance of
incineration at the Facility. In addition, the agreement includes
modification of the Facility's permit to allow it to continue to operate
as a solid waste transfer station for the waste streams it has previously
processed as a waste to energy incinerator. In return for the resolution
of all legal issues, the Company agreed to voluntarily cease incineration
activities by March 31, 1997.
The plan to convert the facility to a solid waste transfer
station will involve the dismantling of a significant portion of the
existing structure, and the remediation of the soil on and around the
Facility. In addition, the Company estimates that significant legal and
other consulting fees will be incurred in the management of the
project. The estimated loss on the abandonment of the waste to energy
facility includes the net book value of the Facility, the estimated
costs to dismantle the facility, the legal and other fees associated
with the project, partially offset by the estimated salvage value of
the Facility's equipment and projected operating profits through the
termination date of March 31, 1997. The following table is a
calculation of the estimated loss on abandonment:
Net book value of Facility $ 11,500,000
Costs to dismantle and professional fees 2,000,000
Estimated salvage value of equipment (500,000)
Operating profits through termination date (500,000)
------------------
Loss on disposal $ 12,500,000
==================
F-10
The following table sets forth, for the periods indicated, the revenues
and results of operations of the Facility.
Eight months
ended Years Ended
--------------------- ------------------
September 30, January 31, January 31,
--------------------- ------------------ ------------------
1996 1996 1995
--------------------- ------------------ ------------------
Revenues $ 4,651,085 $ 10,205,133 $ 3,847,707
Net income $ (7,167,998)(a) $ 2,084,419 $ 416,890
(loss)
(a) Includes estimated loss on disposal, net of tax benefit, of
$7,500,000
ERD acquired the facilities prior owner,C&J Enterprises, Inc. in a
transaction accounted for as a purchase. ERD paid and agreed to assume
specified liabilities of C&J Enterprises, Inc. and its wholly owned
subsidiary (Long Beach Recycling and Recovery Corp., (LBRR)), subject to
certain adjustments. Among the liabilities assumed were certain
Industrial Revenue Bonds. Cost of the acquisition was determined by
totaling the amount of the liabilities assumed. The following summarizes
the amounts allocated to the assets acquired and liabilities assumed in
the transaction:
Industrial revenue bonds $ 7,000,000
Note payable 1,500,000
Other liabilities assumed, net 1,109,029
Costs of the transaction 105,375
-----------------
Cost of property, plant and
equipment acquired $ 9,714,404
=================
Incineration of solid waste has taken place at the Facility Site
since 1951. Various past practices, although they may have been fully
lawful and within standard engineering practices at the time, have
resulted in ash constituents being present in the soils and upper level
groundwater beneath the Facility. LBRR has had conducted a phase I and
phase II environmental assessment of the level of constituents present
and the remedial actions which may be needed at the Facility Site. The
Company is currently examining this issue to determine a possible plan
for such remediation and is in the process of contacting the City of Long
Beach, New York, the owner of the Facility Site, as well as predecessor
operators of the Facility regarding such plan and the funding thereof.
On July 25, 1995, the Company had a major fire at the Long Beach
Facility. The fire significantly damaged the incinerator and reduced or
prevented its operation for approximately two months. After the fire, the
Company devoted a major effort to repairing the incinerator, upgrading it
where appropriate and servicing its customers when the incinerator could
not properly function. Other disposers had to be utilized for waste which
otherwise would have been incinerated by the Company. In addition to the
loss of incineration income, the Company lost significant sales of
electricity.
The Company was covered by insurance for both damage and business
interruption. In November 1995, the Company settled its claim with the
insurance company, collecting a total of $3,200,000, which was previously
included in revenues. Because of the inability to determine exactly what
costs it expended during
F-11
previously included in revenues. Because of the inability to determine
exactly what costs it expended duringthe year for the incinerator and the
appropriate portion of the recovery representing reimbursement for
business interruption, the financial statements reflect the insurance
recovery as revenues. All expenditures relating to the fire, the repair
of the incinerator, and management's effort to both repair the
incinerator and service customers have been included in expenses.
Management believes that the incinerator has been brought back to
its operating capability prior to the fire. Accordingly, the incinerator
has been recorded at its cost through July 24, 1996 less appropriate
depreciation.
7. OTHER LONG TERM LIABILITIES
Other long term liabilities consist of the following at September 30,
1996:
Environmental Costs $2,833,000
Severance costs 650,000
Costs related to discontinued operations 850,000
Accrued acquisition costs 345,000
Accrued professional fees and salaries 410,000
----------
$5,088,000
----------
(a) The three transfer stations operated by ENSA are on sites that
have been contaminated as a result of prior use of the site or by prior
use at an adjacent site. The Company is cooperating with the government
regulatory agencies that have jurisdiction over its facilities to
investigate, assess, and implement appropriate remediation measures to
address these conditions. The Company has projected potential
expenditures that may be required to conduct further investigations or
studies and to remediate the sites to satisfy regulatory requirements. In
developing these projections of potential remediation and compliance
costs, the Company has relied, in part, on studies prepared by itself and
an independent environmental engineering and consulting firm.
The Company will also be required to upgrade its transfer stations
to meet new regulatory and permit requirements, including the
installation of emission controls for volatile organic compounds on the
storage tanks at each facility to meet requirements with respect to air
emissions.
Estimates of potential costs related to these environmental
matters is subject to significant inherent uncertainty. Estimates of
costs of compliance and remediation are subject to a number of factors
beyond the Company's control; therefore, actual costs could differ from
these estimates and the differences could be material.
(b) The former CEO of ENSA has alleged that the Company breached
its obligations pursuant to an unsigned employment agreement providing
for $225,000 per year for three years. In addition, the Company has
agreed to pay the former CEO $200,000 per year for the next two years.
(c) Costs related to the discontinuance of the Company's
incinerator in Long Beach, New York consist of estimated costs to
dismantle the Facility, as well as estimated legal and other professional
fees to be incurred in the process. The costs are stated net of estimated
income from incineration operations through the date that the Company
must cease incineration activities at the site March 31, 1997.
F-12
8. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under the terms of operating
leases with varying maturities through 2007. Minimum lease commitments
under all operating leases for each of the next five years and thereafter
are as follows:
1997 $ 1,490,000
1998 478,000
1999 344,000
2000 290,000
2001 300,000
Thereafter 1,593,000
Certain of the leases contain renewal options ranging from five to
ten years. Additionally, two leases provide the Company with an option to
purchase the related property. Rent expense aggregated approximately
$594,000, $271,000 and $256,000 for the eight months ended September 30,
1996 and the years ended January 31, 1996 and 1995, respectively.
The Company is subject to a number of lawsuits arising from the
conduct of the prior owners of the waste facility. While the ultimate
results of the litigation commenced and potential litigation cannot be
determined, management does not expect that any of the matters will have
a material adverse effect on the consolidated financial position of the
Company.
9. PROPERTY, PLANT AND EQUIPMENT
The following is a summary for property, plant and equipment:
September 30, January 31,
----------------- ---------------
1996 1996
----------------- ---------------
Vehicles and equipment $ 4,221,326 $ 637,898
Waste facility - 9,341,645
Building and building improvements 4,959,040 2,220,440
Other 681,885 102,139
----------------- ---------------
9,862,251 12,302,122
Accumulated depreciation (1,547,016) (614,547)
----------------- ---------------
$ 8,315,235 $ 11,687,575
================= ===============
F-13
10. LONG TERM DEBT
The long term debt is summarized as follows:
September 30, January 31,
-------------------- -----------------
1996 1996
-------------------- -----------------
Revolving credit note payable, bank, due April 1,
1998, (a) $ 7,500,000 $ --
Note payable, bank (a) 4,400,000 --
Note Payable- Catalyst, payable in equal annual
installments through 1999 400,000 400,000
Note payable - officer, due on demand, with interest at
prime plus 1% 642,949
Notes Payable - Former Stockholders payable in quarterly 1,150,000
installments of $200,000 with a final installment of
$150,000 in February, 1998 at 6%
per annum 1,750,000
Various equipment and other installment notes payable in 296,415
varying monthly amounts including interest ranging from
8% to 18.3%, with varying maturities through November
2001 2,209,435
Other 69,740
-------------------- -----------------
16,302,384 2,516,155
Less current portion 2,046,885 1,271,667
-------------------- -----------------
$ 14,255,499 $1,244,488
==================== =================
(a) In order to partially finance the purchase of the common stock and
preferred stock of ENSA, in April 1996, the Company obtained and
utilized the availability of a $7.5 million revolving credit facility
(the "Revolving Facility") from Chemical Bank (the "Bank"and/or
"lender") pursuant to a loan agreement (the "Loan Agreement"), dated
March 29, 1996. The funds were actually borrowed on May 2, 1996. The
Loan Agreement provides, among other things, for the payment by ERD of
a commitment fee, payable monthly, computed at the rate of one quarter
of one percent (1/4%) per annum (computed on the actual number of days
elapsed over 360 days) on the average daily unused amount of the Bank's
$7.5 million commitment. Revolving loans in respect of the Revolving
Facility ("Revolving Loans") shall be, at the Company's request, either
(i) Alternative Base Rate Loans (as defined) which bear interest
calculated at the Alternative Base Rate (as defined) plus one half of
one percent (1/2%) or (ii) Eurodollar Loans (as defined) which bear
interest calculated at the adjusted LIBOR Rate (as defined) plus three
and one half percent (3 1/2%)(or a combination thereof).
F-14
Subject to the terms of the Loan Agreement, the Revolving Facility
will be available until April 1, 1998 (the "Conversion Date"), at which
time, all outstanding principal and accrued interest under the Revolving
Facility shall be due and payable.
Provided no Event of Default (as defined) exists, on the
Conversion Date, the Company may, upon request by it, be granted a term
loan (the "Term Loan") in an amount equal to the lesser of the Bank's
Commitment (as defined) or the aggregate principal amount of Revolving
Loans then outstanding. The proceeds of the Term Loan are to be used by
ERD exclusively to satisfy obligations to the Bank under any Revolving
Loan existing at the Conversion Date. The Term Loan shall, at the option
of the Company, be an Alternative Base Rate Loan or a Eurodollar Loan (or
a combination thereof). If the Term Loan is an Alternative Base Rate
Loan, it will bear interest at the Alternative Base Rate plus one percent
(1%). If the Term Loan is a Eurodollar Loan, it will bear interest at the
Adjusted LIBOR Rate plus three and one half percent (3 1/2%).
The Loan Agreement allows the Company, on or after the Conversion
Date and subject to the terms of the Loan Agreement, to (i) continue any
Eurodollar Loan or portion thereof into a subsequent Interest Period (as
defined) or (ii) convert an Alternative Base Rate Loan into a Eurodollar
Loan.
The Loan Agreement provides for the granting by the Company and
each of the Guarantors listed above of a first priority security interest
in all present and future accounts, contract rights, chattel paper,
general intangibles, instruments and documents of the Company and such
Guarantors then owned or thereafter acquired, and in all machinery and
equipment acquired by the Company and such Guarantors after the date of
the Loan Agreement.
The obligations of the Bank to make each Revolving Loan under the
Revolving Facility are conditioned on certain conditions, including the
following: (i) delivery of a certificate from the Company and each of the
Guarantors stating the representations and warranties contained in the
Loan Agreement are true and correct; (ii) no default or material adverse
change in the Company or any Guarantor has occurred; and (iii) the
purpose for which the proceeds of such Revolving Loan is being made.
The Loan Agreement contains traditional and customary
representations, warranties and events of default.
The Company has agreed to indemnify Chemical against any loss or
expense which Chemical may sustain or incur as a consequence of any
default in payment or prepayment of the principal amount of any Loan (as
defined) or any part thereof or interest accrued thereon, as and when due
and payable on the occurrence of any Event of Default (as defined).
Subject to the terms of the Loan Agreement, the Company has the
right at any time and from time to time to prepay any Alternate Base Rate
Loan, in whole or in part, without premium or penalty, on the same day
that telephonic notice is given to Chemical advising it of prepayment. In
addition, the Company has the right to prepay any Eurodollar Loan, in
whole or in part, on three Business Days' prior irrevocable notice,
provided, however, that such prepayment may only be made on an Interest
Determination Date (as defined).
At September 30, 1996 the Company was in technical violation of a
number of the covenants contained in the agreement. As of February 12,
1997, these violations were waived. Concurrently, the lender and the
Company agreed on revised financial covenants for the remainder of the
year ending September 30, 1997. The Company expects to be in compliance
with the revised covenants at each measurement date.
On June 6, 1996 and in August 1996, the Company borrowed an
additional $4,400,000 (in the aggregate) from this lender pursuant to a
demand promissory note (the "Note"). The Note bears interest at 1% above
the lender's prime rate, as that term is defined in the agreement. The
proceeds of the loan were utilized to repay existing credit facilities of
ENSA (those in existence at the time of the acquisition of ENSA by ERD).
The Note is collateralized by certain assets of the Company and its
subsidiaries, as well as by a stand by letter of credit issued in favor
of them lender by American United Global, Inc. ("AUGI"), an affiliate of
one of the
F-15
Company's directors. In consideration for the letter of credit, the
Company entered into an agreement with AUGI, dated May 30, 1996, as
amended and restated by letter agreement dated October 8, 1996. Pursuant
to the agreement, the Company agreed to pay interest and other charges
incurred by AUGI with respect to the letter of credit. It was also agreed
that should the letter of credit be called for payment, the Company would
issue to AUGI its 12% note payable due the earlier of May 31, 1999, or
the receipt of proceeds by the Company from any public or private
placement of debt or equity securities subsequent to the calling of the
letter of credit, or the completion of any bank financing by the Company
to the extent of proceeds available after the repayment of previously
outstanding collateralized indebtedness. Any of such notes issued
pursuant to this agreement will be convertible by AUGI into shares of the
Company's common stock at $4.40 per share.
F-16
11. INCOME TAXES
The provision for income taxes consists of the following:
Eight months
ended Year ended
--------------------- ------------------
September 30, January 31,
--------------------- ------------------
1996 1996
--------------------- ------------------
Current tax expense:
U.S. Federal $ 66,000 $ 935,000
State and local 11,666 296,000
--------------------- ------------------
$ 77,666 $ 1,231,000
--------------------- ------------------
Deferred tax expense:
U.S. Federal 0 200,000
State and local 0 50,000
--------------------- ------------------
0 250,000
--------------------- ------------------
Total provision $ 77,666 $ 1,481,000
===================== ==================
Temporary differences and carryforwards which give rise to
deferred tax assets and liabilities at September 30, 1996 and January
31, 1996 are as follows:
September 30, January 31,
1996 1996
--------------- ------------
Deferred tax asset:
Net operating loss carryfowards $ 1,592,000 $
Environmental liabilities 2,200,000
Write-off of incinerator 5,000,000
--------------- ------------
8,792,000
Less:Valuation allowance 740,000
--------------- ------------
Deferred tax asset 8,052,000
Deferred tax liability:
Insurance proceeds received treated as a
basis reduction for tax purposes. 250,000 250,000
--------------- ------------
Net deferred tax asset (liability) $ 7,802,000 $ (250,000)
=============== ============
Realization of deferred tax assets is dependent upon generating
sufficient taxable income prior to the expiration of net operating loss
carryforwards. Management believes that there is a risk that certain amounts may
not be realized, and accordingly, has established a reserve against a portion of
the deferred tax asset. Management believes that it is more likely than not that
the net deferred tax asset will be realized through future pre-tax earnings or
alternative tax strategies. However, the net deferred tax assets could be
reduced in the future
F-17
if management's estimates of near term pre-tax earnings are significantly
reduced or alternative tax strategies are no longer viable.
The difference between the actual income tax provision and the tax
provision computed by applying the statutory Federal income tax rate to
earnings before taxes is attributable to the following:
Eight months
ended Year ended
------------------ --------------------
September 30, January 31,
------------------ --------------------
1996 1995
------------------ --------------------
Income tax provision at 34% $ 66,000 $ 1,261,000
State and local income taxes, net of Federal 11,666
income effect 220,000
------------------ --------------------
$ 77,666 $ 1,481,000
================== ====================
12. EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with its
President and Chief Operating Officer of the Company, through December
31, 1998. The agreement provides for a salary of $175,000 per annum
commencing January 1, 1995, with annual increase of $25,000 per annum
through the term of the agreement.
The Company has also entered into an employment agreement with its
Chairman of the Board and Chief Executive Officer of the Company, through
December 31, 1998. The employment agreement provides for a salary of
$100,000 per annum commencing January 1, 1994.
The Company has also entered into an agreement with the President
of ECT which extends through March 3, 1996. The employment agreement
provides for an annual salary of $60,000 plus additional compensation
based on the pre-tax earnings of ECT through the relevant period. In
addition, the Company is obligated to pay such shareholders certain
amounts pursuant to a non compete agreement signed in connection with the
common stock repurchase described in Note 6.
13. EMPLOYEE STOCK OPTIONS
The Company has established the 1994 Stock Option Plan under which
employees of the Company may receive incentive stock options for up to
500,000 shares of common stock. During May, 1994, 445,000 options were
granted pursuant to the plan, exercisable at $4.00 per share for two
years.
14. MAJOR CUSTOMERS
During the eight months ended September 30, 1996, one customer
accounted for approximately 17.4% of consolidated revenues.
15. SUBSEQUENT EVENT
In December 1996 the Company commenced a private offering of its
common shares in the form of units. The private placement calls for the
sale of up to 150 units (but not less than 20 units) at a price of
$25,000 per unit. The units will consist of a number of common shares and
an equal number of warrants to purchase common shares. The number of
shares (and warrants) is to be determined by dividing the purchase price
per
F-18
unit by 90% of the average closing bid price for the Company's common
stock for the ten trading days immediately preceding the date of the
closing of the offering.
16. EIGHT MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
The following table sets forth the Company's unaudited summarized
results of operations for the eight months ended September 30, 1995:
Revenues $7,929,036
Gross profit 5,252,879
Selling, general and
administrative 2,405,375
Income from operations 2,847,504
Income taxes 1,090,953
Net income $1,781,763
F-19
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1997 1996
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 211,478 $ 61,725
Restricted certificates of deposit 1,207,282 1,655,363
Accounts receivable, less allowance
for doubtful accounts of $708,734
and $1,042,833 respectively 10,154,611 11,631,456
Prepaid expenses and other current assets 1,862,750 1,991,860
Inventory 272,764 335,595
Deferred income taxes 750,000 750,000
------------ ------------
TOTAL CURRENT ASSETS 14,458,885 16,425,999
------------ -----------
PROPERTY, PLANT and EQUIPMENT, less accumulated
depreciation of $840,109 and $458,902
respectively 8,299,152 8,315,235
----------- ------------
OTHER ASSETS:
Goodwill, less accumulated amortization 9,642,078 9,800,045
Covenants not to compete,
less accumulated amortization 186,665 214,665
Deferred tax benefit, less current portion 7,291,208 7,052,069
----------- -----------
TOTAL OTHER ASSETS 17,119,951 17,066,779
---------- ----------
$ 39,877,988 $ 41,808,013
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,349,437 $ 8,863,276
Accrued expenses and taxes payable 3,900,536 5,197,162
Current portion- notes payable 3,185,264 2,046,885
----------- -----------
TOTAL CURRENT LIABILITIES 13,435,237 16,107,323
---------- ----------
LONG-TERM DEBT, less current portion 14,159,164 14,255,499
---------- ----------
OTHER LONG TERM PAYABLES 4,654,371 5,088,000
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000
shares, $.001 par value; none issued
and outstanding -- --
Common stock, authorized 15,000,000
shares, $.001 par value;
6,896,743 and 5,882,782 shares issued
and outstanding, respectively 6,897 5,883
Additional paid in capital 12,186,269 10,556,550
Retained earnings (deficit) ( 4,563,950) ( 4,205,242)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 7,629,216 6,357,191
------------ ------------
$ 39,877,988 $ 41,808,013
============= ===============
See notes to financial statements.
F-20
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months ended
March 31,
1997 1996
---- ----
(Unaudited)
REVENUES:
Net sales $16,671,256 $5,494,052
COST OF SALES 10,413,588 1,919,645
------------ -----------
GROSS PROFIT 6,257,668 3,574,407
------------ -----------
OPERATING EXPENSES:
Selling, general and
administrative expenses 5,779,265 2,171,858
Depreciation 402,593 220,860
Amortization 236,984 46,662
------------ -----------
TOTAL OTHER OPERATING EXPENSES 6,418,842 2,439,380
------------ -----------
INCOME (LOSS) FROM OPERATIONS (161,174) 1,135,027
------------ -----------
OTHER INCOME AND EXPENSES:
Interest and dividend income 32,744 70,119
Interest expense (574,045) (67,524)
Other, net 104,628 33,302
------------ -----------
TOTAL OTHER INCOME AND EXPENSES (436,673) 35,897
------------ -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (597,847) 1,170,924
PROVISION FOR INCOME TAXES (239,139) 550,078
------------ -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (358,708) 620,846
------------ -----------
DISCONTINUED OPERATIONS:
Income from operations,
net of income taxes of
approximately $ -, and
$124,850 respectively -- 263,161
------------ -----------
INCOME FROM
DISCONTINUED OPERATIONS -- 263,161
------------ -----------
NET INCOME (LOSS) $(358,708) $884,007
============ ===========
INCOME (LOSS) PER SHARE:
INCOME (LOSS) FROM
CONTINUING OPERATIONS $0.06) $0.10
============ ===========
INCOME FROM
DISCONTINUED OPERATIONS $ -- $0.05
============ ===========
NET INCOME (LOSS)
PER COMMON SHARE $(0.06) $0.15
============ ===========
WEIGHTED AVERAGE
NUMBER OF SHARES 6,209,362 5,825,111
============ ===========
See notes to financial statements.
F-21
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended
March 31,
1997 1996
---- ----
(Unaudited)
REVENUES:
Net sales $7,675,689 $2,200,534
COST OF SALES 5,301,609 1,064,122
----------- -----------
GROSS PROFIT 2,374,080 1,136,412
----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative expenses 2,650,931 658,820
Depreciation 210,932 110,430
Amortization 142,612 23,331
----------- -----------
TOTAL OTHER OPERATING EXPENSES 3,004,475 792,581
----------- -----------
INCOME (LOSS) FROM OPERATIONS (630,395) 343,831
----------- -----------
OTHER INCOME AND EXPENSES:
Interest and dividend income 9,899) 17,468
Interest expense (259,618) (33,762)
Other, net 40,654 16,651
----------- -----------
TOTAL OTHER INCOME AND EXPENSES (209,065) 357
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (839,460) 344,188
PROVISION FOR INCOME TAXES (335,784) 146,047
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (503,676) 198,141
----------- -----------
DISCONTINUED OPERATIONS:
Income from operations,
net of income taxes of
approximately $ -, and
$124,850 respectively -- 75,891
----------- -----------
INCOME FROM
DISCONTINUED OPERATIONS -- 75,891
----------- -----------
NET INCOME (LOSS) $(503,676) $274,132
=========== ===========
INCOME (LOSS) PER SHARE:
INCOME (LOSS) FROM
CONTINUING OPERATIONS $(0.08) $0.03
=========== ===========
INCOME FROM
DISCONTINUED OPERATIONS $ -- $0.01
=========== ===========
NET INCOME (LOSS)
PER COMMON SHARE $(0.08) $0.04
=========== ===========
WEIGHTED AVERAGE
NUMBER OF SHARES 6,537,957 5,832,782
=========== ===========
See notes to financial statements.
F-22
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
Balance - January 31, 1995 3,837,500 $ 3,838 $169,266 $ 749,308 $ 922,412
Common shares
issued in connection
with public offering 2,250,000 2,250 12,110,730 -- 12,112,970
Reacquisition of
common shares (300,000) (300) (2,018,600) (131,100) (2,150,000)
Issuance of common
shares in connection
with the acquisition
of EATS, Inc. 45,282 45 226,365 -- 226,410
Net income -- -- -- 2,227,631 2,227,631
------------- ------- --------- --------- ---------
Balance - January 31, 1996 5,832,782 5,833 10,487,751 12,845,839 13,339,423
Issuance of common stock 50,000 50 68,799 -- 68,849
Net loss -- -- -- (7,051,081) (7,051,081)
------------- -------- --------- ----------- -----------
Balance - September 30, 1996 5,882,782 5,883 10,556,550 (4,205,242) 6,357,191
Issuance of common stock 1,013,961 1,014 1,629,719 -- 1,630,733
Net loss -- -- -- (358,708) (358,708)
------------- ------ ----------- --------- ---------
Balance - March 31, 1997 (Unaudited): 6,896,743 $6,897 $12,186,269 $(4,563,950) $7,629,216
============= ====== =========== ============ ==========
See notes to financial statements.
F-23
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
March 31,
1997 1996
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(358,708) $884,007
----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation 402,593 220,860
Amortization 236,984 46,662
Gain on sale of assets (8,058) --
Provision for deferred income tax (239,139) --
Changes in assets and liabilities
(net of effects from purchase of ENSA):
(Increase) decrease in
accounts receivable 1,476,845 (1,401,439)
Decrease in inventory 62,831 (193,787)
(Increase) decrease in
prepaid expenses and
other current assets 129,110 (661,986)
(Increase) decrease in other assets -- 80,838
Increase (decrease) in
accounts payable and
accrued expenses (3,861,482) 3,275,362
Increase in income taxes payable -- (455,962)
(1,800,316) 910,548
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,159,024) 1,794,555
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (476,452) (1,157,500)
Proceeds from sale of assets 98,000 --
----------- -----------
378,453 (1,157,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 608,415 (3,420,786)
Issuance of common stock 1,630,733 295,214
Decrease (increase) in
restricted certificates
of deposit 448,081 1,609,338
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,687,229 (1,516,234)
----------- -----------
NET INCREASE (DECREASE) IN CASH 149,753 (879,179)
CASH, at beginning of period 61,725 1,102,559
----------- -----------
CASH, at end of period $211,478 $223,380
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $630,423 $67,524
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
See notes to financial statements.
F-24
ERD WASTE CORP.
and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position, results
of operations, and cash flows for the periods presented. The results have been
determined on the basis of generally accepted accounting principles and
practices, applied consistently.
The condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-KSB for the eight months
ended September 30, 1996, which is incorporated herein by reference.
Note 2 - Acquisition of Environmental Services of America, Inc. ("ENSA")
On May 5, 1996, ENSA Acquisition Corp. ("EAC"), a wholly owned
subsidiary of the Company, acquired approximately 93% of ENSA's outstanding
common stock through a tender offer whereby the shareholders of ENSA received
$1.66 for each share owned. The Company intends to purchase the remaining
outstanding shares of ENSA in a subsequent "mop up." The total cost of the
acquisition is currently estimated at $10,000,000 which includes amounts paid to
shareholders of ENSA and related legal and other professional costs incurred in
completing the transaction. The transaction is accounted for as a purchase, and
the financial results of ENSA are reported prospectively beginning in May, 1996.
The net assets of ENSA at the time of acquisition, after adjustment for
environmental, accounts receivable, legal, and other reserves were $1,102,949.
The allocation of the purchase price and estimates of certain liabilities is
subject to revision.
Effective October 1, 1995, the Company acquired the assets and assumed
certain liabilities of Environmental Absorption Technologies, Inc., a
manufacturer of recyclable products used to absorb oil and petroleum spills. The
acquisition was recorded as a purchase. The initial purchase price of
approximately $592,000 was paid by the issuance of 45,282 shares of common
stock, cash of $343,000, and the assumption of specified liabilities.
Note 3 - Loan From Principals and Affiliates
During the six months ended March 31, 1997, the Company's Chairman and
Chief Executive Officer loaned the Company $300,000. The advance is secured by a
short term note bearing interest at 2% above the prime lending rate of the
Company's commercial bank.
In February 1997, the Company borrowed $500,000 from an affiliate of
its Chairman and Chief Executive Officer. The loan is secured by a short term
note bearing interest at 2% above the prime lending rate of the Company's
commercial bank.
Note 4 - Private Offering of Stock
In December 1996, the Company commenced a private offering of its
common stock in the form of Units. The private placement calls for the sale of
up to 150 Units (but not less than 20 Units) at a price of $25,000 per Unit. The
Units consist of a number of common shares and an equal number of warrants to
purchase common shares. The number of shares (and warrants) is to be determined
by dividing the purchase price per Unit by 90% of the average closing bid price
for the Company's common stock for the ten trading days immediately preceding
the date of the closing of the offering. Through March 31, 1997, the Company has
issued 813,961 shares of its common stock and received $1,269,492 in net
proceeds from the private placement.
F-25
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES
AS OF WHICH SUCH INFORMATION IS GIVEN.
ERD WASTE CORP.
UNITS
COMMON STOCK
WARRANTS
PLACEMENT AGENT
WARRANTS
----------
PROSPECTUS
----------
August __, 1997
----------
TABLE OF CONTENTS
Page
Available Information................................................. 2
Incorporation of Certain Documents
by Reference .................................................... 2
Prospectus Summary ................................................... 3
The Company .......................................................... 3
Risk Factors ......................................................... 4
Selling Securityholders............................................... 9
Plan of Distribution.................................................. 12
Price Range of Securities............................................. 13
Dividend Policy ...................................................... 13
Capitalization ....................................................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................................... 15
Business ............................................................. 21
Management ........................................................... 36
Certain Transactions.................................................. 41
Principal Shareholders................................................ 42
Description of Securities............................................. 44
Shares Eligible for Future Sale....................................... 45
Experts .............................................................. 45
Legal Matters ........................................................ 46
Index to Financial Statements......................................... F-1
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for monetary damages for breach of the director's
fiduciary duty, except (i) for any breach of the director's fiduciary duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions), or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such director, officer, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal actions or
proceedings, had no reasonable cause to believe that his or her conduct was
unlawful. A Delaware corporation may indemnify directors and/or officers in an
action or suit by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
director or officer is adjudged to be liable to the corporation. Where a
director or officer is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him or her against
the expenses which such director or officer actually and reasonably incurred.
The Registrant's Certificate of Incorporation, filed as Exhibit 3.1 to
this Registration Statement, provides indemnification of directors and officers
of the Registrant to the fullest extent permitted by the DGCL.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement will be as
follows:
Total*
SEC registration fee .............................. $ 1,837.77
Legal fees and expenses............................ $
Miscellaneous...................................... $
------------
Total......................................... $
============
* All expenses are estimated, except for registration and filing fees.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company, through M.S. Farrell & Co., Inc. and Network 1 Financial
Securities, Inc. (collectively, the "Placement Agents"), and pursuant a private
placement memorandum dated December 20, 1996, offered Units to "accredited
investors," as defined under Regulation D as promulgated under the Securities
Act, such Units consisting of shares of the Company's Common Stock and
accompanying warrants. The offering provided for shares priced at 90% of the
average closing bid price of the Company's Common Stock for the ten day period
immediately prior to the closing and warrants to purchase a like number of
shares at a warrant exercise price of $2.25 per share, subject to certain
adjustments. The Company sold $500,000 of such Units on December 31, 1996,
$260,000 of such Units on January 29, 1997, $287,500 of such Units on February
18, 1997, $440,000 of such Units on March 25, 1997 and $577,000 of such Units on
June 6, 1997, providing net proceeds of $1,756,155 to the Company after payment
of a 10% fee and 3% non-accountable expense allowance and reimbursement of
certain expenses to the Placement Agents.
II-2
ITEM 27. EXHIBITS.
Exhibit
Number Description of Document
- ------ ----------------------
2.1 Private Placement Memorandum dated December 20, 1996, as supplemented.
2.2 Amended and Restated Agreement and Plan of Merger between the Company, EAC
and ENSA, incorporated by reference to Exhibit (C)(1) to the Schedule 14d-1
filed by the Company on April 4, 1996.
2.3 Loan Agreement with Chemical Bank, incorporated by reference to Exhibit 1
to the Form 8-K filed by the Company on April 17, 1996.
3.1 Certificate of Incorporation as amended, of the Company, incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
SB-2 (Registration No. 33-76200).
3.2 By-laws of the Company incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
3.3 Certificate of Amendment of Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.3 to Amendment No. 3 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
4.1 Form of Underwriters Warrant, incorporated by reference to Exhibit 4.1 to
Amendment No. 2 to the Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
4.2 1994 Stock Option Plan, incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
4.3 Form of Stock Certificate, incorporated by reference to Exhibit 4.3 to
Amendment No. 3 to the Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
4.4 Form of Unit Certificate.
4.5 Warrant Agreement dated December 31, 1996, as amended, between the Company
and Continental Stock Transfer and Trust Company.
4.6 Form of Placement Agents' Unit Purchase Warrant.
4.7 Form of Subscription Agreement.
5.1 Opinion of Kramer, Levin, Naftalis & Frankel
10.1 Placement Agents' Agreement dated December 20, 1996, as amended, between
the Company, Network 1 Financial Securities, Inc., and M.S. Farrell & Co.,
Inc.
11.1 Statement Regarding Computation of Earnings Per Share.
16.1 Letter from Philip L. Pascale, on change in certifying accountant,
incorporated by reference to Exhibit 16.1 to the Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
II-3
21.1 Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1
to the Company's Annual Report on Form 10-KSBA for the fiscal year ended
September 30, 1996.
23.1 Consent of Feldman Radin & Co., P.C.
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the
opinion to be filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on signature page).
ITEM 28. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement; and
(iii)To include any additional or changed material
information with respect to the plan of distribution
not previously disclosed in the Registration Statement
or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post- effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned.
ERD Waste Corp.
By:/s/Joseph J. Wisneski
--------------------------
Joseph J. Wisneski
President and Chief Operating Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Joseph J. Wisneski
- ----------------------- President and August 5, 1997
Joseph J. Wisneski Chief Operating Officer
/s/ Robert Rubin
- ------------------ Chairman, Director and August 5, 1997
Robert Rubin Chief Executive Officer
/s/ James Triaca Chief Financial Officer August 5, 1997
- ------------------
James Triaca
/s/ Joseph T. Jacobsen Director August 5, 1997
- ----------------------
Joseph T. Jacobsen
/s/ Carl Frischling Director August 5, 1997
- ----------------------
Carl Frischling
II-5
INDEX TO EXHIBITS
Exhibit
Number Description of Document Sequential
- ------ ---------------------- Page
Number
2.1 Private Placement Memorandum dated December 20, 1996, as supplemented.
2.2 Amended and Restated Agreement and Plan of Merger between the Company, EAC
and ENSA, incorporated by reference to Exhibit (C)(1) to the Schedule 14d-1
filed by the Company on April 4, 1996.
2.3 Loan Agreement with Chemical Bank, incorporated by reference to Exhibit 1
to the Form 8-K filed by the Company on April 17, 1996.
3.1 Certificate of Incorporation as amended, of the Company, incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
SB-2 (Registration No. 33-76200).
3.2 By-laws of the Company incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
3.3 Certificate of Amendment of Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.3 to Amendment No. 3 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
4.1 Form of Underwriters Warrant, incorporated by reference to Exhibit 4.1 to
Amendment No. 2 to the Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
4.2 1994 Stock Option Plan, incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
4.3 Form of Stock Certificate, incorporated by reference to Exhibit 4.3 to
Amendment No. 3 to the Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
4.4 Form of Unit Certificate.
4.5 Warrant Agreement dated December 31, 1996, as amended, between the Company
and Continental Stock Transfer and Trust Company.
4.6 Form of Placement Agents' Unit Purchase Warrant.
4.7 Form of Subscription Agreement.
5.1 Opinion of Kramer, Levin, Naftalis & Frankel
10.1 Placement Agents' Agreement dated December 20, 1996, as amended, between
the Company, Network 1 Financial Securities, Inc., and M.S. Farrell & Co.,
Inc.
11.1 Statement Regarding Computation of Earnings Per Share.
16.1 Letter from Philip L. Pascale, on change in certifying accountant,
incorporated by reference to Exhibit 16.1 to the Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-76200).
21.1 Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1
to the Company's Annual Report on Form 10-KSBA for the fiscal year ended
September 30, 1996.
23.1 Consent of Feldman Radin & Co., P.C.
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the
opinion to be filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on signature page).
EXHIBIT 2.1
FIFTH SUPPLEMENT
TO
PRIVATE PLACEMENT MEMORANDUM
ERD WASTE CORP.
20 Units Minimum -- 150 Units Maximum
May 29, 1997
The Private Placement Memorandum (the "Memorandum") dated December 20,
1996 of ERD Waste Corp. (the "Company"), relating to the private placement of
units of the Company consisting of shares of common stock and common stock
purchase warrants, as amended by a supplement dated January 16, 1997, a second
supplement dated February 28, 1997, a third supplement dated March 12, 1997, and
an amended and restated fourth supplement dated May 9, 1997, is hereby further
supplemented by this fifth supplement (the "Supplement") as follows (capitalized
terms used herein and not otherwise defined shall have the meaning assigned to
them in the Memorandum):
1. The Placement Agents have agreed to extend the Offering to June 13,
1997. For the purposes of the Memorandum, all references to the "Termination
Date" shall mean June 13, 1997.
2. In April 1997, options for 20,000 shares of Capital Stock were
granted to Steve Kellogg, manager of the South Bend, Indiana facility and
options for 10,000 shares of Capital Stock were granted to Jerry Washo, manager
of the Scott City, Missouri facility by the Board of Directors.
3. The Company did not timely file its Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1996 or its Quarterly Report on Form 10-QSB
for the period ended December 31, 1996. The Company filed these reports on
February 14, 1997, and February 21, 1997, respectively. The Company did not
timely file its Quarterly Report on Form 10-QSB for the quarter ended March 31,
1997. The Company filed this report on May 21, 1997. Under SEC regulations,
registration statements may not be filed on Form S-3 for twelve months after any
such untimely filing. This could result in delays, increased costs to the
Company for registering certain securities, including the Units and the
securities underlying the Units, and an increased possibility that the
effectiveness of any such registration statement may lapse.
4. The Company's consolidated Financial Statements for the quarter
ended March 31, 1997 included in its Quarterly Report on Form 10-QSB reflect an
increase of approximately $5,500,000 in revenues for the quarter ended March 31,
1997 as compared to March 31, 1996, while increases in costs and decreases in
gross margin resulted in a decrease in net income from continuing operations of
approximately $700,000 for the same comparative period. The balance sheet for
the quarter ended March 31, 1997 reveals a breach of certain covenants with
Chase Manhattan Bank (the "Bank") in connection with its loan to the Company.
The Bank agreed to a waiver of such breaches on May 28, 1997. A
copy of the Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997
is attached hereto as Exhibit A, and prospective investors are urged to review
carefully the Financial Statements, including Notes thereto, included in the
Form 10-QSB.
5. Pursuant to the anti-dilution provisions in the Representative's
Warrants, the issuance of the Common Stock and Warrants comprising the Units
will result in a decrease of the Exercise Price per share and an increase of the
number of shares of Common Stock issuable on exercise of the Representative's
Warrants.
6. By amended statement of claims dated May 27, 1997 Jon Colin seeks an
award of $525,000 plus interest as compensatory damages for the alleged breach
of the stock option agreement (in addition to the $675,000 sought for the
alleged breach of the employment agreement). Mr. Colin also seeks an award of
costs and attorney's fees but is no longer seeking punitive damages.
Please acknowledge your receipt of the Memorandum as supplemented by
all five supplements by signing where indicating below and returning the signed
copy of this Supplement to the Placement Agents.
Receipt confirmed:
____________________________
Exhibit A
The Company's Quarterly Report on Form 10-QSB for the quarter ended March 31,
1997 is hereby incorporated by reference.
AMENDED AND RESTATED FOURTH SUPPLEMENT
TO
PRIVATE PLACEMENT MEMORANDUM
ERD WASTE CORP.
20 Units Minimum -- 150 Units Maximum
May 9, 1997
The Private Placement Memorandum (the "Memorandum") dated December 20,
1996 of ERD Waste Corp. (the "Company"), relating to the private placement of
units of the Company consisting of shares of common stock and common stock
purchase warrants, as amended by a supplement dated January 16, 1997, a second
supplement dated February 28, 1997, and a third supplement dated March 12, 1997,
is hereby further supplemented by this amended and restated fourth supplement
(the "Supplement") as follows (capitalized terms used herein and not otherwise
defined shall have the meaning assigned to them in the Memorandum):
1. The Placement Agents have agreed to extend the Offering to May 19,
1997. For the purposes of the Memorandum, all references to the "Termination
Date" shall mean May 19, 1997.
2. On May 9, 1997, the Board of Directors agreed to amend the terms of
the Memorandum to provide that the Exercise Price of all Warrants heretofore or
hereafter sold as part of the Units offered pursuant to the Memorandum shall be
changed from $3.50 to $2.25 per share. All other terms of the Memorandum remain
unchanged.
3. On April 10, 1997, the Company entered into a Consent Order with the
Attorney General of the State of New York and the New York State Department of
Environmental Conservation. The Order provides that the Company will permanently
cease operation of its Long Beach, New York facility both as an incinerator and
a solid waste transfer station, effective April 10, 1997. The Consent Order also
defines the obligations of the Company with respect to the closure of the site
pursuant to its permit, the cost of which the Company does not anticipate at
this time to be material. Upon completion and approval of the implementation of
the closure plan provided for in the Consent Order, the Company will receive a
Release and Covenant Not to Sue by the State for any investigation or
remediation of site conditions addressed by the closure plan.
The Company previously reported a write-down of the value of the Long
Beach facility assets and recorded a net loss of $7,167,998 in its fiscal year
ended September 30, 1996. The sales and net income before taxes of the Long
Beach facility represented approximately 13% and 23%, respectively, of the
Company's total sales and net income before taxes for the quarter ended July 31,
1996.
The Consent Order does not resolve the claims between the Company and
the City of Long Beach, including all claims arising under the Disposal
Agreement and the leases relating to the facility. See also "Legal Proceedings"
in the Memorandum.
4. In March 1997, the Board of Directors approved the issuance of
100,000 shares of Common Stock to American United Global, Inc., in partial
consideration for its posting of a letter of credit in the amount of $4.4
million to secure a loan in that amount to the Company by Chase Manhattan Bank
and for the extension of the term of that letter of credit for an additional
year until May 1998. See also "Certain Transactions" in the Memorandum.
5. On April 16, 1997, NASDAQ notified the Company that its request for
continued listing on NASDAQ/NMS was denied. The Company filed an application to
have the listing of its securities transferred to The NASDAQ SmallCap market,
which application was accepted on May 7, 1997. Effective May 9, 1997, the
Company's securities will be listed on the NASDAQ SmallCap Market.
Please acknowledge your receipt of the Memorandum as supplemented by
all four supplements by signing where indicating below and returning the signed
copy of this Supplement to the Placement Agents.
Receipt confirmed:
_________________________
THIRD SUPPLEMENT TO PRIVATE PLACEMENT MEMORANDUM
ERD WASTE CORP.
20 Units Minimum -- 150 Units Maximum
March 12, 1997
The Private Placement Memorandum (the "Memorandum") dated December 20,
1996 of ERD Waste Corp. (the "Company"), relating to the private placement of
units of the Company consisting of shares of common stock and common stock
purchase warrants, as amended by a supplement dated January 16, 1997, and a
second supplement dated February 28, 1997, is hereby further supplemented by
this third supplement (the "Supplement") as follows (capitalized terms used
herein and not otherwise defined shall have the meaning assigned to them in the
Memorandum):
1. The Placement Agents have agreed to extend the Offering to March 28,
1997. For the purposes of the Memorandum, all references to the "Termination
Date" shall mean March 28, 1997.
2. The following paragraph is added to the "Risk Factors" section of
the Memorandum:
NASDAQ NATIONAL MARKET LISTING. By letter dated February 27,
1997, Nasdaq advised the Company that the value of the Company's
net tangible assets (total assets minus liabilities and goodwill)
falls below the requirement for continued listing on the Nasdaq
National Market. The required value of net tangible assets is at
least $1 million. As reported in the Company's Form 10-QSB for
the period ended December 31, 1996, the total assets of the
Company were $40,497,648, the total liabilities were $33,214,626
and goodwill was valued at $9,705,673, leading to Nasdaq's
calculation that the Company's net tangible assets are
($2,422,651). The Company has been requested to respond by March
21, 1997, with a proposal for achieving compliance with Nasdaq's
listing standards. Based on the Company submission, Nasdaq may
decide to a) allow the Company to work on a fixed time schedule
to achieve compliance, b) remove the Company from the Nasdaq
National Market and allow the Company to list on the Nasdaq
Small-Cap Market, or c) delist the Company from both Nasdaq
Markets. The Company intends to respond promptly to this request
and hopes to be able to continue to meet the Nasdaq National
Market listing standards. There is no assurance, however, that
the Company will be able to maintain its Nasdaq National Market
listing. Delisting from the Nasdaq National Market would have an
adverse effect on the liquidity of the Company's Common Stock,
particularly if the Company is unable to obtain listing on the
Nasdaq Small-Cap Market.
3. By Order dated March 3, 1997, PJV Transport Inc. obtained an Order
of Attachment of the assets of Long Beach Recycling and Recovery, Inc., ERD
Management Corp. and Environmental Waste Incineration, Inc., to secure the
judgment it obtained against
Long Beach Recycling and Recovery, Inc., in the amount of $214,052.15.
Specifically included in the attachment are all monies payable to the Company
from the City of Long Beach and Long Island Lighting Company. The Company
intends to appeal this Order. There can be no assurance, however, that the
Company will be successful in appealing the Order and the Company could be
adversely affected as a result of having to pay the judgment.
4. By Order dated February 18, 1997, and received on March 4, 1997, the
Company's motion for a permanent stay of the arbitration demanded by Jon Colin
for the claim set forth in the "Legal Proceedings" section of the Memorandum was
denied. The Company intends to appeal the denial of this motion. There can be no
assurance that the Company will be successful in its appeal and the Company
could be adversely affected as a result of having to pay damages to Mr. Colin.
5. Regarding the last sentence of Exhibit M, an attachment to the
Second Supplement to the Memorandum, at this time, it does not appear that
Horiba continues to be amenable to the proposed twelve month payment schedule.
6. On March 12, 1997, the Company was served with a complaint by Pirro,
Collier, Cohen & Halpern, a law firm that had previously represented the
Company, alleging that it is owed $311,486.95 for services rendered. Since this
claim was received on the date of this Supplement, no determination as yet been
made regarding the Company's response to this claim. There can be no assurance
that the Company will be successful on the merits of this claim.
Please acknowledge your receipt of the Memorandum as supplemented by
all three supplements by signing where indicating below and returning the signed
copy of this supplement to the Placement Agents.
Receipt confirmed:
_________________________
SECOND SUPPLEMENT TO PRIVATE PLACEMENT MEMORANDUM
ERD WASTE CORP.
20 Units Minimum -- 150 Units Maximum
February 28, 1997
The Private Placement Memorandum dated December 20, 1996 of ERD Waste
Corp. (the "Company"), relating to the private placement of units of the Company
consisting of shares of common stock and common stock purchase warrants, as
amended by a supplement dated January 16, 1997 (the "Memorandum"), is hereby
further supplemented by this second supplement (the "Supplement") as follows:
1. The Placement Agents have agreed to extend the Offering to March 15,
1997. For the purposes of the Memorandum, all references to the "Termination
Date" shall mean March 15, 1997.
2. Attached as a part of this Supplement and to be considered a part of
the Memorandum as Exhibit K is the Company's Annual Report on Form 10-KSB-A for
the fiscal year ended September 30, 1996.
3. Attached as a part of this Supplement and to be considered a part of
the Memorandum as Exhibit L is the Company's Quarterly Report on Form 10-QSB for
the period ended December 31, 1996.
4. Attached as a part of this Supplement and to be considered a part of
the Memorandum as Exhibit M is a disclosure statement made by the Company to
augment the information contained in the Memorandum and other attachments to
this Supplement.
5. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Memorandum.
Exhibit K
The Company's Annual Report on Form 10-KSB-A for the fiscal year ended September
30, 1996 is hereby incorporated by reference.
Exhibit L
The Company's Quarterly Report on Form 10-QSB for the period ended December 31,
1996 is hereby incorporated by reference.
Exhibit M
Ref: Supplement dated February 28, 1997
ERD has recently been advised by the NYSDEC that it will not authorize
the operation of a transfer station at the Long Beach Facility pursuant to a
consent order. The NYSDEC has expressed the position that it is not bound by any
agreement to allow for the operation of a transfer station under a consent
order, although it does not assert the position that incinerator operations must
cease as of March 31, 1997.
Effective February 28, 1997, the City of Long Beach has terminated its
"standstill" agreement with ERD relating to its allegation of defaults under the
Disposal Agreement dated May 13, 1992 and the leases of the facility dated
November 16, 1984 and May 13, 1992. The City of Long Beach has further indicated
that does not view the operation of a transfer station at the incinerator site
as "either an acceptable or realistic alternative". The City has stated that it
does not believe that continued settlement discussions that involve any
compensation to ERD for the value of a transfer station at the site would be
productive.
Horiba Instruments, Inc. has asserted a claim against the Company in
the amount of $267,769.24 for the sale and servicing of air monitoring equipment
and other related services rendered to Environmental Services of America from
1993 to 1995. While the parties had tentatively agreed upon a twelve month
payment schedule, a dispute has arisen as to certain credits to which the
Company may be entitled. If this dispute cannot be satisfactorily resolved,
there is no assurance that Horiba will continue to be amenable to the proposed
twelve month schedule.
SUPPLEMENT TO PRIVATE PLACEMENT MEMORANDUM
ERD WASTE CORP.
20 Units Minimum -- 150 Units Maximum
January 16, 1997
The Private Placement Memorandum dated December 20, 1996 of ERD Waste
Corp. (the "Company"), relating to the private placement of units of the Company
consisting of shares of common stock and common stock purchase warrants, is
hereby supplemented by the following:
1. On January 2, 1997, the City of Long Beach served Notices of Default
under the Company's contract with the Long Beach Recycling & Recovery Corp.
dated May 13, 1992 (the "Disposal Agreement") as well as leases of the facility
premises dated May 13, 1992 and November 16, 1984. The Notices of Default seek
to terminate each of these agreements. Counsel for the Company and the City of
Long Beach have agreed to a three-week "standstill" during which the time for
cure of the alleged defaults and the initiation of litigation will be suspended
pending settlement discussions between the parties. There is no assurance that
the parties can achieve a mutually acceptable settlement or that the Company can
successfully prevent the termination of the Disposal Agreement and the leases of
the facility premises by the City of Long Beach. See also "RISK FACTORS --
Contract with the City of Long Beach" in the Memorandum.
2. The escrow agent for the Offering is Kramer, Levin, Naftalis &
Frankel. counsel to the Company, rather than American Stock Transfer & Trust
Company.
3. Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Memorandum.
Please acknowledge your receipt of this supplement by signing where
indicating below and returning the signed copy of this supplement to the
Placement Agents.
Receipt confirmed:
_______________________
OFFEREE: _________________
MEMORANDUM NO.: __________
ERD WASTE CORP.
20 UNITS MINIMUM -- 150 UNITS MAXIMUM
--------------------
PURCHASE PRICE
$25,000 PER UNIT
-------------------
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
DATED DECEMBER 20, 1996
NETWORK 1 FINANCIAL M.S. FARRELL & CO., INC.
SECURITIES, INC.
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
ERD WASTE CORP.
20 UNITS MINIMUM -- 150 UNITS MAXIMUM
PURCHASE PRICE
$25,000 PER UNIT
ERD Waste Corp., a Delaware corporation (the "Company"), hereby offers
(the "Offering") units each consisting of a number of shares of common stock,
par value $.001 per share (the "Common Stock"), of the Company and the same
number of warrants (each a "Warrant" and collectively, the "Warrants") each to
purchase one share of Common Stock of the Company (collectively, the "Warrant
Shares"), determined by dividing the purchase price per Unit of $25,000 (the
"Offering Price") by 90% of the average closing bid price for the Common Stock
for the 10 trading days immediately preceding the date of the closing (the
"Closing Date") of the Offering (the "Average Closing Bid Price") If there shall
be more than one closing date, the Average Closing Bid Price shall be determined
separately for each such closing date. The Common Stock and Warrants will not be
detachable or separately transferable until 365 days from the date hereof or
such earlier date as Network 1 Financial Securities, Inc. and M.S. Farrell &
Co., Inc. (the "Placement Agents") in their sole discretion may determine (the
"Separation Date").
Based on an average closing bid price for the Common Stock for the 10
trading days ending December 19, 1996, of $2.35625 per share, each of the Units
offered hereby would consist of approximately 11,789 shares of Common Stock and
the same number of Warrants each to purchase one share of Common Stock. The
number of shares included in a Unit, as set forth above, is herein sometimes
referred to as the "Assumed Shares" and the purchase price based on this
calculation ($2.120625 per share) is sometimes referred to as the "Assumed
Purchase Price." The actual number of shares of Common Stock and Warrants
included in the Units will be determined on each Closing Date based on the
actual Average Closing Bid Price for such Closing Date to reflect a purchase
price per share of Common Stock equal to 90% of such Average Closing Bid Price.
The Units are being offered on a "best efforts, 20 Units minimum-or-150
Units maximum" basis by the Company through the Placement Agents. Except with
the consent of the Placement Agents, no investor may purchase less than one
Unit. Each Unit will be offered at a purchase price equal to $25,000.
Each Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price per share (the "Exercise Price" ) equal to
$3.50 per share for the Common Stock, subject to adjustment upon the occurrence
of certain events. The Warrants are subject to redemption by the Company, upon
30 days' written notice, at a price of $0.10 per Warrant, provided the closing
bid price for the Common Stock has been at least $6.00 for the 10 trading day
period ending on the fifteenth day prior to the date on which notice of
redemption is given. On December 19, 1996, the closing bid price of the Common
Stock on the Nasdaq/NSM (defined below) was $2.125. The Warrants are exercisable
at any time after the Separation Date and expire on January 31, 2002. The
Company has agreed to register the Units, the Warrants, the shares of Common
Stock and the shares of Common Stock issuable upon exercise of the Warrants
under the Securities Act of 1933, as amended (the "Act").
This Offering is being made only to "accredited investors," as defined
under Regulation D as promulgated under the Act, will commence on the date of
this Confidential Private Placement Memorandum (the "Memorandum") and will
terminate on January 31, 1997, unless extended by the Placement Agents to a date
not
later than February 28, 1997 (the "Termination Date"). If subscriptions for 20
Units offered hereby are not accepted by the Company before the termination of
this Offering, all subscription payments will be promptly returned to the
subscriber without interest or deduction. The initial closing pursuant to the
Offering (the "First Closing") will occur upon acceptance by the Company of a
minimum of 20 Units (the "Minimum Offering"), and each subsequent closing will
occur, as necessary, with the Company's acceptance of additional Units pursuant
to the Offering (each, a "Closing", and together, the "Closings"). Affiliates of
the Company and the Placement Agents may participate in the Offering. Until the
First Closing and from time to time until each subsequent Closing when the funds
are released, all subscription payments will be held in a non-interest bearing
special account established by the Placement Agents at American Stock Transfer &
Trust Company (the "Special Account").
- ii -
A PURCHASE OF UNITS INVOLVES A HIGH DEGREE OF RISK AND, CONSEQUENTLY,
IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL MEANS WHO HAVE NO NEED FOR
LIQUIDITY, WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT, AND WHO UNDERSTAND,
OR HAVE BEEN ADVISED AS TO, THE LONG-TERM NATURE AND RISK FACTORS ASSOCIATED
WITH THIS INVESTMENT. SEE "RISK FACTORS" AND "SUITABILITY AND SUBSCRIPTION
PROCEDURE."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT OR UNDER THE SECURITIES LAWS OF
ANY STATE, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ENDORSED THE MERITS OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THERE WILL BE NO MARKET FOR THE SECURITIES OFFERED HEREBY. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION THEREUNDER OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
=========================================================================================================================
OFFERING Sales Proceeds to
PRICE Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------------------------------
Per Unit.................................... $ 25,000 $ 2,500 $ 22,500
- -------------------------------------------------------------------------------------------------------------------------
Total Minimum (20 Units).................... $ 500,000 $ 50,000 $ 450,000
- -------------------------------------------------------------------------------------------------------------------------
Total Maximum (150 Units)................... $ 3,750,000 $ 375,000 $ 3,375,000
=========================================================================================================================
- --------------------
(1) The Company has agreed to pay the Placement Agents sales commissions equal
to 10% of the gross proceeds received from the sale of Units to persons
introduced to the Company by the Placement Agents. Does not include (a) a
3% non-accountable expense allowance payable to the Placement Agents, (b)
warrants granted to the Placement Agents to purchase 10% of the aggregate
number of Units sold in connection with this Offering (the "Placement
Agents' Warrants") and (c) reimbursement of certain reasonable expenses
incurred by the Placement Agents in connection with the sale of the Units.
The Company has also agreed to indemnify the Placement Agents against
certain civil liabilities, including liabilities under the federal
securities laws. See "Plan of Placement of the Units."
(2) Before deducting expenses (including reimbursable expenses and the 3%
non-accountable expense allowance payable to the Placement Agents)
estimated at approximately $162,500 which are payable by the Company
(assuming the sale of the maximum number of Units).
The Company will make available to each offeree and his
representatives, prior to the sale of the Units offered hereby, the opportunity
to ask questions of the Company or persons acting on its behalf about the
Company's business. The Company also will obtain and make available any
additional information (to the extent the Company possesses the information or
can acquire it without unreasonable effort or expense) requested to verify the
accuracy of the information in this Memorandum or otherwise provided or made
available prior to the sale of the Units, and any additional information that an
offeree or his representatives might reasonably request to make a decision as to
the purchase of the Units. Representatives of the Company will be available to
each prospective purchaser of the Units during normal business hours to respond
to questions concerning the terms and conditions of the Offering. Investors and
their representatives are encouraged to communicate directly with:
- iii -
Damon Testaverde Martin F. Schacker
Network 1 Financial Securities, Inc. M.S. Farrell & Co., Inc.
The Galleria Building 2 67 Wall Street
2 Bridge Avenue New York, New York 10005
Red Bank, New Jersey 07701 (212) 495-5140
(908) 758-9001
OR
Kathleen P. LeFevre
ERD Waste Corp.
937 East Hazelwood Avenue, Building 2
Rahway, New Jersey 07065
(908) 381-9229
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE ACT OR
THE SECURITIES LAWS OF ANY STATE. THIS OFFER AND SALE OF SECURITIES IS INTENDED
TO BE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") UNDER SECTION 4(2) OF THE ACT AND UNDER REGULATION D THEREUNDER AS
WELL AS EXEMPTIVE PROVISIONS OF THE SECURITIES LAWS OF STATES IN WHICH THE
OFFERING IS BEING MADE. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE
SECURITIES, IN ANY JURISDICTION WHERE SOLICITATION OR SALE WOULD BE PROHIBITED
BY LAW PRIOR TO REGISTRATION, QUALIFICATION OR THE TAKING OF ANY OTHER ACTION
UNDER THE SECURITIES LAWS OF SUCH JURISDICTION UNTIL SUCH ACTIONS HAVE BEEN
TAKEN.
SINCE THE OFFERING AND SALE OF THE UNITS OFFERED HEREBY IS BEING MADE
SOLELY TO "ACCREDITED INVESTORS," AS THAT TERM IS DEFINED UNDER REGULATION D
UNDER THE ACT, WHO THE COMPANY EXPECTS WILL CONDUCT THEIR OWN DUE DILIGENCE,
THIS MEMORANDUM CONTAINS ONLY SELECTED INFORMATION BELIEVED TO BE OF INTEREST TO
INVESTORS. IT DOES NOT PURPORT TO INCLUDE ALL INFORMATION THAT MIGHT BE REQUIRED
IN A PROSPECTUS OR REGISTRATION STATEMENT USED IN A PUBLIC OFFERING REGISTERED
WITH THE COMMISSION, OR TO INCLUDE ALL INFORMATION THAT MIGHT BE PRESENTED IN A
MEMORANDUM DESIGNED TO SATISFY THE REQUIREMENTS FOR A PRIVATE PLACEMENT TO
NON-ACCREDITED INVESTORS. INVESTORS SHOULD MAKE THEIR OWN EXAMINATION OF THE
COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
NO PERSONS OTHER THAN THE COMPANY HAVE BEEN AUTHORIZED TO MAKE
REPRESENTATIONS OR GIVE ANY ADDITIONAL INFORMATION ABOUT THE SECURITIES OFFERED
HEREBY. NO INFORMATION OR REPRESENTATION SHOULD BE RELIED UPON BY ANY
PROSPECTIVE INVESTOR OR HIS INVESTMENT ADVISORS OTHER THAN AS SET FORTH IN THIS
MEMORANDUM OR AS PROVIDED IN WRITING BY THE COMPANY.
THE INFORMATION CONTAINED IN THIS MEMORANDUM HAS BEEN FURNISHED BY THE
COMPANY AND OTHER SOURCES BELIEVED BY THE COMPANY TO BE RELIABLE. THE PLACEMENT
AGENTS HAVE NOT MADE ANY INDEPENDENT INVESTIGATION OF SUCH INFORMATION AND MAKES
NO REPRESENTATION OR WARRANTY AS TO THE ACCURACY OR COMPLETENESS OF ANY SUCH
INFORMATION. THIS MEMORANDUM CONTAINS SUMMARIES, BELIEVED TO BE ACCURATE, OF
CERTAIN TERMS OF CERTAIN DOCUMENTS, BUT REFERENCE IS MADE TO THE ACTUAL
DOCUMENTS, COPIES OF WHICH WILL EITHER BE MADE AVAILABLE UPON REQUEST OR ARE
ATTACHED HERETO OR TO THE COMPANY'S FILINGS WITH THE
- iv -
COMMISSION AS EXHIBITS, FOR THE COMPLETE INFORMATION CONTAINED THEREIN. ALL
SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE.
ALL OF THE INFORMATION PROVIDED HEREIN CONCERNING THE COMPANY HAS BEEN
FURNISHED BY THE COMPANY, INCLUDING ALL FINANCIAL STATEMENTS AND PROJECTIONS.
THE FINANCIAL STATEMENTS AND ANY PROJECTIONS HAVE BEEN PROVIDED TO ASSIST IN AN
EVALUATION OF THE SECURITIES OFFERED HEREBY BUT ARE NOT TO BE RELIED UPON AS ANY
REPRESENTATION WITH RESPECT TO FUTURE RESULTS TO BE OBTAINED BY THE COMPANY.
ANY STATEMENTS THAT ARE MADE BY THE COMPANY AND ITS REPRESENTATIVES IN
THIS MEMORANDUM THAT RELATE TO THE COMPANY'S FUTURE PERFORMANCE, INCLUDING
WITHOUT LIMITATION, STATEMENTS WITH RESPECT TO THE COMPANY'S ANTICIPATED RESULTS
FOR THE QUARTER ENDING DECEMBER 31, 1996, OR THE FISCAL YEAR ENDING SEPTEMBER
30, 1997, SHALL BE DEEMED FORWARD-LOOKING STATEMENTS WITHIN THE SAFE HARBOR
PROVISION OF THE PRIVATE SECURITIES LITIGATIONS REFORM ACT OF 1995, SINCE A
NUMBER OF IMPORTANT FACTORS AFFECTING THE COMPANY'S BUSINESS AND FINANCIAL
RESULTS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN THE
FORWARD-LOOKING STATEMENTS. THOSE FACTORS INCLUDE SUCH FACTORS AS ARE SET FORTH
IN THIS MEMORANDUM AS WELL AS OTHER CIRCUMSTANCES EITHER BEYOND THE COMPANY'S
CONTROL OR NOT FORESEEABLE AT THIS TIME.
THIS MEMORANDUM AND THE INFORMATION CONTAINED HEREIN ARE CONFIDENTIAL
AND ARE INTENDED ONLY FOR THE USE OF QUALIFIED PERSONS AND THEIR AUTHORIZED
REPRESENTATIVES AND ADVISORS TO WHOM THIS MEMORANDUM IS DISTRIBUTED BY THE
COMPANY. ANY REPRODUCTION OR DISTRIBUTION OF THIS MEMORANDUM IN WHOLE OR IN
PART, OR DIVULGENCE OF ANY OF ITS CONTENTS, OTHER THAN TO PROSPECTIVE INVESTORS
AND THEIR PURCHASER REPRESENTATIVES OR PROFESSIONAL ADVISORS, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY OR ITS AGENTS, IS PROHIBITED.
THE CONTENTS OF THIS MEMORANDUM SHOULD NOT BE CONSTRUED BY PROSPECTIVE
INVESTORS AS LEGAL OR TAX ADVICE, AND NO REPRESENTATIONS OR WARRANTIES OF ANY
KIND ARE INTENDED OR SHOULD BE INFERRED REGARDING THE ECONOMIC RETURN OR THE TAX
CONSEQUENCES TO INVESTORS WHO ACQUIRE THE UNITS. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN ATTORNEYS, ACCOUNTANTS AND FINANCIAL ADVISORS ABOUT THE LEGAL
AND TAX CONSEQUENCES AND THE FINANCIAL RISKS AND MERITS OF AN INVESTMENT IN THE
UNITS.
THE COMPANY RESERVES THE RIGHT TO REJECT OR REDUCE THE SUBSCRIPTION OF
ANY PROSPECTIVE INVESTOR EVEN IF SUCH INVESTOR SATISFIES ALL SUITABILITY
STANDARDS DISCUSSED IN THIS MEMORANDUM. IF THE PROSPECTIVE INVESTOR RECEIVING
THIS MEMORANDUM DOES NOT SUBMIT AN OFFER TO PURCHASE, OR IF SUCH OFFER IS
SUBMITTED BUT NOT ACCEPTED BY THE COMPANY, THE PROSPECTIVE INVESTOR AGREES TO
RETURN PROMPTLY THIS MEMORANDUM AND ALL ENCLOSED DOCUMENTS. THE COMPANY WILL
RETURN, WITHOUT INTEREST, FUNDS REPRESENTING ANY REJECTED OR REDUCED
SUBSCRIPTIONS.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- v -
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
- vi -
TABLE OF CONTENTS
Page No.
--------
Summary.........................................................................................................1
Risk Factors....................................................................................................5
Use of Proceeds................................................................................................11
Price Range of Securities..................................................................................... 12
Dividend Policy................................................................................................12
Dilution.......................................................................................................13
Capitalization.................................................................................................15
Financial Statements...........................................................................................15
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................................16
Business.......................................................................................................17
Environmental Compliance.......................................................................................17
Recent Developments............................................................................................21
Legal Proceedings..............................................................................................24
Management.....................................................................................................26
Security Ownership of Certain Beneficial Owners and Management.................................................27
Certain Transactions...........................................................................................29
Description of Securities......................................................................................29
Plan of Placement of the Units.................................................................................31
Suitability and Subscription Procedure.........................................................................32
Experts........................................................................................................33
INDEX TO EXHIBITS INCLUDED WITH MEMORANDUM
This Memorandum is summary in nature, does not purport to be a full and
complete statement of the business, affairs and financial condition of the
Company and should be read in conjunction with the following documents of the
Company, several of which have been filed with the Commission and all of which
are attached hereto as exhibits.
Exhibits
--------
Form of Subscription Agreement..................................................................................A
Form of Registration Rights Agreement...........................................................................B
Form of Warrant Agreement.......................................................................................C
ERD's Annual Report on Form 10-KSB for the fiscal year ended January 31, 1996 ..................................D
ENSA's Annual Report on Form 10-K for the fiscal year ended December 31, 1995...................................E
ERD's Quarterly Report on Form 10-QSB for the period ended July 31, 1996........................................F
ERD's Current Report on Form 8-K, as filed with the Commission on November 14, 1996.............................G
ERD's Current Report on Form 8-K, as filed with the Commission on May 6, 1996,
including all amendments thereto..............................................................................H
ERD's Current Report on Form 8-K, as filed with the Commission on April 17, 1996,
attaching the Loan Agreement, dated March 29, 1996 as an exhibit thereto......................................I
ERD's Prospectus dated May 17, 1995 ............................................................................J
- vii -
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the United
States Securities Exchange Act of 1934, as amended, and in accordance therewith
files periodic reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the Commission's public reference
rooms located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials can be obtained at prescribed rates by writing to the Securities
and Exchange Commission, Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such materials may also be accessed electronically by
means of the Commission's site on the World Wide Web at http://www.sec.gov.
The Company will provide without charge to any person to whom this
Memorandum is delivered, upon the written or oral request of such person, a copy
of any or all of the documents filed by the Company with the Commission and not
included as an exhibit hereto. Requests for such copies should be directed to
Joseph J. Wisneski, President and Chief Operating Officer, ERD Waste Corp., 937
East Hazelwood Avenue, Building 2, Rahway, New Jersey 07065 (telephone number:
(908) 381-9229).
Neither the delivery of this Memorandum nor any distribution of the
Units hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.
- viii -
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial data appearing elsewhere in this Memorandum. All
references in this Memorandum to a fiscal year refer to the fiscal year ending
on January 31 of that year, unless otherwise indicated. For example, references
to fiscal 1996 refer to the fiscal year beginning on February 1, 1995, and
ending on January 31, 1996. On October 30, 1996, the Company changed its fiscal
year end to September 30 from January 31. Each prospective investor is urged to
read this Memorandum and all of the exhibits and other attachments hereto in
their entirety.
THE COMPANY
ERD Waste Corp. ("ERD") is a diversified waste management company
specializing in the management and disposal of municipal solid waste, industrial
and commercial non-hazardous solid waste, and hazardous waste. ERD also provides
brokerage, advisory, consulting and technical services to generators of waste.
In May 1996, ERD acquired over 90% of the common stock and substantially all of
the preferred stock of Environmental Services of America, Inc. ("ENSA") pursuant
to a tender offer and a related stock purchase agreement (the "ENSA
Acquisition"). ENSA and its subsidiaries are engaged in the business of
providing for the identification, remediation, transportation and disposal of
hazardous and non-hazardous waste and provide hydrogeological and environmental
consulting services as well as air quality testing. Since the ENSA Acquisition,
both ERD and ENSA have continued to operate their respective businesses through
their subsidiaries while benefitting from the consolidation of certain
administrative functions. There are presently plans being implemented to provide
for structural and organizational changes designed to create operational
efficiencies. References in this Memorandum to "ERD" shall include ERD Waste
Corp. and its historic subsidiaries prior to the ENSA Acquisition; references to
"ENSA" shall include ENSA and its historic subsidiaries prior to the ENSA
Acquisition; and references to the "Company" shall include both ERD and ENSA.
COMPANY STRATEGY
The Company's business strategy is to (i) maximize the capabilities of
its waste facilities which perform fuel blending, waste processing, and
transportation of hazardous and non-hazardous waste and to provide related
hydrogeological engineering and consulting services, subject to applicable
regulations and regulatory approvals; (ii) cross-train and educate the Company's
internal sales force to enhance their ability to promote the Company's diverse
services; and (iii) continue to upgrade its facilities to maximize efficiency
and maintain environmental compliance.
RECENT DEVELOPMENTS
As a result of a complaint filed against the Company by the New York
Department of Environmental Conservation ("NYSDEC") alleging various violations
of the Company's facility permits and environmental laws and regulations, on
November 6, 1996, the Company agreed, among other things, to cease incineration
operations at its Long Beach, New York facility by March 31, 1997, and to pay a
penalty of $2,500. The Company has sought permission from the NYSDEC to continue
to operate the Long Beach facility as a waste transfer station. As the City of
Long Beach has indicated that it presently intends to oppose the Company's
application for a transfer station permit, there can be no assurances that such
permit will be granted. For the quarter ended July 31, 1996, sales and net
income before taxes from the Long Beach facility represented approximately 13%
and 23%, respectively, of the Company's total sales and net income before taxes.
See "Legal Proceedings" and "Environmental Compliance."
In addition, the Company expects to record losses of approximately
$13,000,000 for the eight month period ended September 30, 1996. These losses,
which the Company believes are properly classified as losses from discontinued
operations, consist of approximately $11,500,000 from the write down of
property, plant and equipment at the Long Beach facility and approximately
$1,500,000 of liabilities associated with the costs incurred
in connection with the settlement and costs of dismantling the incinerator and
restructuring the operations. The Company also expects that stockholders' equity
will decrease approximately $9,000,000 as a result of the discontinuation of
operations at the Long Beach facility.
In addition, the City of Long Beach, the Company's largest customer at
the Long Beach facility, is contractually committed through 2008 to deliver its
residential solid waste to the Long Beach facility. In light of the NYSDEC
proceedings and the discontinuation of the Company's incinerator operations at
the Long Beach facility, the City of Long Beach has stated that it intends to
discontinue delivery of its solid waste to such facility at any time. The
Company is seeking to enforce the contract regarding the delivery of solid waste
and may seek damages or other relief in the event of any breach thereof by the
City of Long Beach. The Company also believes that it is unlikely that the Long
Beach facility could be profitable as a transfer station without the revenue
from the City of Long Beach. There can be no assurances that the Company will be
successful with respect to the enforcement of its contractual rights against the
City of Long Beach. The City of Long Beach is currently continuing to comply
with the contract.
The Company was incorporated in the State of New York on May 29, 1992.
On March 1, 1994, the Company changed the state of its incorporation to the
State of Delaware. The Company's address is 937 East Hazelwood Avenue, Building
2, Rahway, New Jersey 07065, and its telephone number is (908) 381-9229.
- 2 -
THE OFFERING
Issuer.................... ERD Waste Corp.
The Units................. A minimum of 20 Units (the "Minimum Offering")
and a maximum of 150 Units (the "Maximum
Offering"), each Unit consisting of a number of
shares of Common Stock and Warrants, determined
by dividing $25,000 by 90% of the Average
Closing Bid Price for the Common Stock.
Based on an average closing bid price for the
Common Stock for the 10 days ending December 19,
1996, of $2.35625 per share, each of the Units
offered hereby would consist of approximately
11,789 shares of Common Stock and Warrants. The
actual number of shares of Common Stock and
Warrants included in the Units will be
determined on the Closing Date based on the
actual Average Closing Bid Price to reflect a
purchase price per share of Common Stock equal
to 90% of the Average Closing Bid Price for the
Common Stock.
The securities comprising the Units will not be
detachable or separately transferable, and may
be traded only as Units, until 365 days from the
date hereof or such earlier date as the
Placement Agents in their sole discretion may
determine (the "Separation Date").
Warrants.................. Warrants to purchase a minimum of 235,780 shares
of Common Stock and a maximum of 1,768,350
shares of Common Stock (assuming an Average
Closing Bid Price of $2.35625 per share of
Common Stock), subject to adjustment prior to
the Closing Date. Each Unit will include
Warrants entitling the holder to purchase one
share of Common Stock an exercise price (the
"Exercise Price) equal to $3.50 per share.
The actual number of shares issuable upon
exercise of the Warrants and the Exercise Price
may be adjusted in the event of the occurrence
of certain events, including stock dividends,
stock splits, combinations or reclassifications
involving or in respect of the Common Stock.
The Warrants are subject to redemption by the
Company upon 30 days' written notice, at a price
of $.10 per Warrant, if the closing bid price
for the Common Stock had been at least $6.00 for
the 10 trading day period ending on the
fifteenth day prior to the date on which notice
of redemption is given. See "Description of
Securities--Warrants."
Common Stock Currently
Outstanding.............. 5,882,782 shares (1).
Common Stock to be Outstanding
after the Offering (assuming the
Maximum Offering at the Assumed
Purchase Price)......... 7,651,128 shares (1)(2).
Nasdaq/NMS Symbol........ ERDI
- 3 -
Use of Proceeds........... The Company intends to use the net proceeds from
the sale of the Units to repay indebtedness and
other obligations of the Company. Any additional
net proceeds shall be used for (i) completing
the purchase of the remaining shares of common
stock of ENSA, (ii) improvements and
modifications at various facilities, and (iii)
to the extent not otherwise used as indicated
herein, working capital purposes, including
payments to vendors. See "Use of Proceeds."
Capital Stock............. The Company's authorized capital stock consists
of (i) 15,000,000 shares of Common Stock, par
value $.001 per share, of which 5,882,782 shares
were issued and outstanding as of the date
hereof, and (ii) 2,000,000 shares of preferred
stock, par value $.001 per share, of which no
shares are issued and outstanding. See "The
Company," "Capitalization" and "Description of
Securities."
Dividends................. The Company has never paid or declared any
dividends upon its Common Stock and does not
contemplate or anticipate paying any dividends
upon its Common Stock in the foreseeable future.
See "Dividend Policy" and "Risk Factors--Lack of
Dividends."
Registration Rights....... The Company agrees to file a shelf registration
(the "Shelf Registration") to register the
Units, the Warrants included in the Units, the
shares of Common Stock included in the Units and
the shares of Common Stock issuable upon
exercise of the Warrants and the Placement
Agents' Warrants (together, the "Registrable
Securities") within 60 days of the final closing
(the "Final Closing") pursuant to the Offering,
provided, however, if the Company within such
period files a registration statement pursuant
to an underwritten offering (the "Underwritten
Offering"), then such Registerable Securities
may instead be included in a piggyback
registration. See "Description of
Securities--Registration Rights."
Risk Factors.............. See "Risk Factors" for a discussion of certain
factors that should be considered in connection
with a purchase of the Units.
- ----------------------
(1) Excludes (i) 20 Units which the Company has agreed to issue to Kramer,
Levin, Naftalis & Frankel ("Kramer Levin"), counsel to the Company, (ii)
120,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants (as defined below), (iii) 500,000 shares of
Common Stock issuable pursuant to options under the Company's 1994 Stock
Option Plan (the "1994 Plan"), of which options to purchase 445,000
shares of Common Stock have been granted, including 50,000 shares of
Common Stock issuable upon exercise of options granted to Joseph T.
Jacobsen, (iv) 60,000 shares of Common Stock issuable upon exercise of
options granted to Carl Frischling, an outside director and a member of
Kramer Levin, and Peter Reuter, a former director, pursuant to certain
option agreements, and (v) 50,000 shares of Common Stock issuable upon
exercise of certain warrants granted to each of the Placement Agents in
consideration of investment banking services, in addition to those
rendered in connection with the Offering. See "Certain Transactions."
(2) Excludes (i) up to 1,768,350 shares of Common Stock reserved for
issuance upon exercise of the Warrants offered hereby (assuming the
Maximum Offering) and (ii)up to 353,670 shares of Common Stock reserved
for issuance upon exercise of the Placement Agents' Warrants (assuming
the Maximum Offering at the Assumed Purchase Price). See
"Capitalization" and "Description of Securities."
- 4 -
ANY STATEMENTS THAT ARE MADE BY THE COMPANY AND ITS REPRESENTATIVES IN
THIS MEMORANDUM THAT RELATE TO THE COMPANY'S FUTURE PERFORMANCE, INCLUDING
WITHOUT LIMITATION, STATEMENTS WITH RESPECT TO THE COMPANY'S ANTICIPATED RESULTS
FOR THE QUARTER ENDING DECEMBER 31, 1996, OR THE FISCAL YEAR ENDING SEPTEMBER
30, 1997, SHALL BE DEEMED FORWARD-LOOKING STATEMENTS WITHIN THE SAFE HARBOR
PROVISION OF THE PRIVATE SECURITIES LITIGATIONS REFORM ACT OF 1995, SINCE A
NUMBER OF IMPORTANT FACTORS AFFECTING THE COMPANY'S BUSINESS AND FINANCIAL
RESULTS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN THE
FORWARD-LOOKING STATEMENTS. THOSE FACTORS INCLUDE SUCH FACTORS AS ARE SET FORTH
IN THIS MEMORANDUM AS WELL AS OTHER CIRCUMSTANCES EITHER BEYOND THE COMPANY'S
CONTROL OR NOT FORESEEABLE AT THIS TIME.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS, PRIOR TO
MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, ALONG WITH OTHER
MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:
FINANCING. The net proceeds of the Offering, if the Maximum Offering is
sold, are expected to provide the Company with sufficient funds to meet its
immediate requirements. If only the Minimum Offering is sold, the Company will
have to seek additional funding elsewhere (as to which there can be no assurance
of success) and stretch further the time the Company takes to pay its vendors
and other creditors. See "Use of Proceeds." However, the Company is aware of
additional commitments which will have to be met over the next twelve months
which include construction commitments, permitting obligations and the
operational needs of the Company as a result of internal growth. In addition,
the Company will have to expend substantial amounts to conduct remediation and
environmental compliance at the Company's facilities. See "Environmental
Compliance." Although there can be no assurances, the Company expects that cash
generated through operations will be sufficient to meet these additional needs.
CURRENT MAJOR INDEBTEDNESS. In connection with the ENSA Acquisition,
the Company entered into a loan agreement with Chemical Bank (the "Bank") for a
$7.5 million credit facility which matures April 1, 1998 (see, "Recent
Developments") . Substantially all of the proceeds of this loan agreement were
used by the Company in connection with the purchase of shares of ENSA in the
Company's tender offer. The Company subsequently borrowed an additional $4.4
million, secured by a letter of credit, from the Bank, which matures April 1,
1997, to replace approximately the same amount of financing that had been
available to ENSA through its bank. The Company will need to secure financing of
a comparable amount upon maturity of these loans. These substantial levels of
indebtedness are significantly higher than ERD carried in the past. In addition
to generating revenues and profits sufficient to meet its other operating
expenses, the Company will have to generate revenues and profits to service this
new debt. See "Recent Developments--Acquisition Financing."
DEFAULT IN CREDIT AGREEMENT. In addition, as a result of the write-down
and the anticipated losses from the discontinued incinerator operations at the
Long Beach facility, the Company is not and will not be in compliance with
certain of the financial covenants of the Company's loan agreements. The Company
is currently negotiating certain amendments to the financial covenants; however,
there can be no assurances that the Bank will agree to such amendments or that
it will waive the breach of such financial covenants under the loan agreements.
If an agreement is not reached with Bank, the Company will need to secure other
financing; however, no assurances can be given that such financing will be
available, or if available, that it will be available to the Company on
favorable terms.
EROSION OF NET WORTH. At July 31, 1996, the Company's consolidated net
worth was $15,051,025. As a result of the discontinuation of the incinerator
operations at the Long Beach facility, in the quarter ended September 30, 1996,
the Company expects to record a substantial loss of approximately $13,000,000
and a decrease in stockholders' equity of approximately $9,000,000, net of a
deferred tax benefit. It is not possible at this time to predict the impact of
these losses on the Company's ability to sustain its current financing, bonding
and insurance capacities.
- 5 -
LONG BEACH FACILITY PERMIT STATUS. On September 4, 1996, the NYSDEC
filed an administrative complaint against the Company alleging multiple
violations of the Long Beach facility's permits and various environmental laws
and regulations. The complaint seeks revocation of the facility's permits and
penalties of $500,000. On November 6, 1996, the Company entered into an
agreement with the New York State Attorney General, acting on behalf of the
NYSDEC, pursuant to which the Company agreed to (i) voluntarily cease
incineration at such facility by March 31, 1997, (ii) continue operations on an
interim basis as a solid waste transfer station after March 31, 1997, pursuant
to a consent order and to apply to the NYSDEC for a formal modification of the
facility's permit to operate as a transfer station and (iii) disconnect the
incinerator apparatus by March 31, 1998. Pursuant to such agreement,
Environmental Waste Incineration, Inc., the Company's subsidiary operating the
facility, agreed to plead guilty to a single violation of Section 71-2703(2) of
the Environmental Conservation Law, and the State of New York agreed that it
would not further prosecute the Company or any of its affiliates or subsidiaries
in any civil or criminal proceedings in connection with any acts related to the
operation and/or management of the Long Beach facility as of November 6, 1996.
The Company is in the process of negotiating with the State of New York a
comprehensive consent order, which is expected to reflect, in substance, the
above agreement (the "Consent Order"); there can be no assurances regarding the
ultimate impact of the Consent Order on the Company's financial condition or
results of operations, that the Company will reach a final agreement with the
State of New York or that such agreement will be on terms favorable to the
Company. Since the City of Long Beach has indicated that it presently intends to
oppose the Company's application for a transfer station permit, there can be no
assurances that the Company's application for such a permit will be granted.
During the quarter ended July 31, 1996, sales and net income before taxes from
the Long Beach facility represented approximately 13% and 23%, respectively, of
the Company's total sales and net income before taxes. See "Legal Proceedings."
CONTRACT WITH THE CITY OF LONG BEACH. The City of Long Beach represents
the largest customer at the Long Beach facility providing revenues of
approximately $2.1 million for the one-year period ended May 31, 1996, and
which, prior to the decision to discontinue the incineration by March 31, 1997,
had been projected at $2.2 million for the one year period ended May 31, 1997.
The City of Long Beach delivers its solid waste to the facility pursuant to a
contract it entered into with Long Beach Recycling & Recovery Corp. dated May
13, 1992. The City of Long Beach believes that it is not bound by the contract
and can discontinue its delivery of solid waste at any time. There can be no
assurances that the Company will be successful in enforcing the contract with
the City of Long Beach or that the City will continue its delivery of solid
waste to the facility. The Company believes that upon cessation of incineration
on March 31, 1997, at the Long Beach facility, it is unlikely for the
foreseeable future that such facility could operate profitably as a transfer
station without the revenue from the City of Long Beach.
FINANCIAL UNCERTAINTIES RESULTING FROM ENSA ACQUISITION; WORKING
CAPITAL DEFICIENCY. ENSA, which was acquired on May 5, 1996, had a net loss of
$982,240 for its year ended December 31, 1995, and a net loss of $783,458 for
its first quarter ended March 31, 1996. While the Company has taken steps to
reduce or eliminate the losses incurred by ENSA, the Company incurred
substantial indebtedness in making the ENSA Acquisition. There can be no
assurance that the Company will be able satisfactorily to improve ENSA's
operations to the point of profitability, or that operating profits will be
sufficient to offset the increased costs of servicing the Company's debt. As a
result of the ENSA Acquisition and subsequent investments in new and existing
facilities, the Company currently is suffering from a shortage in working
capital. Prior to the ENSA Acquisition, at April 30, 1996, the working capital
of the Company was approximately $4,500, and, at July 31, 1996, reflecting the
ENSA Acquisition, the working capital deficiency of the Company was
approximately $4,647,828, a change in large part due to the working capital
deficiency of ENSA. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
- 6 -
RECENT EXPIRATION OF "LOCK UP" AGREEMENT ON RESTRICTED SHARES.
Approximately 3,321,324 shares of the Company's Common Stock were released in
November 1996 from the provisions of a certain "lock-up" agreement restricting
their sale entered into with Hampshire Securities Corporation ("Hampshire"), as
the representative of the underwriters of ERD's initial public offering of
Common Stock. In or about January 1997, the restrictions imposed by Rule 144 on
these and other restricted shares will effectively terminate for all persons who
are not affiliates of the Company because the three year holding period mandated
by paragraph (k) of Rule 144 will expire at that time. The expiration of the
"lock-up" agreement may tend to release a significant number of shares into the
market and the presence of those shares in the market could have an adverse
effect on the market price of the Common Stock and its marketability. The
expiration of the restrictions imposed by Rule 144 will have a similar effect.
See "Risk Factors--Shares Eligible for Current and Future Sale."
ENVIRONMENTAL ISSUES.
General. The Company is involved in the processing, transportation,
storage, and disposal of nonhazardous and hazardous wastes. The Company's
activities are highly regulated under numerous federal and state laws, including
the Resource Conservation and Recovery Act of 1976 ("RCRA") and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). As a result, the Company is constantly exposed to the risk of
non-compliance by one or more of its activities with statutory or regulatory
requirements. Moreover, under CERCLA there can be no assurance that the Company
will not have future liability for wastes that the Company has handled at its
own facilities or arranged for the disposal of at other facilities.
Remediation. Several of the treatment, storage and disposal ("TSD")
facilities operated by ENSA are on sites that have been contaminated as a result
of prior uses of the site or by prior uses at an adjacent property. The Company
is cooperating with the government regulatory agencies that have jurisdiction
over its facilities to investigate, assess, and implement appropriate
remediation measures to address these conditions. The Company has evaluated the
potential economic impact of addressing those conditions. See "Environmental
Compliance--Remediation."
Permit Requirements. The Company's three TSD facilities are required to
be permitted pursuant to RCRA and related state statutes. The Company's facility
located in Long Beach, New York ("LBRR") is permitted by the State of New York
as a solid waste management facility and as a source of air emissions (i.e., a
solid waste incinerator). For a discussion of the status of the operating permit
for the Long Beach facility see "--Long Beach Facility Permit Status," above.
The Company has an obligation to renew its facility operating permits as a
condition of operations. Although the Company believes that its permits, other
than the Long Beach permit, will be renewed, there can be no guarantee that such
renewals will be issued and the Company hopes that its Long Beach permit will be
modified as requested. The Company also recognizes that it will be required to
incur additional capital costs and expenses to assure compliance with existing
and anticipated regulatory requirements. The Company believes that its Waco,
Texas, facility is exempt from air quality permitting requirements. The Company
will be seeking confirmation from the Texas Natural Resource Conservation
Commission ("TNRCC") that it is eligible for a standard exemption, however,
there can be no assurances that TNRCC will recognize the facility's eligibility
for such exemption. See "Environmental Compliance--Permitting."
Waste Fuel Disposal. The Company's TSD facilities produce waste fuel
mixtures which are used as fuel by cement kilns. Should future regulations limit
the ability of cement kilns to accept such waste mixtures, the Company may be
adversely affected as a result of higher disposal costs.
Other. The Company's three TSD facilities are required to maintain
bonds in the event of "closure of the facilities", as required by their
respective states. The Company has posted bonds, as collateral in the event of
closure, totalling $1.5 million. The Company has renewed these bonds in the
past, and intends to renew them in the future. However, there can be no
assurance that the Company will be able to continue to renew the bonds. In the
event of the closing of a facility, the Company's operations will be materially
adversely affected.
- 7 -
COMPETITION. Competition among hazardous and non-hazardous waste
service providers is intense. The Company competes with, and expects to continue
to compete with, numerous waste brokers, national waste management companies,
and local and regional companies, many of which have significantly larger
operations and greater financial, marketing, human, and other resources than the
Company. During the 1990's, the industry entered a period of merger and
consolidation at a time when demand for remediation and waste services was
dropping. As a result of the mergers, the industry as a whole is experiencing
increased competition from companies with improved operating efficiencies, while
at the same time facing a lower demand for its services. While the Company
believes that it is well-positioned to compete in such a market due to its
ability to offer both hazardous and non-hazardous services, the Company expects
the competitive marketplace to continue to exist in the foreseeable future. See
"Business."
DEPENDENCE UPON KEY EMPLOYEES; RECRUITMENT OF ADDITIONAL PERSONNEL. The
Company is dependent upon the efforts and abilities of Joseph J. Wisneski, its
President and Chief Operating Officer, Robert M. Rubin, its Chairman of the
Board and Chief Executive Officer, Mr. Joseph Jacobsen, President of the Air and
Consulting Group, and Marc McMenamin, Chief Operations Manager of the Company.
Each of Messrs. Wisneski, Rubin Jacobsen and McMenamin is a substantial
stockholder of the Company. Messrs. Wisneski, Jacobsen and Rubin have entered
into employment agreements with the Company which terminate on December 31,
1997, May 1999, and December 31, 1997, respectively. Mr. McMenamin's contract is
continuing from year to year on a calendar year basis. Mr. Jon Colin, who was
the President of ENSA, was discharged effective as of June 7, 1996, and the
Company has not yet found a suitable replacement. The loss or unavailability of
the services of any of the aforementioned employees for any significant period
of time could have a material adverse effect on the Company's business. In
addition, Mr. Rubin has interests in a number of other businesses and his
employment agreement does not require him to devote any minimum amount of time
to the affairs of the Company. See "Management."
The ability of the Company to attract and retain highly skilled
personnel is critical to the operations of the Company. To date, the Company has
been able to attract and retain the personnel necessary for its operations.
However, there can be no assurances that the Company will be able to do so in
the future. If the Company is unable to attract and retain personnel with the
necessary skills when needed, its business could be materially adversely
affected.
DILUTION. Upon the closing of this Offering, investors in this Offering
will incur immediate and substantial dilution in the per share net tangible book
value of their Common Stock. At July 31, 1996, the pro forma net deficit in
tangible book value after adjustment of the estimated $9,000,000 loss from
discontinued operations at the Long Beach incinerator, (net of goodwill of
$9,882,097 and other intangible assets of $223,998 unrelated to Long Beach) is
$4,055,070 or $(0.56) per share. After giving effect to the Maximum Offering (at
the Offering Price, less the Placement Agents' fees and other related expenses
of the Offering), the pro forma net deficit in tangible book value as of July
31, 1996, would have been $842,570 or $(0.11) per share, representing an
immediate increase in net deficit in tangible book value of $0.58 per share to
the existing stockholders and an immediate dilution of $2.23 per share, or
approximately 104%, to new investors as of July 31, 1996. After giving effect to
the Minimum Offering (at the Offering Price, less the Placement Agents' fees and
other related expenses of the Offering), the pro forma net deficit in tangible
book value as of July 31, 1996, would have been $3,670,070 or $(0.60) per share,
representing an immediate increase in net tangible book value of $0.09 per share
to the existing stockholders and an immediate dilution of $2.72 per share, or
approximately 128%, to new investors as of July 31, 1996. See "Dilution."
LACK OF DIVIDENDS. The Company has not paid any dividends on the Common
Stock since inception and does not intend to pay any dividends to its
stockholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. See
"Dividend Policy" and "Description of Securities--Common Stock."
SHARES ELIGIBLE FOR CURRENT AND FUTURE SALE. Of the 5,882,782 shares of
the Company's Common Stock currently outstanding, 3,321,324 shares are presently
"restricted securities" as that term is defined in
- 8 -
Rule 144 promulgated under the Act. All of these shares were also restricted
from sale by the provisions of a certain "lock-up" agreement entered into with
Hampshire Securities Corporation ("Hampshire"), as the representative of the
underwriters of ERD's initial public offering of Common Stock. In November 1996,
a substantial number of the restricted shares ceased to be locked up and in or
about January 1997, the restrictions imposed by Rule 144 will effectively
terminate for all persons who are not affiliates of the Company because the
three year holding period mandated by paragraph (k) of Rule 144 will expire at
that time. The expiration of the "lock-up" agreement may tend to release a
significant number of shares into the market and the presence of those shares in
the market could have an adverse effect on the market price of the Common Stock
and its marketability.
SUBSTANTIAL OPTIONS AND WARRANTS RESERVED; CONTINGENT ISSUANCES OF
COMMON STOCK. The Company has reserved from the authorized, but unissued, Common
Stock 500,000 shares of Common Stock for issuance to key employees, officers and
consultants pursuant to the Company's 1994 Plan. To date, options exercisable
for an aggregate of 455,000 shares of Common Stock have been granted under the
1994 Plan. The Company also granted options exercisable for an aggregate of
60,000 shares of Common Stock, 30,000 shares each to Carl Frischling, an outside
director, and Peter Reuter a former director, each pursuant to an option
agreement dated as of January 18, 1996 (each, an "Option Agreement" and together
the "Option Agreements"), at an exercise price of $7.125 per share. The Company
has also granted options for 50,000 shares to Joseph T. Jacobsen. The Board of
Directors has approved an increase in the number of shares authorized under the
1994 Plan from 500,000 shares to 1,000,000 shares, subject to stockholder
approval. Stockholder action with respect to this increase is expected to be
taken at the Company's next annual meeting of stockholders. See "Security
Ownership of Certain Beneficial Owners and Management--Stock Option Plan." The
Company will also sell to the Placement Agents in connection with this Offering
(assuming a Maximum Offering) for nominal consideration, warrants to purchase an
aggregate of 10% of the number of Units sold in the Offering at an exercise
price per Unit equal to the Offering Price, subject to adjustment as provided
therein (the "Placement Agents' Warrants") which warrants are exercisable until
January 31, 2002. In addition, the Company granted to Hampshire in connection
with the initial public offering of the Company on May 17, 1995, warrants
exercisable for 120,000 shares of Common Stock at an exercise price of $7.15 per
share (the "Representative's Warrants"), which warrants are exercisable until
May 17, 2000. Hampshire presently holds 101,059 such warrants after having
assigned 18,941 to unrelated individuals. In addition, the Company granted to
each of the Placement Agents warrants to purchase 50,000 shares of Common Stock
in consideration of investment banking services, in addition to those rendered
in connection with the Offering. The existence of the Warrants, the Placement
Agents Warrants, the Representative's Warrants, any outstanding options issued
under the 1994 Plan, the Option Agreements, the additional options to Mr.
Jacobsen, and other options or warrants may prove to be a hindrance to future
financings, since the holders of such warrants and options may be expected to
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company. See
"Management."
The Company has agreed to register the Registrable Securities in a
Shelf Registration within 60 days of the Final Closing, provided, however, if
the Company within such period files a registration statement pursuant to an
Underwritten Offering, then the Registrable Securities may instead be included
in a piggyback registration. If the registration statement is filed but some or
all Registrable Securities were excluded at the request of the managing
underwriter of such Offering, then the Company has agreed to use its reasonable
best efforts to file a Shelf Registration within 90 days of the completion of
such Underwritten Offering. See "Description of Securities--Registration
Rights."
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS. The Company's
Certificate of Incorporation, as amended, authorizes the board of directors (the
"Board of Directors") to issue up to 2,000,000 shares of preferred stock, par
value $.001 per share. The preferred stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include, among other
things, voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and redemption
rights, and sinking fund provisions. No preferred stock is currently
outstanding, and the Company has no present plans for the issuance of any
preferred stock. However, the issuance of any such preferred stock could
materially adversely affect the rights of holders of Common Stock and,
therefore, could reduce the value of the Common Stock. In addition, specific
rights
- 9 -
granted to future holders of preferred stock could be used to restrict the
Company's ability to merge with, or sell its assets to, a third party. The
ability of the Board of Directors to issue preferred stock could discourage,
delay, or prevent a takeover of the Company, thereby preserving control of the
Company by the current stockholders.
See "Description of Securities."
SEASONALITY. Severe winter weather conditions have an impact on the
Company's revenues by affecting the ability to (i) perform site remediation and
field service activities, and (ii) transport waste to its TSD facilities for
treatment. This has resulted in the postponement of projects and a decline in
revenues primarily during the months of January and February.
LACK OF MARKET FOR SECURITIES; TERMS OF THE WARRANTS. There is no
established market for the Warrants. Each investor is required to represent that
the Common Stock and Warrants are being acquired for investment and not with a
view toward the sale or disposition thereof. It is not anticipated that a public
market for the Warrants will ever develop. The terms of the Warrants have been
determined through negotiations between the Company and the Placement Agents and
may not bear any relationship to the Company's asset value or net worth, or any
other established criteria of valuation. See "Plan of Placement of the Units."
- 10 -
USE OF PROCEEDS
After deducting the estimated expenses of this Offering, the net
proceeds from the sale of the Units offered hereby are estimated to be $385,000
under the Minimum Offering and $3,212,500 under the Maximum Offering. The
Company anticipates that the net proceeds will be used substantially as follows:
Minimum Maximum
Offering Offering
-------- --------
Repayment of note from principal $ - $ 300,000
Scheduled obligations, Legal Matters $ 300,000 $ 500,000
Purchase of remaining ENSA shares $ - $ 520,000
Facility improvements and upgrades $ - $ 500,000
Working Capital $ 85,000 $ 1,392,500
------------ -----------
$ 385,000 $ 3,212,500
The above amounts and categories for use of the net proceeds of this
Offering represent the Company's best estimates based upon current conditions
and assumptions. Although no material changes are contemplated in the proposed
use of such net proceeds, such amounts may be adjusted by reason of business
conditions existing at the time of expenditure.
Pending the use of the net proceeds from the sale of Units as described
above, such funds will be invested in short-term, interest-bearing securities or
deposited in short-term, interest-bearing bank accounts.
- 11 -
PRICE RANGE OF SECURITIES
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System
("Nasdaq/NMS") under the symbol ERDI. The following table sets forth the range
of reported high and low "bid" prices for the Common Stock, as quoted on
Nasdaq/NMS, for the periods indicated. The quotations reflect inter-dealer
prices, without retail markup, markdown or commission, and may not necessarily
represent actual transactions. The trading volume of the Company's securities
fluctuates and may be limited during certain periods. As a result, the liquidity
of an investment in the Company's securities may be adversely affected.
HIGH LOW
---- ---
1995
Second Quarter $8 3/4 $6 1/2
(trading started on
May 7, 1995)
Third Quarter $10 1/8 $7
Fourth Quarter $8 7/8 $6 3/4
1996
First Quarter $9 3/4 $7 3/8
Second Quarter $10 1/2 $7 5/8
Third Quarter $9 1/4 $3 3/8
Fourth Quarter
(through December 19, 1996) $4 3/4 $2
DIVIDEND POLICY
The Company has never paid or declared any dividends upon its Common
Stock and does not contemplate or anticipate paying any dividends upon its
Common Stock in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. The
declaration of dividends in the future will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions, and other pertinent
factors.
- 12 -
DILUTION
The difference between the assumed purchase price per share of Common
Stock and the pro forma net tangible book value per share of the Company after
the Offering constitutes the dilution to investors in the Offering. Net tangible
book value per share on any given date is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) on such date, by the number of outstanding shares of Common Stock.
The information shown below is based upon the pro forma consolidated financial
statements reflecting the Company's acquisition of ENSA.
At July 31, 1996, the pro forma net deficit in tangible book value
after adjustment of the estimated $9,000,000 loss from discontinued operations
at the Long Beach incinerator, (net of goodwill of $9,882,097 and other
intangible assets of $223,998 unrelated to Long Beach) is $4,055,070 or $(0.69)
per share. After giving effect to the Maximum Offering (at the Assumed Purchase
Price, less the Placement Agents' fees and other related expenses of the
Offering), the pro forma net deficit in tangible book value as of July 31, 1996,
would have been $842,570 or $(0.11) per share, representing an immediate
increase in net deficit in tangible book value of $0.58 per share to the
existing stockholders and an immediate dilution of $2.23 per share,
approximately 104%, to new investors as of July 31, 1996. After giving effect to
the Minimum Offering (at the Assumed Purchase Price, less the Placement Agents'
fees and other related expenses of the Offering), the pro forma net tangible
book value as of July 31, 1996, would have been $3,670,070 or $(0.60) per share,
representing an immediate increase in net tangible book value of $0.09 per share
to the existing stockholders and an immediate dilution of $2.72 per share,
approximately 128%, to new investors as of July 31, 1996. The following table
illustrates the foregoing information with respect to dilution to new investors
on a per share basis:
July 31, 1996
Pro Forma Pro Forma
(Minimum Offering) (Maximum Offering)
------------------ ------------------
Assumed Purchase Price per Share..................... $2.12 $2.12
Net deficit in tangible book value before the Offering (0.69) (0.69)
Increase in net tangible book value attributable
to the Offering................................ 0.09 0.58
Pro forma net deficit in tangible book value (0.60) (0.11)
after the Offering.................................
Dilution to new investors............................ $2.72 $2.23
====== =====
- 13 -
The following table sets forth, as of the date of this Memorandum, the
number of shares of Common Stock purchased, the percentage of total shares of
Common Stock purchased, the total consideration paid, the percentage of total
consideration paid, and the average price per share of Common Stock paid by the
investors in this Offering (assuming the Maximum Offering at the Assumed
Purchase Price) and the current stockholders of the Company:
Average
Shares Purchased Total Consideration Price Per
Number(1) Percentage Amount(1) Percentage Share
--------- ---------- --------- ---------- -----
Current Stockholders................... 5,882,782 76.9% $10,562,484 73.8% $1.80
New Investors.......................... 1,768,346 23.1% $ 3,750,000 26.2% $2.12
TOTAL............................ 7,651,128 100% $14,312,484 100% $1.87
============== ===== ============= ==== =====
- ---------------
(1) Excludes up to (i) 1,768,350 shares of Common Stock issuable upon exercise
of the Warrants, (ii) 353,670 shares of Common Stock issuable upon exercise
of the Placement Agents' Warrants; and 120,000 shares of Common Stock
issuable upon exercise of the Representative's Warrants, (iii) up to
500,000 shares issuable pursuant to options which may be granted under the
1994 Plan, and 60,000 shares issuable pursuant to options which were
granted to Carl Frischling and Peter Reuter pursuant to the Option
Agreements. To date, 455,000 options have been granted under the 1994 Plan.
Also excludes (i) 50,000 options granted to Joseph T. Jacobsen, (ii) 50,000
shares of Common Stock issuable upon exercise of certain warrants granted
to each of the Placement Agents in consideration of investment banking
services, in addition to those rendered in connection with the Offering and
(iii) shares issuable and included in 20 Units issuable to Kramer Levin
including up to 142,840 shares obtainable on exercise of Warrants included
in such Units includable in warrants the Company has agreed to issue to
Kramer Levin. The authorized increase in the number of shares reserved
under the 1994 Plan to 1,000,000 shares is subject to approval by the
Company's stockholders. See "Management--Stock Option Plan," and "Certain
Transactions."
- 14 -
CAPITALIZATION
The following table sets forth the capitalization of the Company at
July 31, 1996, after giving effect to the estimated loss anticipated as a result
of the discontinuation of the incinerator operations at the Long Beach facility
and the receipt by the Company of estimated minimum and maximum net proceeds of
approximately $385,000 and $3,212,500, respectively, from the sale of the Units.
The information shown below is based upon the financial statements reflecting
the Company's acquisition of ENSA. See "Use of Proceeds" and Exhibit F.
as of July 31, 1996
----------------------------------------------------------------------------
Actual as Actual Pro Forma Pro Forma
Reported Adjusted* (Minimum) (Maximum)
Short term debt.................................... $6,325,892 $6,325,892 $6,325,892 $6,325,892
Long term debt..................................... 9,714,131 9,714,131 9,714,131 9,714,131
Stockholders' Equity:
Preferred Stock -- $.001 par value,
authorized -- 2,000,000 shares; no shares issued
and outstanding............................... - - - -
Common Stock -- $.001 par value, authorized --
15,000,000 shares; issued and outstanding
5,882,782 shares; (minimum 6,118,562 shares;
maximum 7,651,128 shares)..................... 5,883 5,883 6,119 7,651
Capital in excess of par value..................... 10,556,601 10,556,601 10,941,365 13,767,333
Retained earnings.................................. 4,488,541 (4,511,459) (4,511,459) (4,511,459)
--------- ----------- ------------
Total stockholders' equity......................... $15,051,025 $6,051,025 $6,436,025 $9,263,525
============= ============ ============ ============
*After giving effect to the estimated loss anticipated as a result of the
discontinuance of incineration at the Long Beach facility.
FINANCIAL STATEMENTS
The historic audited financial statements of ERD and of ENSA are
contained in their respective annual reports attached hereto as Exhibits D and
E, respectively. Financial statements of ERD for the period ended July 31, 1996,
are included in Exhibit F, ERD's quarterly report on Form 10-QSB. Reference is
made to all of such financial statements, including the notes attached thereto.
- 15 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Management's Discussion and Analysis of the Financial Condition
and Results of Operations through January 31, 1996, and through December 31,
1995, as to ENSA, respectively, see Item 6 of Exhibit D and Item 7 of Exhibit E,
respectively. The Management's Discussion and Analysis of the Financial
Condition and Results of Operations for the Company, reflecting combined
operations of ERD and ENSA, is set forth in Exhibit F, the Company's quarterly
report on Form 10-Q for the fiscal quarter ending on July 31, 1996. On October
30, 1996, the Company changed its fiscal year end to September 30 from January
31.
RECENT DEVELOPMENTS
As a result of a complaint filed against the Company by the NYSDEC
alleging various violations of the Company's facility permits and environmental
laws and regulations, on November 6, 1996, the Company agreed, among other
things, to cease incineration operations at its Long Beach, New York facility by
March 31, 1997, and to pay a penalty of $2,500. The Company has sought
permission from the NYSDEC to continue to operate the Long Beach facility as a
waste transfer station. As the City of Long Beach has indicated that it
presently intends to oppose the Company's application for a transfer station
permit, there can be no assurances that such permit will be granted. For the
quarter ended July 31, 1996, sales and net income before taxes from the Long
Beach facility represented approximately 13% and 23%, respectively, of the
Company's total sales and net income before taxes. See "Legal Proceedings" and
"Environmental Compliance."
In addition, the Company expects to record losses of approximately
$13,000,000 for the fiscal year ended September 30, 1996. These losses, which
the Company believes are properly classified as losses from discontinued
operations, consist of approximately $11,500,000 from the write down of
property, plant and equipment at the Long Beach facility and approximately
$1,500,000 of liabilities associated with the costs incurred in connection with
the settlement and costs of dismantling the incinerator and restructuring the
Long Beach operations. The Company also expects that stockholders' equity will
decrease approximately $9,000,000 as a result of the discontinuation of
operations at the Long Beach facility.
In addition, the City of Long Beach, the Company's largest customer at
the Long Beach facility, is contractually committed through 2008 to deliver its
residential solid waste to the Long Beach facility. In light of the NYSDEC
proceedings and the discontinuation of the Company's incinerator operations at
the Long Beach facility, the City of Long Beach has threatened to discontinue
delivery of its solid waste to such facility at any time. The Company is seeking
to enforce the contract regarding the delivery of solid waste and may seek
damages or other relief in the event of any breach thereof by the City of Long
Beach. The Company also believes that it is unlikely that the Long Beach
facility could be profitable as a transfer station without the revenue from the
City of Long Beach. There can be no assurances that the Company will be
successful with respect to the enforcement of its contractual rights against the
City of Long Beach. The City of Long Beach is currently continuing to comply
with the contract.
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BUSINESS
The Company is a diversified waste management company specializing in
the management and disposal of municipal solid waste, industrial and commercial
non-hazardous solid waste and hazardous waste, and provides brokerage, advisory,
consulting and technical services to generators of waste. The Company owns and
operates three strategically located TSD facilities, a transfer station and an
incinerator, and provides environmental services including: consulting,
technical contracting, site remediation, indoor and outdoor air quality testing
and monitoring services and equipment, and technical support services related to
all of the foregoing. In addition, the Company incinerates municipal solid
wastes and industrial and commercial non-hazardous solid wastes at its Long
Beach, New York facility. After March 31, 1997, it is anticipated that the
incinerator at its Long Beach facility will cease operation and that the Long
Beach Facility will be converted to a transfer station. The Company also
manufactures various sorbent products in plants in Illinois and Pennsylvania and
recycled oil filters in Waco, Texas.
ERD has been in control of the operations of ENSA since May 6, 1996.
During this time, management of the two former entities has been integrated and
certain steps have begun to be taken to achieve operating efficiencies. It is
expected that the respective businesses of ERD and ENSA will continue to operate
through their subsidiaries for the foreseeable future. ERD reported net revenues
of $15,217,000 for the fiscal year 1996 and ENSA reported net revenues of
$36,559,000 for the fiscal year ended December 31, 1995.
The Company plans a complete integration of the businesses of ENSA and
ERD which is already in progress. The following actions have already been taken
to enhance the efficiencies of the combined group:
o Two corporate/administrative offices have been consolidated into one
location; staffing has been streamlined.
o Personnel reductions have been made at various operating locations.
o Sales staff is being trained to cross-market the services of the
combined group (hazardous and non-hazardous) to existing customers.
o Financial reporting and administrative functions were consolidated
with an overall reduction in cost.
In the future, the Company believes that it will be able to benefit
additionally from:
o Increased purchasing power as the Company takes advantage of its
increased size to negotiate quantity discounts with its suppliers.
o Enhanced sales staff coverage for the Company's TSD facilities in the
midwest (where ENSA maintains its facilities and ERD has sales
experience and contacts.)
For a general description of the businesses of ERD and ENSA, see Item 1
of Exhibits C and D, respectively.
ENVIRONMENTAL COMPLIANCE
Remediation. The three TSD facilities operated by ENSA are on sites
that have been contaminated as a result of prior uses of the site or by prior
uses at an adjacent property. The Company is cooperating with the government
regulatory agencies that have jurisdiction over its facilities to investigate,
assess, and implement appropriate remediation measures to address these
conditions. The Company has projected potential expenditures that may be
required to conduct further investigations or studies and to remediate the sites
to satisfy regulatory
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requirements. In developing these projections, ERD has relied on studies
prepared by its subsidiary, ENSA Environmental, Inc. and by EMCON, an
independent environmental engineering firm. Below is a summary of environmental
issues at each applicable facility.
Canastota, New York. This TSD facility contains on-site soil and groundwater
that have been impacted by volatile organic chemicals. The extent of this
impacted soil and groundwater has been delineated and reported to the NYSDEC and
United States Environmental Protection Agency ("USEPA") in RCRA Facility
Investigation ("RFI") Reports, as required by RCRA Part B Hazardous Waste
Management ("Part B") permit. The RFI reports for both soil and groundwater have
been accepted by the NYSDEC/USEPA. Corrective action will continue until the
NYSDEC/USEPA confirms completion of such corrective action.
Groundwater corrective action was begun in May of 1993, when a remediation
system was installed in accordance with a NYSDEC/USEPA approved Corrective
Measures Implementation ("CMI") Plan. Operation of this system continues at
present and reporting is made to the NYSDEC/USEPA on a periodic basis in
accordance with the schedule in the CMI plan.
A CMI plan for soil remediation was submitted to the NYSDEC/USEPA in June of
1996. Regulatory agency approval of this plan is expected. Installation and
startup of the remediation system is expected to commence during the 1997
construction season.
Scott City, Missouri. As required by the RCRA part B permit for this TSD
facility, an RFI is to be performed. This requirement was based upon the
findings of a RCRA Facility Assessment performed at the facility by a USEPA
contractor in September of 1989. An RFI Work Plan has been approved by the
Missouri Department of National Resources ("MDNR")/USEPA for investigation and
sampling of soil and groundwater in Areas of Concern outlined by the regulatory
agencies. Results of the investigation and sampling are pending and,
accordingly, subsurface conditions are presently unknown. The possibility exists
that impacted soil and/or groundwater will be detected, requiring further
investigation and/or corrective action.
South Bend, Indiana. This TSD facility contains soils which are impacted
principally with volatile organic chemicals and petroleum hydrocarbons. These
occur primarily in the area known as the Old Tank Farm.
In December of 1994, a Revised Partial Closure Plan was submitted to the Indiana
Department of Environmental Management ("IDEM") for approval. This plan included
a conceptual design for remediation of these soils. To date, no approval or
disapproval of this plan has been received from IDEM and consequently no related
remediation of these soils has taken place.
This facility has four on-site groundwater monitoring wells. Groundwater samples
collected from these wells have indicated that the groundwater beneath the site
has been impacted principally by volatile organic chemicals. There is evidence
to suggest that some of these volatile organic chemicals have migrated from
off-site sources. To date, there has been no directive from IDEM requiring any
action on the groundwater other than periodic sampling and monitoring.
Because impacted soil and groundwater is present, the possibility exists that
IDEM or USEPA may at some future date require an RFI and investigation and
corrective action additional to that outlined in the Revised Partial Closure
Plan.
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Table 1 presents a summary of the projected expenditures in connection with
existing contamination at the TSD facilities. However, there is no set timetable
for incurring any of the projected expenses and no assurance can be given that
such projected expenses will not increase or decrease depending on the
circumstances.
Table 1
Projected Remedial Costs
South Bend, Indiana 942,000
Canastota, New York 1,427,000
Scott City, Missouri 100,000
---------
Total $2,469,000
==========
In addition to expenditures associated with above referenced existing site
contamination, ERD will also be required to upgrade its TSD facilities to meet
new regulatory and permit requirements, including the installation of emission
controls for volatile organic compounds on the storage tanks at each of these
facilities to meet requirements with respect to air emissions. The projected
costs of meeting new regulatory and permit requirements are presented in Table
2, and as with Table 1, there is no set timetable for incurring any of the
projected expenses and no assurance can be given that such expenses will not
increase or decrease depending on the circumstances.
Table 2
Projected Compliance and Other Costs
South Bend, Indiana 430,000
Canastota, New York 330,000
Scott City, Missouri 496,000
----------
Total $1,256,000
==========
In addition, as a result of new regulations and/or operating needs, the Company
may be required to expend funds for capital improvements at any or all of its
facilities. No reserves have been established for these improvements because
management expects that any capital improvements would increase the value of the
facilities. However, there can be no assurance that required expenditures would
result in an increase in the property/facility value.
In addition to the TSD facilities, the Company may be liable for some
or all of the cost of potential remediation and closure of the Long Beach, New
York facility. The real property on which that facility operates is owned by the
City of Long Beach. The only sampling that has been conducted concerning site
conditions at Long Beach dates from 1990 -- prior to the Company's involvement
with the site.
Permitting. The Company operates three TSD facilities, an oil filter
recycling facility and an incinerator, each of which is subject to permitting,
licenses and authorization required for the operation of the facilities.
South Bend, Indiana. This TSD facility is required to obtain federal, state and
local licenses, permits, and/or approvals including a RCRA Part B permit. On
January 22, 1993, the IDEM, in conjunction with the USEPA, granted this facility
its Part B permit for a term of five years. Further, there are two permitted
process air pollution control units in operation at the facility, a wet scrubber
and a bag house.
Recent changes to the Clean Air Act may require upgrades to the emission
controls at the site. The facility has begun evaluating its requirements under
Title V of the Clean Air Act Amendments of 1990 ("CAAA") and an emissions
inventory has been performed. Assuming the significant air emission sources (the
tank farm and drum storage and processing area) continue to be in compliance
with existing state regulations and RCRA regulations found at 40 CFR Part 264
Subpart BB, the regulations that likely will have the most significant impact on
this facility in the near future will be requirements under Title V (40 CFR Part
70 and related state regulations) and RCRA 40 CFR 264 Subpart CC.
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Scott City, Missouri. This TSD facility is required to obtain federal, state and
local license, permits and approvals, including a RCRA Part B permit. The MDNR,
in conjunction with the USEPA, granted the facility its RCRA Part B permit on
January 10, 1994, for a term of ten years.
Recent changes to the Clean Air Act may require upgrades to the emission
controls at the site. The facility has begun evaluating its requirements under
Title V of the CAAA and an emissions inventory has been performed. Assuming the
significant air emission sources are in compliance with existing state
regulations and RCRA regulations found at 40 CFR Part 264 Subpart BB, the
regulations that likely will have the most significant impact on this facility
in the near future will be Title V permitting (40 CFR Part 70 and related state
regulations) and RCRA 40 CFR 264 Subpart CC.
On April 1, 1994, the MDNR issued an operating permit for stormwater discharges
from the facility. This permit expires on March 31, 1999, and covers three
outfalls. The three outfalls are basically the two ditches on either side of the
facility and stormwater which may be pumped from the secondary containment unit
on the Above Ground Storage Tank Farm. The facility has, on occasion, exceeded
its discharge limits for total suspended solids and chemical oxygen demand.
There has been no historical enforcement action as a result of these occasions.
Canastota, New York. This TSD facility is required to obtain federal, state and
local licenses approvals and permits, including a NYSDEC RCRA Part B permit, a
State Pollution Discharge Elimination System ("SPDES") permit, certain
transporter permits, and an air permit. The Company's draft air permit with the
NYSDEC is currently awaiting final approval. The Company is in the process of
renewing the RCRA Part B permit and the SPDES permit, which were both issued to
the facility on November 1, 1991 and have a term of five years. The facility
filed applications for renewal of these permits prior to November 1, 1996, and a
decision with respect to such renewal application is currently pending.
This facility is responsible for complying with all Federal air emission
regulations and for determining if the facility is a potential major source
under the State and Federal Title V program. The Title V program requires that a
major source of Volatile Organic Compound or Hazardous Air Pollutants submit a
Title V permit for the facility. The deadline for submission of this facility's
Title V permit application has not been defined by NYSDEC as of June, 1996,
although it is anticipated that the deadline for submission of this permit will
be in 1997. Further, the air emission standards for equipment leaks and air
emission standards for tanks, surface impoundments and containers (40 CFR Part
264 Subpart BB and CC) may have a significant impact on the facility as may the
requirements under Title V.
East Chicago, Indiana. On August 18, 1996, the Company's East Chicago, Indiana
non-hazardous waste transfer station was destroyed by fire. Authorities have
indicated the origin of the fire was electrical in nature. In addition to loss
of equipment, the Company incurred certain cleanup expenses. The Company is
currently in negotiation with the owner of the property from whom the property
was leased, regarding compensation for its losses. It is expected that most of
the customers serviced at the East Chicago facility can continue to be serviced
at the Company's South Bend facility.
Long Beach, New York. This incinerator facility must undergo a yearly review to
renew its air permit and must obtain a "solid waste permit" every five years.
The Company received its air permit on November 5, 1995, and its solid waste
permit on February 13, 1996, from the NYSDEC.
On September 4, 1996, the NYSDEC filed an administrative complaint
alleging multiple violations of the Long Beach facility's permits and various
environmental laws and regulations. The complaint seeks revocation of the
facility's permits and penalties of $500,000. On November 6, 1996, the Company
entered into an agreement with the New York State Attorney General, acting on
behalf of the NYSDEC, pursuant to which the Company agreed to (i) voluntarily
cease incineration at such facility by March 31, 1997, (ii) continue operations
on an interim basis as a solid waste transfer station after March 31, 1997,
pursuant to a consent order and to apply to the NYSDEC for a formal modification
of the facility's permit to operate as a transfer station and (iii) disconnect
the incinerator by March 31, 1998. Pursuant to such agreement, Environmental
Waste Incineration,
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Inc., the Company's subsidiary operating the facility, agreed to plead guilty to
a single violation of Section 71- 2703(2) of the Environmental Conservation Law,
and the State of New York agreed that it would not further prosecute the Company
or any of its affiliates or subsidiaries in any civil or criminal proceedings in
connection with any acts related to the operation and/or management of the
facility as of November 6, 1996. As the Company is in the process of negotiating
with the State of New York a comprehensive consent order, there can be no
assurances regarding the ultimate impact of the Consent Order on the Company's
financial condition and results of operations, that the Company will reach a
final agreement with the State of New York or that such agreement will be on
terms favorable to the Company. As the City of Long Beach has indicated that it
presently intends to oppose the Company's application for such a permit, there
also can be no assurances that the Company's application for a transfer station
permit will be granted. During the quarter ended July 31, 1996, the sales and
net income before taxes of the Long Beach facility represented approximately 13%
and 23%, respectively, of the Company's total sales and net income before taxes.
Waco, Texas. The Company believes that its Waco, Texas facility is
exempt from air quality permitting requirements. The Company will be seeking
confirmation from the TNRCC that it is eligible for a standard exemption,
however, there can be no assurances that TNRCC will recognize the facility's
eligibility for such exemption.
The Company believes that it will be granted the permit modification
for the Long Beach facility and that each of the other permits described above
will be renewed at the end of its term if the facility is in compliance with
applicable requirements. However, there can be no assurances regarding the
issuance, maintenance and/or renewal of such permits or that facilities will be
able to comply with all such requirements.
Costs. ERD anticipates financing the required costs of remediation and
environmental compliance from funds generated from operations, additional
securities offerings or borrowings, but there can be no assurances that such
financing will be available, or that it will be available on terms favorable to
the Company or its stockholders.
RECENT DEVELOPMENTS
For a discussion of the current status regarding the Long Beach
facility, see "Summary--Recent Developments," "Environmental Compliance" and
"Legal Proceedings" Sections.
ACQUISITION OF ENVIRONMENTAL SERVICES OF AMERICA, INC.
In January 1996, the Company and its newly formed subsidiary, EAC,
entered into an agreement and plan of merger (the "Original Merger Agreement")
whereby EAC would be merged with and into ENSA. In April 1996, the Original
Merger Agreement was amended and restated in its entirety and is discussed
below, as amended and restated.
Simultaneously with the execution of the Original Merger Agreement and
in contemplation of the acquisition of ENSA by the Company, the Company executed
a securities purchase agreement pursuant to which ERD loaned ENSA $500,000 for
working capital purposes.
In April 1996, ERD, EAC and ENSA amended the Original Merger Agreement
pursuant to an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement"). In order to facilitate the acquisition of ENSA and pursuant to the
terms of the Merger Agreement, ERD and EAC launched a tender offer (the "Offer")
on April 4, 1996, for the purchase of all of the common stock of ENSA (the "ENSA
Common Stock") at a purchase price of $1.66 per share. On May 1, 1996, after
receiving tenders in excess of 90% of the issued and outstanding shares of ENSA
Common Stock, ERD successfully closed the Offer and on May 6, 1996, the Company
purchased those shares at an aggregate purchase price of $5,865,967.
Simultaneously with its entry into
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the Merger Agreement, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") with the holders of more than 90% of each class of
preferred stock of ENSA (the "ENSA Preferred Stock"). The Company closed the
Stock Purchase Agreement on May 6, 1996. The aggregate purchase price for the
shares of ENSA Preferred Stock purchased pursuant to the Stock Purchase
Agreement was $1,253,614. The Company contemplates the completion of the merger
of EAC into ENSA in the near future with the proceeds of this Offering, which
merger would make ENSA a wholly owned subsidiary of the Company. However, the
timetable has not yet been set for the consummation of the merger. See "Use of
Proceeds."
ACQUISITION FINANCING
In order to partially finance the purchase of the ENSA Common Stock and
ENSA Preferred Stock, in April 1996, the Company obtained a $7.5 million
revolving credit facility (the "Revolving Facility") from the Bank pursuant to a
loan agreement (the "Loan Agreement"), dated March 29, 1996. The Loan Agreement
provides, among other things, for the payment by the Company of a commitment
fee, payable monthly, computed at the rate of one quarter of one percent (.25%)
per annum (computed on the actual number of days elapsed over 360 days) on the
average daily unused amount of the Bank's $7.5 million commitment.
The Loan Agreement provides for the granting by the Company and each of
EAC, LBRR, C&J Enterprises, Inc. ("C&J"), Environmental Waste Incineration, Inc.
("EWII"), Environmental Resources and Disposal of Illinois, Inc., Absorbent
Manufacturing & Technology, Inc., ERD Waste Corp. (Indiana) and ERD Management
Corp. ("EMC") (collectively, the "Subsidiaries") of a first priority security
interest in all of the Company's and the Subsidiaries' present and future
accounts, contract rights, chattel paper, general intangibles, instruments and
documents then owned or thereafter acquired, and in all machinery and equipment
acquired by the Company and the Subsidiaries after the date of the Loan
Agreement.
Subject to the terms of the Loan Agreement, the Revolving Facility will
be available until April 1, 1998 (the "Conversion Date"), at which time all
outstanding principal and accrued interest under the Revolving Facility shall be
due and payable. At that time, the Company may, upon request, be granted a term
loan (the "Term Loan") in an amount equal to the lesser of the Bank's Commitment
(as defined) or the aggregate principal amount of Revolving Loans then
outstanding. The maturity date of the Term Loan is the third anniversary date of
the Conversion Date. The proceeds of the Term Loan are to be used by ERD
exclusively to satisfy obligations to the Bank under any Revolving Loans
existing at the Conversion Date.
The Loan Agreement contains traditional and customary representations,
warranties, events of default and indemnification provisions and traditional and
customary conditions to making advances under the Revolving Facility. As a
result of the write-down and the anticipated losses from the discontinued
incinerator operations at the Long Beach facility, the Company is not and will
not be in compliance with certain of the financial covenants of the Company's
loan agreements. The Company is currently negotiating certain amendments to the
financial covenants; however, there can be no assurances that the Bank will
agree to such amendments or that it will waive the breach of such financial
covenants under the loan agreements. If an agreement is not reached with Bank,
the Company will need to secure other financing; however, no assurances can be
given that such financing will be available, or if available, that it will be
available to the Company on favorable terms. See "Risk Factors-- Financing."
The foregoing summary of the Loan Agreement is qualified in its
entirety by reference to the text of the Loan Agreement, which is filed as an
exhibit to the Company's report on Form 8-K, filed on April 17, 1996, which is
attached hereto as Exhibit H.
On June 6, 1996, and in August 1996, the Company borrowed an aggregate
of $4.4 million from the Bank pursuant to a demand promissory note (the "Note").
The Note bears interest at the rate of 1% above the Bank's Prime Rate (as
defined). The proceeds of this loan were used to satisfy all obligations of ENSA
and its subsidiaries to United Jersey Bank under a loan agreement dated as of
June 23, 1994, as amended.
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The Note is secured by certain assets of the Company and its
subsidiaries, including ENSA and its subsidiaries, as well as by a stand-by
letter of credit issued in favor of the Bank (the "Letter of Credit"). The
Letter of Credit was obtained by American United Global, Inc. ("AUGI"), an
affiliate of Robert Rubin, on behalf of the Company. In consideration of AUGI
obtaining the Letter of Credit, the Company entered into an agreement with AUGI,
dated May 30, 1996, as amended and restated by letter agreement dated October 8,
1996 (the "Financial Accommodations Agreement"). Pursuant to the terms of the
Financial Accommodations Agreement, the Company agreed to (i) pay interest and
other charges to AUGI, for so long as the Letter of Credit remains outstanding,
in amounts equal to amounts of interest or other charges paid by AUGI to
Citibank, N.A. in connection with the Letter of Credit or any payments made by
Citibank, N.A. thereunder; (ii) pay all fees and disbursements of AUGI,
including $10,000 of legal fees to AUGI's counsel; and (iii) if and to the
extent the Letter of Credit is called for payment; the Company will issue to
AUGI a convertible note in the aggregate principal amount of the note payable at
12% interest due on the earliest of (a) May 31, 1999, (b) receipt of proceeds by
ERD from any public or private placement of debt or equity securities subsequent
to the calling of the Letter of Credit, or (c) completion of any bank financing
by ERD to the extent of all proceeds available after payment of all other
secured indebtedness, provided that any of the Company's notes issued to AUGI
will be convertible, at any time and at the option of AUGI, into shares of
common stock of the Company at a conversion price equal to $4.40 per share. As
security for the obligations of the Company under the Financial Accommodations
Agreement, ENSA and certain of its subsidiaries have agreed to grant to AUGI a
security interest, subordinate to the first priority security interest granted
to the Bank, in all of their machinery and equipment.
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LEGAL PROCEEDINGS
In November 1994, P.J.V. Transport, Inc. ("PJV") and Concord Trucking
Inc. ("Concord") commenced an action in the New York Supreme Court, Nassau
County, against LBRR, EMC, and the City of Long Beach, New York. PJV has alleged
non-payment in the amount of approximately $185,000 for services rendered in
connection with the disposal by PJV of solid waste ash generated at the LBRR
facility pursuant to a contract among PJV, LBRR, and the City of Long Beach (the
"PJV Contract") and has alleged additional damages of approximately $200,000 in
lost profits under the PJV Contract. Concord has alleged non-payment for
services rendered in the amount of approximately $51,000 in connection with the
leasing by LBRR of trailers for the storage of incineration ash pursuant to a
contract between Concord and LBRR. Upon motion by PJV, summary judgment was
entered against LBRR in the amount of $214,000. The Company has appealed the
summary judgment decision and intends to continue to vigorously defend against
such claims.
In March 1996, PJV commenced a separate lawsuit against LBRR, EMC and
EWII in Supreme Court, Nassau County. PJV has alleged that the transfer of
assets by EMC (as successor in interest to LBRR) to EWII was a fraudulent
conveyance in order to frustrate the collection of the $214,000 judgment in
favor of PJV. The complaint also seeks punitive damages. The Company has made a
motion to dismiss the cause of action for punitive damages, which is still
pending. The Company has denied all material allegations of the complaint and
intends to vigorously defend against this lawsuit.
In March 1996, the law firm of Jenner and Block brought a suit against
the Company, C&J, and EWII, in the United States District Court for the Eastern
District of New York, for legal services rendered to C&J in an amount of
approximately $154,000. The complaint alleges that the Company and EWII are
responsible for payment of such legal services on various theories. The Company
served an answer denying all material allegations of the complaint as against
the Company and EWII and intends vigorously to defend against this lawsuit.
On February 16, 1989, 5200 Enterprises, Ltd. ("Enterprises") commenced
an action in the Supreme Court of Kings County, New York against Hasnas, Empire
Electric Co., Wastex Industries, Inc., ENSI, Inc., Environmental Services, Inc.,
Enviropact, Inc., Enviropact Northeast, Inc., Professional Engineering
Associates, Inc. and Elias. Enterprises, as the owner of a building, sued the
prior owner and all persons and companies hired by the prior owner to clean-up
contaminated spills existing on the property prior to sale and, in connection
therewith, to conduct certain tests. The suit contends that the clean-up and/or
the testing, some of which was done by ENSA subsidiaries, was conducted
negligently, and that misrepresentations were made by the prior owner concerning
the true level of remaining contamination. The suit seeks $3.5 million in
damages. The Company is defending the suit and also seeking indemnity from
co-defendants for any liability. A trial is currently scheduled for February
1997.
On June 24, 1996, Mr. Colin, a former officer of ENSA, served a Demand
for Arbitration on the Company, alleging that the Company breached its
obligation to enter into an employment agreement with him and to issue stock
options to him. Mr. Colin has demanded damages of $675,000, plus interest, an
award directing the Company to issue the stock options to him, and punitive
damages in an unspecified amount. The Company has not yet responded in this
proceeding but intends to defend this claim vigorously.
On September 4, 1996, the NYSDEC filed an administrative complaint
alleging multiple violations of the Long Beach facility's permits and various
environmental laws and regulations. The complaint seeks revocation of the
facility's permits and penalties of $500,000. On November 6, 1996, the Company
entered into an agreement with the New York State Attorney General, acting on
behalf of the NYSDEC, pursuant to which the Company agreed to (i) voluntarily
cease incineration at such facility by March 31, 1997, (ii) continue operations
on an interim basis as a solid waste transfer station after March 31, 1997,
pursuant to a consent order and to apply to the NYSDEC for a formal modification
of the facility's permit to operate as a transfer station and (iii) to
disconnect the incinerator apparatus by March 31, 1998. Pursuant to such
agreement, Environmental Waste
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Incineration, Inc., the Company's subsidiary operating the facility, agreed to
plead guilty to a single violation of Section 71-2703(2) of the Environmental
Conservation Law, and the State of New York agreed that it would not further
prosecute the Company or any of its affiliates or subsidiaries in any civil or
criminal proceedings in connection with any acts related to the operation and/or
management of the facility as of November 6, 1996. As the Company is in the
process of negotiating with the State of New York a comprehensive consent order,
there can be no assurances regarding the ultimate impact of the Consent Order on
the Company's financial condition and results of operations, or that the Company
will reach a final agreement with the State of New York on terms favorable to
the Company. As the City of Long Beach has indicated that it presently intends
to oppose the Company's permit application for a transfer station, there also
can be no assurances that the Company's application for such a permit will be
granted. During the quarter ended July 31, 1996, the sales and net income before
taxes of the Long Beach facility represented approximately 13% and 23%,
respectively, of the Company's total sales and net income before taxes.
CONTRACT WITH THE CITY OF LONG BEACH. The City of Long Beach represents
the largest customer at the Long Beach facility with revenues of approximately
$2.1 million for the one-year period ended May 31, 1996, and which prior to the
decision to discontinue the incineration by March 31, 1997, had been projected
at $2.2 million for the one year period ended May 31, 1997. The City of Long
Beach delivers its solid waste to the facility pursuant to a contract it entered
into with Long Beach Recycling & Recovery Corp. dated May 13, 1992. The City of
Long Beach believes that it is not bound by the contract and can discontinue its
delivery of solid waste at any time. There can be no assurances that the Company
will be successful in enforcing the contract with the City of Long Beach or that
the City will continue its delivery of solid waste to the facility. The Company
believes that upon cessation of incineration on March 31, 1997, at the Long
Beach facility, it is unlikely for the foreseeable future that such facility
could operate profitably as a transfer station without the revenue from the City
of Long Beach.
- 25 -
MANAGEMENT
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The names and ages, along with certain biographical information (based
solely on information supplied by them), of the directors and executive officers
of the Company are as follows:
NAME AGE POSITION
- ------------------------------- ----- ----------------------------------------------------------
Joseph J. Wisneski 42 Director, President, and Chief Operating Officer
Robert M. Rubin 56 Chairman of the Board and Chief Executive Officer
Carl Frischling 60 Director
Marc P. McMenamin 34 Chief Operations Manager of the Company
Joseph T. Jacobsen 38 Director, President, Air and Consulting Group
Each director is elected for a period of one year at the Company's
annual meeting of stockholders and serves until the next meeting and until his
successor is duly elected and qualified. Officers are elected by, and serve at
the discretion of, the Board of Directors. In consideration for serving as an
independent director, Mr. Frischling receives compensation of $5,000 per annum
and, subject to stockholder approval, will receive options to purchase 30,000
shares of common stock at an exercise price of $7.125 per share. These options
vest at the rate of 10,000 shares per annum.
The Company has a compensation committee consisting of Carl Frischling
and Robert Rubin. The Company has an audit committee consisting of Carl
Frischling, David Cohen and Robert Rubin.
The following is a brief summary of the background of each director,
executive officer, and key employee of the Company:
JOSEPH J. WISNESKI has been President, Chief Operating Officer, and a
Director of the Company since February 1993, was Vice President of the
Company from November 1992 through January 1993, and was one of the
Company's founding stockholders. From April 1990 to November 1992, Mr.
Wisneski served as a senior manager for Superior Contractors Network,
Inc. ("Superior"), a private service broker in the general construction
field. From January 1987 to April 1990, he served as President of
Asbestos Services of America, a private marketing company, and from
July 1986 to January 1987, he served as President of National Asbestos
Removal Corporation, a private asbestos removal company. From 1979 to
1986, Mr. Wisneski was a Vice President in the lending divisions of a
number of commercial banks, including European American Bank, Chase
Manhattan Bank, and National Westminster Bank. Mr. Wisneski holds a
B.B.A. degree from Pace University and a Masters of Business
Administration degree from Fordham University.
ROBERT M. RUBIN has served as the Chairman of the Board and Chief
Executive Officer of the Company since February 1993. Mr. Rubin has
served since May 1991 as the Chairman of the Board and a director of
Universal Self Care, Inc., a public company engaged in the distribution
of diabetic health products. Mr. Rubin has served since October 1990 as
Chairman of the Board, Chief Executive Officer and President of AUGI, a
public company engaged in the manufacture and distribution of sealing
devices for automotive, aerospace, and general industrial applications
and a distributor of Case construction equipment, and its subsidiaries.
Mr. Rubin was the founder, President, Chief Executive Officer, and a
director of Superior from its inception in 1976 until May 1986 and
continued as a director of SCI (now known as Olsten Corporation
("Olsten")) until the latter part of 1987. Olsten, a New York Stock
Exchange listed company,
- 26 -
is engaged in providing home care and institutional staffing services
and health care management services. Mr. Rubin is a former director and
Vice-Chairman, and currently a minority stockholder of American Complex
Care, Incorporated ("ACC") (formerly Legend Foods, Inc.), a public
company formerly engaged in the provision of on-site health care
services, including intra-dermal infusion therapies. In April, 1995,
ACC's operating subsidiaries made assignments of their assets for the
benefit of creditors without resort to bankruptcy proceedings. Mr.
Rubin is also the Chairman of the Board of Western Power & Equipment
Corp., a public company engaged in the distribution of construction
equipment, principally manufactured by Case Corporation. Mr. Rubin is
also a director and minority stockholder of Response USA, Inc., a
public company engaged in the sale and distribution of personal
emergency response systems; Diplomat Corporation, a public company
engaged in the manufacture and distribution of baby products; Help at
Home, Inc., a public company which provides home health care personnel;
Arzan International (1991) Ltd., a public company engaged in the food
distribution business; Med Emerg International Inc., a company involved
in managing emergency rooms in Ontario, Canada; and Kaye Kotts
Associates Inc., a public company engaged in providing tax preparation
and assistance services.
MARC P. MCMENAMIN has served as Chief Operations Manager of the Company
since June 1992. From February 1991 until June 1992, Mr. McMenamin
served as construction manager of, and was a partner in, Superior. From
March 1987 until February 1991, Mr. McMenamin served as general manager
of Romark Environmental Services, a private asbestos abatement company.
Mr. McMenamin holds a B.B.A. degree from Hofstra University.
CARL FRISCHLING has served as a director of ERD since September 1995.
Mr. Frischling is a partner at the New York law firm of Kramer, Levin,
Naftalis & Frankel, which he joined in September 1994. From September
1992 to August 1994, he was a partner at the law firm of Reid & Priest.
Prior to that, Mr. Frischling had been a partner at the law firm of
Spengler Carlson Gubar Brodsky & Frischling from November 1979. Mr.
Frischling holds B.A, Juris Doctorate, and Masters of Business
Administration degrees from Columbia University.
JOSEPH T. JACOBSEN has served as a director of ERD since October 30,
1996. He has been serving as President of the Company's Air and
Consulting Group since May 1996. Prior to that, Mr. Jacobsen served as
Executive Vice President from November 1989, and as Secretary from June
1990, of ENSA. Since August 1994, Mr. Jacobsen has been President of
ENSA Environmental, Inc., a wholly-owned subsidiary of ENSA which owns
and operates all consulting assets and activities of ENSA. Mr. Jacobsen
holds a Masters of Science degree from the School of Engineering of the
University of Pittsburgh, a B.S. degree in Business from LaSalle
University and a B.A. degree in Geology from Temple University.
D. David Cohen resigned as a director of the Company effective December
20, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date hereof, the ownership of
the Common Stock by (i) each person who is known by the Company to own of record
or beneficially more than 5% of the outstanding Common Stock, based on reports
filed with the SEC, (ii) each of the Company's directors and executive officers,
and (iii) all directors and executive officers of the Company as a group. Except
as otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated.
- 27 -
PERCENTAGE OWNERSHIP AFTER
PERCENTAGE OWNERSHIP OFFERING (ASSUMING
NAME AND ADDRESS NUMBER OF SHARES PRIOR TO MAXIMUM OFFERING AT THE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING ASSUMED PURCHASE PRICE)(7)
- -- ---------------- ------------------ -------- --------------------------
Robert M. Rubin (1) 1,397,225 23.75% 18.26%
Joseph J. Wisneski (1) 961,675(2) 16.35% 12.57%
D. David Cohen 203,050(3) 3.45% 2.65%
500 North Broadway, Suite 133
Jericho, New York 11753
Marc McMenamin (1) 137,475(4) 2.34% 1.80%
Carl Frischling 8,000(5) * *
170 East 83rd Street
New York, New York 10028
Joseph T. Jacobsen (1)(6) - * *
All directors and executive officers of the 2,504,875 42.58% 32.74%
Company as a group (six
persons)(2)(3)(4)(5)(6)
Hampshire and affiliates (including one
related person) (8)
640 Fifth Avenue
New York, NY 10019 397,620 6.8% 5.20%
- ---------------------------------------------
* Indicates beneficial ownership of less than one (1%) percent.
(1) The address of each of the referenced individuals is c/o ERD Waste
Corp., 937 East Hazelwood Avenue, Building 2, Rahway, New Jersey
07065.
(2) Does not include options to purchase 125,000 shares under the 1994
Plan, of which 93,750 exercisable within 60 days of the date hereof.
(3) Includes 50,000 shares of Common Stock owned of record by Mr. Cohen's
wife and 10,000 Shares of Common Stock owned by Mr. Cohen's mother as
to which he disclaims beneficial ownership.
(4) Does not include options to purchase 190,000 shares, in the aggregate,
granted under the 1994 Plan, of which 142,000 are exercisable within
60 days of the date hereof.
(5) Does not include options to purchase 30,000 shares granted pursuant to
the Option Agreement between the Company and Mr. Frischling, of which
7,500 are exercisable within 60 days of the date hereof, or any shares
or shares obtainable upon exercise of warrants included in the Units
issuable to Kramer Levin.
(6) Does not include options to purchase 50,000 shares to be granted under
the 1994 Plan, of which 16,500 are exercisable within 60 days of the
date hereof.
(7) Outstanding shares do not shares issuable and included in 20 Units
issuable to Kramer Levin including 142,840 shares obtainable on
exercise of Warrants included in such Units includable in warrants
issuable to Kramer Levin.
(8) Does not include warrants to purchase 120,000 shares of Common Stock.
Each such individual disclaims beneficial ownership of the others'
shares of Common Stock.
- 28 -
STOCK OPTION PLAN
Pursuant to the Merger Agreement, the Board of Directors of the Company
authorized an amendment to the 1994 Plan increasing the number of authorized
options reserved thereunder from 500,000 shares to 1,000,000 shares of Common
Stock and providing for the issuance of qualified and non-qualified stock
options. This amendment is subject to approval by the Company's stockholders.
CERTAIN TRANSACTIONS
On May 30, 1996, the Company entered into the Financial Accommodations
Agreement with AUGI, an affiliate of Robert Rubin, in connection with the Letter
of Credit issued on behalf of the Company by AUGI in favor of the Bank to secure
a $4.0 million loan from the Bank to the Company. See "Recent
Developments--Acquisition Financing." For additional information, see "Certain
Transactions" of Exhibit J.
During the second quarter of fiscal 1997, the Company's President and
Chief Operating Officer loaned the Company $642,949. The advances are secured by
notes in the amount of $500,000 and $100,000 from the Company bearing an
interest rate comparable to the rate charged by its commercial bank. Interest
and principal are due in full at maturity on July 12, 1998, and on June 10,
1998, for the $500,000 note and the $100,000 note respectively.
The Company has agreed to issue 20 Units to Kramer Levin, counsel to
the Company. Additionally, 60,000 shares of Common Stock are issuable upon
exercise of options granted to Carl Frischling, an outside director and a member
of Kramer Levin, and Peter Reuter, a former director, pursuant to certain option
agreements.
On December 17, 1996, the Company's Chairman of the Board and Chief
Executive Officer loaned the Company $300,000. The advances are secured by a
short term 30-day note bearing interest at 2% above the prime lending rate of
the Bank. This loan will not be repaid from proceeds of this Offering unless the
Company raises at least $1,500,000 from this Offering.
DESCRIPTION OF SECURITIES
The following summary description of the Company's securities is
qualified in its entirety by reference to the Company's Certificate of
Incorporation and in the case of the Warrants, the Warrant Agreement (as defined
below), a form of which is attached hereto as Exhibit C.
UNITS
The Units consist of a number of shares of Common Stock and Warrants,
determined by dividing $25,000 by 90% of the Average Closing Bid Price for the
Common Stock. Based upon an average closing bid price for the Common Stock for
the 10 trading days ending December 19, 1996 of $2.35625 per share, each of the
Units offered hereby would consist of approximately 11,789. shares of Common
Stock and the same number of Warrants each to purchase one share of Common
Stock. The actual number of shares of Common Stock included in the Units and
obtainable upon exercise of the Warrants will be determined on each Closing Date
based on the actual Average Closing Bid Price to reflect a purchase price per
share of Common Stock equal to 90% of the Average Closing Bid Price. The Common
Stock and the Warrants will not be separately transferable until one year after
the date of issuance, subject to the restrictions upon transferability more
fully described herein. See "Risk Factors--Restrictions On Transfer of
Securities."
- 29 -
COMMON STOCK
The Company is authorized to issue up to 15,000,000 shares of Common
Stock, par value $.001 per share, of which 5,882,782 shares are outstanding as
of the date hereof. Under the Company's 1994 Plan, options to purchase 445,000
shares have been granted. The Company's Board of Directors has authorized an
increase in the 1994 Plan from 500,000 to 1,000,000 shares, which increase is
subject to approval by the Company's stockholders. The Board of Directors also
awarded options to purchase 30,000 shares to each of Carl Frischling and Peter
Reuter, two outside directors of the Company, pursuant to their respective
Option Agreements. Holders of Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of preferred stock which may from time to time be outstanding, if
any, holders of Common Stock are entitled to receive ratably, dividends when,
as, and if declared by the Board of Directors out of funds legally available
therefor and, upon the liquidation, dissolution, or winding up of the Company,
are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preferences on the
preferred stock, if any. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any securities. The
outstanding Common Stock is validly authorized and issued, fully paid, and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, par value $.001 per share, of which no shares are outstanding as of the
date hereof. The preferred stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by stockholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such preferred stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of
the Common Stock. The ability of the Board of Directors to issue preferred stock
could discourage, delay or prevent a takeover of the Company. See "Risk
Factors--Preferred Stock; Possible Anti-Takeover Effects."
WARRANTS
The Warrants will be issued pursuant to an agreement, dated as of the
date of this Memorandum (the "Warrant Agreement"), between the Company and
Continental Stock Transfer and Trust Company, as warrant agent (the "Warrant
Agent"). Each Warrant is not exercisable until one year from the date of
issuance. The Warrants will not be detachable from the Common Stock included in
the Units until the Separation Date. Each Unit will include a Warrant entitling
the holder to purchase the Warrant Shares at an exercise price (the "Exercise
Price") equal to $3.50 per share for the Common Stock, subject to adjustment, at
any time until 5:00 P.M., New York City time, on January 31, 2002. The Warrants
may be exercised in whole or in part.
The Warrants are subject to redemption by the Company, upon 30 days'
written notice, at a price of $0.10 per Warrant, if the closing bid price for
the Common Stock has been at least $6.00 of the Exercise Price for the 10
trading day period ending on the fifteenth day prior to the date on which notice
of redemption is given (subject to adjustment). For these purposes, the closing
bid price of the Common Stock shall be determined by the closing bid price, as
reported by NASDAQ, so long as the Common Stock is quoted on NASDAQ and, if the
Common Stock is listed on a securities exchange or on Nasdaq/NSM, shall be
determined by the last reported sale price where such securities are primarily
traded. On December 19, 1996, the closing bid price of the Common Stock on the
Nasdaq/NSM was $2.125. The Company's redemption rights will only be in effect if
the Common Stock is either quoted on NASDAQ or listed on a securities exchange
or the Nasdaq/NSM Holders of Warrants will automatically forfeit their rights to
purchase the shares of Common Stock issuable upon exercise of such Warrants
unless the Warrants are exercised before they are to be redeemed. All of the
outstanding Warrants must be redeemed if any portion of that class are to be
redeemed. A notice redemption will be mailed to each of the registered holders
of the Warrants no later than 30 days before the date fixed for redemption. The
notice of redemption shall specify the redemption price, the date fixed for
redemption, the place where the Warrant certificates shall be delivered and the
date of expiration of the right to exercise the Warrants.
- 30 -
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware, an anti-takeover law. In general, this
law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" is defined to include mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of the
corporation's voting stock.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement, a form of which is
attached hereto as Exhibit B, the Company has agreed to file a Shelf
Registration covering the Registrable Securities within 60 days after the Final
Closing and use its reasonable best efforts to have such registration statement
declared effective as promptly as practicable thereafter; provided, however,
that if within such 60 day period the Company registers any of its securities
under the Act pursuant to an Underwritten Offering, the holders of the
Registrable Securities must request piggyback registration of all of their
Registrable Securities in the Underwritten Offering. If the managing underwriter
in such Underwritten Offering declines to include a portion or all of the
Registrable Securities in such Underwritten Offering, then the Company will use
its reasonable best efforts to file the Shelf Registration registering all
remaining Registrable Securities within 90 days of the completion of the
Underwritten Offering. In the event that the Company is required to file a Shelf
Registration, the Company has agreed to keep such Shelf Registration covering
such shares effective for up to three years after the Final Closing.
Additionally, the Company has the right to (i) delay filing of the
Shelf Registration if the Company determines in good faith that it may adversely
affect the outcome of a contemplated transaction or that it is in the best
interest of the Company or the Company's stockholders; or (ii) suspend
effectiveness of the Shelf Registration in the event the Shelf Registration
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing. In such event, the
Company will extend the period of effectiveness of the Shelf Registration by the
number of days the Shelf Registration was suspended.
TRANSFER AGENT AND WARRANT AGENT
Continental Stock Transfer and Trust Company serves as the transfer
agent and warrant agent for the Units, Common Stock and Warrants.
PLAN OF PLACEMENT OF THE UNITS
The Company has engaged the Placement Agents to introduce the Company
to "accredited investors" who may be interested in purchasing Units and to
advise the Company in connection with the structure, terms and conditions of the
Offering. In consideration for its services, the Placement Agent will receive,
among other things, at the Closing, on a pro rata basis: (i) a fee of 10% of the
aggregate gross proceeds from the sale of the Units sold at the Closing to
persons introduced by the Placement Agents, (ii) a 3% non-accountable expense
allowance, and (iii) the Placement Agents' Warrants to purchase up to 10% of the
number of Units sold in the Offering at an exercise price per Unit equal to the
Offering Price. The Placement Agents have also been granted certain registration
rights with respect to the securities underlying the Placement Agents' Warrants.
The Company will also reimburse the Placement Agents for certain reimbursable
expenses. The Company has also agreed to indemnify the Placement Agents against
certain liabilities, including liabilities under the federal securities laws.
- 31 -
SUITABILITY AND SUBSCRIPTION PROCEDURE
GENERAL TERMS
The Company is offering a minimum of 20 Units and a maximum of 150
Units at $25,000 per Unit, which will be payable on delivery of an investor's
Subscription Agreement. The minimum investment is one Unit, although the
Company, in consultation with the Placement Agents, may accept subscriptions for
fractional Units. The Offering will terminate the Termination Date.
INVESTOR SUITABILITY STANDARDS
The Units are suitable for those investors whose business and
investment experience, either alone or together with an experienced advisor,
makes them capable of evaluating the merits and risks of a prospective
investment in the Company and who can afford the loss of their entire investment
and have no need for liquidity in their investment.
A pension or profit sharing plan, Keogh Plan, endowment fund,
foundation, IRA or other entity exempt from federal taxation should invest in
the Company only if such investor (or each beneficiary thereof) has substantial
net worth and meets the suitability standards set forth below and such
investment complies with: (i) the provisions of the governing instruments, (ii)
any limitations relating to its tax-exempt status, and (iii) any limitations
imposed by the Employee Retirement Income Security Act of 1974, as amended. An
investment in the Company will not in and of itself create a Keogh Plan or an
IRA.
The Units are being offered and will be issued in reliance on certain
exemptions from registration and qualification which are available under federal
and state securities laws for non-public offerings. The Company intends to rely
upon the exemption for non-public offerings provided by Section 4(2) of the Act
and Rule 506 of Regulation D thereunder as well as appropriate exemptions under
state securities laws and regulations. Units will be sold only to persons whom
the Company has reasonable grounds to believe, and does believe, immediately
prior to sale, are "accredited investors" (as that term is defined in Rule 501
of Regulation D under the Act). An accredited investor is: (i) an individual
who, either individually or jointly with his spouse, has a net worth (i.e.,
total assets in excess of total liabilities) of at least $1,000,000; (ii) an
individual whose annual income exceeded $200,000 in each of the last two years
or whose joint income with such individual's spouse exceeded $300,000 in each of
those years and, in either case, who reasonably expects to reach the same income
level in the current year; (iii) an individual who is an executive officer or
director of the Company; (iv) certain institutional investors; or (v) an entity
in which all of the equity owners are accredited investors.
Each prospective investor will be required to represent that, among
other things: (i) he is an accredited investor; (ii) he is willing and able to
bear the economic risk of his investment in the Company, has no need for
liquidity with respect thereto and is able to sustain a complete loss of his
investment; (iii) he has received, read carefully and understands the contents
of this Memorandum; (iv) he has such knowledge and experience in finance,
securities, investments and other business matters so as to be able to protect
his interests in connection with his investment in Units; and (v) he is
purchasing the Units for his own account, for investment and not with a view
toward resale or distribution. Additional or more stringent requirements may
apply in certain states.
The suitability standards represent minimum suitability requirements
for prospective investors, and the satisfaction of such standards does not
necessarily mean that the Units are a suitable investment for a prospective
investor. The Company reserves the right for itself and the Placement Agents to
refuse to sell Units to any person or entity who, in the opinion of the Company
or the Placement Agents, fails to satisfy the foregoing investor suitability
standards, or for any other reason.
Since the Units are not being registered under the Act, the Units may
not be sold, assigned or transferred unless they are subsequently registered
under the Act or unless an exemption from such registration is available at the
time of the desired sale, assignment or transfer. In addition, transfer of the
Units is restricted by the terms of the Subscription Agreement.
- 32 -
SUBSCRIPTION PROCEDURE
Each prospective investor who meets the applicable suitability
standards and desires to purchase Units must execute and deliver to the
Placement Agents two executed and properly completed copies of a Subscription
Agreement in the form attached hereto as Exhibit A, together with a certified or
official bank check payable to "American Stock Transfer & Trust Company, as
Escrow Agent for ERD Waste Corp." The proceeds of such check will be deposited
in a non-interest-bearing special account established by the Placement Agents at
the Special Account. Alternatively, prospective investors may elect to wire
transfer a subscription payment directly to the Special Account. Except as
required by applicable state securities laws, subscriptions may not be rescinded
by subscribers prior to the Termination Date.
The Company or the Placement Agents may request an investor to complete
and execute an Investor Questionnaire to provide the Company information to
verify that such investor is an accredited investor and otherwise qualified to
invest in Units. In such case, the Placement Agents will provide such investor
with an appropriate Investor Questionnaire, and such investor's subscription
will not be accepted unless and until such Investor Questionnaire has been
completed and returned.
Execution of a Subscription Agreement constitutes an irrevocable
subscription for Units, subject to acceptance of the prospective investor's
subscription by the Company and to satisfaction of the conditions to closing set
forth in the Subscription Agreement. The Company may, in its sole discretion,
accept or reject subscriptions in whole or in part.
Not later than five business days after the Termination Date, the
Company will notify the investor if the subscription has been rejected, in whole
or in part. Amounts paid by a prospective investor with respect to that portion
or all of a rejected subscription will be promptly returned without deduction
and without interest. Any subscription not so rejected will be accepted.
EXPERTS
The financial statements of ERD for fiscal 1996 and 1995 have been audited
by Feldman Radin & Co., P.C., independent auditors, and are contained in the ERD
Form 10-KSB. The consolidated balance sheets of ENSA for the fiscal years ended
December 31, 1995, and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the fiscal years ended
December 31, 1995, 1994 and 1993, of ENSA have been audited by Cooper, Selvin &
Strassberg LLP, independent auditors, and are contained in the ENSA Form 10-K.
- 33 -
EXHIBIT 4.4
NUMBER
Prior to the close of business on January __, 1997 or such earlier date as may
be determined by the Placement Agents (the "Separation Date"), this Certificate
evidencing Unit(s), each consisting of ___ shares of Common Stock and ___ Common
Stock Purchase Warrants may be combined, exchanged or transferred only as Units
and Common Stock and Common Stock Purchase Warrant(s) evidenced by this
Certificate may not be split up, exchanged or transferred separately. The Common
Stock Purchase Warrants evidenced hereby are issued under and pursuant to the
terms and conditions of a certain warrant agreement (the "Agreement") dated as
of January __, 1997 between the Corporation and Continental Stock Transfer &
Trust Company, as Warrant Agent, to which Agreement and any instruments
supplemental thereto reference is hereby made for a description of the rights of
the holders of Common Stock Purchase Warrants issued under and pursuant thereto.
The Corporation will furnish to the holder of this Certificate, upon request and
without charge, a copy of the Agreement. The Agreement provides for adjustment
in the number of shares of Common Stock to be delivered upon the exercise of the
Common Stock Purchase Warrants evidenced hereby and to the exercise price of
such Common Stock Purchase Warrants in certain events therein set forth.
ERD WASTE CORP. __________ UNITS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS
CERTIFIES
THAT __________________________________________________________________________
is the
owner of _________________________________________________________ UNITS
OF
ERD WASTE CORP.
(herein called the "Corporation") transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney upon the surrender
of this certificate properly endorsed. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: [SEAL]
_________________________
President
Countersigned and Registered:
Continental Stock Transfer & Trust _________________________
Company, Transfer Agent and Registrar Secretary
By:_______________________________________
Authorized Signature
ERD WASTE CORP.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE
PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE
CORPORATION OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. COPIES OF SUCH STATEMENT ARE
ALSO ON FILE WITH THE TRANSFER AGENT AND ARE AVAILABLE TO ANY STOCKHOLDER
WITHOUT CHARGE UPON APPLICATION TO THE TRANSFER AGENT.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minor Act
JT TEN - as joint tenants with right of
survivorship and not as
tenants in common ________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
|--------------------------------------|
| |
|--------------------------------------|
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
___________________________________________________________________________Units
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
________________________________________________________________________Attorney
to transfer the said Units on the books of the within-named Corporation with
full power of substitution in the premises.
Dated: __________________________________
NOTICE: The signature to this
assignment must correspond
with the name as written
upon the face of the
Certificate, in every
particular, without
alteration or enlargement,
or any change whatever.
EXHIBIT 4.5
AMENDMENT 1 TO WARRANT AGREEMENT DATED
AS OF DECEMBER 31, 1996
Reference is made to that Warrant Agreement (the "Agreement"), dated as
of December 31, 1996, by and among ERD WASTE CORP., a Delaware corporation (the
"Company") and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York
corporation, as Warrant Agent (the "Warrant Agent").
The Agreement is hereby amended as follows:
1. Section 1(f) of the Agreement shall be amended to read as
follows:
f. "Purchase Price" shall mean the
price to be paid upon exercise of each Warrant in accordance with the
terms hereof, which price shall be $2.25 per share, subject to
adjustment from time to time pursuant to the provisions of Section 9
hereof, and subject to the Company's right to reduce the Purchase
Price, upon notice to all Warrant Holders.
2. The Purchase Price in the second sentence of the first paragraph of Exhibit A
of the Agreement shall be changed from $3.50 to $2.25 per share.
Except as amended hereby, the Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 1 to
the Warrant Agreement to be duly executed as of the date first above written.
ERD WASTE CORP.
By: /s/ T. Kevin Sheehy
------------------------------
Authorized Officer
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: /s/ William F. Seegraber
------------------------
Authorized Officer
WARRANT AGREEMENT
AGREEMENT, dated as of December 31, 1996, by and among ERD WASTE CORP.,
a Delaware corporation (the "Company") and CONTINENTAL STOCK TRANSFER & TRUST
COMPANY, a New York corporation, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H
WHEREAS, in connection with a Private Placement of up to $3,750,000
(the "Private Offering") through Network 1 Financial Securities, Inc. and M.S.
Farrell & Co., Inc. (together the "Placement Agents"), pursuant to a Private
Placement Offering Memorandum dated December 20, 1996 ("Private Offering
Memorandum") the Company proposes to issue that number of Warrants determined by
dividing the purchase price per Unit of $25,000 by 90% of the average closing
bid price for the Common Stock for 10 trading days immediately preceding the
date of each respective closing (the "Warrants"), and (an amount of Warrants
equal to 10% of the number of Warrants sold in the Private Offering) issuable
upon exercise of the Placement Agents' Warrants, as defined in the Private
Offering Memorandum granted to the Placement Agents in connection with the
Private Offering Memorandum; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof.
NOW THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
a. "Average Closing Bid Price", means the number obtained by
dividing the purchase price per Unit of $25,000 by 90% of the average closing
bid price of the Company's Common Stock reported by NASDAQ for the 10 trading
days immediately preceding the respective closing of the Private Offering.
b. "Common Stock" shall mean the authorized stock of the Company
of any class, whether now or hereafter authorized, which has the right to
participate in the distribution of earnings and assets of the Company without
limit as to amount or percentage, which at the date hereof consists of
15,000,000 shares of Common Stock, $.001 par value per share.
c. "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located on the date hereof at 2 Broadway, 19th
Floor, New York, New York 10004.
d. "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Warrant Agent, of an amount in lawful money of the United States of America
equal to the applicable Purchase Price.
- 1 -
e. "Initial Warrant Exercise Date" shall mean, as to each Warrant,
one year from the date of the Private Offering.
f. "Purchase Price" shall mean the price to be paid upon exercise
of each Warrant in accordance with the terms hereof, which price shall be $3.50
per share, subject to adjustment from time to time pursuant to the provisions of
Section 9 hereof, and subject to the Company's right to reduce the Purchase
Price;upon notice to all Warrant Holders.
g. "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $.l0 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9.
h. "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained by
the Warrant Agent pursuant to Section 6.
i. "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
j. "Warrant Expiration Date" shall mean, with respect to each
Warrant, 3:00 p.m. (New York, New York time) on January 31, 2002, or the
Redemption Date as defined in Section 8, whichever is earlier; provided that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 3:00 p.m. (New York, New York time) on the next
following day which in the State of New York is not a holiday nor a day on which
banks are authorized to close. Upon notice to all Warrant Holders, the Company
shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
a. Each Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one (1) share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
b. Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Private Offering
Memorandum shall be executed by the Company and delivered to the Warrant Agent.
Upon written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
c. From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing the amount of shares of Common Stock
sold in the Private Offering, subject to adjustment as described herein, upon
the exercise of Warrants in accordance with this Agreement.
d. From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except to (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Placement
Agents' Warrants; and (vi) at the option of the Company, in such form as may be
approved by its Board of Directors, to reflect any adjustment or change in the
Purchase Price, the number of shares of Common Stock purchasable upon exercise
of the Warrants or the Redemption Price therefor made pursuant to Section 9.
- 2 -
SECTION 3. Form and Execution of Warrant Certificates.
a. The Warrant Certificates for the Warrants shall be
substantially in the form annexed hereto as Exhibit A and may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage. The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrants shall be
numbered serially with the letter W on the Warrants. Unless registered under the
Securities Act of 1933, as amended (the "1933 Act") the Warrant Certificates
shall bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES LAW, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE 1933 ACT IS AVAILABLE."
b. Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by mutual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company. After countersignature by the Warrant
Agent, Warrant Certificates shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as otherwise
provided by Section 4(a).
SECTION 4. Exercise.
a. Each Warrant may be exercised by the Registered Holder thereof
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. The Company shall not be
obligated to deliver any securities pursuant to the exercise of this Warrant
unless a registration statement under the Securities Act of 1933, with respect
to such securities is effective. The Company has covenanted and agreed that it
will file a registration statement and will use its best efforts to cause the
same to become effective and to keep such registration statement current while
any of the Warrants are outstanding. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
upon exercise thereof as of the close of business on the Exercise Date. As soon
as practicable on or after the Exercise Date, the Warrant Agent shall deposit
the proceeds received from the exercise of a Warrant and shall notify the
Company in writing of the exercise of the Warrants. Promptly following, and in
any event within five (5) days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered to the person or persons entitled to receive the same, a certificate
or certificates for the securities deliverable upon such exercise (plus a
Warrant Certificate
- 3 -
for any remaining unexercised Warrants of the Registered Holder) unless prior to
the date of issuance of such certificates the Company shall instruct the Warrant
Agent to refrain from causing such issuance of certif- icates pending clearance
of checks received in payment of the Purchase Price pursuant to such Warrants.
Unless the shares of Common Stock issuable upon exercise of the Warrants have
been registered under the 1933 Act, the Common Stock Certificates shall bear the
following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES LAW, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE 1933 ACT IS AVAILABLE."
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
a. The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Common Stock which shall be issuable upon
exercise of the Warrants shall, at the time of delivery, be duly and validly
issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof (other than those which the Company shall
promptly pay or discharge) and that upon issuance such shares shall be listed on
each national securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed.
b. The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable effort
to obtain appropriate approvals or registrations under state "blue sky"
securities laws with respect to any such securities. However, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
c. The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requiring the same has paid to the Warrant Agent
the amount of transfer taxes or charges incident thereto, if any.
SECTION 6. Exchange and Registration of Transfer.
a. Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of all the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
b. The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its
- 4 -
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
c. With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
d. A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
e. All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent.
f. Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption.
a. on not less than thirty (30) days prior written notice, the
Warrants may be redeemed, at a price of $.10 per Warrant, provided the average
closing bid price of the Company's Common Stock on the Nasdaq Stock Market (or
the last sale price, if quoted on a national securities exchange) for ten (10)
consecutive trading days ending on the fifteenth day prior to the date of the
notice of redemption equals or exceeds $6.00 per share (subject to adjustment by
the Company in accordance with Section 9 hereof). The notice of redemption will
be sent to the registered address of the registered holder of the Warrant. All
Warrants must be redeemed if any are redeemed.
b. In case the Company shall desire to exercise its right to so
redeem the Warrants, it shall request the Warrant Agent to mail a notice of
redemption to each of the Registered Holders of the Warrants to be redeemed,
first class, postage prepaid, not later than the thirtieth (30th) day before the
date fixed for redemption, at their last address as shall appear on the records
of the Warrant Agent. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
- 5 -
c. The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 3:00 p.m. (New York, New York
time) on the business day immediately preceding the date fixed for redemption.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or of the Secretary or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
d. Any right to exercise a Warrant that has been called for
redemption shall terminate at 3:00 p.m. (New York, New York time) on the
business day immediately preceding the Redemption Date. On and after the
Redemption Date, Holders of the redeemed Warrants shall have no further rights
except to receive, upon surrender of the redeemed Warrant, the Redemption Price.
e. From and after the date specified for redemption, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrants to be redeemed, deliver or cause to be delivered to or upon the
written order of such Holder a sum in cash equal to the Redemption Price of each
such Warrant. From and after the date fixed for redemption and upon the deposit
or setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the Redemption Price, shall cease.
f. In case the Company shall desire to exercise its right to so
redeem the Warrants before the Warrants are exercisable, the Warrants shall
become immediately exercisable upon receipt of written notice of the Company's
intent to redeem.
SECTION 9. Adjustment of Purchase Price and Number of Shares of Common
Stock or Warrants.
a. Subject to the exceptions referred to in Section 9 (g), in the
event the Company shall, at any time or from time to time after the date hereof,
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such subdivision or combination being herein called
a "Change of Shares") , then, and thereafter upon each further Change of Shares,
the applicable Purchase Price in effect immediately prior to such Change of
Shares shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such Change of Shares.
Upon each adjustment of the applicable Purchase Price pursuant to
this Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b)) be such number of shares (calculated to the nearest tenth) purchasable at
the applicable Purchase Price immediately prior to such adjustment multiplied by
a fraction, the numerator of which shall be the applicable Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the applicable Purchase Price in effect immediately after such adjustment.
b. In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of
- 6 -
the Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant,
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The foregoing
provisions, shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
c. Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2 (e), continue to express the applicable Purchase Price per
share, the number of shares purchasable thereunder as the Purchase Price per
share, and the number of shares purchasable thereunder as were expressed in the
Warrant Certificates when the same were originally issued.
d. After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
applicable Purchase Price as so adjusted, (ii) the number of shares of Common
Stock purchasable upon exercise of each Warrant after such adjustment, and the
number of Warrants to which the registered holder of each Warrant shall then be
entitled and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to the Placement Agents and to each registered holder of Warrants at his last
address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
e. For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) and (ii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No Adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided that any adjustments which by reason of this
clause (ii) are not required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall require an increase or
decrease of at least $0.05 in the Purchase Price then in effect hereunder.
f. No Adjustment of Purchase Price in Certain Cases.
Notwithstanding any provision to the contrary contained herein, no adjustment of
the Purchase Price shall be made:
- 7 -
(1) Upon the issuance or sale of (i) the Placement
Agents' Warrants or the securities underlying the Placement Agents' Warrants,
(ii) the shares issuable pursuant to the options, warrants, rights, stock
purchase agreements or convertible or exchangeable securities outstanding or in
effect on the date hereof as described in the Private Offering Memorandum, (iii)
any shares of Common Stock issuable pursuant to the Company's stock plans,
described in such Private Offering Memorandum, or Shares to be issued upon
exercise of options granted by the Company under stock option plans subsequently
adopted by the Company, (iv) securities issued in connection with the
acquisition of, or merger with, any entity by the Company, and (v) any Shares
issued in connection with the Private Offering.
(2) If the amount of said adjustments shall aggregate
less than five cents ($.05) for one (1) share of Common Stock; provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall aggregate at least five cents ($.05) for one (1) share
of Common Stock.
g. As used in this Section 9, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the Private
Offering of the Units and shall also include any capital stock of any class of
the Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the Private Offering or (i), in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities or property provided for in such
section or (ii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or consisting of a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
h. Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
SECTION 10. Fractional Warrants and Fractional Shares.
a. If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
shall nevertheless not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq National Market, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of the Warrant, or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of the Warrant; or
- 8 -
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificates and
this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
a. The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
b. The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and cancelled by it and retired. The Warrant Agent shall also cancel
Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, split-up, combination or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any
- 9 -
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or willful
misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct.
In the event of a dispute under this Agreement between the Company and
the Placement Agents regarding proceeds received by the Warrant Agent from the
exercise of the Warrants, the Warrant Agent shall have the right, but not the
obligation, to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court shall be a bank or trust company having a capital
and surplus as shown by its last published report to its stockholders, of not
less than Ten Million Dollars ($10,000,000.00), or a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance conveyance, act or deed, the same shall be done at
the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
- 10 -
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. The Warrant Agent and the
Company may by supplemental agreement make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be
modified,,supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding; and provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically prescribed by this Agreement as originally executed.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 937 East Hazelwood Avenue, Building 2, Rahway, New
Jersey 07065, Attention: President, with a copy to Kramer, Levin, Naftalis &
Frankel, at 919 Third Avenue, New York, New York 10022, Attention: Richard
Marlin, Esq., or at such other address as may have been furnished to the Warrant
Agent in writing by the Company; if to the Warrant Agent, at Continental Stock
Transfer & Trust Company, 2 Broadway, 19th Floor, New York, New York 10004.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent and their respective
successors and assigns, and the holders from time to time of the Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants of such earlier date upon
which all warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts which taken together shall constitute a single document.
- 11 -
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed as of the date first above written.
ERD WASTE CORP.
By: /s/ T. Kevin Sheehy
-----------------------
Authorized Officer
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: /s/ William F. Seegraber
------------------------
Authorized Officer
- 12 -
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W _______ (______) Warrants
VOID AFTER January 31, 2002
CLASS A REDEEMABLE COMMON STOCK WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
ERD WASTE CORP.
This certifies that FOR VALUE RECEIVED or registered assigns (the
"Registered Holder") is the owner of the number of Redeemable Common Stock
Purchase Warrants (the "Warrants") specified above. Each Warrant entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, $.001 par value, of ERD Waste
Corp., a Delaware corporation (the "Company"), at any time between one year from
1997 and the Expiration Date (as hereinafter defined) , upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of Continental Stock
Transfer & Trust Company as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $3.50 per share (the "Purchase Price") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of 1997, by
and among the Company and the Warrant Agent.
In the event of certain events provided for in the Warrant Agreement,
the Purchase Price and the number of shares of Common Stock subject to purchase
upon the exercise of each Warrant represented hereby are subject to modification
or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 3:00 p.m. (New York, New York
time) on January 31, 2002, or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall be 3:00
p.m. (New York, New York time) the next day which in the State of New York is
not a holiday nor a day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts to cause the same to become effective and to keep such
registration statement current while any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
Redemption Price of $.10 per Warrant, provided that (a) the closing price of the
Company's Common Stock on the Nasdaq SmallCap Market as reported by the National
Quotation Bureau, Incorporated (or the last sale price, if quoted on a national
securities exchange) equals or exceeds $6.00 for at least 10 consecutive trading
days ending on the fifteenth (15th) business day prior to the date of the notice
of redemption. Notice of redemption shall be given not later than the thirtieth
(30th) day before the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to this Warrant except to receive the $.10 per
Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:
ERD WASTE CORP.
By:________________________________________
Chairman
By:________________________________________
Secretary
[seal]
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:_____________________________
Authorized Officer
- 2 -
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
( ) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________
_______________________
_______________________
_______________________
[please print or type name and address]
and be delivered to
_______________________
_______________________
_______________________
_______________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: ______________ _______________________
Signature
_______________________
Street Address
_______________________
City, State and Zip Code
________________________
Taxpayer ID Number
________________________
Signature Guaranteed:
- 3 -
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________
_______________________
_______________________
_______________________
[please print or type name and address]
----------------- (------------) of the Warrants represented by this
- ---------------------- ----------------- Warrant Certificate, and hereby
irrevocably constitutes and appoints ------------- Attorney to transfer this
Warrant Certificate on the books of the Company, with full power of substitution
in the premises.
Dated:
Signature Guaranteed:
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
- 4 -
EXHIBIT 4.6
UPO-
PLACEMENT AGENTS' UNIT PURCHASE WARRANT
Dated: _______ __, 1997
THIS CERTIFIES THAT ______________ is entitled to purchase from ERD
WASTE CORP., a Delaware corporation (the "Company"), _____ Units at a purchase
price of $25,000 per Unit (the "Exercise Price"), subject to adjustment as
provided in paragraph 6 hereof, at any time during the four-year period
commencing one (1) year from the date hereof. Each Unit consists of _______
shares of the Company's common stock, par value $.001 per share (the "Common
Stock") and ______ redeemable common stock purchase warrants (the "Warrants"),
each Warrant exercisable to purchase one share of Common Stock at an initial
exercise price of $2.25 per Share (the "Warrant Exercise Price"). This Placement
Agents' Warrant (the "Placement Agents' Warrant") is one of a series of
Placement Agents' Warrants to purchase, in the aggregate, up to 15 Units issued
pursuant to a Placement Agents' Agreement dated December 20, 1996, among the
Company, Network 1 Financial Securities, Inc. ("Network 1") and M.S. Farrell &
Co., Inc. ("MSF"), (Network 1 and MSF are collectively herein sometimes referred
to as the "Holders" or the "Placement Agents") in connection with a private
placement (the "Private Placement") through the Placement Agents, of up to 150
Units as therein described and in consideration of $10.00 received by the
Company for the Placement Agents' Warrants. Except as may be specifically
otherwise provided herein, the Units issuable upon exercise of the Placement
Agents' Warrant shall have the same terms and conditions as the Units offered in
the Private Placement.
i. The rights represented by the Placement Agents' Warrant shall be
exercised at the Exercise Price, subject to adjustment in accordance with
paragraph 6 hereof, and during the periods as follows:
(i) During the period from the date hereof to February 18, 1998 (the
"First Anniversary Date"), inclusive, the Holders shall have no
right to purchase any Units hereunder, except that in the event
of any merger, consolidation or sale of substantially all the
assets of the Company as an entirety prior to the First
Anniversary Date, or the redemption of the Warrants, the Holders
shall have the right to exercise the Placement Agents' Warrant at
such time and for the kind and amount of shares of stock and
other securities and property (including cash) receivable by a
holder of the number of shares of Common Stock and Warrants
underlying the Units for which the Placement Agents' Warrant
might have been exercisable immediately prior thereto.
(ii) Between February 18, 1998, and January 31, 2002 (the "Expiration
Date") inclusive, the Holders shall have the option to purchase
Units hereunder at a price of $25,000 per Unit, subject to
adjustment as provided in paragraph 6 hereof.
(iii)After the Expiration Date, the Holders shall have no right to
purchase any Units hereunder.
ii. (a) The rights represented by the Placement Agents' Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Placement Agents' Warrant (with the purchase form at
the end hereof properly executed) at the principal
- 1 -
executive office of the Company (or such other office or agency of the Company
as it may designate by notice in writing to the Holders at the addresses of the
Holders appearing on the books of the Company); (ii) payment to the Company of
the exercise price then in effect for the number of Units specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 5. The Placement Agents'
Warrant shall be deemed to have been exercised, in whole or in part to the
extent specified, immediately prior to the close of business on the date the
Placement Agents' Warrant is surrendered and payment is made in accordance with
the foregoing provisions of this paragraph 2, and the person or persons in
accordance with the foregoing provisions of this paragraph 2, and the person or
persons in whose name or names the certificates for shares of Common Stock and
Warrants shall be issuable upon such exercise shall become the holder or holders
of record of such Common Stock and Warrants at that time and date. Certificates
representing the Common Stock and Warrants so purchased shall be delivered to
the Holders or their assignees within a reasonable time, not exceeding ten (10)
days, after the rights represented by this Placement Agents' Warrant shall have
been so exercised.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) of paragraph 2, the Holder may elect to exercise this Placement
Agents' Warrant in whole or in part by receiving shares of Common Stock equal to
the value (as determined below) of this Placement Agents' Warrant at the
principal office of the Company together with notice of such election in which
event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
X = Y(A-B)
A
Where: X = the number of shares of Common Stock to be
issued to the Holder;
Y = the number of shares of Common Stock to be
exercised under this Placement Agents' Warrant;
A = the current fair market value of one of Common
Stock (calculated as described below); and
B = the Exercise Price.
As used herein, the current fair market value of Common Stock shall
mean the greater of (x) the average of the closing prices of the Company's
Common Stock sold on all securities exchanges on which the Common Stock may at
the time be listed and the NASDAQ National Market, or, if there have been no
sales on any such exchange or the NASDAQ National Market on such day, the
average of the highest bid and lowest asked price on such day on The Nasdaq
SmallCap Market or otherwise in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar successor
organization (the "Market Price"), on the trading day immediately preceding the
date notice of exercise of this Placement Agents' Warrant is given or (y) the
average of the Market Price per share of Common Stock for the five trading day
immediately preceding the date notice of exercise of this Placement Agents'
Warrant is given or (y) the average of the Market Price per share of Common
Stock for the five trading days immediately preceding the date notice of
exercise of this Placement Agents' Warrant is given. If on any date for which
the Market Price per share of Common Stock is to be determined the Common Stock
is not listed on any securities exchange or quoted on the NASDAQ National Market
or on The Nasdaq SmallCap Market or otherwise in the over-the-counter market,
the Market Price per share of Common Stock shall be the highest price per share
which the Company could then obtain from a willing buyer (not a current employee
or director) for shares of Common Stock sold by
- 2 -
the Company, from authorized but unissued shares, as determined in good faith by
the Board of Directors of the Company, unless prior to such date the Company has
become subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the Market Price per share
of Common Stock shall be deemed to be the value received by the holders of the
Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
iii. The Company covenants and agrees that all shares of Common Stock
which are included in the Units that may be purchased hereunder or upon exercise
of the Warrants included in the Units will, upon issuance against payment of the
purchase price therefor, be duly and validly issued, fully paid and
nonassessable, and no personal liability will attach to the holder thereof. The
Company further covenants and agrees that, during the periods which the
Placement Agents' Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of its Common Stock to
provide for the exercise of the Placement Agents' Warrant and the Warrants
included in the Units issuable upon exercise thereof.
iv. The Placement Agents' Warrant shall not entitle the Holders to any
voting rights or other rights as stockholders of the Company.
v. The Company shall enter into a registration rights agreement, with
respect to the shares of Common Stock and Warrants included in the Units
issuable upon exercise hereof, which registration rights agreement shall be
substantially identical to the registration rights agreement entered into with
each investor in the Private Placement.
vi. The Exercise Price in effect at any time and the number of Units
purchasable upon the exercise of each Placement Agents' Warrant shall be subject
to adjustment from time to time upon the happening of certain events hereinafter
described; provided, however, that no adjustment shall be required in respect of
the Warrants.
(i) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, or (iv) the outstanding
shares of Common Stock of the Company are at any time changed into or exchanged
for a different number or kind of shares or other security of the Company or of
another corporation through reorganization, merger, consolidation, liquidation
or recapitalization, then appropriate adjustments in the number and kind of such
securities subject to this Placement Agents' Warrant shall be made and the
Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination,
reclassification, reorganization, merger, consolidation, liquidation or
recapitalization shall be proportionately adjusted so that the Holders of this
Placement Agents' Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of securities which, if this Warrant had been
exercised by such Holders immediately prior to such date, they would have owned
upon such exercise and then entitled to receive upon such dividend,
distribution, subdivision, combination, reclassification, reorganization,
merger, consolidation, liquidation or recapitalization. For example, if the
Company declares a 2 for 1 stock distribution and the Exercise Price immediately
prior to such event was $25,000 per Unit and the number of Units purchasable
upon exercise of this Warrant was 1, the adjusted Exercise Price immediately
after such event would be $12,500 per Unit and the adjusted number of Units
purchasable upon exercise of this Warrant would be 2. Such adjustment shall be
made successively whenever any event listed above shall occur.
(ii) In case the Company shall hereafter distribute without
consideration to all holders of its Common stock evidence of its indebtedness
- 3 -
or assets (excluding cash dividends or distributions and dividends or
distributions referred to in subparagraph (a) of this paragraph 6, or
subscription rights or warrants), then in each such case the Exercise Price in
effect thereafter shall be determined by multiplying the number of Units
issuable upon exercise of the Placement Agents' Warrant by the Exercise Price in
effect immediately prior thereto, multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock then outstanding
multiplied by the current Exercise Price, less the fair market value (as
determined by the Company's Board of Directors) of said assets, or evidence of
indebtedness so distributed or of such rights or warrants, and the denominator
of which shall be the total number of shares of Common Stock outstanding
multiplied by the current Exercise Price. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
distribution.
(iii) Whenever the Exercise Price payable upon exercise of the
Placement Agents' Warrant is adjusted pursuant to subparagraphs (a) or (b) of
paragraph 6, the number of Units purchasable upon exercise of this Placement
Agents' Warrant shall simultaneously be adjusted by multiplying the number of
Units issuable upon exercise of this Placement Agents' Warrant by the Exercise
Price in effect on the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(iv) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which by reason
of this subparagraph (d) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this paragraph 6 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything in
this Section 6 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 6, as it shall determine, in its sole
discretion, to be advisable in order that any combination of Common Stock,
hereafter made by the Company shall not result in any federal income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including the Warrants issuable upon exercise of the Placement Agents'
Warrants).
(v) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Units purchasable upon exercise of the Placement
Agents' Warrant to be mailed to the Holders, at their addresses set forth
herein, and shall cause a certified copy thereof to be mailed to the Company's
transfer agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
paragraph 6, and a certificate signed by such firm shall be conclusive evidence
of the correctness of such adjustment.
(vi) In the event at that any time, as a result of an adjustment
made pursuant to the provisions of this paragraph 6, the Holders of the
Placement Agents' Warrants thereafter shall become entitled to receive any
securities of the Company, other than Units or the Common Stock and the Warrants
included in the Units, thereafter the number of such other securities so
receivable upon exercise of the Placement Agents' Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (a) to (f), inclusive of this paragraph (f).
vii. This Agreement shall be governed by and in accordance with the
laws of the State of New York.
- 4 -
IN WITNESS WHEREOF, ERD WASTE CORP. has caused this Placement Agents'
Warrant to be signed by its duly authorized officer, and this Placement Agents'
Warrant to be dated ___________, 1997
ERD WASTE CORP.
By:_____________________
Name:
Title:
- 5 -
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Placement Agents' Warrant,
hereby irrevocably purchase rights represented by such Warrant for, and to
purchase thereunder, Units of ERD WASTE CORP., each Unit consisting of ________
shares of Common Stock, par value $.001 per share, and ________ Redeemable
Common Stock Purchase Warrants to purchase one (1) share of Common stock, and
herewith makes payment of $ therefor and requests that the certificates for
shares of Common Stock and Warrants be issued in the name(s) of, and delivered
to , whose address(es) is (are):
Dated: ________________, 19__
_______________________
Signature
(Print name under signature)
(Signature must confirm in all respects
to the name of holder as specified on
the face of the Placement Agents'
Warrant).
(Insert Social Security or Other
Identifying Number of Holder
- 6 -
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant)
FOR VALUE RECEIVED __________________hereby sells, assigns and
transfers unto ________________________ ______________
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _________________________________
Attorney, to transfer the within Warrant on the books of ERD WASTE CORP.,
with full power of substitution.
Dated:
___________________________
Signature
(Print name under signature)
(Signature must conform in all respects to
the name of holder as specified on the
face of the Placement Agents' Warrant).
___________________________________________
(Insert Social Security or Other
Identifying Number of Holders)
- 7 -
EXHIBIT 4.7
SUBSCRIPTION AGREEMENT
ERD WASTE CORP.
SUBSCRIPTION AGREEMENT FOR THE PURCHASE OF UNITS,
CONSISTING OF SHARES OF COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
The undersigned hereby subscribes for Units of securities of ERD Waste
Corp. (the "Company") at a purchase price of $25,000 per Unit (each a "Unit" and
collectively, the "Units"). Each Unit consists of (i) such number of shares of
common stock, par value $.001 per share (the "Common Stock") determined by
dividing the purchase price per Unit of $25,000 by 90% of the average closing
bid price (the "Average Closing Bid Price") for the Common Stock for the 10
trading days immediately preceding the First Closing Date (as defined below) or
the subsequent closing date on which units being subscribed for herein may be
sold and (ii) a warrant to purchase the same number of shares of Common Stock at
an exercise price of $3.50 per share (subject to certain adjustments), which
warrants expire on January 31, 2002 (each a "Warrant" and collectively, the
"Warrants"). The Company is offering a minimum of 20 Units and a maximum of 150
Units (the "Offering"). The minimum subscription will be $25,000, except that
the Company, in consultation with Network 1 Financial Securities, Inc. and M.S.
Farrell & Co., Inc. (together, the "Placement Agents"), shall have discretion to
accept subscriptions for fractional Units. The Common Stock and Warrants will
not be detachable or separately transferable and will be traded only as Units
until 365 days from the date hereof or such earlier date as the Placement Agents
may determine.
- 1 -
The undersigned agrees to pay an aggregate of $ as a subscription for
the Units being purchased hereunder. The entire purchase price is due and
payable upon the execution of this Subscription Agreement, and shall be paid by
certified check, subject to collection, or by wire transfer, made payable to the
order of "Kramer, Levin, Naftalis & Frankel as Escrow Agent for ERD Waste
Corp.". The Company shall have the right to reject this subscription in whole or
in part. Promptly after having received executed Subscription Agreements for a
minimum of 20 Units, the Company will hold a closing on and issue the securities
comprising the Units subscribed for by the Subscription Agreement(s) (the "First
Closing Date"). The Company and the undersigned acknowledge that it is their
intention that the Units being purchased hereunder and the securities comprising
the Units will be registered under the Securities Act of 1933, as amended (the
"1933 Act") as soon as practicable after the Closing Date. The Company agrees to
file a registration statement (a "Shelf Registration") covering the Units, the
Common Stock and Warrants included in the Units and the Common Stock issuable
upon exercise of the Warrants (the "Registrable Securities") within 60 days
after the last closing of the sale of the Units in the Offering (the "Last
Closing Date") and use its best efforts to have the Shelf Registration declared
effective as promptly as practicable thereafter, and keep the Shelf Registration
effective for a period of three years from the Last Closing Date. However, if
within such 60-day period the Company registers any of its securities under the
1933 Act, then the undersigned shall instead request inclusion of the
undersigned's Registrable Securities in such underwritten offering (the
"Underwritten Offering"). If the managing underwriter in such Underwritten
- 2 -
Offering declines to include all or a portion of the undersigned's Registrable
Securities in the Underwritten Offering, then the Company shall use its
reasonable best efforts to file a Shelf Registration covering all of the
undersigned's Registrable Securities not included in the Underwritten Offering
within 90 days of the closing of the Underwritten Offering.
The undersigned acknowledges that the Company is entitled to
rely upon the undersigned's representations, warranties, and agreements
contained in this Subscription Agreement and the accompanying Confidential
Prospective Purchaser Questionnaire, and the Registration Rights Agreement
(collectively, the "Subscription Documents").
i. The undersigned represents, warrants, and agrees as follows:
(a) The undersigned is an "accredited investor", as that term is
defined in Rule 501 of Regulation D under the 1933 Act.
(b) The undersigned agrees that this Subscription Agreement is and
shall be irrevocable.
(c) The undersigned has carefully read the Subscription Documents and
the Company's Private Placement Memorandum as may be supplemented from time to
time (the "Private Placement Memorandum"), including the Supplement to Private
Placement Memorandum dated January 16, 1997, the Second Supplement to Private
Placement Memorandum dated February 28, 1997, and the Third Supplement to
Private Placement Memorandum dated March 12, 1997, all of which the undersigned
acknowledges have been provided to the undersigned. The undersigned has been
given the opportunity to ask questions of, and receive answers from, the Company
concerning the terms and conditions of the Offering and the Company and to
obtain such additional written information, to the extent the Company possesses
such information or can acquire it without unreasonable effort or
- 3 -
expense, necessary to verify the accuracy of same as the undersigned desires in
order to evaluate the investment. The undersigned further acknowledges that the
undersigned fully understands the Offering and the Company's business and
operations as described in the Private Placement Memorandum, including the
exhibits thereto, and the undersigned has had the opportunity to discuss any
questions regarding the Offering and the Company's business or operations with
the undersigned's counsel or other advisor. The undersigned acknowledges that
the undersigned has received no representations or warranties from the Company,
the Placement Agents, or their respective employees or agents in making this
investment.
(d) The undersigned is aware that the securities being purchased are
not yet registered under the 1933 Act or any state securities law and the
purchase of the Units is a speculative investment involving a high degree of
risk and that there is no guarantee that the undersigned will realize any gain
from this investment. The undersigned acknowledges that the undersigned has
specifically reviewed the sections in the Private Placement Memorandum entitled
"Risk Factors" which contain some but not all of the risks associated with an
investment in the Units.
(e) The undersigned understands that no federal or state agency has
made any finding or determination regarding the fairness of this Offering of the
Units for investment, or any recommendation or endorsement of this Offering of
the Units.
(f) The undersigned is purchasing the Units for the undersigned's own
account, with no present intention of dividing or allowing others to participate
in this investment or of reselling or otherwise participating, directly or
indirectly, in a distribution of the Units, and shall not make any sale,
transfer, assignment, hypothecation or other
- 4 -
disposition thereof until a registration statement with respect thereto is
declared effective under the 1933 Act or the Company receives an opinion of
counsel to the Company that an applicable exemption from the registration
requirements is available under those laws.
(g) The undersigned represents that the undersigned, if an individual,
has adequate means of providing for the undersigned's current needs and personal
and family contingencies and has no need for liquidity in this investment in the
Units. The undersigned has no reason to anticipate any material change in the
undersigned's personal financial condition for the foreseeable future.
(h) The undersigned is financially able to bear the economic risk of
this investment, including the ability to hold the Units indefinitely.
(i) The undersigned represents that the undersigned's overall
commitment to investments which are not readily marketable is not
disproportionate to the undersigned's net worth, and the undersigned's
investment in the Units will not cause such overall commitment to become
excessive.
(j) The undersigned represents that the funds provided for this
investment are either separate property of the undersigned, community property
over which the undersigned has the right of control, or are otherwise funds as
to which the undersigned has the sole right of management.
(k) FOR PARTNERSHIPS, CORPORATIONS, TRUSTS, OR OTHER ENTITIES ONLY: If
the undersigned is a partnership, corporation, trust or other entity, (i) the
undersigned has enclosed with this Subscription Agreement appropriate evidence
of the authority of the individual executing this Subscription Agreement to act
on its behalf (e.g., if a trust, a certified copy of the trust agreement; if a
corporation, a certified corporate
- 5 -
resolution authorizing the signature and a certified copy of the articles of
incorporation; or if a partnership, a certified copy of the partnership
agreement), (ii) the undersigned represents and warrants that it was not
organized or reorganized for the specific purpose of acquiring Units, and (iii)
the undersigned has the full power and authority to execute this Subscription
Agreement on behalf of such entity and to make the representations and
warranties made herein on its behalf, and (iv) this investment in the Company
has been affirmatively authorized, if required, by the governing board of such
entity and is not prohibited by the governing documents of the entity.
(l) The address shown under the undersigned's signature at the end of
this Subscription Agreement is the undersigned's principal residence if he or
she is an individual or its principal business address if a corporation or other
entity.
(m) The undersigned has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Units.
(n) The undersigned acknowledges that the certificates for the
securities comprising the Units which the undersigned will receive will contain
a legend substantially as follows:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE
UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT IS AVAILABLE.
- 6 -
ii. The undersigned expressly acknowledges and agrees that the Company
is relying upon the undersigned's representations contained in the Subscription
Documents.
iii. The undersigned acknowledges that the undersigned understands the
meaning and legal consequences of the representations and warranties which are
contained herein and hereby agrees to indemnify, save and hold the Company and
their respective officers, directors and counsel harmless from and against any
and all claims, actions or losses arising out of a breach of any representation,
warranty or acknowledgement of the undersigned contained in any Subscription
Document. Such indemnification shall be deemed to include not only the specific
liabilities or obligation with respect to which such indemnity is provided, but
also all reasonable costs, expenses, counsel fees and expenses of settlement
relating thereto, whether or not any such liability or obligation shall have
been reduced to judgment.
The undersigned represents that this Agreement is a legal and valid
binding obligation of the undersigned and does not materially conflict with any
other agreement to which the undersigned is a party.
iv. The Company represents that it has been duly and validly
incorporated and is validly existing and in good standing as a corporation under
the laws of the State of Delaware. The Company represents that it has all
requisite power and authority, and all necessary authorizations, approvals and
orders required as of the date hereof to own its properties and conduct its
business as described in the Private Placement Memorandum and to enter into this
Subscription Agreement and to be bound by the provisions and conditions hereof.
- 7 -
v. Except as otherwise specifically provided for hereunder, no party
shall be deemed to have waived any of their rights hereunder or under any other
agreement, instrument or papers signed by any of them with respect to the
subject matter hereof unless such waiver is in writing and signed by the party
waiving said right. Except as otherwise specifically provided for hereunder, no
delay or omission by any party in exercising any right with respect to the
subject matter hereof shall operate as a waiver of such right or of any such
other right. A waiver on any one occasion with respect to the subject matter
hereof shall not be construed as a bar to, or waiver of, any right or remedy on
any future occasion. All rights and remedies with respect to the subject matter
hereof, whether evidenced hereby or by any other agreement, instrument, or
paper, will be cumulative, and may be exercised separately or concurrently.
vi. The parties have not made any representations or warranties with
respect to the subject matter hereof not set forth herein or elsewhere in the
Subscription Documents, and the Subscription Documents, together with any
instruments executed simultaneously herewith, constitute the entire agreement
between them with respect to the subject matter hereof. All understandings and
agreements heretofore had between the parties with respect to the subject matter
hereof are merged in this Subscription Agreement and any such instrument, which
alone fully and completely expresses their agreement.
vii. This Agreement may not be changed, modified, extended, terminated
or discharged orally, but only by an agreement in writing, which is signed by
all of the parties to this Agreement.
- 8 -
viii. The parties agree to execute any and all such other and further
instruments and documents, and to take any and all such further actions
reasonably required to effectuate this Subscription Agreement and the intent and
purposes hereof.
ix. This Subscription Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the undersigned hereby
consents to the jurisdiction of the courts of the State of New Jersey and/or the
United States District Court for the District of New Jersey.
PROSPECTIVE INVESTORS SHOULD RETAIN THEIR OWN PROFESSIONAL ADVISORS TO
REVIEW AND EVALUATE THE ECONOMIC, TAX AND OTHER CONSEQUENCES OF AN INVESTMENT IN
THE COMPANY.
FLORIDA SUBSCRIBERS. If the Investor is purchasing the Common Stock
within the State of Florida, it acknowledges that it has been advised and that
it understands that pursuant to Subsection 517.061(11)(a) of the Florida
Securities and Investor Protection Act, it has the right to cancel its purchase
of the Common Stock without incurring any liability to the Company or any other
person, within three days following the date of the execution and delivery of
this Subscription Agreement by the investor, or the tender of consideration for
the Common Stock, whichever occurs later, and to receive back, without penalty
or deduction of any kind, any consideration given for the Common Stock. If
Florida subscriber wishes to exercise such right of cancellation, it should
notify the Company of its intention to do so.
MAINE SUBSCRIBERS. If the Investor is purchasing the Common Stock
within the State of Maine, it is advised that, the Common Stock is being sold
pursuant to an exemption from registration with the Bank of Superintendent of
the State of Maine under
- 9 -
Section 10502(2)(R) of Title 32 of the Maine Revised Statutes. The Common Stock
may be deemed restricted securities and as such the holder may not be able to
resell the Common Stock unless pursuant to registration under state or federal
securities laws or unless an exemption under such law exists.
NORTH CAROLINA SUBSCRIBERS. If the Investor is purchasing the Common
Stock within the State of North Carolina, it represents that its net worth
exceeds $225,000, exclusive of principal residences, any mortgage thereon, home
furnishings and automobiles.
PENNSYLVANIA SUBSCRIBERS. If the Investor subscribes to purchase the
Common Stock within the Commonwealth of Pennsylvania, it is advised that,
pursuant to Section 207(m) of the Pennsylvania Securities Act of 1972, it shall
have the right to withdraw its subscription and receive a full refund of any
consideration paid, without incurring any liability to the seller, underwriter
(if any) or any other person, within two business days after it delivers this
Subscription Agreement. If the Pennsylvania subscriber wishes to exercise such
right of withdrawal, it should notify the Company by telephone of its intention
to withdraw and it must confirm this oral notification in writing by sending a
letter or telegram to Joseph J. Wisneski, ERD Waste Corp., 937 East Hazelwood
Avenue, Rahway, New Jersey 07065. If such a letter is sent, it should be by
certified mail, return receipt requested, to ensure that it is received and to
evidence the time it was mailed.
- 10 -
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
_____________________________________
(Name of Subscriber)
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement on this ____ day of ________, 199_.
___________ (Units Subscribed) x $25,000 per Unit = $___________
1. |__| Individual 7. |__| Trust
2. |__| Joint Tenants with Date Opened
Right of Survivorship
----------------------
3. |__| Community Property
4. |__| Tenants in Common 8. |__| As A Custodian For
5. |__| Corporation/Partnership ______________________
Under the Uniform Gift
6. |__| IRA to Minors Act of the
State of________ of________
9. |__| Married with Separate
Property
10. |__| Keogh of
- 11 -
EXECUTION BY SUBSCRIBER WHO IS A NATURAL PERSON
- --------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
- --------------------------------------------------------------------------------
(Signature)
- --------------------------------------------------------------------------------
Name (Please Print)
- --------------------------------------------------------------------------------
Residence: Number and Street
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Social Security Number
Signed this ___ day of ________, 199_.
* * * * * * * * * * * * * * * * * * * * * * * * *
ACCEPTED BY ERD WASTE CORP.
By:_____________________________
Its: President
- 12 -
EXECUTION BY SUBSCRIBER WHICH IS A CORPORATION,
PARTNER, TRUST, ETC.
- --------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
- --------------------------------------------------------------------------------
(Signature)
- --------------------------------------------------------------------------------
Name (Please Print)
- --------------------------------------------------------------------------------
Title of Person Executing Agreement
- --------------------------------------------------------------------------------
Address: Number and Street
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
Tax Identification Number
Accepted this ___ day of ___________, 199_, on behalf of _________.
* * * * * * * * * * * * * * * * * * * * * * * * *
ACCEPTED BY ERD WASTE CORP.
By:_____________________________
Its:_____________________________
-13-
EXHIBIT 5.1
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
Arthur H. Aufses III Monica C. Lord Sherwin Kamin
Thomas D. Balliett Richard Marlin Arthur B. Kramer
Jay G. Baris Thomas E. Molner Maurice N. Nessen
Philip Bentley Thomas H. Moreland Founding Partners
Saul E. Burian Ellen R. Nadler Counsel
Barry Michael Cass Gary P. Naftalis _____
Thomas E. Constance Michael J. Nassau
Michael J. Dell Michael S. Nelson Martin Balsam
Kenneth H. Eckstein Jay A. Neveloff Joshua M. Berman
Charlotte M. Fischman Michael S. Oberman Jules Buchwald
David S. Frankel Paul S. Pearlman Rudolph de Winter
Marvin E. Frankel Susan J. Penry-Williams Meyer Eisenberg
Alan R. Friedman Bruce Rabb Arthur D. Emil
Carl Frischling Allan E. Reznick Maria T. Jones
Mark J. Headley Scott S. Rosenblum Maxwell M. Rabb
Robert M. Heller Michele D. Ross James Schreiber
Philip S. Kaufman Howard J. Rothman Counsel
Peter S. Kolevzon Max J. Schwartz _____
Kenneth P. Kopelman Mark B. Segall
Michael Paul Korotkin Judith Singer M. Frances Buchinsky
Shari K. Krouner Howard A. Sobel Abbe L. Dienstag
Kevin B. Leblang Jeffrey S. Trachtman Ronald S. Greenberg
David P. Levin Jonathan M. Wagner Debora K. Grobman
Ezra G. Levin Harold P. Weinberger Christian S. Herzeca
Larry M. Loeb E. Lisk Wyckoff, Jr. Jane Lee
Pinchas Mendelson
Lynn R. Saidenberg
Special Counsel
-----
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
August 5, 1997
ERD Waste Corp.
937 E. Hazelwood Avenue
Building 2
Rahway, NJ 07065
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to ERD Waste Corp., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form SB-2 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), covering the offering
by certain selling securityholders of 102.58 units (the "Units") and the the
offering by M.S. Farrell Co., Inc. and Network 1 Financial Securities, Inc. of
warrants (the "Placement Agent Warrants") to purchase up to 8.258 Units, each
Unit consisting of shares of the Company's Common Stock, par value $0.001 per
share (the "Common Stock"), and warrants to purchase shares of Common Stock (the
"Warrants").
As such counsel, we have examined the originals, photocopies
or conformed copies of all such records of the Company and all such agreements
and certificates of public officials, certificates of officers and
representatives of the Company and such other documents as we have deemed
relevant and necessary as a basis for the opinions hereinafter expressed. In
such examinations, we have assumed (i) the genuineness of all signatures on
original documents, (ii) the authenticity of all documents submitted to us as
originals, and (iii) the conformity to the originals of all copies submitted to
us as conformed copies or
Kramer, Levin, Naftalis & Frankel
August 5, 1997
Page 2
photocopies and the authenticity of the originals of such copies. As to various
questions of fact material to our opinion, we have relied, without independent
investigation or verification, upon statements and representations of
representatives of the Company, certificates of officers of the Company and
certificates of public officials.
Based upon the foregoing, it is our opinion that:
(i) the shares of Common Stock included in the Units have
been validly authorized for issuance and sale and
will, when sold in accordance with the terms
described in the prospectus forming a part of the
Registration Statement (the "Prospectus"), be validly
issued, fully paid and non-assessable;
(ii) the Warrants included in the Units have been validly
authorized for issuance and sale and will, when sold
in accordance with the terms and conditions of the
Prospectus, be validly issued and fully paid;
(iii) the shares of Common Stock to be issued upon the
exercise of the Warrants included in the Units have
been validly authorized for issuance and sale and
will, when sold in accordance with the terms and
conditions of the Warrants, be validly issued, fully
paid and non-assessable; and
(iv) the Placement Agent Warrants have been validly
authorized for issuance and sale and will, when sold
in accordance with the terms of the Prospectus, be
validly issued and fully paid.
We call your attention to the fact that we are admitted to
practice law only in the State of New York, and in rendering the foregoing
opinions, we do not express any opinion as to any laws other than the laws of
the State of New York, the General Corporation Law of the State of Delaware, and
the Federal laws of the United States of America.
Kramer, Levin, Naftalis & Frankel
August 5, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the heading
"Legal Matters" in the Prospectus. In giving such consent, we do not thereby
concede that we are within the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations promulgated
thereunder.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
-------------------------------------
KRAMER, LEVIN, NAFTALIS & FRANKEL
EXHIBIT 10.1
AMENDMENT 1 TO PLACEMENT AGENTS' AGREEMENT
DATED MAY 31, 1997
Reference is made to that Placement Agents' Agreement (the
"Agreement"), dated December 20, 1996, by and among ERD WASTE CORP., NETWORK 1
FINANCIAL SECURITIES INC. and M.S. FARRELL & CO., INC.
The second sentence of first section of the Agreement shall be amended
to read as follows:
Each Unit consists of such number of shares of the Company's common
stock $.001 par value (the "Common Stock") determined by dividing the
purchase price per Unit of $25,000 by 90% of the average closing bid
price (the "Average Closing Bid Price") for the Common Stock for the 10
trading days immediately preceding the date of the First Closing (as
defined below) and warrants to purchase the same number of shares of
Common Stock at an exercise price of $2.25 per share, subject to
adjustments (each a "Warrant" and collectively, the "Warrants").
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 1 to
the Placement Agents' Agreement to be duly executed as of the date first above
written.
ERD WASTE CORP.
By: /s/ Joseph Wisneski
-------------------
Authorized Officer
NETWORK 1 FINANCIAL SECURITIES, INC.
By: /s/ William R. Hunt
--------------------
Authorized Officer
M.S. FARRELL & CO., INC.
By: /s/ T.A. Gallo
--------------------
Authorized Officer
PLACEMENT AGENTS' AGREEMENT
December 20, 1996
Network 1 Financial Securities, Inc.
The Galleria Building 2
2 Bridge Avenue
Red Bank, New Jersey 07701
M.S. Farrell & Co., Inc.
67 Wall Street
New York, New York 10005
Dear Sirs:
The undersigned, ERD Waste Corp., a Delaware corporation (the
"Company"), hereby agrees with Network I Financial Securities Inc. and M.S.
Farrell & Co., Inc. (collectively, the "Placement Agents") as follows:
1. Offering. The Company hereby engages the Placement Agents to act as
its exclusive placement agents during the term of this offering (the "Offering")
as outlined herein to sell a minimum of 20 Units (the "Minimum Offering") and a
maximum of 150 Units (the "Maximum Offering") at a price of $25,000 per unit.
Each Unit consists of such number of shares of the Company's common stock $.001
par value (the "Common Stock") determined by dividing the purchase price per
Unit of $25,000 by 90% of the average closing bid price (the "Average Closing
Bid Price") for the Common Stock for the 10 trading days immediately preceding
the date of the First Closing (as defined below) and warrants to purchase the
same number of shares of Common Stock at an exercise price of $3.50 per share,
subject to adjustments (each a "Warrant" and collectively, the "Warrants"). The
minimum investment will be $25,000 except that the Company, in conjunction with
the Placement Agents, shall have discretion to accept subscriptions for
fractional Units. The Units will be offered on a best efforts, all or none,
basis for the Minimum Offering, and a best efforts basis thereafter. The Units
shall be offered only to "Accredited Investors", as such term is defined under
Rule 501 (a) of the Securities Act of 1933 (the "Act"), including without
limitation entities within such definition, without registration, pursuant to
the exemption from registration created by Regulation D under the Act. The
Offering will commence on the date of the "Offering Materials", as hereinafter
defined, and shall terminate on January 31, 1997, unless extended by the
Placement Agents to a date not later than February 28, 1997. The first closing
shall occur five (5) business days after the acceptance by the Company of
subscriptions for the Minimum Offering in order to allow clearance of checks
("First Closing"). Subsequent closings shall occur at times mutually agreed upon
by the Company and the Placement Agents until the Maximum Offering is subscribed
for or the Offering is otherwise terminated, at the option of the Company. With
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December 20, 1996
Page 2
respect to closings occurring subsequent to the First Closing, the term "Average
Closing Bid Price" shall mean the average closing bid price for the Common Stock
for the 10 trading days immediately preceding the date of such closing.
The holders (the "Holders") of the Units, the Common Stock and Warrants
included in the Units, the Common Stock issuable upon exercise of Warrants and
the Placement Agents' Warrants (as defined below) (collectively, the
"Registrable Securities") shall have shelf registration rights, requiring the
Company to file a registration statement relating to the Registrable Securities
for sale to the public from time to time, promptly following the completion of
the Offering provided, however, if the Company registers any of its securities
under the Act within 60 days of the final closing pursuant to the Offering (the
"Final Closing"), Holders shall instead have piggyback registration rights to
such underwritten offering (the "Underwritten Offering"). If the managing
underwriter in such Underwritten Offering declines to include a portion or all
of the Registrable Securities in the Underwritten Offering, then the Company
will use its reasonable best efforts to file a shelf registration statement
covering all remaining Registrable Securities within 90 days of the closing of
the Underwritten Offering.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Placement Agents and the Subscribers as follows:
2.1 Disclosure in Offering Documents.
2.1.1 Anti-fraud Representations. The Offering Documents, taken as a
whole, contain all material statements which are required to be stated therein
in accordance with the Securities Act and the rules and regulations (the
"Regulations") of the Securities and Exchange Commission (the "Commission")
promulgated thereunder, and in all material respects conform to the requirements
of the Securities Act and the Regulations promulgated thereunder; the Offering
Documents, taken as a whole, do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein made not misleading. All exhibits to
the Memorandum comply in all material respects with the applicable provisions of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Regulations promulgated thereunder and do not contain an 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 were made, not misleading. The representation and
warranty made in this Section 2.1.1 does not apply to statements made or
statements omitted
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December 20, 1996
Page 3
in reliance upon and in conformity with written information furnished to the
Company with respect to the Placement Agents by the Placement Agents expressly
for use in the Offering Documents.
2.1.2 Disclosure of Contracts. The descriptions in the Offering
Documents of all contracts and other documents are accurate in all material
respects and present fairly the information required to be disclosed therein and
there are no contracts or other documents required to be described in the
Offering Documents which have not been so described. Each contract or other
instrument (however characterized or described) to which the Company is a party
or by which its property or business is or may be bound or affected and (i)
which is referred to in the Offering Documents, or (ii) is material to the
Company's business or financial condition, has been duly and validly executed,
except as may be otherwise stated in the Offering Documents, is in full force
and effect in all material respects and is enforceable against the parties
thereto in accordance with its terms, and none of such contracts or instruments
has been assigned by the Company, and neither the Company nor, to the best of
the Company's knowledge, any other party is in default thereunder and, to the
best of the Company's knowledge, no event has occurred which, with the lapse of
time or the giving of notice, or both, would constitute a default thereunder.
None of the provisions of such contracts or instruments violates any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court having jurisdiction over the Company, its assets or businesses.
2.2 Changes After Dates in Offering Documents.
2.2.1 No Material Adverse Change. Since July 31, 1996, except as
otherwise specifically stated in the Offering Documents or on Schedule 2.2.1,
(i) there has been no material adverse change in the condition, financial or
otherwise, or in the results of operations, business or business prospects of
the Company, including, but not limited to a material loss or interference with
its business from fire, storm, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, whether or not arising in the ordinary course of
business, (ii) the Company has not become a party to, and neither the business
nor the property of the Company has become the subject of, any litigation which,
if adversely determined, would have a material adverse effect on the business,
properties, assets, condition (financial or otherwise) or prospects of the
Company, whether or not in the ordinary course of business (a "Material Adverse
Effect"), and (iii) there have been no transactions entered into by the Company,
other than those in the ordinary course of
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business, which are material with respect to the condition, financial or
otherwise, or to the results of operations, business or business prospects of
the Company.
2.2.2 Recent Securities Transactions, Etc. Since July 31, 1996, and
except as otherwise specifically stated in the Offering Documents, the Company
has not (i) issued any securities or incurred any liability or obligation,
direct or contingent, for borrowed money; (ii) declared or paid any dividend or
made any other distribution on or in respect to its capital stock; or (iii)
issued any options, warrants or other rights to purchase the capital stock of
the Company, or any security or other instrument which by its terms is
convertible into, exercisable for or exchangeable for capital stock of the
Company.
2.3 Financial Statements. The financial statements, including any notes
thereto and supporting schedules, included or incorporated by reference in the
Offering Documents, fairly present the financial position and the results of
operations of the Company at the dates and for the periods to which they apply;
and such financial statements are correct and complete, and are in accordance
with the books and records of the Company. Such financial statements relating to
the fiscal years ended January 31, 1995 and 1996 have also been prepared in
conformity with generally accepted accounting principles, consistently applied.
2.4 Authorized Capital; Options; Etc. The Company had, at the date or
dates indicated in the Offering Documents, such duly authorized, issued and
outstanding capitalization as set forth in the Offering Documents. Except as set
forth in the Offering Documents or on Schedule 2.4, there are no options,
warrants, or other rights to purchase or otherwise acquire any authorized but
unissued shares of capital stock of the Company or any security convertible into
shares of capital stock of the Company, or any contracts or commitments to issue
or sell shares of capital stock or any such options, warrants, rights or
convertible securities.
2.5 Valid Issuance of Securities; Etc.
2.5.1 Outstanding Securities. All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or similar contractual
rights granted by the Company. All outstanding options and warrants to purchase
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shares of capital stock constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms. The authorized capital
stock and outstanding options and warrants to purchase shares of capital stock
conform to all statements relating thereto contained in the Offering Documents.
The offers and sales of the outstanding capital stock, options and warrants to
purchase shares of capital stock were at all relevant times either registered
under the Act and the applicable state securities or Blue Sky Laws or exempt
from such registration requirements.
2.5.2 Securities Sold Pursuant to this Agreement. The Securities have
been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; except as set
forth in the Memorandum, the Securities are not and will not be subject to the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company, and all corporate action required to
be taken for the authorization, issuance and sale of the Securities has been
duly and validly taken. When issued, the Warrants and the Notes will constitute
valid and binding obligations of the Company and the Warrants and the Notes will
be enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2.6 Registration Rights of Third Parties. Except as set forth in the
Offering Documents, no holders of any securities of the Company or of any
options or warrants of the Company exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in a registration statement to be filed by the
Company.
2.7 Due Authorization; Validity and Binding Effect. The Company has
full corporate power and authority to enter into this Agreement and the
Subscription Agreements (as defined below) and issue the Securities and to
perform all of its obligations hereunder and thereunder and to consummate the
transactions contemplated by the Offering Documents. This Agreement has been
duly and validly authorized, executed and delivered by the Company. The
execution and delivery of this Agreement and the Securities have been duly
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December 20, 1996
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authorized by all necessary corporate action and no further corporate action or
approval is required for their execution, delivery and performance. This
Agreement constitutes, and the Warrants and each Subscription Agreement
(assuming the due authorization, execution and delivery by each subscriber) to
be entered into by the Company with respect to the purchase and sale of the
Units (the "Subscription Agreements") will constitute, when executed and
delivered by the Company, valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2.8 No Conflicts, Etc. The execution, delivery, and performance by the
Company of the provisions of this Agreement, the Warrants and the Subscription
Agreements, the consummation by the Company of the transactions contemplated
hereby and thereby and the compliance by the Company with the provisions of this
Agreement, the Warrants and the Subscription Agreements have been duly
authorized by all necessary corporate action and do not and will not, with or
without the giving of notice or the lapse of time or both (i) result in a breach
of, or conflict with any of the terms and provisions of, or constitute a default
under, or result in the creation, modification, termination or imposition of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to the terms of any indenture, mortgage, deed of trust, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company is subject; (ii) result in any violation of the provisions
of the Certificate of Incorporation or the By-Laws of the Company; (iii) violate
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of its properties or business; or (iv) have an adverse effect on
any permit, license, certificate, registration, approval, consent, license or
franchise.
2.9 No Defaults; Violations. Except as described in the Offering
Documents, no material default exists in the due performance and observance of
any term, covenant or condition of any permit, license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement, or any other agreement
or instrument evidencing an
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obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
properties or assets of the Company is subject. The Company is not in violation
of any material term or provision of its Certificate of Incorporation or By-Laws
or in material violation of any franchise, license, permit, applicable law,
rule, regulation, judgment or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business, except as described in the Offering Documents or on
Schedule 2.20.
2.10 Corporate Power; Licenses; Consents.
2.10.1 Conduct of Business. Except as disclosed in Schedule 2.20, the
Company has all requisite corporate power and authority, and has all necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials, agencies, authorities and bodies to
own or lease its properties and conduct its business as described in the
Offering Documents, and the Company is and has been doing business in compliance
with all such authorizations, approvals, orders, licenses, certificates and
permits and all federal, state and local laws, rules and regulations. The
disclosures in the Offering Documents concerning the effects of federal, state
and local regulation on the Company's business as currently conducted or
contemplated to be conducted are correct in all material respects and do not
omit to state a material fact.
2.10.2 Transactions Contemplated Herein. The Company has all corporate
power and authority to enter into this Agreement, the Subscription Agreements
and the Warrants and to carry out the provisions and conditions hereof and
thereof, and all consents, authorizations, approvals and orders required in
connection therewith have been obtained. No consent, authorization or order of,
and no filing with, any court, governmental agency, authority or other body is
required for the valid issuance, sale and delivery, of the Securities pursuant
to this Agreement, the Subscription Agreements and the Warrants and as
contemplated by the Offering Documents, except a Form D and with respect to
applicable state securities laws.
2.11 Title to Property; Insurance. The Company has good and marketable
title to, or valid and enforceable leasehold estates in, all material items of
real and personal property (tangible and intangible) owned or leased by it, free
and clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any nature whatsoever,
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other than those referred to in the Offering Documents and liens for taxes not
yet due and payable. The Company has adequately insured its properties against
loss or damage by fire or other casualty and maintains, in adequate amounts,
such other insurance in type and amount which is adequate to protect its
financial condition against the risks involved in the conduct of its businesses.
2.12 Litigation; Governmental Proceeding. Except as set forth in the
Offering Documents or Schedule 2.20, there is no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental proceeding
pending or threatened against, or involving the properties or business of, the
Company which might materially and adversely affect the financial position,
prospects, value or the operation or the properties or the business of the
Company, or which question the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement. Except as described in the Offering
Documents, there are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, its properties or business, is bound or subject.
2.13 Good Standing. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of its state of
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which ownership or leasing of
any properties or the character of its operations requires such qualification or
licensing, except where the failure to qualify would not have a Material Adverse
Effect.
2.14 Taxes. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof. Except as disclosed in
the Memorandum and Schedule 2.14, the Company has paid all taxes (as hereinafter
defined) shown as due on such returns and has paid all taxes imposed on or
assessed against the Company. The payment of past due taxes as set forth in
Schedule 2.14 will not have a material adverse effect on the Company's
liquidity. The provisions for taxes payable, if any, shown on the financial
statements included in the Offering Documents are sufficient for all accrued and
unpaid taxes, whether or not disputed, and for all periods to and including the
dates of such consolidated financial statements. Except as disclosed in the
Memorandum, (i) no issues have been raised (and are currently pending) by any
taxing authority in connection with any
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of the returns or taxes asserted as due from the Company, and (ii) no waivers of
statutes of limitation with respect to the returns or collection of taxes have
been given by or requested from the Company. The term "taxes" means all federal,
state, local, foreign, and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes, fees,
assessments, or charges of any kind whatever, together with any interest and any
penalties, additions to tax, or additional amounts with respect thereto. The
term "returns" means all returns, declarations, reports, statements, and other
documents required to be filed in respect of taxes.
2.15 Transactions Affecting Disclosure to NASD.
2.15.1 Finder's Fees. Except as described in the Offering Documents,
there are no claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or to the introduction of the Company to the
Placement Agents.
2.15.2 Payments Within Twelve Months. The Company has not made any
direct or indirect payments to any NASD member within the twelve months prior to
the date hereof, other than payments to the Placement Agents.
2.15.3 Use of Proceeds. None of the net proceeds of the Offering will
be paid by the Company to any NASD member or its affiliate or associates, except
as specifically authorized herein.
2.15.4 Insiders' NASD Affiliation. No officer, director or five percent
or greater stockholder of the Company has any direct or indirect affiliation or
association with any NASD member, and no beneficial owner of 5% or more of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member.
2.16 Foreign Corrupt Practices Act. Neither the Company nor any of its
officers, directors, employees, agents or any other person acting on behalf of
the Company has, directly or indirectly, given or agreed to give any money, gift
or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any
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political party or candidate for office (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or other person who was, is,
or may be in a position to help or hinder the business of the Company (or assist
it in connection with any actual or proposed transaction) which (i) might
subject the Company to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, might have
had a materially adverse effect on the assets, business or operations of the
Company as reflected in any of the financial statements contained in the
Offering Documents or (iii) if not continued in the future, might adversely
affect the assets, business, operations or prospects of the Company. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
2.17 Intangibles. The Company owns or possesses the requisite licenses
or rights to use all trademarks, service marks, service names, trade names,
patents and patent applications, copyrights and other rights, material to the
Company's business (collectively, the "Intangibles") described as being owned,
licensed or used by it in the Offering Documents. The Company's Intangibles
which have been registered in the United States Patent and Trademark Office have
been fully maintained and are in full force and effect. There is no claim or
action by any person pertaining to, or proceeding pending or threatened, and the
Company has not received any notice of conflict with the asserted rights of
others which challenges the exclusive right of the Company with respect to any
Intangibles used in the conduct of the Company's business except as described in
the Offering Documents. The Intangibles and the Company's current products,
services and processes do not infringe on any intangibles held by any third
party. To the best of the Company's knowledge, no others have infringed upon the
Intangibles of the Company.
2.18 Relations With Employees.
2.18.1 Employee Matters. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment practices,
terms and conditions of employment and wages and hours relating thereto. Except
for two pending EEOC complaints, there are no pending investigations involving
the Company by the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state or local laws and
regulations. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Regulations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or
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any predecessor entity, and none has ever occurred. No question concerning
representation exists respecting the employees of the Company and no collective
bargaining agreement or modification thereof to which the Company is a party
exists or is currently being negotiated by the Company. No material grievance
and no arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.18.2 Employee Benefit Plans. Except as disclosed in the Memorandum or
on Schedule 2.18.2, the Company neither maintains, sponsors nor contributes to,
nor is it required to contribute to, any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Other than as disclosed in the Offering
Documents, the Company does not, and has at no time, maintained or contributed
to a defined benefit plan, as defined in Section 3(35) of ERISA. Except as
disclosed in the Memorandum, if the Company does maintain or contribute to a
defined benefit plan, any termination of the plan on the date hereof would not
give rise to liability under Title IV of ERISA, and no ERISA Plan which is a
pension plan has incurred an "accumulated funding deficiency" (as defined in
Section 302 of ERISA) and no ERISA Plan which is a "welfare plan" (as defined in
Section 3(1) of ERISA) has any unfunded liabilities. Except as disclosed in the
Memorandum, there are no unfunded benefits under any ERISA Plan which is subject
to the funding standards of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), which could subject the Company to any tax or penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder
and nothing has occurred which would cause the loss of such qualification. Other
than claims for benefits in the ordinary course, there is no pending claim,
litigation, arbitration or any other legal proceeding involving any ERISA Plan
which may result in material liability on the part of the Company or any ERISA
Plan under ERISA or any other law, nor, is there any reasonable basis for such a
claim. The Company has no bonus, incentive or deferred compensation plans which
constitute a continuing liability of the Company, except individual arrangements
of the Company with employees relating to their employment. There are no
employees of the Company who, in connection with their employment by the
Company, are
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receiving any pension or retirement payments or are entitled to receive any
unfunded pensions not covered by a pension plan to which the Company is a party.
For purposes of this Agreement, the Company and any entity, whether incorporated
or unincorporated, treated as a single employer with the Company under Section
414(b), 414(c), 414(m), or 416(o) of the Code, shall be referred to as the
"Controlled Group" and any "employee benefit plan" (as defined in Section 3(3)
of ERISA) maintained or contributed to by any member of the Controlled Group
shall be referred to as a "Controlled Group Plan." For each Controlled Group
Plan that is a pension plan: (i) except as disclosed in the Memorandum, all
contributions required to be made under ERISA Section 302 and Section 412
(whether or not waived) have been made, (ii) no reportable event (within the
meaning of ERISA Section 4043) has occurred at any time, and (iii) no material
liability under Title IV of ERISA exists or is expected to be incurred by any
member of the Controlled Group. No member of the Controlled Group has had, at
any time, any obligation to contribute to any "multiemployer plan." Each
Controlled Group Plan which is a "group health plan" (as such term is defined in
Code Section 4980(g)) complies and has complied in each and every case with the
applicable requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA").
2.19 No Anti-Dilution Adjustment. Except as set forth in the Offering
Documents, the issuance of any of the Securities will not give any holder of any
of the Company's outstanding options, warrants or other convertible securities
or rights to purchase shares of the Company's capital stock, the right to
purchase any additional shares of capital stock and/or the right to purchase
shares of Common Stock at a reduced price or a greater number of shares of
Common Stock.
2.20 Environmental Matters. Except as set forth in the Offering
Documents or on Schedule 2.20:
2.20.1 The Company has obtained all permits, licenses and other
authorizations that are required with respect to the operation of its business
under the Environmental Laws (as defined below) and, to the best knowledge of
the Company, is in compliance with all terms and conditions of such required
permits, licenses and authorizations;
2.20.2 The Company is in compliance with the Environmental Laws
(including, without limitation, compliance with standards, schedules and
timetables therein);
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2.20.3 No real property or facility owned, operated, leased, or
controlled by the Company or, to the knowledge of the Company, any predecessor
in interest of the Company, is listed or proposed for listing on the National
Priorities List or the Comprehensive Environmental Response, Compensation, and
Liability Information System, both promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or on any comparable state or local list established pursuant to any
Environmental Law, and the Company has not received any notification or
potential or actual liability or request for information under CERCLA or any
comparable state or local law, except that which would not have a Material
Adverse Effect;
2.20.4 (a) All of the real property or facility owned, operated,
leased, managed or controlled by the Company has been used for the disposal of
any Hazardous Materials (as defined below), including without limitation
asbestos, except for the properties used solely for manufacturing or for
administrative offices;
2.20.5 Except as set forth on Schedule 2.20, there have been no
releases (i.e., any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping, on-site or off-site) of Hazardous Materials by the Company
or, to the knowledge of the Company, any predecessor in interest of the Company
at, on, under, from or into any of the real property owned, operated, leased,
managed or controlled by the Company in violation of any Environmental Laws or
giving rise to liability under any Environmental Law;
2.20.6 Except as set forth on Schedule 2.20, there are no
polychlorinated biphenyls or asbestos located in, at, on or under any facility
or real property owned, leased, managed, used or controlled by the Company in
such amounts, conditions or concentrations to require removal, remedial or
corrective action, or to result in liability under the Environmental Laws; to
the knowledge of the Company, there have been no releases (i.e., any past or
present releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping, on-site or
off-site), at, on, under, from or into any real property in the vicinity of any
real property owned, operated, leased, managed, used or controlled by the
Company or any predecessor in interest that could reasonably be expected to
result in liability by the Company under the Environmental Laws; and
2.20.7 Except as set forth on Schedule 2.20, there is no civil,
criminal or administrative action, suit, demand, hearing, notice of violation or
deficiency, investigation,
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 14
proceeding, notice or demand letter pending or, to the knowledge of the Company,
threatened against the Company under any Environmental Law.
2.20.8 For the purposes of this Agreement:
(a) "Environmental Laws" means the common law and all
federal, state, local and foreign laws or regulations, codes, orders, decrees,
judgments or injunctions issued, promulgated, approved or entered thereunder,
now or as in effect at the Closing, relating to pollution or protection of
public or employee health or the environment, including, without limitation,
laws relating to (a) emissions, discharges, releases or threatened releases of
any Hazardous Materials into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata),
(b) the manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of Hazardous Materials, and (c)
underground storage tanks, and related piping, and emissions, discharges,
releases or threatened releases therefrom.
(b) "Environmental Liability" means, any damages incurred
or suffered (a) resulting from or arising out of any breach of or inaccuracy of
any representation of warranty contained in Section 2.20 hereof or (b) arising
under any Environmental Law and based on or resulting from (i) any facts or
conditions relating to the business or operations, or the real property,
facilities or assets owned, operated, leased, managed or controlled by the
Company, any of its subsidiaries or former subsidiaries or any predecessors in
interest of the Company or any of its subsidiaries or former subsidiaries in
existence on the Closing Date, or (ii) any acts or omissions of the Company, any
of its subsidiaries or former subsidiaries, its representatives or any
predecessors in interest of the Company or any of its subsidiaries or former
subsidiaries on or prior to, the Closing Date.
(c) "Hazardous Materials" means any hazardous, toxic or
chemical substance, any pollutant or contaminant, any hazardous constituent or
any waste, including, without limitation, petroleum, including crude oil or any
fraction thereof, or any petroleum product, as defined under any Environmental
Law.
2.21 Regulatory Matters. The Company (i) has not filed a registration
statement which is the subject of any pending proceeding or examination under
Section 8 of the Securities Act or is the subject of any refusal order or stop
order thereunder; (ii) is not subject to any pending proceeding under Rule 261
of the Securities Act or any similar rule adopted under Section 3(b) of the
Securities Act, or to an order entered thereunder; (iii) has
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 15
not been convicted of any felony or misdemeanor in connection with purchase or
sale of any security or involving the making of any false filing with the
Securities and Exchange Commission (the "Commission"); (iv) is not subject to
any order, judgment, or decree restraining or enjoining the Company from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security or involving the making of any false filing
with the false representation order entered under Section 3005 of Title 39,
United States Code; or a temporary restraining order or preliminary injunction
entered under Section 3007 of Title 39, United States Code, with respect to
conduct alleged to have violated Section 3005 of Title 39, United States Code.
Except to the extent relating to the Placement Agents, none of the
Company's directors, officers, or beneficial owners of five (5%) percent or more
of any class of its equity securities (i) has been convicted of any felony or
misdemeanor in connection with the purchase or sale of any security, involving
the making of a false filing with the Commission, or arising out of the conduct
of the business of an underwriter, broker, dealer, municipal securities dealer,
or investment advisor; (ii) is subject to any order, judgement, or decree of any
court of competent jurisdiction temporarily or preliminarily or restraining, or
is subject to any order, judgment, or decree of any court of competent
jurisdiction, permanently enjoining or restraining such person from engaging in
or continuing any conduct or practice in connection with the purchase or sale of
any security, or involving the making of a false filing with the Commission, or
arising out of the conduct of the business of an underwriter, broker, dealer,
municipal securities dealer, or investment adviser; (iii) is subject to an order
of the Commission entered pursuant to Section 15(b), 15(a) or 15B(c) of the
Exchange Act, or is subject to an order of the Commission entered pursuant to
Section 203(e) or (f) of the Investment Advisers Act of 1940; (iv) is suspended
or expelled from membership in, or suspended or barred from association with a
member of, an exchange registered as a national securities exchange pursuant to
Section 6 of the Exchange Act, an association registered as a national
securities association under Section 15A of the Securities Act, or a Canadian
securities exchange or association for any act or omission to act constituting
conduct inconsistent with just and equitable principles of trade; or (v) is
subject to a United States Postal Service false representation order entered
under Section 3007 of Title 39, United States Code, with respect to conduct
alleged to have violated Section 3005 of Title 39, United States Code.
2.22 Subsidiaries. The representations and warranties made by the
Company in this Agreement shall, in the event that the Company has one or more
subsidiaries (a "subsidiary(ies)") also apply and be true with respect to each
subsidiary, individually and
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 16
taken as a whole with the Company and all other subsidiaries, as if each
representation and warranty contained herein made specific reference to the
subsidiary each time the term "Company" was used.
2.23 Stock Collateral. None of the Company's obligations to any third
party are secured by any of the Company's outstanding securities.
2.24 Reaffirmation. All of the representations, warranties and
covenants of the Company set forth in this Agreement or in any letter or
certificate furnished to Placement Agents pursuant hereto, each of which is
incorporated herein by reference and made a part hereof, shall be true in all
material respects upon the execution of this Agreement, shall be deemed to be
repeated at and as of the Closing Date and all subsequent dates on which a
subsequent Closing hereunder takes place.
3. CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND SUBSCRIPTION
AGREEMENT. The Company will, as soon as practical, prepare for United States
investors, a Confidential Private Placement Memorandum (the "Memorandum")
covering the Offering which shall meet the anti-fraud and other requirements of
the federal and state securities laws and which shall contain or incorporate, as
appropriate, subscription documents and investor qualifications material. The
Memorandum and Subscription Agreement along with the Confidential Prospective
Purchaser Questionnaire and Registration Rights Agreement, are collectively
referred to as the "Offering Materials". The Offering Materials shall be in form
and substance reasonably satisfactory to the Placement Agents and to the Company
and to their respective counsel. The Company agrees that it shall modify or
supplement the Memorandum during the course of the Offering to insure that the
Memorandum does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made. The Placement Agents will not make any use of the Offering Materials
other than for purposes of implementing this Agreement, nor will it or any of
its agents, employees or participating soliciting brokers or dealers use the
same or do any other act or thing in the course of this Offering or sale
hereunder which would constitute a violation of the Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), or any "blue sky" laws or regulations
applicable to the Offering (collectively "Applicable Laws").
4. COMPENSATION. The Placement Agents will be paid, at the First
Closing, and at each subsequent closing, a cash commission of ten percent
(10.0%) of the
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 17
subscription price of each Unit sold at such closing. At the First Closing, the
Placement Agents shall also be entitled to purchase from the Company, for ten
($10.00) dollars, warrants entitling the holder to purchase up to ten percent
(10%) of the Units sold in the Offering at an exercise price per Unit equal to
the Offering Price (the "Placement Agents' Warrants"). The Placement Agents'
Warrants will be evidenced by a unit purchase warrant containing "piggyback"
registration provisions, anti-dilution provisions and other terms and conditions
customarily contained in placement agent warrant agreements.
5. ACCOUNTABLE EXPENSES. Whether or not the Offering is successfully
completed, it shall be the Company's obligation to bear all of the expenses in
connection with the Offering, including, but not limited to, the following:
costs related to maintaining an escrow account, printing and duplicating costs;
the Company's, the Placement Agents' and the Placement Agents' counsels' postage
fees, delivery and advertising expenses; issue and transfer taxes, if any; the
fees of the Placement Agents' counsel for "blue sky" filing and related
expenses; provided that the aggregate of the Placement Agents' counsels' fees
for "blue sky" services shall be $7,500. At the First Closing, the Company shall
reimburse the Placement Agents for such accountable expenses incurred by the
Placement Agents up to and including the date of such closing. The Placement
Agents' counsels' "fees shall be paid as reasonably determined by the parties.
6. NON-ACCOUNTABLE EXPENSE ALLOWANCE. The Company shall pay to the
Placement Agents an aggregate non-accountable expense allowance, in addition to
the commissions payable pursuant to paragraph 3, and the expenses payable
pursuant to paragraph 4, equal to three percent (3.0%) of the subscription price
of each Unit to be paid at each closing, to be calculated based on the number of
Units being closed thereat.
7. CONDITIONS OF CLOSING. At or prior to each closing, and as a
condition of the Placement Agents' obligations hereunder, the following shall
have been satisfied: (i) the Company shall have delivered to the Placement
Agents at the closing (a) a certificate of each of the Company's President and
Treasurer to the effect that (I) the Offering Materials meet the requirements
hereof and have been modified or supplemented as required by Paragraph 2 hereof
and do not contain any untrue statement of material fact or fail to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made;
(II) all necessary corporate approvals have been obtained to enable the Company
to issue and deliver the Units and the Placement Agents' Warrants in accordance
with the terms of the Offering; and (III) the representations and warranties
contained herein are true and correct as of the date of such closing as if, and
to the
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 18
same effect, the warranties and representations were made on such date and (b)
an opinion of the Company's counsel, in form and substance reasonably
satisfactory to the Placement Agents and their counsel.
8. INDEMNIFICATION.
(a) Subject to the conditions set forth below, the
Company and the Placement Agents hereby agree that they will indemnify and hold
harmless each other and each director, officer, stockholder, employee or
representative thereof and each person controlling, controlled by or under
common control with such party within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act (individually, an "Indemnified Person") from and
against any and all loss, claim, damage, liability, cost or expense whatsoever
(including, but not limited to, any and all reasonable legal fees and other
expenses and disbursements incurred in connection with investigating, preparing
to defend or defending any claim, action, suit or proceeding (a "Claim"),
including any inquiry or investigation, commenced or threatened, or in appearing
or preparing for appearance as a witness in any Claim, including any inquiry,
investigation or pretrial proceeding such as a deposition) (collectively a
"Loss") to which such Indemnified Person may become subject under the Act, the
1934 Act or other federal or state statutory law or regulation at common law or
otherwise, arising out of an act or omission of the other party related to (i)
this Agreement, (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Offering Materials (except those statements given
by an Indemnified Person for inclusion therein) or omission of a material fact
from the Offering Materials delivered by such party, or (iii) the breach of any
representation or warranty made by the other party in this Agreement. The
parties further agree that upon demand by an Indemnified Person at any time or
from time to time, they will promptly reimburse such Indemnified Person for any
Loss actually and reasonably paid by the Indemnified Person as to which the
other party has indemnified such Indemnified Person pursuant hereto.
Notwithstanding the foregoing provisions of this Paragraph 8, any such payment
or reimbursement by the other party of fees, expenses or disbursements incurred
by an Indemnified Person in any Claim in which a final judgment by a court of
competent jurisdiction (after all appeals or the expiration of time to appeal)
is entered against such Indemnified Person as a direct result of such person's
gross negligence, bad faith or willful misfeasance will be promptly repaid to
the other party.
(b) Promptly after receipt by an Indemnified Person under
paragraph (a) above of notice of the commencement of any Claim, such Indemnified
Person will, if a claim in respect thereof is to be made against the other party
under paragraph (a), notify the other party in writing of the commencement
thereof. In case any such Claim is brought against any
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 19
Indemnified Person, such Indemnified Person promptly shall notify the other
party of the commencement thereof, and the other party shall assume the defense
thereof with counsel reasonably satisfactory to such Indemnified Person;
provided however, that if the defendants in any such action include the
Indemnified Person and the other party or any corporation controlling,
controlled by or under common control with the other party, or any director,
officer, employee, representative or agent of any thereof, and the Indemnified
Person shall have reasonably concluded that there may be legal defenses
available to it which are different from or additional to those available to
such other defendant, the Indemnified Person shall have the right to select
separate counsel to represent it, and the other party shall pay the reasonable
fees and expenses of such separate counsel. Failure of the Indemnified Person to
so notify the other party shall not relieve the other party from any obligation
it may have hereunder, unless and only to the extent such failure results in the
forfeiture by the other party of substantial rights and defenses and will not in
any event relieve the other party from any other obligation or liability it may
have to any Indemnified Person otherwise than under this Agreement.
Each party further agrees that it will not, without the
prior written consent of the relevant Indemnified Person, settle, compromise or
consent to the entry of any judgment in any pending or threatened Claim in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is a party to such Claim), unless such settlement, compromise
or consent includes an unconditional, irrevocable release of each Indemnified
Person from any and all liability arising out of such Claim.
(c) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
paragraph (a) of this Paragraph 8 is due in accordance with its terms, but is
for any reason held by a court to be unavailable on grounds of policy or
otherwise, the Company and the Placement Agents shall contribute to the
aggregate Losses to which the Company and the Placement Agents may be subject in
such proportion so that the Placement Agents are responsible for that portion
represented by the percentage that the aggregate of its commission and expenses
under this Agreement bears to the aggregate offering price for all Units sold
under the Offering Materials and the Company is responsible for the balance,
except as the Company may otherwise agree to reallocate a portion of such
liability with respect to such balance with any other person; provided, however,
that no person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the Act shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Paragraph 8(c), any person controlling, controlled by or under common control
with the Placement Agents, or any partner, director, officer, employee,
representative or any agent of any thereof, shall have the right to contribution
as the Placement
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 20
Agents and each person who controls the Company within the meaning of Section 15
of the Act or Section 20 of the 1934 Act, each officer of the Company and each
director of the Company shall have the same right to contribution as the
Company. Any party entitled to contribution shall, promptly after receipt of
notice of commencement of any Claim against such party in respect of which a
claim for contribution may be made against the other party under this Paragraph
8(c), notify such party from whom contribution may be sought, but the omission
to so notify such party shall not relieve the party from whom contribution may
be sought from any obligation it or they may have hereunder or otherwise than
under this Paragraph 8(c). The indemnity and contribution agreements contained
in this Paragraph 8 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Indemnified Person
or any termination of this Agreement.
9. TERMINATION. The Company shall have the right to terminate this
Agreement in the event that the Placement Agents fail to sell a minimum of 20
Units by January 31, 1997. The Company may terminate the Offering after sixty
(60) days of the date of the Offering Materials, subject to the Placement
Agents' rights to compensation and expenses for Units sold hereunder prior
thereto. The Company and the Placement Agents may extend the Agreement at any
time by mutual written consent.
10. COMPETING CLAIMS. The Company acknowledges and agrees that the
Placement Agents will not proceed to perform hereunder until it receives
assurances, in form and substance satisfactory to the Placement Agents and their
counsel, that as of the first date that the Offering Materials is presented to
potential purchasers of Units, there will be no claims or payments for services
in the nature of a finder's fee with respect to the Offering or any other
arrangements, agreements, payments, issuances or understandings that may affect
the Placement Agents' compensation hereunder. The Placement Agents shall
compensate any of its personnel who may have acted in such capacities as it
shall determine.
11. JOINT-ACTIONS BY PLACEMENT AGENTS. The parties hereby agree that
all decisions and determinations to be made in connection with the Offering by
or on behalf of the Placement Agents shall be made jointly by the Placement
Agents; provided, that in the event of any dispute between the Placement Agents,
such dispute shall be resolved in the reasonable business judgment of the
Placement Agents within thirty (30) days; and, provided further, that if such
dispute remains unresolved for such thirty (30) day period, the Placement Agents
agree that such dispute shall be decided by binding arbitration by the American
Arbitration Association in New York, New York.
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 21
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and the transactions
contemplated hereby shall be governed in all respects by the laws of the State
of New York, without giving effect to its conflict of law principles.
(b) COUNTERPARTS. This Agreement may be executed in any
number of counterparts each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
(c) NOTICES. Whenever notice is required to be given
pursuant to this Agreement, such notice shall be in writing and shall either be
(i) mailed by first class mail, postage, prepaid, addressed (a) if to the
Placement Agents, at the respective addresses set forth at the head of this
Agreement with a copy to their counsels, Jay M. Kaplowitz, Esq., Gersten,
Savage, Kaplowitz & Curtin, 575 Lexington Avenue, New York, New York 10022 and
Neil M. Kaufman, Esq., Blau, Kramer, Wactlar & Lieberman, P.C., 100 Jericho
Quadrangle, Jericho, New York 11753; and (b) if to the Company, at 937 East
Hazelwood Avenue, Building 2, Rahway, New Jersey 07065 with a copy to its
counsel Richard Marlin, Esq., Kramer, Levin, Naftalis & Frankel, 919 Third
Avenue, New York, New York 10022, or (ii) delivered personally or by express
courier. The notice shall be deemed given, if sent by mail, on the third day
after deposit in a United States post office receptacle, or if delivered
personally or by express courier, then upon receipt.
(d) DISPUTE. In the event of any action at law, suit in
equity or arbitration proceeding in relation to this Agreement or the
transactions contemplated by this Agreement, the prevailing party, or parties,
shall be paid its reasonable attorney's fees and expenses arising from such
action, suit or proceeding by the other party.
(e) AMENDMENTS. This Agreement may not be amended,
modified or waived, except in a writing signed by all of the parties hereto.
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 22
If the foregoing correctly sets forth the understanding between the
Placement Agents and the Company, please so indicate in the space provided below
for that purpose whereupon this letter shall constitute a binding agreement
between us.
Very truly yours, ERD WASTE
CORP.
By: /s/ T. Kevin Sheehy
-------------------
Name: T. Kevin Sheehy
Title: Secretary
Network 1 Financial Securities, Inc.
M.S. Farrell & Co., Inc.
December 20, 1996
Page 23
Confirmed and Agreed To:
Network 1 Financial Securities, Inc.
By: /s/ William R. Hunt
-------------------
Name: William R. Hunt
Title: CEO
M.S. Farrell & Co., Inc.
By: /s/ Martin F. Schacker
----------------------
Name: Martin F. Schacker
Title: Chairman
EXHIBIT 11.1
ERD WASTE CORP.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Six Months Ended March 31, 1997 (Unaudited)
Net income (loss) (358,708)
Shares:
Weighted average common shares
outstanding 6,209,362
Weighted average common shares
outstanding as adjusted 8,159,960
Net income (loss) per common share:
Primary (.06)
Fully Diluted a/ (.06)
- ----------
a/ In computing net loss per share, the conversion of common stock equivalents
was not assumed as the effect would be antidilutive.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Board of Directors
We consent to incorporation by reference in the registration statement
on Form SB-2 of our report dated January 22, 1997 relating to the balance sheets
of ERD Waste Corp. as of September 30, 1996 and January 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
eight months ended September 30, 1996 and the years ended January 31, 1996 and
1995, which report appears in the January 1997 annual report on Form 10-KSB of
ERD Waste Corp.
/s/ FELDMAN RADIN & CO., P.C.
- -----------------------------
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
August 5, 1997