ITEM 3. LEGAL PROCEEDINGS
During September 1994, Perma-Fix of Memphis, Inc. (PFM), formerly American Resource Recovery Corporation ("ARR"), was sued by Community First Bank ("Community First") to collect a note in the principal sum of $341,000 that was allegedly made by ARR to CTC Industrial Services, Inc. ("CTC") in February 1987 (the "Note"), and which was allegedly pledged by CTC to Community First in December 1988 to secure certain loans to CTC. This lawsuit, styled Community First Bank v. American Resource Recovery Corporation, was instituted on September 14, 1994, and is pending in the Circuit Court, Shelby County, Tennessee. The Company was not aware of either the Note or its pledge to Community First at the time of the Company's acquisition of PFM in December 1993. The Company intends to vigorously defend itself in connection therewith. PFM has filed a third party complaint against Billie Kay Dowdy, who was the sole shareholder of PFM immediately prior to the acquisition of PFM by the Company, alleging that Ms. Dowdy is required to defend and indemnify the Company and PFM from and against this action under the terms of the agreement relating to the Company's acquisition of PFM. Ms. Dowdy has stated in her answer to the third party complaint that if the Note is determined to be an obligation enforceable against PFM, she would be liable to PFM, assuming no legal or equitable defenses.
In May 1995, PFM, a subsidiary of the Company, became aware that the U.S. District Attorney for the Western District of Tennessee and the Department of Justice were investigating certain prior activities of W. R. Drum Company, its successor, First Southern Container Company, and any other facility owned or operated, in whole or in part, by Johnnie Williams. PFM used W. R. Drum Company to dispose of certain of its used drums. In May 1995, PFM received a Grand Jury Subpoena which demanded the production of any documents in the possession of PFM pertaining to W. R. Drum Company, First Southern Container Company, or any other facility owned or operated, and holder in part, by Johnnie Williams. PFM complied with the Grand Jury Subpoena. Thereafter, in September of 1995, PFM received another Grand Jury Subpoena for documents from the Grand Jury investigating W. R. Drum Company, First Southern Container Company and/or Johnnie Williams. PFM complied with the Grand Jury Subpoena. In December 1995, representatives of the Department of Justice advised PFM that it was also currently a subject of the investigation involving W. R. Drum Company, First Southern Container Company, and/or Johnnie Williams. Since that
time, however, PFM has had no contact with representatives of either the United States District Attorney's office for the Western District of Tennessee or the Department of Justice, and is not aware of why it is also a subject of such investigation. In accordance with certain provisions of the Agreement and the Plan of Merger relating to the prior acquisition of PFM, on or about January 2, 1996, PFM notified Ms. Billie K. Dowdy of the foregoing, and advised Ms. Dowdy that the Company and PFM would look to Ms. Dowdy to indemnify, defend and hold the Company and PFM harmless from any liability, loss, damage or expense incurred or suffered as a result of, or in connection with, this matter.
In addition to the above matters and in the normal course of conducting its business, the Company is involved in various other litigation. The Company is not a party to any litigation or governmental proceeding which its management believes could result in any judgments or fines against it that would have a material adverse affect on the Company's financial position, liquidity or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders ("Annual Meeting") was held on December 12, 1996. At the Annual Meeting, the following matters were voted on and approved by the shareholders:
1. The election of four (4) directors to serve until the next annual meeting of stockholders or until their respective successors are duly elected and qualified;
2. Approval of the Third Amendment to the Company's 1992 Outside Directors Stock Option and Incentive Plan.
3. Approval of the Company's 1996 Employee Stock Purchase Plan.
4. Approval of an amendment to the Company's Certificate of Incorporation increasing the authorized shares of the Company's common stock from 20,000,000 shares to 50,000,000 shares.
Also, at the Annual Meeting the shareholders approved the Third Amendment to the Company's 1992 Outside Directors Stock Option and Incentive Plan, which, among other things, provided that each eligible director shall receive, at such eligible director's option, either sixty-five percent (65%) or one hundred percent (100%) of the fee payable to such director for services rendered to the Company as a member of the Board in Common Stock of the Company. In either case, the number of shares of common stock of the Company issuable to the eligible director shall be determined by valuing the common stock of the Company at seventy-five percent (75%) of its fair market value as defined by the Plan. Also approved at the Annual Meeting was the adoption of the Perma-Fix Environmental Services, Inc. 1996 Employee Stock Purchase Plan. This plan provides that eligible employees of the Company and its subsidiary, who wish to become stockholders, an opportunity to purchase common stock of the Company through payroll deductions. The maximum number of shares of common stock of the Company that may be issued under the plan will be 500,000 shares. The plan provides that shares will be purchased two (2) times per year and that the exercise price per share shall be eighty-five percent (85%) of the market value of each such share of common stock on the offering date on which such offer commences or on the exercise date on which the offer period expires, whichever is lowest. The final proposal approved at the Annual Meeting was the amendment to the Company's Restated Certificate of Incorporation, as amended, to increase from 20,000,000 to 50,000,000 shares the Company's authorized common stock, par value $.001 per share.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-ups or commissions and may not represent actual transactions.
As of December 31, 1996, there were approximately 182 shareholders of record of the Company's common stock, including brokerage firms and/or clearing houses holding shares of the Company's common stock for their clientele (with each brokerage house and/or clearing house being considered as one holder). However, the total number of beneficial shareholders was approximately 1,100 on this date.
Since its inception, the Company has not paid a dividend on its common stock and has no dividend policy. Management is subject to certain restrictions on the payment of dividends by the terms and covenants under the terms of the Loan and Security Agreement ("Loan Agreement") with Heller Financial, Inc. The Company is prohibited from paying dividends unless Heller agrees to such payment. The Loan Agreement was entered into on January 27, 1995 and is further discussed in Note 5 of the Notes to Consolidated Financial Statements.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is based, among other things, upon the audited consolidated financial statements of the Company and its subsidiaries, and includes the accounts of the Company and its wholly-owned subsidiaries, after elimination of all significant inter-company balances and transactions.
Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries and the notes thereto included in Item 8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Since information relating to changes in accountants and engagement of new accountants by the Company during the Company's two most recent fiscal years or any subsequent interim period have been previously reported (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) and there were no disagreements or reportable events required to be reported under paragraph (b) of Item 304 of Regulation S-K, the information called for under this Item 9 is not required to be provided pursuant to Item 304 of Regulation S-K.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Company are elected to serve for a term of one year or until their successors are elected and qualify, or until their earlier death, resignation or removal. There are presently four (4) members serving as directors. Pursuant to the By-Laws of the Company, the Board of Directors has set the number of directors at a minimum of three. No family or contractual relationship exist between or among any directors or officers of the Company. The Company has agreed that for five years after the effective date of its Registration Statement on Form S-1 (December 8, 1992), if requested by A.S. Goldmen & Co., Inc., the managing underwriter of the Company's initial public offering (the "Underwriter"), it will use its best efforts to cause one individual designated by the Underwriter to be elected to the Company's Board of Directors, which individual may be an officer, director, employee or affiliate of the Underwriter. At this time the Underwriter has not requested to have one individual designated to be elected to the Company's Board of Directors.
In conjunction with the Company's restructuring program, the Company and Mr. Robert W. Foster, Jr. ("Foster") agreed to Foster's resignation as President, Chief Executive Officer and Director of the Company effective March 15, 1996. The Company paid severance benefits of $30,000 in cash, continued certain employee benefits, and issued approximately $171,000 in the form of common stock, par value $.001, of the Company. See "Executive Compensation." In addition to his position of Chairman of the Board of the Company, Dr. Louis F. Centofanti was elected as President and Chief Executive
Officer of the Company to replace Mr. Foster. See "Executive Officers of the Company."
The Company's officers are elected annually by, and serve at the pleasure of, the Board of Directors, subject to the terms of any employment agreements. See "Employment Contracts, Termination of Employment and Change in Control Arrangements."
Certain Relationships There are no family relationships between any existing director, executive officer, or person nominated or chosen by the Company to become a director or executive officer. Dr. Centofanti is the only director who is an employee of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations promulgated thereunder require the Company's executive officers and directors and beneficial owners of more than ten percent (10%) of any equity security of the Company registered pursuant to Section 12 of the Exchange Act to file reports of ownership and changes of ownership of the Company's equity securities with the Securities and Exchange Commission, and to furnish the Company with copies of all such reports. Based solely on a review of the copies of such reports furnished to the Company and information provided to the Company, the Company believes that during 1996 none of the executive officers and directors of the Company failed to timely file reports under Section 16(a).
RBB Bank Aktiengesellschaft ("RBB Bank"), which may have become a beneficial owner (as that term is defined under Rule 13d-3 as promulgated under the Exchange Act) of more than ten percent (10%) of the Company's common stock on February 9, 1996, as a result of its acquisition of 1,100 shares of Series 1 Preferred (as defined in "Certain Relationships and Related Transactions") that were convertible into a maximum of 1,282,798 shares of common stock of the Company commencing 45 days after issuance of the Series 1 Preferred, failed to file a Form 3 to report such transaction, if required. RBB Bank has advised the Company that it acquired such preferred stock on behalf of numerous clients and no one client is the beneficial owner of more than 250 shares of such preferred stock, and thus, RBB Bank believes it was not required to file reports under Section 16(a).
If RBB Bank became a beneficial owner of more than ten percent (10%) of the Company's common stock on February 9, 1996 and thereby required to file reports under Section 16(a) of the Exchange Act, then RBB Bank may have also failed to file (i) a Form 4 for single transaction which occurred on February 22, 1996; (ii) a Form 4 for four transactions which occurred in July 1996; (iii) a Form 4 for a single transaction which occurred in September 1996; (iv) a Form 4 for a single transaction which occurred in January 1997; and (v)
a Form 5 for 1996 as a result of not filing the above referenced reports.
For further discussion of the RBB Bank transactions, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources of the Company," "Security Ownership of Certain Beneficial Owners and Management--Security Ownership of Certain Beneficial Owners," and "--Potential Change of Control."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Options/SAR Grants in Last Fiscal Year During 1996, there were no individual grants of stock options or SAR's made to any of the executive officers named in the summary compensation table.
Aggregated Option Exercises in 1996 and Fiscal Year-End Option Values
401(k) Plan The Company has adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan which is intended to comply under Section 401 of the Internal Revenue Code and the provisions of the Employee Retirement Security Act of 1974 (the "401(k) Plan"). All full-time employees of the Company and its subsidiaries who have attained the age of twenty-one (21) are eligible to participate in the 401(k) Plan. Participating employees may make annual pre-tax contributions to their accounts up to fifteen percent (15%) of their compensation, up to a maximum amount as limited by law. The Company, at its discretion, may make matching contributions based on full-time employees' elective contributions. Company contributions vest twenty percent (20%) after two (2) years, forty percent (40%) after three (3) years, sixty percent (60%) after four (4) years, eighty percent (80%) after five (5) years, and are one hundred percent (100%) vested thereafter. As of December 31, 1996, the Company has elected not to provide any matching contributions. Distributions generally are payable in lump sums after termination, retirement, death or disability.
Compensation of Directors In 1996, the two outside directors of the Company, which number was subsequently increased to three pursuant to the Annual Meeting in December of 1996, received annual director's fees in the aggregate amount of $28,000, with each director's fee payable in shares of common stock of the Company, subject to the election of each director, based on the fair market value of such stock determined on the business day immediately preceding the date that the fee is due and the balance payable in cash. Reimbursement of expenses for attending meetings of the Board are paid in cash at the time of occurrence. The director fees in 1996 were based on monthly payments of $1,000 for each month of service. These directors do not receive additional compensation for committee participation or special assignments except for reimbursement of expenses. The Company does not compensate the directors that also serve as officers or employees of the Company or its subsidiaries for their service as directors.
The Company believes that it is important for directors to have a personal interest in the success and growth of the Company and for their interests to be aligned with those of its stockholders. Therefore, under the Company's 1992 Outside Directors Stock Option and Incentive Plan ("Outside Directors Plan"), each outside director is granted an option to purchase up to 15,000 shares of common stock
on the date such director is initially elected to the Board of Directors and receives on an annual basis an option to purchase up to another 5,000 shares of common stock, with the exercise price being the fair market value of the common stock on the date that the option is granted. No option granted under the Outside Directors Plan is exercisable until after the expiration of six months from the date the option was granted and no option shall be exercisable after the expiration of ten (10) years from the date the option is granted. As of December 31, 1995, options to purchase 110,000 shares of common stock have been granted under the Outside Directors Plan. During 1996, the Company granted options to purchase 35,000 shares of common stock under the Outside Directors Plan. In addition, under the second amendment to the Outside Directors Plan, approved at the Annual Meeting of Shareholders held in December 1994, beginning January 1995, each outside director was, in lieu of 65% of the fees payable to the outside director, issued a number of shares of common stock having a value equal to 65% of the fee payable to each such director based on the fair market value of such stock determined on the business day immediately preceding the date that the fee was due, with the remaining 35% paid in cash. The Third Amendment to the Outside Directors Plan, as approved at the December 1996 Annual Meeting, provided that each eligible director shall receive, at such eligible director's option, either sixty-five percent (65%) or one hundred percent (100%) of the fee payable to such director for services rendered to the Company as a member of the Board in common stock. In either case, the number of shares of common stock of the Company issuable to the eligible director shall be determined by valuing the common stock of the Company at seventy- five percent (75%) of its fair market value as defined by the Outside Directors Plan. The number of shares of common stock which may be issued in the aggregate under the Outside Directors Plan, either under options or stock awards, is 250,000 shares, subject to adjustment.
Robert W. Foster, Jr., formerly President, Chief Executive Officer and a director of the Company until March 15, 1996, was compensated pursuant to an employment agreement during 1994, 1995 and 1996, and a consulting agreement during 1996. See "--Employment Contracts, Termination of Employment and Change in Control Arrangements" and "EXECUTIVE COMPENSATION--Summary Compensation Table."
Although Dr. Centofanti is not compensated for his services provided as a director of the Company, Dr. Centofanti is compensated for his services rendered to the Company as an officer of the Company. See "Employment Contracts, Termination of Employment and Change in Control Arrangements."
Employment Contracts, Termination of Employment and Change in Control Arrangements In June 1994, the Company entered into a three (3) year employment agreement with Robert W. Foster, Jr. Under the
Agreement, Mr. Foster was to receive an annual salary of $110,000, which was subsequently increased to $135,000 during 1995, as determined by the Compensation and Stock Option Committee. However, in conjunction with the Company's restructuring program, the Company and Mr. Robert W. Foster, Jr. ("Foster") agreed to Foster's resignation as President, Chief Executive Officer and Director of the Company, thereby terminating his employment agreement with the Company effective March 15, 1996. The Company agreed to severance benefits of $30,000 in cash plus continuation of certain employee benefits. In addition, the Company and Foster entered into a consulting agreement with a term of three (3) months and compensation of a minimum of approximately $171,000 payable in the form of common stock, par value $.001, of the Company. Based upon a stock price at the close of business on April 1, 1996, the Company issued approximately 152,000 shares of common stock to Mr. Foster relative to this agreement. The fair market value of the 152,000 shares exceeded $171,000 on the 90th day after March 15, 1996 and, as a result, Mr. Foster reimbursed to the Company approximately $41,000 of such excess proceeds. Foster is engaged as an independent, outside consultant to the Company and agrees to certain non-competition conditions for a period of one (1) year following the date of this agreement.
The Company's 1991 Performance Equity Plan and the 1993 Nonqualified Stock Option Plan (collectively, the "Plans") provide that in the event of a change in control (as defined in the Plans) of the Company, each outstanding option and award granted under the Plans shall immediately become exercisable in full notwithstanding the vesting or exercise provisions contained in the stock option agreement. As a result, all outstanding stock options and awards granted under the Plans to the executive officers of the Company shall immediately become exercisable upon such a change in control of the Company.
Compensation Committee Interlocks and Insider Participation During 1996, the Compensation and Stock Option Committee for the Company's Board of Directors was composed of Steve Gorlin and Mark Zwecker. Neither Mr. Gorlin nor Mr. Zwecker is or was, during the year, an officer or employee of the Company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management
Potential Change in Control
If RBB Bank were to acquire approximately 7,300,000 shares of common stock upon conversion of the Series 3 Preferred, which is the maximum number of shares of common stock that RBB Bank could acquire upon conversion of the Series 3 Preferred assuming the conversion price is based on the minimum conversion price of $.75 a share and as a result of the average of fair market value of the common stock being $1.00 or less within five (5) trading days immediately preceding the conversion date and assuming such minimum conversion price is not reduced pursuant to the terms of the Series 3 Preferred and it exercised all of the RBB Warrants, RBB Bank would own approximately 10,100,000 shares of common stock, or approximately fifty percent (50%) of the outstanding shares of common stock of the Company, assuming no other shares of common stock are issued by the Company, no other warrants or options issued by the Company are exercised, the Company does not acquire additional shares of common stock as treasury shares and RBB Bank does not dispose of any such shares. In such event, RBB Bank would have a sufficient number of voting shares of the Company to result in a change in control of the Company. See "--Security Ownership of Certain Beneficial Owners" and "Certain Relationships and Related Transactions."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, the Company made a private offering to accredited investors (the "Private Placement") of units ("Units"), each Unit consisting of 10,000 shares of common stock and 20,000 Class B Warrants to Purchase common stock (the "Class B Warrants"). The Class B Warrants are for a term of five (5) years from June 17, 1994. Each Class B Warrant entitles the holder thereof to purchase one (1) share of common stock for $5.00. The Class B Warrants are subject to certain antidilution provisions. Under certain conditions, the Class B Warrants are redeemable by the Company at a redemption price of $0.05 per Class B Warrant, provided that the market price of the common stock shall exceed an average price of $8.00 per share. In connection with the Private Placement, Dr. Louis F. Centofanti, Chairman of the Board and Chief Executive Officer of the Company, purchased two Units from the Company, which consisted of 20,000 shares of common stock and Class B Warrants to purchase up to 40,000 shares of common stock. The purchase price paid for the two Units was $60,000.
In September 1996, the Company issued a warrant ("Gorlin Warrant") to Steve Gorlin, a Director of the Company, for services rendered, other than those rendered as a Director, to the Company. The Gorlin Warrant allows the holder to purchase 200,000 shares of common stock of the Company for $1.75 per share from January 1, 1997, until September 15, 1999. The Gorlin Warrant is subject to certain antidilution provisions.
In March 1996, the Company entered into a Stock Purchase Agreement with Dr. Centofanti, currently the President, Chief Executive Officer, Chairman of the Board, and Director of the Company, whereby the Company sold, and Dr. Centofanti purchased, 133,333 shares of the Company's common stock for 75% of the closing bid price of such common stock as quoted on the NASDAQ on the date that Dr. Centofanti notified the Company of his desire to purchase such stock, as authorized by the Board of Directors of the Company. During February 1996, Dr. Centofanti tendered to the Company $100,000 for such 133,333 shares by delivering to the Company $86,028.51 and forgiving $13,971.49 that was owing to Dr. Centofanti by the Company for expenses incurred by Dr. Centofanti on behalf of the Company. On the date that Dr. Centofanti notified the Company of his desire to purchase such shares, the closing bid price as quoted on the NASDAQ for the Company's common stock was $1.00 per share.
In June 1996, the Company entered into a second Stock Purchase Agreement with Dr. Centofanti, whereby the Company sold, and Dr. Centofanti purchased, 76,190 shares of the Company's common stock for 75% of the closing bid price of such common stock as quoted on the NASDAQ on the date that Dr. Centofanti notified the Company of his desire to purchase such stock (closing bid of $1.75 on June 11, 1996), as previously authorized by the Board of
Directors of the Company. Dr. Centofanti tendered to the Company $100,000 for such 76,190 shares of common stock.
In March 1996, Robert W. Foster, Jr. resigned as President, Chief Executive Officer and a Director of the Company, and as an officer and Director of the Company's subsidiaries and terminated his employment agreement with the Company pursuant to the terms of a Termination and Severance Agreement (the "Termination Agreement") between the Company and Mr. Foster, and effective as of the date of such termination, the Company and Mr. Foster entered into a consulting agreement dated March 15, 1996. See "Executive Compensation--Employment Contracts, Termination of Employment and Change in Control Arrangements" for further discussion.
During February 1996, the Company entered into two (2) different offshore transactions with RBB Bank Aktiengesellschaft ("RBB Bank"). In the first transaction, the Company sold to RBB Bank 1,100 shares of a newly created Series 1 Class A Preferred Stock, par value $.001 ("Series 1 Preferred"), for $1,000 per share, for an aggregate purchase price of $1,100,000, pursuant to an Offshore Securities Subscription Agreement, dated February 9, 1996. In the second transaction, the Company sold to RBB Bank 330 shares of a newly created Series 2 Class B Preferred Stock, par value $.001 ("Series 2 Preferred"), for $1,000 per share for an aggregate sales price of $330,000, pursuant to an Offshore Securities Subscription Agreement, dated February 22, 1996. The Series 1 Preferred and the Series 2 Preferred are collectively referred to herein as "RBB Preferred Stock." In connection with both transactions, the Company paid placement fees totaling $209,000. The RBB Preferred Stock was convertible at any time, commencing forty-five (45) days after issuance, into shares of the Company's common stock at a conversion price equal to the aggregate value of the shares of the RBB Preferred Stock being converted, together with all accrued but unpaid dividends thereon, divided by the "Average Stock Price" per share (the "Conversion Price"). The Average Stock Price was defined as the lesser of (i) seventy percent (70%) of the average daily closing bid prices of the common stock for the period of five (5) consecutive trading days immediately preceding the date of subscription by the holder or (ii) seventy percent (70%) of the average daily closing bid prices of the common stock for a period of five (5) consecutive trading days immediately preceding the date of conversion of the RBB Preferred Stock. The RBB Preferred Stock entitled the holder thereof to receive dividends accruing at the rate per share of five percent (5%) per annum of consideration paid for each share of the RBB Preferred Stock, or $50.00 per annum, payable in arrears at the rate of $12.50 for each full calendar quarter. Dividends on the RBB Preferred Stock were paid at the election of the Company by the issuance of shares of common stock. During 1996, all outstanding shares of the RBB Preferred Stock were converted into approximately 1,970,000 shares of common stock of the Company, which includes approximately 17,000 shares issued by the Company in satisfaction of accrued dividends. Pursuant to the
Subscription Agreement for the issuance of Series 3 Class C Convertible Preferred Stock, as discussed below, 920,000 of these shares of converted common stock were purchased by the Company at a purchase price of $1,770,000. As a result of such conversions, the RBB Preferred Stock is no longer outstanding.
During July 1996, the Company issued 5,500 shares of newly- created Series 3 Class C Convertible Preferred Stock, par value $.001 per share ("Series 3 Preferred") at a price of $1,000 per share, for an aggregate sales price of $5,500,000, and paid placement and closing fees as a result of such transaction of approximately $586,000. The transaction was pursuant to a Subscription and Purchase Agreement ("Subscription Agreement") between the Company and RBB Bank and included the Company granting to RBB Bank two Warrants to purchase up to 2,000,000 shares of the Company's common stock, with 1,000,000 shares of common stock exercisable at $2.00 per share and 1,000,000 shares of common stock exercisable at $3.50 per share (collectively, the "RBB Warrants"). The RBB Warrants are for a term of five (5) years and may be exercised at any time after December 31, 1996, and until the end of the term of such Warrants. The Series 3 Preferred is not entitled to any voting rights, except as required by law. Dividends on the Series 3 Preferred accrue at a rate of six percent (6%) per annum, payable semi-annually as and when declared by the Board of Directors, and such dividends are cumulative. Dividends shall be paid, at the option of the Company, in the form of cash or common stock of the Company. If the Dividends are paid in common stock, each share of outstanding Series 3 Preferred shall receive shares of common stock equal to the quotient of (i) six percent (6%) of $1,000 divided by (ii) the average closing bid quotation of the common stock as reported on the over-the-counter market, or the closing sale price if listed on a national securities exchange, for the five (5) trading days immediately prior to the applicable dividend declaration date. The Company issued 100,387 shares during January 1997 in payment of accrued dividends for the period July through December 1996.
RBB Bank may convert the Series 3 Preferred into common stock of the Company as follows: (i) up to 1,833 shares on or after October 1, 1996; (ii) an additional 1,833 shares on or after November 1, 1996; and (iii) the balance on or after December 1, 1996. The conversion price shall be the product of (i) the average closing bid quotation for the five (5) trading days immediately preceding the conversion date multiplied by (ii) seventy-five percent (75%). The conversion price shall be a minimum of $.75 per share or a maximum of $1.50 per share, with the minimum conversion price to be reduced by $.25 per share each time, if any, after July 1, 1996, the Company sustains a net loss, on a consolidated basis, in each of two (2) consecutive quarters ("Minimum Conversion Price Reduction"). For the purpose of determining whether the Company has had a net loss in each of two (2) consecutive quarters, at no time shall a quarter that has already been considered in such
determination be considered in any subsequent determination. Subject to the closing bid price of the Company's common stock at the time of conversion and the other conditions which could increase the number of shares to be issued upon conversion, the Series 3 Preferred, if all of the shares of Series 3 Preferred were converted, such could be converted into between approximately 3,700,000 and approximately 7,300,000 shares of common stock, or more pursuant to the Minimum Conversion Price Reduction. The common stock issuable on the conversion of the Series 3 Preferred is subject to certain registration rights pursuant to the Subscription Agreement, pursuant to which a Form S-3 Registration Statement was filed by the Company with the Securities and Exchange Commission on October 21, 1996.
Under the terms of the Subscription Agreement, from the net proceeds of the sale of the Series 3 Preferred (approximately $4,900,000) received by the Company after payment of placement fees to brokers, legal fees and other expenses, the Company purchased from RBB Bank 920,000 shares of common stock of the Company acquired by RBB Bank upon conversion of the Company's Series 1 Preferred and Series 2 Preferred for $1,770,000.
In June 1995, the Company entered into a consulting agreement ("Zwecker Consulting Agreement") with Mark A. Zwecker, a Director, to provide certain financial consulting services to the Company. Under this arrangement, the Company paid to Mr. Zwecker a consulting fee of $1,500 per month. Mr. Zwecker agreed to accept, in lieu of 65% of the consulting fee due at any time, to be issued a number of shares of common stock having a value equal to 65% of the fee based on the fair market value of such stock determined on the business day immediately preceding that date such fee is due. The consulting agreement was terminated effective June 30, 1996, pursuant to Mr. Zwecker's resignation as Secretary and the corresponding appointment of Richard Kelecy as the Company's Secretary. As a result of the above, Mr. Zwecker will receive compensation consistent with all other outside Directors. From January 1995, through September 30, 1996, Mr. Zwecker received, or is to receive, from the Company approximately $19,000 under the Zwecker Consulting Agreement and subject to the above-described arrangements.
The Company acquired Perma-Fix of Memphis, Inc., a subsidiary of the Company (f/k/a American Resource Recovery Corporation ["ARR"]), located in Memphis, Tennessee ("PFM"), in December 1993, from Billie Kay Dowdy ("Dowdy"), who was the sole stockholder of PFM immediately prior to such acquisition, and, in connection therewith, issued to Dowdy 601,500 shares of common stock, which represented more than five percent (5%) of the Company's outstanding shares of common stock. During 1996, Dowdy ceased being the beneficial owner of more than five percent (5%) of the Company's outstanding shares of common stock. In connection with such acquisition, Ms. Dowdy agreed to defend, indemnify and hold harmless the Company and PFM under certain conditions. During September 1994, PFM was sued by
Community First Bank ("Community First") to collect a note in the principal sum of $341,000 that was allegedly made by ARR to CTC Industrial Services, Inc. ("CTC") in February 1987 (the "Note"), and which was allegedly pledged by CTC to Community First in December 1988, to secure certain loans to CTC. This lawsuit, styled Community First Bank v. American Resource Recovery Corporation, was instituted on September 14, 1994, and is pending in the Circuit Court, Shelby County, Tennessee. The Company was not aware of the Note nor its pledge to Community First at the time of the Company's acquisition of PFM in December 1993. The Company has filed a third party complaint against Dowdy in the lawsuit to defend and indemnify the Company and PFM from and against this action under the terms of the agreement relating to the Company's acquisition of PFM. Dowdy has agreed to indemnify and defend the Company and PFM under certain conditions. The Company intends to vigorously defend itself in connection with this lawsuit.
In May 1995, PFM became aware that the U.S. District Attorney for the Western District of Tennessee and the Department of Justice were investigating certain prior activities of W. R. Drum Company, its successor, First Southern Container Company, and any other facility owned or operated, in whole or in part, by Johnnie Williams, which activities were generally prior to the time the Company acquired PFM. PFM used W. R. Drum Company to dispose of certain of its used drums. In May 1995, PFM received a Grand Jury Subpoena which demanded the production of any documents in the possession of PFM pertaining to W. R. Drum Company, First Southern Container Company, or any other facility owned or operated, or held in part, by Johnnie Williams. PFM complied with the Grand Jury Subpoena. Thereafter, in September of 1995, PFM received another Grand Jury Subpoena for documents from the Grand Jury investigating W. R. Drum Company, First Southern Container Company and/or Johnnie Williams. PFM complied with the Grand Jury Subpoena. In December 1995, representatives of the Department of Justice advised PFM that it was also currently a subject of the investigation involving W. R. Drum Company, First Southern Container Company, and/or Johnnie Williams. Since that time, however, PFM has had no contact with representatives of either the United States District Attorney's office for the Western District of Tennessee or the Department of Justice, and is not aware of why it is also a subject of such investigation. In accordance with certain provisions of the Agreement and the Plan of Merger relating to the prior acquisition of PFM, on or about January 2, 1996, PFM notified Ms. Billie K. Dowdy of the foregoing, and advised Ms. Dowdy that the Company and PFM would look to Ms. Dowdy to indemnify, defend and hold the Company and PFM harmless from any liability, loss, damage or expense incurred or suffered as a result of, or in connection with, this matter.
The Company believes that each of the transactions set forth above involving affiliates, officers or Directors of the Company was or is on terms at least as favorable to the Company as could have
been obtained from an unaffiliated third party. The Company has adopted a policy that any transactions or loans between the Company and its Directors, principal stockholders or affiliates must be approved by a majority of the disinterested Directors of the Company and must be on terms no less favorable to the Company than those obtainable from unaffiliated third parties.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a)(1) Consolidated Financial Statements
See Item 8 for the Index to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
See Item 8 for the Index to Consolidated Financial Statements (which includes the Index to Financial Statement Schedules)
(a)(3) Exhibits
The Exhibits listed in the Exhibit Index on page 102 are filed or incorporated by reference as a part of this report.
(b) Reports on Form 8-K
A current report on Form 8-K (Item 4 -- Changes in Registrant's Certifying Accountant) was filed on November 21, 1996 reporting that on November 15, 1996 Arthur Andersen LLP, the outside independent auditors of the Registrant, notified the Registrant that it was resigning, effective immediately, as the Registrant's independent auditors.
A current report on Form 8-K (Item 4 -- Changes in Registrant's Certifying Accountant) was filed on December 20, 1996 reporting that on December 18, 1996 the Registrant's Board of Directors approved the employment of BDO Seidman, LLP as the Registrant's new independent auditors.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Perma-Fix Environmental Services, Inc.
By: /s/ Dr. Louis F. Centofanti Date: April 14, 1997 ______________________________ ____________________ Dr. Louis F. Centofanti Chairman of the Board Chief Executive Officer
By: /s/ Richard T. Kelecy Date: April 14, 1997 ______________________________ ___________________ Richard T. Kelecy Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.
/s/ Mark A. Zwecker Date: April 14, 1997 _________________________ ____________________ Mark A. Zwecker, Director
/s/ Steve Gorlin Date: April 14, 1997 _________________________ ____________________ Steve Gorlin, Director
/s/ Jon Colin Date: April 14, 1997 ________________________ ___________________ Jon Colin, Director
/s/ Louis F. Centofanti Date: April 14, 1997 _________________________ ____________________ Dr. Louis F. Centofanti, Director
SCHEDULE II
PERMA-FIX ENVIRONMENTAL SERVICES, INC.