Attached files
Exhibit
10.42
On
November 13, 2009, Registrant entered into a Stock Purchase
Agreement ("Agreement") with United States Environmental Response,
LLC, a California limited liability company (“Seller”) pursuant to which the
Registrant has purchased all of the issued and outstanding capital stock of
California Living Waters, Incorporated ("CLW"), a privately held
company. CLW owns all of the issued and outstanding capital stock of
Santa Clara Waste Water Company (SCWW") a California corporation. CLW's only
operating subsidiary is SCWW. The Agreement is subject to a rescission if
Registrant does not pay certain indebtedness to its senior lender by close of
business on March 12, 2010.
SCWW,
located in Ventura County, California, is a waste water management company with
that operates a 12.7 mile pipeline from its facility to the City of Oxnard'
water reclamation center. In consideration for the sale, GEM issued six
promissory notes (individually a "Note" and collectively, the "Notes") in the
aggregate principal amount of $9,003,000, and warrants to purchase 425,000
shares of GEM's common stock. The Company valued the warrants at
$105,000 using a Black - Scholes option pricing model. For the Black - Scholes
calculation, the Company assumed no dividend yield, a risk free interest rate of
4.78%, expected volatility of 115% and an expected term for the warrants of
10 years. The Notes bear interest at 6.5 per cent per annum. Two of the
Notes, totaling $3,778,000 are convertible into a total of 15% of GEM's common
stock on a fully diluted basis. The Notes have the following payment
provisions:
$2,000,000
Seller's Note-- Payment of the outstanding principal of the Seller's Note is due
and payable in four (4) installments as follows: (A) Two Hundred Fifty Thousand
Dollars ($250,000) plus accrued interest before March 12, 2010, (B) Five Hundred
Thousand Dollars ($500,000) and accrued interest on June 30 2010; (C) One
Million Dollars ($1,000,000) and accrued interest on January 1, 2011 (D) the
balance of all residual principal and accrued interest on March 31,
2011.
$1,700,000
Note One-- Payment of the outstanding principal of Note One is due and payable
in 120 installments commencing on December 1, 2009 and continuing on the first
day of each calendar month through February 1, 2019. Installments are
payable in the following amounts (subject
to the other terms of this Note): (A) the amount of principal and accrued
interest payable in the first one hundred nineteen (119) Installments shall be
equal Installments of principal and interest, calculated on the basis of a
30-year amortization of this Note and (B) the one hundred twentieth (120th)
Installment shall be a final, “balloon” payment.
$1,100,000
Note Two-- Payment of the outstanding principal of this Note Two is be due and
payable in sixty (60) installments commencing on December 1, 2009 and continuing
on the first day of each calendar month through November 1, 2014. Installments
are payable in the following amounts (subject to the other terms of this Note):
(A) the amount of principal and accrued interest payable in the first fifty-nine
(59) Installments shall be equal Installments of principal and interest,
calculated on the basis of a 30-year amortization of this Note; and (B) the
final, “balloon” payment on November 1, 2014.
$424,000
Note Three-- Payment of the outstanding principal of this Note shall be due and
payable in 120 installments commencing on December 1, 2009 and continuing on the
first day of each calendar month through November 1,
2019. Installments are payable in the following amounts (subject to
the other terms of this Note): (A) the amount of principal and accrued interest
payable in the first one hundred nineteen (119) Installments shall be equal
Installments of principal and interest, calculated on the basis of a 30-year
amortization of this Note and (B) the one hundred twentieth (120th)
Installment shall be a final, “balloon”. Note Three is convertible at any time
in full or in part (but if in part, then only in principal increments of
$100,000 or an integral multiple thereof) into shares of common stock of
Registrant at the conversion rate of Four Dollars ($4.00) per share, subject to
adjustment.
1
$1,600,000
Note Four-- Payment of the outstanding principal of this Note is due and payable
in 41 installments commencing on July 1, 2010 and continuing on the first day of
each calendar month through November 1, 2013. Installments are payable in the
following amounts (subject to the other terms of this Note): (A) the amount
of principal and accrued interest payable in the first forty Installments shall
be equal Installments of principal and interest, calculated on the basis of a
30-year amortization of this Note, provided that the first Installment shall
also include all interest accrued during the first seven months from the
date of this Note; Four and (B) the final, “balloon”, Installment shall be in
the amount of all then-outstanding principal, interest and other amounts then
outstanding. Note Four is convertible into 5% of the common stock of Registrant
on a fully diluted basis until Registrant achieves a Capital Restructuring Goal.
Capital Restructuring Goal means the concurrent fulfillment of each of the
following events: (i) the Seller’s Note shall have been fully paid on the terms
thereof as to all theretofore outstanding principal, interest, costs and
expenses; (ii) Registrant shall have available, as properly reflected in
Registrant’s books one million dollars ($1,000,000) in uncommitted working
capital (not including any working capital lines of credit); and (iii)
Registrant shall have invested into SCWW capital of at least one million dollars
$1,000,000.
$2,178,000
Note Five-- Payment of the outstanding principal of this Note is due and payable
in 41 installments commencing on July 1, 2010 and continuing on the first day of
each calendar month through November 1, 2013. Installments are payable in the
following amounts (subject to the other terms of this Note): (A) the amount
of principal and accrued interest payable in the first forty Installments shall
be equal Installments of principal and interest, calculated on the basis of a
30-year amortization of this Note, provided that the first Installment shall
also include all interest accrued during the first seven months from the
date of this Note; Four and (B) the final, “balloon”, Installment shall be in
the amount of all then-outstanding principal, interest and other amounts then
outstanding. Note Four is convertible into 10% of the common stock of Registrant
on a fully diluted basis until Registrant achieves the Capital Restructuring
Goal.
The
acquisition of CLW will be accounted for as a purchase in accordance and the
operations of the company will be consolidated with those of GEM as of October
1, 2009. The parties determined that the effective date of the acquisition
was September 30, 2009, the date of which GEM assumes all the
responsibility for any losses or profits that might be incurred during
the period. The results of CLW as of October 31, 2009 have been
combined in this pro forma with the September 30, 2009 results of the
Company. The ten months’ operating results for CLW added to the nine
months’ results for the Company are representative on a pro forma basis of the
operating performance of the combined companies. The $9.0 million
purchase price will be allocated as follows based upon the fair value of the
acquired assets, as determined by management.
|
Current
assets and liabilities
|
$
|
428,392
|
||
|
Intangibles,
net
|
1,486,503
|
|||
|
Other
non current assets
|
342,561
|
|||
|
Property
and equipment
|
12,386,747
|
|||
|
Long
term obligations, net of current portion
|
(5,536,203)
|
|||
|
Total
|
$
|
9,108,000
|
The Company has not completed its valuation of the acquired assets
but believes most of the excess fair value of the acquired assets and
liabilities will be allocated to property and equipment and have been reflected
as such in the accompanying Pro Forma Balance Sheet. The valuation of the
acquired assets may change based upon final valuation.
2
The
following unaudited pro forma combined balance sheet as of September 30, 2009
and the combined statements of operations for the nine months ended September
30, 2009 and for the year ended December 31, 2008 give effect to the acquisition
of CLW as if these transactions had been consummated on January 1, 2009 and
January 1, 2008. The unaudited pro forma combined balance sheet as of
September 30, 2009 gives effect to the Merger Transaction and acquisition of CLW
as if it had occurred on September 30, 2009.
The
unaudited condensed combined pro forma financial statements should be read in
conjunction with the historical financial statements. The unaudited
pro forma financial statements are presented for illustrative purposes only and
are not necessarily indicative of future operating results or the results that
might have occurred if the exchange transaction had actually occurred on the
indicated date.
3
General
Environmental Management, Inc.
Unaudited
Pro Forma Consolidated Balance Sheet
As
of September 30, 2009
|
Historical
|
California
Living Waters, Inc. and Subsidiary (b)
|
Pro Forma
Adjustments
|
Pro
Forma
Consolidated
|
||||||||||||||
|
ASSETS
|
|||||||||||||||||
|
Current
assets:
|
|||||||||||||||||
|
Cash
|
$ | 39,676 | $ | 492,193 | $ | - | $ | 531,869 | |||||||||
|
Accounts
receivable, net of allowance for doubtful accounts
|
2,989,745 | 1,331,224 | - | 4,320,969 | |||||||||||||
|
Prepaid
expenses and current other assets
|
768,852 | 85,361 | - | 854,213 | |||||||||||||
|
Total
current assets
|
3,798,273 | 1,908,778 | - | 5,707,051 | |||||||||||||
|
Property
and equipment, net of accumulated depreciation
|
5,191,212 | 10,777,655 | 5,332,999 |
(a)
|
21,301,866 | ||||||||||||
|
OTHER
ASSETS
|
|||||||||||||||||
|
Restricted
cash
|
900,039 | - | - | 900,039 | |||||||||||||
|
Intangibles,
net
|
547,232 | - | - | 547,232 | |||||||||||||
|
Goodwill
|
84,505 | - | - | 84,505 | |||||||||||||
|
Permits
and Franchises
|
- | 1,486,503 | 1,486,503 | ||||||||||||||
|
Deferred
financing fees
|
369,015 | 162,854 | - | 531,869 | |||||||||||||
|
Other
noncurrent assets
|
- | 179,707 | 179,707 | ||||||||||||||
|
Assets
of discontinued operations
|
1,089,341 | 1,089,341 | |||||||||||||||
|
Deposits
|
191,686 | - | - | 191,686 | |||||||||||||
|
Total
assets
|
$ | 12,171,303 | $ | 14,515,497 | $ | 5,332,999 | $ | 32,019,799 | |||||||||
|
Liabilities
and Stockholders’ Equity
|
|||||||||||||||||
|
Current
liabilities:
|
|||||||||||||||||
|
Accounts
Payable
|
$ | 4,082,904 | 635,665 | - | 4,718,569 | ||||||||||||
|
Payable
to related party
|
741,719 | - | 741,719 | ||||||||||||||
|
Deferred
rent
|
35,254 | - | 35,254 | ||||||||||||||
|
Accrued
expenses
|
2,405,394 | 128,233 | - | 2,533,627 | |||||||||||||
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Accrued
disposal costs
|
536,519 | - | - | 536,519 | |||||||||||||
|
Derivative
liabilities
|
4,931,579 | 4,931,579 | |||||||||||||||
|
Current
portion of financing agreement
|
4,858,771 | - | - | 4,858,771 | |||||||||||||
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Current
portion of capital lease obligations
|
277,372 | 277,372 | |||||||||||||||
|
Current
portion of long-term obligations
|
- | 716,488 | 698,908 | 1,415,396 | |||||||||||||
|
Total
current liabilities
|
17,869,512 | 1,480,386 | 698,908 | 20,048,806 | |||||||||||||
|
LONG
– TERM LIABILITIES
|
|||||||||||||||||
|
Financing
agreement, net of current portion
|
5,425,678 | - | - | 5,425,678 | |||||||||||||
|
Long
term obligations, net of current portion
|
1,758,473 | 3,736,203 | 8,304,092 | 13,798,768 | |||||||||||||
|
Capital
lease obligations, net of current portion
|
734,430 | - | - | 734,430 | |||||||||||||
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Deferred
Income Taxes
|
2,659,932 | (2,659,932 | ) | - | |||||||||||||
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Subordinated
related party notes payable
|
- | 1,800,000 | 1,800,000 | ||||||||||||||
|
Total
long-term liabilities
|
7,918,581 | 8,196,135 | 5,644,160 | 21,758,876 | |||||||||||||
|
Stockholders’
equity (deficiency)
|
|||||||||||||||||
|
Common stock, $.001 par value, 100,000,00 shares authorized 14,557,653 and
35,439 shares issued and outstanding
|
14,570 | - | 14,570 | ||||||||||||||
|
Additional
paid-in capital
|
54,450,995 | 4,946,236 | (4,841,236 | ) | 54,555,995 | ||||||||||||
|
Retained
earnings (accumulated deficit)
|
(68,082,355 | ) | (107,260 | ) | 3,831,167 | (64,358,448 | ) | ||||||||||
|
Total
stockholders’ equity
|
(13,616,790 | ) | 4,838,976 | (1,010,069 | ) | (9,787,883 | ) | ||||||||||
|
Total
liabilities and stockholders’ equity (deficiency)
|
$ | 12,171,303 | $ | 14,515,497 | $ | 5,332,999 | $ | 32,019,799 | |||||||||
Descriptions
of Pro Forma eliminations:
|
(a)
|
To
reflect acquisition of CLW by General Environmental Management, Inc. and
allocation of purchase price.
|
|
(b)
|
For
pro forma balance sheet presentation purposes at September 30, 2009, the
Company has included the historical balance sheet of California
Living Waters Inc. as of October 31, 2009. Management has
determined there are no significant differences between the periods that
would effect the pro forma.
|
4
General
Environmental Management, Inc.
Unaudited
Pro Forma Consolidated Statements of Operations
For
the nine months ended September 30, 2009
|
Historical
|
California
Living Waters, Inc. and Subsidiary(d)
|
Pro Forma
Adjustments
|
Pro
Forma
Consolidated
|
|||||||||||||||
|
(Unaudited)
|
||||||||||||||||||
|
Revenue
|
$ | 12,589,161 | $ | 5,291,866 | $ | - | 17,881,027 | |||||||||||
|
Cost
of revenue
|
12,906,589 | 3,650,472 | 62,671 |
(b)
|
16,619,732 | |||||||||||||
|
Gross
profit
|
(317,428 | ) | 1,641,394 | (62,671 | ) | 1,261,295 | ||||||||||||
|
Operating
expenses
|
6,607,657 | 988,259 | 7,595,916 | |||||||||||||||
|
Operating income
(loss)
|
(6,925,085 | ) | 653,135 | (62,671 | ) | (6,334,621 | ) | |||||||||||
|
Other
Income (Expense):
|
||||||||||||||||||
|
Interest
income
|
19,403 | 413 | 19,816 | |||||||||||||||
|
Interest
and financing costs
|
(3,724,968 | ) | (379,486 | ) | (342,821 | ) |
(c)
|
(4,447,275 | ) | |||||||||
|
Gain
(loss) on disposal of fixed assets
|
66,050 | (305,129 | ) | (239,079 | ) | |||||||||||||
|
Gain
(loss) on derivative financial instruments
|
988,342 | 988,342 | ||||||||||||||||
|
Gain
(loss) on extinguishment
|
(4,039,358 | ) | (4,039,358 | ) | ||||||||||||||
|
Other
non- operating income
|
27,758 | 60 | 27,818 | |||||||||||||||
|
Loss
from operations
|
(13,587,858 | ) | (31,007 | ) | (405,492 | ) | (14,024,357 | ) | ||||||||||
|
Gain
(loss) from discontinued operations
|
1,077,337 |
(a)
|
- | (1,077,337 | ) |
(f)
|
- | |||||||||||
|
Provision
for income taxes
|
- | 12,403 | - | 12,403 | ||||||||||||||
|
Provision
for deferred income taxes
|
3,723,907 |
(e)
|
3,723,907 | |||||||||||||||
|
Net
Loss
|
$ | (12,510,521 | ) | $ | (18,604 | ) | $ | (2,241,078 | ) | $ | (10,288,047 | ) | ||||||
|
Net
loss per common share, basic and diluted
|
$ | (.94 | ) | $ | (.77 | ) | ||||||||||||
|
Weighted
average shares of common stock outstanding, basic and
diluted
|
13,348,530 | 13,348,530 | ||||||||||||||||
Descriptions
of Pro Forma eliminations:
|
a)
|
GEM
historical reflects the operations of GEM Mobile Treatment Services that
has been classified as a discontinued operations due to its sale in August
2009.
|
|
b)
|
The
additional expense classified to Cost of Revenue includes additional
depreciation related to the allocation of purchase price over the net
assets acquired to fixed assets.
|
|
c)
|
Additional
interest expense related to long term debt issued in conjunction with the
purchase of California Living
Waters.
|
|
d)
|
For
pro forma statement of operations presentation purposes for the nine
months ended September 30, 2009, the Company has included
the historical statement of Operations of California Living Waters Inc.
for the ten months ended October 31, 2009. Management has
determined that the inclusion of the additional one month of operations
has no significant effect the pro
forma
|
|
e)
|
Acquisition
adjustment related to deferred income
taxes
|
|
f)
|
Elimination
of income from discontinued
operations
|
5
General
Environmental Management, Inc.
Unaudited
Pro Forma Consolidated Statements of Operations
For
the year ended December 31, 2008
|
Historical
|
California
Living Waters, Inc. and Subsidiary
|
Pro Forma
Adjustments
|
Pro
Forma
Consolidated
|
||||||||||||||
|
(Unaudited)
|
|||||||||||||||||
|
Revenue
|
$ | 24,307,848 | $ | 7,615,880 | $ | - | $ | 31,923,728 | |||||||||
|
Cost
of revenue
|
22,422,611 | 4,593,040 | 75,204 |
(a)
|
27,090,855 | ||||||||||||
|
Gross
profit
|
1,885,237 | 3,022,840 | (75,204 | ) | 4,832,873 | ||||||||||||
|
Operating
expenses
|
7,658,639 | 1,992,184 | - | 9,650,823 | |||||||||||||
|
Operating
income (loss)
|
(5,773,402 | ) | 1,030,656 | (75,204 | ) | (4,817,950 | ) | ||||||||||
|
Other
Income (Expense):
|
|||||||||||||||||
|
Interest
income
|
17,569 | - | - | 17,569 | |||||||||||||
|
Interest
and financing costs
|
(4,569,813 | ) | (521,882 | ) | (457,094 | ) |
(b)
|
(5,548,789 | ) | ||||||||
|
Other
non- operating income
|
41,729 | 5,256 | - | 46,985 | |||||||||||||
|
Income
(loss) before income taxes
|
(10,283,917 | ) | 514,030 | (532,298 | ) | (10,302,185 | ) | ||||||||||
|
Gain
(loss) from discontinued operations
|
3,135,613 | (3,135,613 | ) |
(c)
|
- | ||||||||||||
|
Provision
for income taxes
|
- | (205,612 | ) | 205,612 | - | ||||||||||||
|
Provision
for deferred income taxes
|
3,723,907 |
(d)
|
3,723,907 | ||||||||||||||
|
Net
Income (loss)
|
$ | (7,149,709 | ) | $ | 308,418 | $ | 261,608 | $ | (6,578,278 | ) | |||||||
|
Net
loss per common share, basic and diluted
|
$ | (.57 | ) | $ | (.52 | ) | |||||||||||
|
Weighted
average shares of common stock outstanding, basic and
diluted
|
12,578,104 | 12,578,104 | |||||||||||||||
Descriptions
of Pro Forma eliminations:
|
a)
|
The
additional expense classified to Cost of Revenue includes additional
depreciation related to the allocation of purchase price over the net
assets acquired to fixed assets.
|
|
b)
|
Additional
interest expense related to long term debt issued in conjunction with the
purchase of California Living
Waters.
|
|
c)
|
Gain
(loss) from discontinued
operations
|
6