Form 8-K
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of
report (Date of earliest event reported): August
11, 2006
General
Environmental Management, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
(State
of
Other Jurisdiction of Incorporation)
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33-55254-38
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87-0485313
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(Commission
File Number)
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(IRS
Employer Identification No.)
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3191
Temple Avenue, Suite 250 Pomona, California
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91768
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(909)
444-9500
(Registrant's
Telephone Number, Including Zip Code)
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[
]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[
]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[
]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
[
]
Pre-commencement communication pursuant to Rule 13e-4(c) under the
Item
1.01
Entry into a Material Definitive Agreement
a.
On
August 10, 2006, we entered into a series of agreements (“Agreements”) with
Laurus Master Fund, Ltd. ("Laurus") whereby we agreed to issue to Laurus (i)
a
secured three (3) year term note ("Note") in the face amount of $29.5 million;
and (ii) seven (7) year warrants ("Warrants") to purchase 13,636,362 shares
(the
“Warrant Shares”) of our common stock at an exercise price of $.24 per share.
The total Note proceeds is $25 million. We also agreed to pay, out of the Loan
proceeds, an Investment Fee of $1,155,000 to Laurus Capital Management, LLC,
the
manager of Laurus, and the sum of approximately $51,000 to Laurus as
reimbursement for Laurus' structuring and due diligence fees, legal fees, and
expenses incurred in connection with the transaction. Approximately $70,000
in
additional fees were paid to counsel and other parties in the
transaction.
The
principal amount of the Note will carry an interest rate of prime (as published
in the Wall Street Journal) plus two percent (2%) (at all times, such rate
shall
be at least 8.00%), subject to adjustment, and will require that we must make
monthly payments of at least $416,666.66 commencing April 1, 2007, toward the
outstanding non-restricted principal amount. The Note will be secured by all
of
our assets and the assets of our subsidiaries, General Environmental Management,
Inc. (Delaware) and its subsidiary, General Environmental Management of Rancho
Cordova LLC, a California Limited Liability Company, K2M Mobile Treatment
Service, Inc. a California corporation, and by a pledge of all of our stock
in
General Environmental Management, Inc. (Delaware), General Environmental
Management of Rancho Cordova LLC, and K2M Mobile Treatment Services, Inc, (the
“Current Susidiaries”.)
The
Note
proceeds, less the fees, are being held in an escrow account (the “Escrow) and
are to be released upon certain conditions to be satisfied by certain dates,
among which are:
1.
We
raise a minimum of $16 million through the sale of our equity securities on
or
before September 30, 2006, with best efforts to raise $19 million.
2.
We
provide Laurus with evidence that we have entered into a definitive agreement
to
acquire a target company (“Target”) by a certain date, and we complete the
acquisition of the Target.
3.
The
Target, contemporaneously with the payment of the purchase price and acquisition
of Target by us, issues to Laurus, a warrant (the “Target Warrant), with no
expiration date, to purchase 35% (30% if we are successful in raising $19
million in equity) of the equity securities of the Target at a nominal price
per
Warrant.
4.
Upon
the closing, the Target will assume the obligations under the Note as
borrower.
5.
A
number of agreements are executed, including providing security and collateral
to Laurus for the repayment of the Note and the Revolving Note identified below
and other obligations.
6.
We
obtain certain waivers, consents, and releases.
In
the
event that we do not complete the acquisition, or are unable to fulfill other
conditions of the escrow agreement, the funds in escrow will be returned to
Laurus. However, Laurus will not be obligated to return any fees or expenses
to
us. The Warrants will be deemed cancelled.
If
we
complete the acquisition, the proceeds from the Note will be released, and
we
and our subsidiaries (including Target) are expected to enter into a new series
of additional agreements with Laurus. Among other things, we will issue an
Amended and Restated Secured Convertible Term Note (the “Convertible Note”) to
replace the Note. $12.5 million of the principal amount of the Convertible
Note
will be convertible into shares of our common stock at a price of $0.17 per
share (73,529,411 shares) subject to certain adjustments. Under the terms of
the
proposed Convertible Note, the monthly principal payment amount of approximately
$416,666.66, plus the monthly interest payment (together, the "Monthly
Payment"), will be payable in cash. We and our current subsidiaries will be
providing to Laurus, a guaranty of the payment by the Target of its obligation
under the Convertible Note and the Revolving Note and will collateralize such
guaranty with the assets originally pledged to collateralize the Note. The
Target will join an existing guaranty of certain of our Current Subsidiaries’
obligations owing to Laurus and will collateralize those guaranteed obligations
as well as the obligations pursuant to the Convertible Note and the Revolving
Note with the assets of the Target. We, our subsidiaries, and the Target, will
also amend and restate certain agreements relating to our existing credit
facility with Laurus, provide additional security, and execute other
agreements.
If
we
complete the acquisition, Laurus will provide a $5 million Revolving Note (the
“Revolving Note”) to be secured by the accounts receivable of the Target. The
interest rate on this credit facility is Prime plus 2%.
Under
the
terms of the Warrants and the Convertible Note, Laurus may exercise the Warrants
or convert the Convertible Notes, provided that such exercise and/or conversion
do not result in Laurus beneficially owning more that 4.99% of our outstanding
shares of common stock. We have agreed that we will register all of the shares
that are issuable upon exercise of the Warrants and conversion of the
Convertible Note.
To
obtain
the required $16 million in equity, we intend to sell shares of our common
stock
or preferred stock at the equivalent of $.05 per share of common stock, to
accredited investors in private placement transactions.
Of
the
$16 million in equity we are required to raise, we have raised a total of
approximately $4,053,800. These funds were raised during the period May 22,
2006
through August 10, 2006 through the sale of convertible notes (the May
Convertible Notes”). Each one dollar of principal of the May Convertible Notes
is convertible into 10 shares of the Company’s Common Stock. The May Convertible
Notes are convertible at any time at the option of the Company. During that
period we sold a total of $4,053,800 in May Convertible Notes to 112 accredited
investors.(see below Item 3.02 below). The Company intends to convert the May
Convertible Notes within the next 30 days.
We
currently have 200 million shares of Common Stock and 50 million shares of
“Blank Check” Preferred Stock authorized. Since we have 28,250,635 shares of
common stock outstanding, the authorized number of shares of Common Stock would
be insufficient to issue, or reserve for issuance, those number of shares of
common stock which would otherwise be issued to raise the requisite $16 million
at the proposed per share price of $.05 and the shares that would be issuable
upon the conversion of the Convertible Note. Accordingly, in order to facilitate
the raising of this capital, the Board of Directors has determined to designate
a Series “B” Preferred Stock (the “Series “B”), subject to obtaining any
requisite consents from the holders of Series A Preferred Stock. We anticipate
each share of Series “B” will: (i) be automatically converted into 20 shares of
Common Stock upon the approval and filing of the Amendment; (ii) be entitled
to
cast 20 votes per share to vote at any meeting of the stockholders of the Common
Stock, (iii) be entitled to receive any dividends on the same basis as common
stockholders based on the ratio into which they would be convertible; and (iii)
be entitled to a liquidation preference, only over the holders of the shares
of
Common Stock.
Shortly
after the acquisition of Target, the Company will then seek to increase in
the
number of authorized Common Stock to one billion by calling a meeting of the
stockholders (the “Meeting”) to approve an amendment (the “Amendment”) to the
Articles of Incorporation providing for such increase.
In
order
to conduct the Meeting, we are required to provide our stockholders with a
Proxy
Statement that has been filed with the United States Securities & Exchange
Commission (“SEC”.) We expect that it will take a minimum of 60 days until the
Meeting may be held.
In
anticipation of the sale of the equivalent of approximately 320 million shares
of Common Stock, and the possible issuance of more than 86 million shares of
Common Stock to Laurus upon the exercise of its warrants and the conversion
of
the Convertible Note, the Company plans to reduce the total amount of Common
Stock outstanding to below 30 million. Accordingly, the Company anticipates
that
the Board of Directors will authorize a one for twenty “reverse split” of the
issued and outstanding common stock, which would be effective immediately after
the filing of the Amendment.
Item
2.01
Completion of Acquisition or Disposition of Assets
See
1.01
above
Item
3.02
Unregistered Sales of Equity Securities
a.
See
Item 1.01 above
b.
In
May, 2006, the Board of Directors authorized the private placement sale to
accredited investors of up to $10 million in convertible notes (the (May
Convertible Notes”). Each one dollar of principal of the May Convertible Notes
was convertible into 10 shares of the Company’s Common Stock . The May
Convertible Notes are convertible at the Company’s option at any time. The
Company has entered into a Placement Agent Agreement with Ascendiant Securities
LLC (“Ascendiant”) pursuant to which Ascendiant agreed to use its best efforts
to sell the May Convertible Notes. Ascendiant will receive a commission of
6% of
all monies received by us and a number of warrants that is equal to 6% of the
number of shares into which the May Convertible Notes are convertible. The
Company reserved the right to sell the May Convertible Notes through its
officers. As of August11, 2006, the Company has sold $4,053,800 in May
Convertible Notes. The Company intends to convert the May Convertible Notes
within the next 30 days..
On
August
9, 2006 the Board of Directors authorized a modification in the terms of the
May
Convertible Notes so that each one dollar of principal of the May Convertible
Note is convertible into 20 shares of Common Stock. The additional shares of
Common Stock to be issued upon conversion of the May Convertible Notes will
be
upon the condition that each purchaser waive any claims they may have against
the Company relating to its proposed or actual sale of Series B Preferred Stock,
which would be convertible into shares of common stock at the equivalent of
$.05
per share of Common Stock. On August 9, 2006 the Company ceased any further
sale
of the May Convertible Notes.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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General
Environmental Management, Inc. |
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| Date:
August 14, 2006 |
By: |
/s/ Timothy
Koziol
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Timothy Koziol, Chief Executive
Officer |
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