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
14, 2006
General
Environmental Management, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
(State
of
Other Jurisdiction of Incorporation)
|
33-55254-38
|
87-0485313
|
|
(Commission
File Number)
|
(IRS
Employer Identification No.)
|
| |
|
|
3191
Temple Avenue, Suite 250 Pomona, California
|
91768
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(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 15, 2006, we entered into an agreement (the “PCI Agreement”) to acquire
of all of the shares of Pollution Control Industries, Inc., a Delaware
corporation (“PCI DE”) (such shares being referred to herein as the
“Stock”);
and
all of the membership interests of Thunderbird LLC, an Illinois limited
liability company (“Thunderbird”.) PCI DE is an Indiana-based provider of
hazardous and non-hazardous waste management services, and Thunderbird, and
its
subsidiaries, operate several businesses that are affiliated with PCI DE.
PCI DE
and Thunderbird are hereafter referred to as “PCI.” The purchase price is $35
million, subject to certain adjustments. The acquisition is subject to
regulatory approval, and standard closing conditions. In the event that we
are
not able to close the transaction because of our inability to fund the purchase
price, we have agreed to pay a “Break-up fee of $875,000 to the sellers. We have
deposited $875,000 into an escrow account to secure the payment of the Break-up
fee. The transaction is expected to close by September 30, 2006.
PCI
currently has 326 employees, all of whom will remain with PCI, except for
Kevin
Prunsky, Chairman of the Board, and John Newell, President and CEO. Among
those
joining the GEM team will be key executive management members including Dean
Nardi, PCI’s EVP of Sales & Marketing, Robert O’Brien, EVP of Operations,
Ken Carle, EVP of Business Development and Margarita LaGrimes, EVP of Health
& Safety and Regulatory Affairs.
In
2005,
PCI had gross consolidated revenue of $46.6 million, with consolidated EBITDA
of
$6.3 million.
PCI
was
founded in 1986 and is headquartered in East Chicago, IN. PCI is one of the
leading waste management service providers in North America and is engaged
in
the collection, treatment, recycling, and disposal of hazardous and
non-hazardous industrial wastes. Its environmental service offerings
include liquid and solid hazardous waste processing; non-hazardous waste
processing; technical field services and “Lab Pack De-Pack” processing;
transportation services; recycling through Solids Distillation System (SDS)
technology; gas cylinder management; high-hazardous materials management
and
universal waste services. PCI’s proprietary SDS treatment technology, a
recycling technology, reclaims valuable hydrocarbons and materials from organic
solid waste. SDS is cost competitive with current market disposal options,
and
offers environmental benefits include preventing pollution while promoting
recycling and reuse.
b.
In
order to raise the required purchase price for the acquisition of PCI, on
August
10, 2006, (See Form 8K filed on August 14, 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 Subsidiaries”.)
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 PCI by a certain date, and we complete the acquisition of PCI.
3.
PCI,
contemporaneously with the payment of the purchase price and acquisition
of PCI
by us, issues to Laurus, a warrant (the “PCI Warrant), with no expiration date,
to purchase 35% (30% if we are successful in raising $19 million in equity)
of
the equity securities of PCI at a nominal price per Warrant.
4.
Upon
the closing, PCI 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 PCI) 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 PCI 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. PCI 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 PCI. We,
and
our subsidiaries, and PCI, 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 PCI. 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 PCI, 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.
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.
General
Environmental Management, Inc
By:
/s/ Timothy
Koziol
Timothy Koziol, Chief Executive Officer
Date:
August 15, 2006