<PAGE>
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-4396
PROSPECTUS
5,000,000 SHARES OF COMMON STOCK AND
5,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
COMMODORE APPLIED TECHNOLOGIES, INC.
------
Commodore Applied Technologies, Inc., a Delaware corporation (the
"Company"), hereby offers (the "Offering") 5,000,000 shares of common stock,
par value $.001 per share (the "Common Stock"), and 5,000,000 Redeemable
Common Stock Purchase Warrants (the "Warrants"). The shares of Common Stock
and the Warrants are sometimes hereinafter together referred to as the
"Securities." Until the completion of this Offering, the shares of Common
Stock and the Warrants offered hereby may only be purchased together on the
basis of one share of Common Stock and one Warrant, but will trade separately
immediately after the Offering. Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at an initial exercise price of
$8.40 per share, subject to adjustment, at any time commencing June 28, 1997
until June 28, 2001. Commencing December 28, 1997, the Warrants are subject
to redemption by the Company, in whole but not in part, at $.01 per Warrant
on 30 days' prior written notice provided that the average closing sale price
of the Common Stock as reported on the American Stock Exchange (the "AMEX")
equals or exceeds $18.00 per share (subject to adjustment under certain
circumstances) for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice
of redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the Securities
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained. For
information regarding the factors considered in determining the initial
public offering prices of the Securities and the terms of the Warrants, see
"Risk Factors" and "Underwriting." The Common Stock and the Warrants have
been approved for listing on the AMEX under the symbols "CXI" and "CXIW,"
respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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.
==============================================================================
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discounts (1) Company (2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Per Share ..... $6.00 $.48 $5.52
- -----------------------------------------------------------------------------
Per Warrant .. $.10 $.008 $.092
- -----------------------------------------------------------------------------
Total (3) .... $30,500,000 $2,440.000 $28,060,000
=============================================================================
</TABLE>
(see footnotes on following page)
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the Securities will be made against payment
at the offices of National Securities Corporation, Seattle, Washington, on or
about July 3, 1996.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is June 28, 1996
<PAGE>
- ------
(1) Does not include additional compensation payable to National Securities
Corporation, the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other
compensation payable to the Representative.
(2) Before deducting estimated expenses of $475,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within
45 days after the date of this Prospectus to purchase up to 750,000
additional shares of Common Stock and/or up to 750,000 additional
Warrants upon the same terms and conditions as set forth above, solely to
cover over-allotments, if any (the "Over-allotment Option"). If such
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to the Company will be $35,075,000,
$2,806,000 and $32,269,000, respectively. See "Underwriting."
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OR WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and make
available such other periodic reports as the Company may deem to be
appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and must be read in conjunction
with, the more detailed information and financial statements and notes
thereto appearing elsewhere in this Prospectus. Unless otherwise indicated,
all share and per share information in this Prospectus does not give effect
to (i) any exercise of the Underwriters' Over-allotment Option, (ii) the
issuance of up to 5,000,000 shares of Common Stock upon exercise of the
Warrants, (iii) the issuance of up to 500,000 shares of Common Stock and
500,000 Warrants upon exercise of the Representative's Warrants, (iv) the
issuance of up to 500,000 shares of Common Stock upon exercise of Warrants
underlying the Representative's Warrants, (v) the issuance of up to 1,352,500
shares of Common Stock upon exercise of stock options outstanding as of the
date of this Prospectus, and (vi) the issuance of up to 647,500 additional
shares of Common Stock reserved for issuance upon exercise of additional
stock options that may be granted under the Company's 1996 Stock Option Plan.
As used herein, the term "Company" refers to Commodore Applied Technologies,
Inc. and its subsidiaries. See "Executive Compensation -- Stock Options" and
"Underwriting."
THE COMPANY
Commodore Applied Technologies, Inc. is an environmental technology
company which has developed and intends to commercialize its patented process
known as AGENT 313.(TM) Based on the results of its extensive testing, the
Company believes that AGENT 313 is capable of effectively treating and
decontaminating soils and other materials, including sludges, sediments, oils
and other hydrocarbon liquids, metals and porous and non-porous structures
and surfaces, by destroying polychlorinated biphenyls ("PCBs"), pesticides,
dioxins, chlorinated substances, chemical and biological phosphates and other
toxic contaminants to an extent sufficient to satisfy current federal
environmental guidelines. The Company also believes that, based on the
results of its additional tests, AGENT 313 is capable of neutralizing
chemical weapons materials and warfare agents and of concentrating certain
radioactive wastes for more effective disposal. Tests of AGENT 313 have been
conducted since 1989 and have been financed to date by the Company
principally from borrowings and investments from its stockholders. AGENT 313
is based upon solvated electron chemistry, in which solvents such as
anhydrous liquid ammonia are mixed with various active metals to produce a
solvated electron solution.
On March 15, 1996, the United States Environmental Protection Agency
("EPA") issued to the Company a Nationwide Permit for PCB Disposal, which
allows the Company to use AGENT 313 on-site to treat PCB-contaminated soils
and metallic surfaces. In order to obtain such permit, the Company underwent
a monitored evaluation by the EPA and was successful in demonstrating that
AGENT 313 was capable of treating PCB-contaminated materials to residual PCB
levels at or below regulatory-required limits. Based on the EPA's listing of
national operating permits, the Company believes that it possesses the only
non-thermal PCB treatment technology for multiple applications currently
permitted under the EPA's Alternate Destruction Technology Program.
On April 3, 1996, the Company was selected by the U.S. Department of
Commerce as one of nine companies to participate in the Rapid
Commercialization Initiative ("RCI"), which is a component of the Clinton
Administration's efforts to streamline the commercialization process for new
environmental technologies, and to build cooperative interactions between
business and government to bring environmental technologies to market more
rapidly and efficiently. Under the RCI, the Company intends to form "working
partnerships" with the EPA and other governmental agencies for the purpose of
developing and implementing policies and strategies for the commercialization
of AGENT 313. Although there is no funding through the RCI, it is expected
that under the program the EPA and other governmental agencies will provide
permitting and siting assistance to facilitate and expedite the issuance of
permits for site specific demonstrations of AGENT 313 and verification
assistance to certify and publish the on-site test results of the
demonstrations.
Most of the other available environmental treatment and disposal methods
for toxic substances involve safety risks with respect to air pollution and
transportation of hazardous materials. In addition, these other methods may
not produce a permanent solution, as certain of these processes result in
large volumes of residual waste which may require further treatment prior to
disposal. A number of these methods are also encountering increased public
resistance and added regulatory oversight.
3
<PAGE>
According to the Environmental Business Journal, the global market for
environmental products and services was approximately $420 billion in 1995
and is expected to reach $500 billion annually by the year 2000.
Additionally, the treaty adopted by the Chemical Weapons Convention of 1993,
which has been ratified by 49 nations to date, mandates the worldwide
destruction of all chemical weapon stocks within ten years after final
approval of the treaty by a total of 65 nations. While neither the United
States nor Russia has yet ratified the treaty, the United States Senate
Foreign Relations Committee recommended Senate ratification on April 25,
1996, and the ratification vote of the full Senate is expected to occur in
late spring or early summer 1996. In reports released by the United States
Department of Defense, the United States military and other government
agencies have estimated that approximately $12 billion will be spent over the
next ten years for the destruction of domestic stockpile and non-stockpile
chemical weapons and chemical warfare agents.
The Company's business strategy is to establish collaborative joint
working and marketing arrangements with established engineering and
environmental service organizations. The Company intends to enter into these
relationships (i) in projects involving specific applications throughout the
marketplace or in projects involving specific industries, or (ii) as
licensing arrangements with third parties. The Company is currently
negotiating potential working arrangements with several companies, including
Teledyne Brown Engineering, Inc., a subsidiary of Teledyne Inc. ("Teledyne
Brown"), and Sverdrup Corporation ("Sverdrup"), and is bidding, in
collaboration with such companies, for certain decontamination projects. See
"Business."
Although the Company believes that it will be able to enter into one or
more definitive agreements with collaborative partners and be awarded
contracts to use AGENT 313 in decontamination projects, there can be no
assurance that any of these discussions will result in collaborative
agreements or contract awards. Even if such contracts are awarded, AGENT 313
has never been utilized on a large-scale basis, and there is no assurance
that AGENT 313 will perform successfully on a large-scale commercial basis or
that it will be profitable to the Company. There can also be no assurance
that AGENT 313 will not be superseded by other competing technologies. See
"Risk Factors."
THE CAPITALIZATION
Unless otherwise indicated, this Prospectus gives effect to the following
transactions:
(a) on March 29, 1996, the Company's sole stockholder, Commodore
Environmental Services, Inc. ("Commodore"), in exchange for the
issuance of 15,000,000 shares of Common Stock, capitalized the Company
by (i) contributing 90.05% of the outstanding common stock of
Commodore Laboratories, Inc. ("Commodore Labs"), and 100% of the
outstanding capital stock of four related subsidiaries of Commodore to
the Company, (ii) assigning all right, title and interest in its
contracts, assets and properties relating to AGENT 313 to the Company,
and (iii) contributing to the Company $3,000,000 of a promissory note
payable by the Company to Commodore in the outstanding amount of
$8,925,426 as of December 31, 1995, representing loans and advances
made to or for the benefit of the Company to fund the development of
AGENT 313 (the "Commodore Funding Note"); and
(b) upon completion of this Offering, (i) Commodore will acquire the
remaining 9.95% of the outstanding shares of common stock of Commodore
Labs from Albert E. Abel, the Company's Senior Vice President and
Chief Scientist, for $3,000,000 and contribute such shares to the
Company for no additional consideration, and the Company will, from
the net proceeds of this Offering, settle all outstanding obligations
for compensation payable to Mr. Abel and for amounts receivable by the
Company from Mr. Abel in the approximate net amount of $120,000, (ii)
$4,000,000 of the Commodore Funding Note will be converted into a new
five-year 8% promissory note to be issued by the Company to Commodore
(the "New Commodore Note"), and (iii) the balance of the Commodore
Funding Note in the amount of $1,925,426 will be repaid by the Company
from the net proceeds of the Offering (collectively, the "Offering
Transactions").
See "Use of Proceeds," "Capitalization" and "Certain Relationships and
Related Transactions -- Organization and Capitalization of the Company."
4
<PAGE>
THE OFFERING
Securities Offered ............ 5,000,000 shares of Common Stock and
5,000,000 Warrants.
Terms of Warrants.............. Each Warrant entitles the holder thereof to
purchase, at any time commencing June 28,
1997 until June 28, 2001, one share of
Common Stock at a price of $8.40 per share,
subject to adjustment. Commencing December
28, 1997, the Warrants are subject to
redemption by the Company, in whole but not
in part, at $.01 per Warrant on 30 days'
prior written notice provided that the
average closing sale price of the Common
Stock as reported on the AMEX equals or
exceeds $18.00 per share, subject to
adjustment, for any 20 trading days within a
period of 30 consecutive trading days ending
on the fifth trading day prior to the date
of the notice of redemption. See
"Description of Securities."
Common Stock outstanding prior
to the Offering.............. 15,000,000 shares of Common Stock.
Securities to be outstanding
after the Offering........... 20,000,000 shares of Common Stock and
5,000,000 Warrants.
Use of Proceeds................ The Company intends to apply the net
proceeds of this Offering to fund proposed
collaborative ventures; additional research
and development costs; lease and equip an
additional facility; repayment of an
outstanding bank line of credit and
intercompany indebtedness; collateralization
of a bank loan of Commodore; and for working
capital and general corporate purposes. In
the event and to the extent that the
Over-allotment Option is exercised,
Commodore has the right to require the
application of any net proceeds from the
Over-allotment Option to the prepayment of
all or a portion of the New Commodore Note.
See "Use of Proceeds."
AMEX Symbols:
Common Stock ................ CXI
Warrants .................... CXIW
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk and should be made only by investors who can afford the loss of their
entire investment. Such risk factors include, among others, limited operating
history, historical net losses and continued expected future losses, going
concern disclosure in independent auditor's report, no assurance of
collaborative agreements, licenses or project contracts, risk of
environmental liability, potential need for additional financing, control by
principal stockholder, potential conflicts of interest, broad discretion in
application of proceeds, benefits to related parties and no assurance of
public trading market. See "Risk Factors" beginning on page 7.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data included in the following table as of December
31, 1995, for the years ended December 31, 1993, 1994 and 1995 and for the
period January 1, 1994 (date of commencement of development stage) to
December 31, 1995 are derived from the Consolidated Financial Statements
appearing elsewhere herein. The summary financial data for the years ended
December 31, 1993, 1992 and 1991 are those of Commodore Laboratories, Inc.
and Subsidiary, which is the predecessor of the Company, and are therefore
not comparable to the summary financial data of the Company for subsequent
periods. The summary financial data as of March 31, 1996, for the three
months ended March 31, 1995 and 1996 and for the period January 1, 1994 (date
of commencement of development stage) to March 31, 1996 are unaudited and, in
the opinion of management, include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such data.
Financial data for the three months ended March 31, 1996 are not necessarily
indicative of the results of operations to be expected for the entire year.
The summary financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto appearing elsewhere
herein.
Consolidated Statement of Operations(4):
<TABLE>
<CAPTION>
January 1, 1994
(Date of
Commencement
of Develop-
Three Months Ended ment Stage) to
Year Ended December 31, March 31, March 31,
--------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commodore Laboratories, Inc.
Revenue: (Predecessor Company)
----------------------------
Research and
development
projects ........... $ 67,655 $145,000 $ 154,489 $ 116 $ 0 $ 0 $ 0 $ 116
--------- -------- --------- ---------- -------- -------- -------- ----------
Costs and expenses:
Research and
development ..... 38,425 17,600 170,992 380,387 1,815,231 396,786 368,422 2,564,040
General and
administrative .. 194,066 185,024 173,292 1,368,938 1,772,909 358,627 364,493 3,506,340
Write-off of original
in process
technology ...... 2,423,662 2,423,662
--------- -------- --------- ---------- --------- -------- -------- ---------
Loss from operations . (164,836) (57,624) (189,795) (4,172,871) (3,588,140) (755,413) (732,915) (8,493,926)
Interest income ...... 6,604 6,564 6,546 6,546 6,528 1,632 1,654 14,728
Interest expense ..... (17,107) (14,779) (290,386) (550,542) (274,369) (58,821) (190,370) (1,015,281)
--------- -------- --------- ---------- --------- -------- -------- ------------
Net loss ............. $(175,339) $(65,839) $(473,635) $(4,716,867) $(3,855,981) $(812,602) $(921,631) $(9,494,479)
========= ======== ========= =========== =========== ========= ========= ===========
Net loss per share(1) . $ (.31) $ (.26) $ (.05) $ (.06)
=========== =========== ========= =========
Pro forma net loss per
share (1)(2) ....... $ (.23) $ (.05)
=========== =========
Cash dividends paid .. 0 0 0 0 0 0 0 0
</TABLE>
CONSOLIDATED BALANCE SHEET DATA(4):
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1996
----------------- --------------------------------
As
Actual Adjusted(3)
-------------- --------------
<S> <C> <C> <C>
Working capital (deficit) .... $(9,629,210) $(7,627,818) $22,042,182
Total assets ................. 1,090,593 1,174,313 24,939,991
Total liabilities ............ 9,632,964 7,638,315 4,733,993
Stockholders' equity (deficit). (8,542,371) (6,483,374) 20,186,626
</TABLE>
- ------
(1) Net loss per share is calculated on the basis of 15,000,000 shares of
Common Stock being outstanding for each period presented. See Note 2 of
Notes to Consolidated Financial Statements.
(2) Reflects the net loss per share after giving effect to the repayment of
an outstanding bank line of credit and a portion of the Commodore Funding
Note in the aggregate amount of $3,925,000 effective January 1, 1995,
elimination of interest expense on the $3,000,000 portion of the
Commodore Funding Note converted to equity and repayment of $120,000 of
notes payable, from the net proceeds of this Offering. The number of
shares outstanding used in the calculation of pro forma loss per share
was adjusted to include the number of shares offered hereby required to
repay the foregoing $4,045,000 of debt. See "Use of Proceeds."
(3) Gives effect on an as adjusted basis to (i) the Offering Transactions and
(ii) the sale by the Company of the Securities offered hereby and the
initial application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Certain Relationships and Related Transactions."
(4) The summary financial data for the years ended December 31, 1993, 1992
and 1991 are those of Commodore Laboratories, Inc. (formerly A.L.
Sandpiper Corporation) and Subsidiary, which is the predecessor of the
Company, and the summary financial data for subsequent periods reflect
the cost of the acquisition of Commodore Labs pushed down from Commodore.
6
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk and should be made only by investors who can afford the loss of their
entire investment. Prospective investors should carefully review and consider
the risk factors described below.
LIMITED OPERATING HISTORY; NET LOSSES; FUTURE LOSSES; INITIAL
COMMERCIALIZATION STAGE; GOING CONCERN DISCLOSURE IN INDEPENDENT AUDITORS'
REPORT
The Company's limited operating history has consisted primarily of
development of AGENT 313 and remediation equipment, conducting laboratory
tests, and planning on-site tests and demonstrations. The Company is subject
to all of the business risks associated with a new enterprise, including, but
not limited to, risks of unforeseen capital requirements, failure of market
acceptance, failure to establish business relationships, and competitive
disadvantages as against larger and more established companies. At December
31, 1995 and March 31, 1996, the Company had an accumulated stockholders'
deficit of $(8,542,371) and $(6,483,374), respectively, and a working capital
deficit of $(9,629,210) and $(7,627,818), respectively. Additionally, as of
March 31, 1996, the Company had outstanding indebtedness in an aggregate
principal amount of $5,925,426 at an interest rate of 8% per annum, all of
which is owed to Commodore, the Company's sole stockholder, pursuant to the
Commodore Funding Note, and an additional $978,896, which represented
advances to the Company made by Commodore in the three months ended March 31,
1996, which were repaid by the Company subsequent to its obtaining a line of
credit provided by a commercial bank in April 1996.
The Company anticipates that it will continue to incur significant
operating losses through 1996 and may incur additional losses thereafter,
depending upon its ability to consummate collaborative working arrangements
or licenses with third parties and the operation and financial success of any
decontamination projects which the Company and its potential working partners
may be awarded. The Company has had no meaningful revenues to date, and there
can be no assurance as to when or whether it will be able to commercialize
AGENT 313. AGENT 313 has never been utilized on a large-scale basis, and
there can be no assurance that AGENT 313 will perform successfully on a
large-scale commercial basis or that it will be profitable to the Company.
The Company's ability to operate its business successfully will depend on a
variety of factors, many of which are outside the Company's control,
including: competition, cost and availability of raw material supplies,
changes in governmental initiatives and requirements, changes in EPA and
other regulatory requirements, and the costs associated with equipment repair
and maintenance. The report of the independent auditors with respect to the
Company's consolidated financial statements included in this Prospectus
includes a "going concern" qualification, indicating that the Company's
significant losses and deficits in working capital and stockholders' equity
raise substantial doubt about the Company's ability to continue as a going
concern. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and Consolidated Financial Statements.
NO ASSURANCE OF COLLABORATIVE AGREEMENTS, LICENSES OR PROJECT CONTRACTS
The Company's business strategy is based upon entering into collaborative
joint working arrangements with established engineering and environmental
companies, or formal joint venture agreements relative to the application of
AGENT 313 as an enabling technology for specified industries or markets.
Neither the Company nor any of its prospective collaborative joint ventures
have been awarded any project contracts. There is no assurance that the
Company will enter into definitive joint project arrangements or joint
venture collaborative agreements with its prospective working partners or
others, or that such agreements, if entered into, will be on terms and
conditions that are sufficiently attractive to the Company to enable it to
generate profits.
In the event the Company is unable to enter into commercially attractive
collaborative working arrangements for one or more commercial or industrial
remediation projects, in order to produce revenues for the Company, it may be
necessary to license AGENT 313 to unaffiliated third parties. There is no
assurance that the Company will be able to enter into such license
arrangements or that such licenses will produce any income to the Company.
See "Business." Even if the Company is able to complete one or more joint
working arrangements, there is no assurance that the Company and its working
partners will be awarded contracts to perform decontamination or remediation
projects. Even if such contracts are awarded, there is no assurance that
these contracts will be profitable to the Company. In addition, any project
contract which may be awarded to the Company
7
<PAGE>
and/or any of its joint working partners may be curtailed, delayed,
redirected or eliminated at any time. Problems experienced on any specific
project, or delays in the implementation and funding of projects, could
materially adversely affect the Company's business and financial condition.
UNCERTAINTY OF MARKET ACCEPTANCE
Many prospective users of AGENT 313 have already committed substantial
resources to other forms of environmental remediation technology, including
incineration, plasma arc, vitrification, molten metal, molten salt, chemical
neutralization, catalytic electrochemical oxidation and supercritical wet
oxidation. The Company's growth and future financial performance will depend
on demonstrating to prospective collaborative partners and users the
advantages of AGENT 313 over alternative technologies. There can be no
assurance that the Company and its prospective collaborative partners will be
successful in this effort. See "Business -- Commercialization and Marketing
Strategy." It is also anticipated that the market for decontamination of
hazardous materials will continue to decline over an extended period, as past
environmental degradation is corrected, and as the private and public sectors
limit further pollution through the prohibition on the production and use of
a broad range of hazardous materials and through the modification and
improved efficiency of varied manufacturing processes. See "Business --
Market Overview."
DEPENDENCE ON JOINT WORKING PARTNERS
The Company believes that its collaborative joint working arrangements
will limit the Company's participation in decontamination projects to
technical support and the formulation of AGENT 313. The Company may be
required to bear a portion of the operational costs of such collaborative
efforts. Accordingly, the profitability of each remediation project and the
Company's financial success may be largely dependent upon the abilities and
financial resources of its working partners. See "Business -- Collaborative
Working Arrangements."
RISK OF ENVIRONMENTAL LIABILITY
The Company's operations are subject to numerous federal, state and local
laws and regulations relating to the storage, handling, emission,
transportation and discharge of hazardous waste materials, and the use of
specialized technical equipment in the processing of such materials. There is
always the risk that such materials might be mishandled, or that there might
be equipment or technology failures, which could result in significant claims
for personal injury, property damage, and clean-up or remediation. Any such
claims against the Company could have a material adverse effect on the
Company. In addition, in the event that off-site treatment, storage or
disposal facilities utilized by the Company for final disposition of waste
products from AGENT 313 are targeted for investigation and cleanup under
applicable environmental laws, the Company could incur liability as a
generator of such materials or by virtue of having arranged for their
transportation and disposal. The Company may be required to obtain
environmental liability insurance in the future in amounts greater than those
it currently maintains as AGENT 313 is commercialized. There can be no
assurance that such insurance will provide coverage against all claims, and
claims may be made against the Company (even if covered by the Company's
insurance policy) for amounts substantially in excess of applicable policy
limits. Any such event could have a material adverse effect on the Company.
See "Business -- Environmental Matters."
POTENTIAL NEED FOR ADDITIONAL FINANCING
The Company's future capital requirements could vary significantly and
will depend on certain factors, many of which are not within the Company's
control. These include the existence and terms of any collaborative
arrangements; the ongoing development and testing of AGENT 313 as a
remediation and industrial waste management technology; the nature and timing
of remediation and clean-up projects and permits required; and the
availability of financing.
8
<PAGE>
The Company may not be able to enter into favorable business
collaborations and might thus be required to bid upon projects for its own
account. If such bids were successful, the Company would be required to make
significant expenditures on personnel and capital equipment which would
require significant financing in amounts substantially in excess of the net
proceeds of this Offering. In addition, the Company's lack of operational
experience and limited capital resources could make it difficult, if not
highly unlikely, to successfully bid on major reclamation or clean-up
projects. In such event, the Company's business development could be limited
to remediation of smaller commercial and industrial sites with significantly
lower potential for profit.
In addition, the expansion of the Company's business will require the
commitment of significant capital resources toward the hiring of technical
and operational support personnel and the building of equipment to be used
both for on-site test demonstrations and the remediation of contaminated
elements. In the event the Company is presented with one or more significant
reclamation or clean-up projects, individually or in conjunction with
collaborative working partners, it may require additional capital to take
advantage of such opportunities. There can be no assurance that such
financing will be available or, if available, that it will be on favorable
terms. If adequate financing is not available, the Company may be required to
delay, scale back or eliminate certain of its research and development
programs, to relinquish rights to certain of its technologies, or to license
third parties to commercialize technologies that the Company would otherwise
seek to develop itself. To the extent the Company raises additional capital
by issuing equity securities, investors in this Offering will be diluted. See
"Use of Proceeds" and "Management's Discussion and Analysis of Results of
Operations -- Liquidity and Capital Resources."
COMPETITION AND TECHNOLOGICAL ALTERNATIVES
The Company anticipates that AGENT 313's primary market will be for
hazardous and toxic waste and industrial by-products treatment and disposal,
and the destruction or neutralization of chemical weapons materials and
warfare agents, and the concentration of radioactive wastes. The Company has
had limited experience in marketing AGENT 313 and has a small sales and
marketing organization, whereas other participants in both the private and
public sectors include several large domestic and international companies and
numerous small companies, many of whom have substantially greater financial
and other resources and more manufacturing, marketing and sales experience
than the Company. Any one or more of the Company's competitors or other
enterprises not presently known to the Company may develop technologies which
are superior to AGENT 313 or other technologies utilized by the Company. To
the extent that the Company's competitors are able to offer more
cost-effective remediation alternatives, the Company's ability to compete
could be materially and adversely affected. See "Business."
UNPREDICTABILITY OF PATENT PROTECTION AND PROPRIETARY TECHNOLOGY
The Company currently has seven United States patents and one Canadian
patent relating to its AGENT 313 technology and related technologies, and has
five United States patent applications pending, as well as a number of
foreign applications. The Company's success depends, in part, on its ability
to obtain additional patents, protect the patents which it owns, maintain
trade secrecy protection and operate without infringing on the proprietary
rights of third parties. The patents currently owned by the Company are
improvement patents which are more difficult to monitor for infringement than
those that would be contained in a patent covering a pioneering invention or
technology. There can be no assurance that any of the Company's pending
patent applications will be approved, that the Company will develop
additional proprietary technology that is patentable, that any patents issued
to the Company will provide the Company with competitive advantages or will
not be challenged by third parties or that the patents of others will not
have an adverse effect on the Company's ability to conduct its business.
Furthermore, there can be no assurance that others will not independently
develop similar or superior technologies, duplicate any of the Company's
AGENT 313 processes, or design around the patented AGENT 313 process. It is
possible that the Company may need to acquire licenses to, or to contest the
validity of, issued or pending patents of third parties relating to AGENT
313. There can be no assurance that any license acquired under such patents
would be made available to the Company on acceptable terms, if at all, or
that the Company would prevail in any such contest. In addition, the Company
could incur substantial costs in defending itself in suits brought against
the Company on its patents or in bringing patent suits against other parties.
9
<PAGE>
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which it seeks to protect, in
part, by confidentiality agreements with its prospective working partners and
collaborators, employees and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets and proprietary
know-how will not otherwise become known or be independently discovered by
others. See "Business -- Intellectual Property."
DEPENDENCE ON KEY MANAGEMENT AND OTHER PERSONNEL
The Company is dependent on the efforts of its senior management and
scientific staff, including Paul E. Hannesson, President and Chief Executive
Officer, Neil L. Drobny, Executive Vice President, Commercial Operations,
Carl O. Magnell, Executive Vice President, Governmental Operations, Vincent
Valeri, Senior Vice President and Chief Engineer, and Albert E. Abel, Senior
Vice President and Chief Scientist. The proceeds of key man life insurance
policies on the lives of such individuals may not be adequate to compensate
the Company for the loss of any of such individuals. The loss of the services
of any one or more of such persons may have a material adverse effect on the
Company. See "Executive Compensation -- Employment Agreements."
The Company's future success will depend in large part upon its ability to
attract and retain skilled scientific, management, operational and marketing
personnel. The Company faces competition for hiring such personnel from other
companies, government entities and other organizations. There can be no
assurance that the Company will continue to be successful in attracting and
retaining such personnel. See "Management."
GOVERNMENT REGULATION AND MAINTENANCE OF NATIONWIDE PERMIT
The Company's remediation activities will need to comply with a number of
state and local laws and regulations in the areas of safety, health and
environmental controls, which may require the Company, its prospective
working partners or its customers to obtain permits to utilize AGENT 313 and
related equipment on contaminated sites. The Company may therefore be
required to conduct demonstrations to assure government agencies that AGENT
313 and its by-products do not pose additional or alternate environmental
risks. There is no assurance that such demonstrations, if successful, will
not be more costly or time-consuming than anticipated, or that permits which
may be required will be issued. In addition, the Company's Nationwide Permit
issued by the EPA contains numerous conditions for maintaining the Nationwide
Permit, including notification of all job sites, periodic reporting to the
EPA as to activities at the job sites, prior notification to and approval by
the EPA with respect to any single-site centralized remediation facility that
the Company may seek to establish and certain restrictions on the disposal of
by-products from the use of AGENT 313, and there can be no assurance that the
Company will be able to comply with such conditions in order to maintain
and/or obtain renewal of the Nationwide Permit. Further, if new environmental
legislation or regulations are enacted or existing legislation or regulations
are amended, or are interpreted or enforced differently, the Company, its
prospective working partners and/or its customers may be required to meet
stricter standards of operation and/or obtain additional operating permits or
approvals. There can be no assurance that the Company will meet all of the
applicable regulatory requirements. Failure to obtain such permits, or
otherwise to comply with such regulatory requirements, could have a material
adverse effect on the Company and its operations. See "Business --
Environmental Matters."
CONTROL BY PRINCIPAL STOCKHOLDER
Commodore is currently the sole stockholder of the Company and, after
completion of this Offering, will own 75% of the outstanding Common Stock of
the Company (72.3% if the Underwriters' Over-allotment Option is exercised in
full). Accordingly, events or circumstances having an adverse effect on
Commodore could have an adverse effect on the market prices of the
Securities.
10
<PAGE>
Bentley J. Blum, the Chairman of the Board of the Company, beneficially
owns, directly and through entities controlled by him, approximately 75.0% of
the outstanding common stock of Commodore. Paul E. Hannesson, the President
and Chief Executive Officer of the Company and a director of Commodore,
beneficially owns approximately 9.7% of the outstanding Commodore common
stock. Accordingly, through his ownership or control of a controlling stock
interest in Commodore, Mr. Blum will be able to control, subject to the terms
of a voting agreement, the voting of Commodore's shares at all meetings of
stockholders of the Company and, because the Common Stock does not have
cumulative voting rights, will be able to determine the outcome of the
election of all of the Company's directors and determine corporate and
stockholder action on other matters. Messrs. Blum and Hannesson are
brothers-in-law. See "Management" and "Principal Stockholders."
POTENTIAL CONFLICTS OF INTEREST
The Company owns all of the patents and technology related to AGENT 313.
However, the Company has granted to Commodore and subsidiaries of Commodore a
license, for the life of all patents now or hereafter owned by the Company,
to exploit AGENT 313 in all domestic and international commercial and
industrial applications, in connection with the destruction of CFCs and other
ozone-depleting substances (the "CFC Business"). Commodore is currently
exploiting and intends to exploit, through subsidiary corporations and third
parties, other than the Company, the development of its CFC Business.
Investors in the Securities offered hereby will not realize any benefits
derived by Commodore from the development of the CFC Business. In addition,
certain of the corporations with whom the Company is discussing working
arrangements are also considering similar arrangements with Commodore with
respect to the CFC Business.
These arrangements present the possibility of significant conflicts
between the interests of stockholders of the Company and of Commodore,
including Messrs. Blum and Hannesson. Such potential conflicts include issues
related to decisions which may have to be made with prospective working
partners regarding the expenditure of funds and efforts between projects in
which the Company is involved and those allocated only to Commodore and its
other subsidiaries. See "Certain Relationships and Related Transactions --
Licenses of AGENT 313 Technology."
It is expected that Mr. Hannesson and other executive officers of the
Company will devote substantially all of their working time to the Company.
However, it is expected that Mr. Blum will devote only approximately 20% of
his working time to the Company, and that the balance of Mr. Blum's working
time may be devoted to other business and investment activities. In addition,
the members of the Company's Advisory Board are involved in other endeavors.
These individuals serve as consultants to the Company, and certain Advisory
Board members have consulting relationships with other companies.
Accordingly, these individuals will be able to devote only a portion of their
time to the Company's business and continued research activities. See
"Management" and "Business -- Advisory Board."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
Approximately 19.7% of the net proceeds of this Offering has been
allocated for working capital and general corporate purposes. In addition,
approximately 45.0% of the net proceeds of this Offering has been allocated
for proposed collaborative ventures for which the Company has no binding
agreements as of the date of this Prospectus. Accordingly, the Company will
have broad discretion as to the application of a significant portion of the
net proceeds of this Offering. See "Use of Proceeds."
BENEFITS TO RELATED PARTIES
Prior to this Offering, Commodore, directly and through loans and equity
investments made by its principal stockholders, including Bentley J. Blum,
the Chairman and principal stockholder of Commodore who is also Chairman of
the Board of the Company, financed all of the development efforts of the
Company. In addition to a $4,000,000 bank loan obtained by Commodore (the
proceeds of which were lent by Commodore to finance the Company's
operations), through December 31, 1995, Commodore had provided approximately
$4,925,426 of additional funds to the development of the Company and AGENT
313. Commodore has provided additional advances to the Company of $978,896 in
the three months ended March 31, 1996, which were repaid by the Company
subsequent to its obtaining a line of credit provided by a commercial bank in
April 1996. Upon
11
<PAGE>
completion of this Offering, $4,000,000 of the Commodore Funding Note will be
converted into the New Commodore Note, which bears interest at 8% per annum
and matures on the fifth anniversary of the date of completion of this
Offering, and the balance of the Commodore Funding Note in the amount of
$1,925,426 will be repaid to Commodore from a portion of the net proceeds of
this Offering. Commodore will, in turn, apply $656,000 of amounts paid to it
by the Company to retire debt owed by it to Kraft Capital Corporation
("Kraft"), a corporation wholly-owned by Mr. Blum. In addition, Mr. Blum has
personally guaranteed a $2,000,000 line of credit from a commercial bank. The
Company will apply $2,000,000 of the net proceeds of this Offering to repay
such line of credit (at which time Mr. Blum's personal guarantee may be
released), and will apply $1,000,000 of the net proceeds of this Offering to
provide cash collateral for the $4,000,000 Commodore bank loan described
above. In addition, in the event and to the extent that the Over-allotment
Option is exercised, Commodore will have the right to require the application
of any net proceeds therefrom to the prepayment of the New Commodore Note.
Accordingly, the Company's stockholder and its affiliate will directly
benefit from the sale of the Securities offered hereby. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Certain
Relationships and Related Transactions."
NO DIVIDENDS
The Company has never paid any dividends on its Common Stock, and has no
plans to pay dividends on its Common Stock in the foreseeable future. See
"Dividend Policy."
POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF SECURITIES FROM FUTURE SALES OF
COMMON STOCK
Future sales of Common Stock by Commodore or other stockholders (including
option holders) under Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"), or through the exercise of the Warrants or outstanding
registration rights granted to the holders of the Representative's Warrants,
could have an adverse effect on the market prices of the Securities. The
Company and Commodore, as well as all holders of outstanding securities
exercisable for or convertible into Common Stock, have agreed not to,
directly or indirectly, issue, agree or offer to sell, sell, transfer,
assign, distribute, grant an option for purchase or sale of, pledge,
hypothecate or otherwise encumber or dispose of any beneficial interest in
such securities for a period of 24 months following the date of this
Prospectus without the prior written consent of the Representative. Sales of
substantial amounts of Common Stock or the perception that such sales could
occur could adversely affect prevailing market prices for the Securities. See
"Shares Eligible For Future Sale."
POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF SECURITIES AS A RESULT OF
COMMODORE COMMON STOCK PRICE
As of the date of this Prospectus, there are an aggregate of approximately
57,349,000 shares of common stock of Commodore issued and outstanding, of
which approximately 16,000,000 shares are publicly held. Commodore's common
stock trades in the over-the-counter market on the Electronic Bulletin Board
of the National Association of Securities Dealers, Inc. On June 24, 1996, the
closing bid price of such Commodore common stock was $.875 per share. The
prevailing per share trading price of Commodore common stock may have a
direct impact on the future trading price of the Common Stock, especially
since the approximately $50,180,000 market capitalization of Commodore at
June 24, 1996 is less than the approximately $90,000,000 market value of
Commodore's interest in the Company. In addition, potential negative
developments affecting Commodore which may be unrelated to the Company's
business may adversely affect the market value of the Securities.
NO ASSURANCE OF PUBLIC TRADING MARKET; ARBITRARY DETERMINATION OF PUBLIC
OFFERING PRICE; POSSIBLE VOLATILITY OF COMMON STOCK AND WARRANT PRICES
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that an active trading
market for any of the Securities will develop or, if developed, be sustained
after the Offering. The initial public offering prices of the Securities
offered hereby and the terms of the Warrants have been arbitrarily determined
by negotiations between the Company and the Representative, and do not
necessarily bear any relationship to the Company's assets, book value,
results of operations or any other generally accepted criteria of value. See
"Underwriting."
12
<PAGE>
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performances of
specific companies. Announcements of new technologies and changing policies
and regulations of the federal government and state governments and other
external factors, as well as potential fluctuations in the Company's
financial results, may have a significant impact on the prices of the
Securities.
DILUTION
Purchasers of shares of Common Stock in this Offering will experience an
immediate and substantial dilution of $5.00 per share, or approximately
83.3%, in the net tangible book value of the shares of Common Stock purchased
by them in this Offering. Additional dilution to future net tangible book
value per share may occur upon exercise of outstanding stock options and
warrants (including the Warrants and the Representative's Warrants) and may
occur, in addition, if the Company issues additional equity securities in the
future. Commodore acquired its shares of Common Stock for cash consideration
which was substantially less than the public offering price of the shares of
Common Stock offered hereby. As a result, new investors will bear
substantially all of the risks inherent in an investment in the Company. See
"Dilution" and "Certain Relationships and Related Transactions."
CERTAIN ANTI-TAKEOVER PROVISIONS AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
OF SECURITIES FROM ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation and By-laws contain certain
provisions that could have the effect of delaying or preventing a change of
control of the Company, which could limit the ability of security holders to
dispose of their Common Stock and/or Warrants in such transactions. The
Certificate of Incorporation authorizes the Board of Directors to issue one
or more series of preferred stock without stockholder approval. Such
preferred stock could have voting and conversion rights that adversely affect
the voting power of the holders of Common Stock, or could result in one or
more classes of outstanding securities that would have dividend, liquidation
or other rights superior to those of the Common Stock. Issuance of such
preferred stock may have an adverse effect on the then prevailing market
price of the Common Stock and Warrants. Additionally, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. Section 203 could have the effect of delaying or preventing a change
of control of the Company. See "Description of Securities."
SPECULATIVE NATURE OF THE WARRANTS; POSSIBLE REDEMPTION OF WARRANTS
The Warrants do not confer any rights of Common Stock ownership on their
holders, such as voting rights or the right to receive dividends, but rather
merely represent the right to acquire shares of Common Stock at a fixed price
for a limited period of time. Specifically, commencing June 28, 1997, holders
of the Warrants may exercise their right to acquire Common Stock and pay an
exercise price of $8.40 per share, subject to adjustment upon the occurrence
of certain dilutive events, until June 28, 2001, after which date any
unexercised Warrants will expire and have no further value. Moreover,
following the completion of this Offering, the market value of the Warrants
is uncertain and there can be no assurance that the market value of the
Warrants will equal or exceed their initial public offering price. There can
be no assurance that the market price of the Common Stock will ever equal or
exceed the exercise price of the Warrants, and consequently, whether it will
ever be profitable for holders of the Warrants to exercise the Warrants.
Commencing December 28, 1997, the Warrants are subject to redemption at
$0.01 per Warrant on 30 days' prior written notice provided that the average
closing sale price of the Common Stock as reported on the AMEX equals or
exceeds $18.00 per share for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. If the Warrants are redeemed, holders of the
Warrants will lose their rights to exercise the Warrants after the expiration
of the 30-day notice period. Upon receipt of a notice of redemption, holders
would be required to: (i) exercise the Warrants and pay the exercise price at
a time when it may be disadvantageous for them to do so, (ii) sell the
Warrants at the then-
13
<PAGE>
prevailing market price, if any, when they might otherwise wish to hold the
Warrants, or (iii) accept the redemption price which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. In the event that holders of the Warrants elect not to exercise
their Warrants upon notice of redemption, the unexercised Warrants will be
redeemed prior to exercise, and the holders thereof will lose the benefit of
the appreciated market price of the Warrants, if any, and/or the difference
between the market price of the underlying Common Stock as of such date and
the exercise price of such Warrants, as well as any possible future price
appreciation in the Common Stock. See "Description of Securities --
Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities or "blue sky" laws of the state
of residence of the exercising holder of the Warrants. There can be no
assurance that the Company will be able to have all of the shares of Common
Stock issuable upon exercise of the Warrants registered or qualified on or
before the exercise date and to maintain a current prospectus relating
thereto until the expiration of the Warrants. The value of the Warrants may
be greatly reduced if a current prospectus covering the Common Stock issuable
upon the exercise of the Warrants is not kept effective or if such Common
Stock is not qualified or exempt from qualification in the states in which
the holders of the Warrants reside. Until completion of this Offering, the
Common Stock and the Warrants may only be purchased together on the basis of
one share of Common Stock and one Warrant, but the Warrants will be
separately tradeable immediately after this Offering. In the event investors
purchase the Warrants in the secondary market or move to a jurisdiction in
which the shares underlying the Warrants are not registered or qualified
during the period that the Warrants are exercisable, the Company will be
unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in
such jurisdictions, and holders of the Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible
or allow them to expire unexercised. See "Description of Securities --
Warrants."
LACK OF UNDERWRITING HISTORY
The Representative has participated in only seven public offerings as an
underwriter in the last five years. In evaluating an investment in the
Company, prospective investors in the Securities offered hereby should
consider the Representative's limited experience. See "Underwriting."
THE COMPANY
The Company is an environmental technology company which has developed and
intends to commercialize its patented process known as AGENT 313.(TM) Based
on the results of its extensive testing, the Company believes that AGENT 313
is capable of effectively treating and decontaminating soils and other
materials, including sludges, sediments, oils and other hydrocarbon liquids,
metals and porous and non-porous structures and surfaces, by destroying PCBs,
pesticides, dioxins, chlorinated substances, chemical and biological
phosphates and other toxic contaminants to an extent sufficient to satisfy
current federal environmental guidelines. The Company also believes that,
based on the results of its additional tests, AGENT 313 is capable of
neutralizing chemical weapons materials and warfare agents and of
concentrating certain radioactive wastes for more effective disposal. Tests
of AGENT 313 have been conducted since 1989 and have been financed to date by
the Company principally from borrowings and investments from its
stockholders. AGENT 313 is based upon solvated electron chemistry, in which
solvents such as anhydrous liquid ammonia are mixed with various active
metals to produce a solvated electron solution.
The Company was incorporated in the State of Delaware in March 1996. The
principal executive offices of the Company are located at 150 East 58th
Street, Suite 3400, New York, New York 10155, and its telephone number is
(212) 308-5800.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deduction of underwriting discounts and other estimated
offering expenses, are estimated to be approximately $26,670,000
(approximately $30,740,000 if the Underwriters' Over-allotment Option is
exercised in full). The Company intends to utilize such net proceeds as
follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Dollar Amount Net Proceeds
--------------- ---------------
<S> <C> <C>
Funding of proposed collaborative ventures (1) ... $12,000,000 45.0%
Additional research and development costs (2) .... 2,500,000 9.4
Leasing and equipping of additional facility (3) . 2,000,000 7.5
Repayment of outstanding line of credit (4) ...... 2,000,000 7.5
Repayment of intercompany indebtedness (5) ....... 1,925,000 7.2
Collateralization of bank loan (6) ............... 1,000,000 3.7
Working capital and general corporate purposes (7) . 5,245,000 19.7
--------------- ---------------
Total .................................. $26,670,000 100.0%
=============== ===============
</TABLE>
- ------
(1) Expenditures in respect of collaborative ventures will include salaries
and benefits of personnel, equipment design and procurement costs, costs
of leasing or otherwise obtaining additional operating facilities,
analytical and other testing costs, professional fees, and insurance and
administrative expenses. In each venture, personnel expenses may be
expected to account for at least 50% of the costs of each collaborative
venture, and equipment costs are likely to constitute the next largest
component of expenditures. As of the date of this Prospectus, the Company
has not determined the amount of net proceeds of this Offering to be
applied to any of the proposed collaborative ventures because the Company
is currently in negotiations with such proposed venture partners
involving, among other issues, the level of its proposed funding
commitment. See "Risk Factors -- No Assurance of Collaborative
Agreements, Licenses or Project Contracts" and "Business -- Collaborative
Working Arrangements."
(2) Includes the hiring of additional personnel and the costs associated with
conducting additional tests and demonstrations of AGENT 313.
(3) Consists of costs anticipated to be incurred in connection with leasing a
new facility of approximately 50,000 square feet, and purchasing the
equipment necessary to conduct additional testing and assembly of certain
demonstration and production equipment to be used with AGENT 313 on
specified decontamination projects. No such facility has to date been
identified. See "Business -- Properties."
(4) Represents a line of credit bearing interest at the prime rate (8.25% as
of June 24, 1996) provided by a commercial bank to the Company in April
1996 and expiring on July 31, 1996, which is personally guaranteed by
Bentley J. Blum, the Chairman of the Board of the Company and Commodore,
and the principal stockholder of Commodore. The Company will utilize
$2,000,000 of the net proceeds of this Offering to repay such line of
credit, and Mr. Blum's guarantee may be released upon payment of the line
of credit. The line of credit had been used by the Company to repay
advances made by Commodore to the Company in 1996 and for working capital
purposes. See "Certain Relationships and Related Transactions --
Organization and Capitalization of the Company."
(5) Represents the balance of advances made by Commodore to the Company under
the Commodore Funding Note, after giving effect to the contribution of
$3,000,000 under the Commodore Funding Note as part of Commodore's
capital contribution to the Company, and the conversion of $4,000,000
under the Commodore Funding Note into the New Commodore Note. Such
advances were used for the development and commercialization of AGENT
313, including equipment and salaries of personnel. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions -- Organization and Capitalization of the Company."
(6) Represents cash collateral required to be provided by the Company in
connection with an 8.5% loan made by a commercial bank to Commodore in
December 1993, which requires monthly interest payments and is
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<PAGE>
due as to principal and accrued interest on December 31, 1998. The
Company has agreed to provide $1,000,000 of cash collateral in support of
such loan. Upon delivery of such cash collateral, separate collateral
provided by Commodore may be released. See "Certain Relationships and
Related Transactions." Absent any default by Commodore and foreclosure on
such collateral, such funds are expected to be released to the Company
when the Commodore loan is repaid.
(7) Working capital and general corporate purposes includes amounts required
to pay officers' salaries, professional fees, ongoing public reporting
costs, office-related expenses and other corporate expenses, including
interest and overhead. The net amount of approximately $120,000 will be
paid by the Company to Albert E. Abel, the Company's Senior Vice
President and Chief Scientist, in settlement of all outstanding
obligations for accrued compensation payable to Mr. Abel and for amounts
receivable by the Company from him. See "Certain Relationships and
Related Transactions." Subject to Commodore's right to require prepayment
of the New Commodore Note from the net proceeds from any exercise of the
Over-allotment Option, the additional net proceeds received from the
exercise of the Over-allotment Option, if any, will be used for working
capital and general corporate purposes.
The Company believes that the net proceeds of this Offering will be
sufficient to meet its cash, operational and liquidity requirements for a
minimum of 12 months after the date of this Prospectus. While the initial
allocation of the net proceeds of this Offering represents the Company's best
estimates of their use, the amounts actually expended for these purposes may
vary significantly from the specific allocation of the net proceeds set forth
above, depending on numerous factors, including changes in the general
economic and/or regulatory climate, and the progress and development of
potential collaborative working arrangements. However, there can be no
assurance that the net proceeds of the Offering will satisfy the Company's
requirements for any particular period of time. The Company anticipates that,
after 12 months from the receipt of the net proceeds of this Offering,
additional funding may be needed. No assurance can be given that such
additional financing will be available on terms acceptable to the Company, if
at all. See "Risk Factors -- Potential Need for Additional Financing."
Pending specific allocation of the net proceeds of this Offering, the net
proceeds will be invested in short- term, investment grade, interest-bearing
obligations.
CAPITALIZATION
The following table sets forth the capitalization of the Company (a) as of
March 31, 1996, and (b) as adjusted giving effect to (i) the Offering
Transactions and (ii) the sale by the Company of the Securities offered
hereby and the initial application of the estimated net proceeds therefrom.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of Securities." This table should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto which
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------
Actual As Adjusted
-------------- -------------
<S> <C> <C>
Short-term debt:
Note payable to principal stockholder (Commodore Funding Note) ... $ 5,925,426 $ 0
============== =============
Amount due to principal stockholder(1) ........................... 978,896 0
============== =============
Long-term debt:
Note payable to principal stockholder (New Commodore Note) ....... $ 0 $ 4,000,000
-------------- -------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000,000 shares;
no shares issued and outstanding; no shares issued and outstanding,
as adjusted -- --
Common stock, $.001 par value; authorized 50,000,000 shares;
15,000,000 shares issued and outstanding; 20,000,000 shares issued
and outstanding, as adjusted ................................... 15,000 20,000
Additional paid-in capital ....................................... 2,996,105 29,661,105
Accumulated deficit .............................................. (9,494,479) (9,494,479)
-------------- -------------
Total stockholders' equity (deficit) .................................. $(6,483,374) $20,186,626
-------------- -------------
Total capitalization ........................................ $(6,483,374) $24,186,626
============== =============
</TABLE>
16
<PAGE>
- ------
(1) Represents additional advances to the Company made by Commodore in the
three months ended March 31, 1996, which were repaid by the Company
subsequent to its obtaining a line of credit provided by a commercial
bank in April 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends, and does not intend
to pay any dividends in the foreseeable future on its shares of Common Stock.
Earnings of the Company, if any, are expected to be retained for use in
expanding the Company's business. The payment of dividends is within the
discretion of the Board of Directors of the Company and will depend upon the
Company's earnings, if any, capital requirements, financial condition and
such other factors as are considered to be relevant by the Board of Directors
from time to time.
DILUTION
At March 31, 1996, the Company's negative net tangible book value was
$(6,659,006), or $(.44) per share of Common Stock. The net tangible book
value of the Company is the tangible assets less total liabilities. After
giving effect to the sale by the Company of the Securities offered hereby and
the initial application of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company as of March 31, 1996 would have
been approximately $20,010,994, or $1.00 per share. This represents an
increase in net tangible book value per share of $1.44 to the Company's
existing stockholders and an immediate dilution of $5.00 per share to new
stockholders purchasing shares of Common Stock in this Offering. The
following table illustrates this dilution on a per share basis:
Initial public offering price per share ....................... $6.00
Negative net tangible book value per share before the
Offering ...............................................$(.44)
Increase per share attributable to payments by new
stockholders ........................................... 1.44
-----
Pro forma net tangible book value per share after the Offering.. 1.00
------
Dilution per share to new stockholders ........................ $5.00
=======
In the event the Underwriters' Over-allotment Option is exercised in full,
the net tangible book value per share at March 31, 1996 would have been
approximately $24,082,744 and the dilution of net tangible book value per
share to new stockholders would have been approximately $4.84. See
"Underwriting."
The following table sets forth the number of shares of Common Stock
purchased from the Company by its existing stockholder, the number of shares
of Common Stock to be purchased by investors in this Offering at an assumed
initial public offering price of $6.00 per share, the total consideration
paid and to be paid to the Company, and the average price paid per share.
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration per Share
------------------------- --------------------------- ---------------
Number Percent Amount Percent
------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
New investors ...... 5,000,000 25.0% $30,000,000(1) 84.7% $6.00
Existing stockholder. 15,000,000 75.0 5,433,662(2) 15.3 $ .36
------------ --------- -------------- ---------
Total .......... 20,000,000 100.0% $35,433,662 100.0%
============ ========= ============== =========
</TABLE>
- ------
(1) Attributes no value to the Warrants.
(2) See "Certain Relationships and Related Transactions -- Organization and
Capitalization of the Company" and Note 1 of Notes to Consolidated
Financial Statements.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data included in the following table as of December
31, 1995, for the years ended December 31, 1993, 1994 and 1995 and for the
period January 1, 1994 (date of commencement of development stage) to
December 31, 1995 are derived from the Consolidated Financial Statements
appearing elsewhere herein. The selected financial data at and for the years
ended December 31, 1993, 1992 and 1991 are those of Commodore Laboratories,
Inc. and Subsidiary, which is the predecessor of the Company, and is
therefore not comparable to the selected financial data of the Company for
subsequent periods. The selected financial data as of March 31, 1996, for the
three months ended March 31, 1995 and 1996 and for the period January 1, 1994
(date of commencement of development stage) to March 31, 1996 are unaudited
and, in the opinion of management, include all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of such
data. Financial data for the three months ended March 31, 1996 are not
necessarily indicative of the results of operations to be expected for the
entire year. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Result of
Operations" and the Consolidated Financial Statements and notes thereto
appearing elsewhere herein.
CONSOLIDATED STATEMENT OF OPERATIONS(3):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1991 1992 1993
------------- ------------ -------------
Commodore Laboratories, Inc.
(Predecessor Company)
--------------------------------------------------
<S> <C> <C> <C>
Revenue:
Research and
development
projects ........ $ 67,655 $145,000 $ 154,489
------------- ------------ -------------
Costs and expenses:
Research and
development ..... 38,425 17,600 170,992
General and
administrative .. 194,066 185,024 173,292
Write-off of
original in
process
technology ......
------------- ------------ -------------
Loss from operations . (164,836) (57,624) (189,795)
Interest income ...... 6,604 6,564 6,546
------------- ------------ -------------
Interest expense ..... (17,107) (14,779) (290,386)
Net loss ............. $ (175,339) $ (65,839) $ (473,635)
============= ============ =============
Net loss per share(1)
Pro forma net loss per
share(1)(2) ........
Cash dividends paid .. 0 0 0
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
January 1, 1994
(Date of
Commencement
of Develop-
Three Months Ended ment Stage) to
March 31, March 31,
---------------------------------- ---------------------------
1994 1995 1995 1996 1996
--------------- --------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research and
development
projects ........ $ 116 $ 0 $ 0 $ 0 $ 116
--------------- --------------- ------------ ------------ ---------------
Costs and expenses:
Research and
development ..... 380,387 1,815,231 396,786 368,422 2,564,040
General and
administrative .. 1,368,938 1,772,909 358,627 364,493 3,506,340
Write-off of
original in
process
technology ...... 2,423,662 2,423,662
--------------- --------------- ------------ ------------ ---------------
Loss from operations . (4,172,871) (3,588,140) (755,413) (732,915) (8,493,926)
Interest income ...... 6,546 6,528 1,632 1,654 14,728
--------------- --------------- ------------ ------------ ---------------
Interest expense ..... (550,542) (274,369) (58,821) (190,370) (1,015,281)
Net loss ............. $ (4,716,867) $ (3,855,981) $ (812,602) $(921,631) $( 9,494,479)
=============== =============== ============ ============ ===============
Net loss per share(1) $ (.31) $ (.26) $ (.05) $ (.06)
=============== =============== ============ ============
Pro forma net loss per
share(1)(2) ........ $ (.23) $ (.05)
=============== ============
Cash dividends paid .. 0 0 0 0 0
</TABLE>
CONSOLIDATED BALANCE SHEET DATA(3):
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------------------------------------------------------ -------------
1991 1992 1993 1994 1995 1996
------------ ------------ ------------ -------------- -------------- -------------
Commodore Laboratories, Inc.
(Predecessor Company)
-------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) ..... $(290,066) $(351,301) $1,138,503 $(5,449,969) $(9,629,210) $(7,627,818)
Total assets .................. 87,214 95,355 330,148 855,478 1,090,593 1,174,313
Total liabilities ............. 406,216 480,196 1,188,624 5,541,868 9,632,964 7,638,315
Stockholders' equity (deficit) (319,002) (384,841) (858,476) (4,686,390) (8,542,371) (6,483,374)
</TABLE>
- ------
(1) Net loss is calculated on the basis of 15,000,000 shares of Common Stock
being outstanding for each period presented. See Note 2 of Notes to
Consolidated Financial Statements.
(2) Reflects the net loss per share after giving effect to the repayment of
an outstanding bank line of credit and a portion of the Commodore Funding
Note in the aggregate amount of $3,925,000 effective January 1, 1995,
elimination of interest expense on the $3,000,000 portion of the
Commodore Funding Note converted to equity and repayment of $120,000 of
notes payable, from the net proceeds of this Offering. The number of
shares outstanding used in the calculation of pro forma net loss per
share was adjusted to include the number of shares offered hereby
required to repay the foregoing $4,045,000 of debt. See "Use of
Proceeds."
(3) The selected financial data at and for the years ended December 31, 1993,
1992 and 1991 are those of Commodore Laboratories, Inc. (formerly, A.L.
Sandpiper Corporation) and Subsidiary, which is the predecessor of the
Company, and the selected financial data for subsequent periods reflect
the cost of the acquisition of Commodore Labs pushed down from Commodore.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a development stage company that, since Commodore's
acquisition of Commodore Labs in December 1993, has not generated material
revenues or any profits, and is involved in research and development
activities directed towards the commercialization of its patented process
known as AGENT 313.(TM)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
For the three months ended March 31, 1996, the Company incurred research
and development costs of $368,422, as compared to research and development
costs of $396,786 for the three months ended March 31, 1995.
Research and development costs include salaries, wages and other related
costs of personnel engaged in research and development activities, contract
services and materials, test equipment and rent for facilities involved in
research and development activities. Research and development costs are
expensed when incurred, except that those costs related to the design or
construction of an asset having an economic useful life are capitalized, and
then depreciated over the estimated useful life of the asset.
Research and development costs decreased for the three months ended March
31, 1996 as compared to the three months ended March 31, 1995 primarily due
to the reduction in the use of independent consultants in the continued
development of AGENT 313. The decrease in these costs was partially offset by
the hiring of additional technical and operational personnel to develop the
AGENT 313 process.
General and administrative expenses for the three months ended March 31,
1996 were $364,493, as compared to $358,627 for the three months ended March
31, 1995.
Interest expense for the three months ended March 31, 1996 was $190,370,
as compared to $58,821 for the three months ended March 31, 1995. Interest
charges result from indebtedness to Commodore for advances made to the
Company. Interest expense increased due to the increased outstanding balance
due to Commodore throughout the three months ended March 31, 1996 as compared
to the three months ended March 31, 1995.
Year ended December 31, 1995 compared to year ended December 31, 1994
During the year ended December 31, 1995, the Company incurred research and
development costs of $1,815,231, as compared to research and development
costs of $380,387 for the year ended December 31, 1994. Research and
development costs increased in 1995 as compared to 1994 primarily due to the
hiring of additional personnel and a significant increase in testing of the
AGENT 313 process. In the year ended December 31, 1994, the Company devoted a
significant portion of its financial resources towards the construction of a
pilot-scale commercial AGENT 313 processing system. Approximately $620,000
was incurred on this project which included the costs of materials, design
and construction, all of which was capitalized as research equipment.
General and administrative expenses for the year ended December 31, 1995
were $1,772,909, as compared to $1,368,938 for the year ended December 31,
1994. In 1995, general and administrative expenses increased by $404,000, due
primarily to increases in salaries, insurance expense, travel and related
activities and bad debt expense as compared to 1994. Certain of these
expenses were allocated from Commodore, as among its subsidiaries, based on
utilization of resources.
In the year ended December 31, 1995, the Company incurred approximately
$274,369 of interest expense, which related to intercompany interest charges
from Commodore for advances made to the Company, as compared to $550,542 of
interest expense in the year ended December 31, 1994, which related to
intercompany interest charges. In 1994, the Company incurred a financing fee
of $384,000 in connection with bank financing obtained by Commodore to be
utilized by the Company, which did not recur in 1995. Without taking into
account the financing fee of $384,000, interest expense increased by $107,827
from 1994 to 1995 due to the increase in advances from Commodore throughout
1995.
19
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Effective January 1, 1994, the Company became a development stage company
and did not generate material revenues in the year ended December 31, 1994,
compared to revenues of $154,489 in the year ended December 31, 1993.
Operations for the year ended December 31, 1993 arose from the historical
financial statements of Commodore Labs, while the operations for the year
ended December 31, 1994 reflect the cost of the acquisition of Commodore Labs
pushed down from Commodore. The revenues in 1993 were primarily attributable
to services performed for CFC Technologies, Inc., a 90.05%-owned subsidiary
of Commodore ("CFC Technologies"), in connection with research and
development projects.
During the year ended December 31, 1994, the Company incurred research and
development costs of $380,387, compared to research and development costs of
$170,992 for the year ended December 31, 1993. In 1994, the Company began
hiring additional personnel and independent consultants to further the
continued development of its AGENT 313 process and to construct a pilot-scale
commercial AGENT 313 processing system. Commodore acquired the Company in
December 1993. At that time, Commodore made the funds available to the
Company to increase the activity associated with the research and development
of its AGENT 313 technology.
General and administrative expenses for the year ended December 31, 1994
were $1,368,938, as compared to $173,292 for the year ended December 31,
1993. In 1994, the Company incurred approximately $1,196,000 in general and
administrative expenses attributable primarily to salaries and wages, travel,
professional fees, rent, consulting fees and office expenses, certain of
which were allocated from Commodore.
At the time the Company became a development stage company, it expensed in
process technology of $2,423,662, which was obtained as part of the
acquisition of Commodore Labs by Commodore.
In the year ended December 31, 1994, the Company incurred $550,542 of
interest expense as compared to $290,386 in the year ended December 31, 1993.
In 1994, the Company incurred a financing fee of $384,000 in connection with
bank financing obtained by Commodore and utilized by the Company, as compared
to $288,000 in 1993. The remaining interest expense in 1994 related to
intercompany interest charges from Commodore for advances made to the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date principally from
borrowings and investments from its stockholders. For the three months ended
March 31, 1996, the Company purchased equipment for $35,747 and incurred
patent filing and maintenance costs of $14,423. During the last three fiscal
years, the Company has purchased or constructed equipment totalling $940,474
and has incurred patent filing and maintenance costs of $199,875. Commodore
has provided additional advances to the Company of $978,896 in the three
months ended March 31, 1996, which were repaid by the Company subsequent to
its obtaining a line of credit provided by a commercial bank in April 1996.
At December 31, 1995, the Company had indebtedness of $5,925,426 to Commodore
under the Commodore Funding Note.
In the three months ended March 31, 1996, the Company has incurred a loss
of $921,631. The Company has sustained losses in each of the fiscal years
ended December 31, 1993, 1994 and 1995 of $(473,635), $(4,716,867) and
$(3,855,981), respectively. At December 31, 1995 and March 31, 1996, the
Company had a working capital deficit of $(9,629,210) and $(7,627,818),
respectively, and an accumulated stockholders' deficit of $(8,542,371) and
$(6,483,374), respectively. These factors create an uncertainty about the
Company's ability to continue as a going concern. The Company has received
significant advances in working capital from its sole stockholder which has
allowed it to continue its operations. There can be no assurance that it will
continue to receive such financial assistance.
In March 1996, Commodore capitalized the Company by contributing to the
Company, among other things, $3,000,000 of the Commodore Funding Note. Upon
completion of this Offering, $1,925,426 of the net proceeds will be paid to
Commodore and the balance of $4,000,000 will be converted into the New
Commodore Note. See "Use of Proceeds" and "Certain Relationships and Related
Transactions."
In April 1996, Bentley J. Blum, the Chairman of the Board of Directors of
both Commodore and the Company and the principal stockholder of Commodore,
personally guaranteed a $2,000,000 line of credit to the
20
<PAGE>
Company from a commercial bank. The line of credit expires on July 31, 1996.
It is expected that the entire line of credit will have been borrowed prior
to the completion of this Offering and, upon completion of this Offering, the
Company will apply $2,000,000 of the net proceeds to repay such line of
credit, whereupon Mr. Blum's personal guarantee may be released. See "Use of
Proceeds" and "Risk Factors -- Benefits to Related Parties."
The Company believes that the net proceeds of this Offering will be
sufficient to meet its cash, operation and liquidity requirements for a
minimum of 12 months after the date of this Prospectus.
The Company has allocated $12,000,000 of the net proceeds of this Offering
for the funding of proposed collaborative ventures. These costs include, but
are not limited to, salaries and benefits of personnel, equipment design and
procurement costs, cost of leasing or otherwise obtaining additional
operating facilities, analytical and other testing costs, professional fees,
insurance, marketing and other administrative expenses. As of the date of
this Prospectus, the Company has not determined the amount of net proceeds of
this Offering to be applied to any of the proposed collaborative ventures
because the Company is currently in negotiations with such proposed venture
partners involving, among other issues, the level of its proposed funding
commitment. See "Use of Proceeds" and "Business -- Collaborative Working
Arrangements."
After this Offering, the Company intends to lease approximately 50,000
square feet of space for testing, additional research and development,
equipment demonstration and assembly, and executive and administrative
offices, however no specific site has to date been identified by the Company.
It is anticipated that $2,000,000 will be required with respect to leasing
such facility and equipment costs. The Company is continuing to further the
research and development of its AGENT 313 technology through additional
testing and demonstrations which will require the hiring of additional
personnel and additional research and development costs. See "Use of
Proceeds" and "Business -- Properties."
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standard Statement No. 121, "Accounting for Long Lived
Assets" and No. 123 "Accounting and Disclosure of Stock-Based Compensation."
Statement No. 121 is effective for years beginning after December 15, 1995.
The effect of adoption of Statement No. 121 will not have a material effect
on the Company's financial statements. Statement No 123 is effective for
years beginning after December 15, 1995. The effect of adoption of Statement
No. 123 is not expected to have a material effect on the Company's financial
statements as the Company has adopted only the disclosure requirements of
Statement No. 123.
NET OPERATING LOSSES
The Company has net operating loss carryforwards of approximately
$6,970,000 which expire in the years 2000 through 2010. The amount of net
operating loss carryforward that can be used in any one year will be limited
by the applicable tax laws which are in effect at the time such carryforward
can be utilized. A valuation allowance of $2,915,000 has been established to
offset any benefit from the net operating loss carryforward as it cannot be
determined when or if the Company will be able to utilize the net operating
losses.
21
<PAGE>
BUSINESS
GENERAL
The Company is an environmental technology company which has developed and
intends to commercialize its patented process known as AGENT 313.(TM) Based
on the results of its extensive testing, the Company believes that AGENT 313
is capable of effectively treating and decontaminating soils and other
materials, including sludges, sediments, oils and other hydrocarbon liquids,
metals, clothing and porous and non-porous structures and surfaces, by
destroying PCBs, pesticides, dioxins, chlorinated substances, chemical and
biological phosphates and other toxic contaminants to an extent sufficient to
satisfy current federal environmental guidelines. The Company also believes
that, based on the results of its additional tests, AGENT 313 is capable of
neutralizing chemical weapons materials and warfare agents and of
concentrating certain radioactive wastes for more effective disposal. Tests
of AGENT 313 have been conducted since 1989 and have been financed to date by
the Company principally from borrowings and investments from its
stockholders. AGENT 313 is based upon solvated electron chemistry, in which
solvents such as anhydrous liquid ammonia are mixed with various active
metals to produce a solvated electron solution.
On March 15, 1996, the EPA issued to the Company a Nationwide Permit for
PCB Disposal, which allows the Company to use AGENT 313 on-site to treat
PCB-contaminated soils and metallic surfaces. In order to obtain such permit,
the Company underwent a monitored evaluation by the EPA and was successful in
demonstrating that AGENT 313 was capable of treating PCB-contaminated
materials to residual PCB levels at or below regulatory-required limits.
Based on the EPA's listing of national operating permits, the Company
believes that it possesses the only non-thermal PCB treatment technology for
multiple applications currently permitted under the EPA's Alternate
Destruction Technology Program.
On April 3, 1996, the Company was selected by the U.S. Department of
Commerce as one of nine companies to participate in the RCI, which is a
component of the Clinton Administration's efforts to streamline the
commercialization process for new environmental technologies, and to build
cooperative interactions between business and government to bring
environmental technologies to market more rapidly and efficiently. Under the
RCI, the Company intends to form "working partnerships" with the EPA and
other governmental agencies for the purpose of developing and implementing
policies and strategies for the commercialization of AGENT 313. Although
there is no funding through the RCI, it is expected that under the program
the EPA and other governmental agencies will provide permitting and siting
assistance to facilitate and expedite the issuance of permits for site
specific demonstrations of AGENT 313 and verification assistance to certify
and publish the on-site test results of the demonstrations.
Most of the other available environmental treatment and disposal methods
for toxic substances involve safety risks with respect to air pollution and
transportation of hazardous materials. In addition, these other methods may
not produce a permanent solution, as certain of these processes result in
large volumes of residual waste which may require further treatment prior to
disposal. A number of these methods are also encountering increased public
resistance and added regulatory oversight.
The Company's business strategy is to establish collaborative joint
working and marketing arrangements with established engineering and
environmental service organizations. The Company intends to enter into these
relationships (i) in projects involving specific applications throughout the
marketplace, or in projects involving specific industries, or (ii) as
licensing arrangements with third parties. The Company is currently
negotiating potential working arrangements with several companies, including
Teledyne Brown and Sverdrup, and is bidding, in collaboration with such
companies, for certain decontamination projects. See "-- Commercialization
and Marketing Strategy" and "-- Collaborative Working Arrangements."
Although the Company believes that it will be able to enter into one or
more definitive agreements with collaborative partners and be awarded
contracts to use AGENT 313 in decontamination projects, there can be no
assurance that any of these discussions will result in collaborative
agreements or contract awards. Even if such contracts are awarded, AGENT 313
has never been utilized on a large-scale basis, and there is no assurance
that AGENT 313 will perform successfully on a large-scale commercial basis or
that it will be profitable to the Company. There can also be no assurance
that AGENT 313 will not be superseded by other competing technologies. See
"Risk Factors" and "-- Collaborative Working Arrangements."
22
<PAGE>
MARKET OVERVIEW
Currently, the most common methods of treatment and disposal of hazardous
and non-hazardous wastes and industrial by-products include landfilling,
deep-well injection, chemical and biological treatment and incineration. Most
of the current treatment and disposal methods entail air pollution and
transportation risks. In addition, they may not provide a permanent solution.
Certain of these treatment and disposal methods result in large volumes of
residual waste which may require further treatment prior to disposal. As a
result, a number of these methods are encountering increased public
resistance and added regulatory oversight.
According to the Environmental Business Journal (August 8, 1995), the
global market for environmental products and services was approximately $420
billion in 1995 and is expected to reach $500 billion per year by 2000.
The Chemical Weapons Convention of 1993 has, as of the date of this
Prospectus, been ratified by 49 nations, and, when ratified by a total of 65
nations, will commit its signatories to destroy all chemical weapons stocks
over a ten-year period. While neither the United States nor Russia has yet
ratified the treaty, the United States Senate Foreign Relations Committee
recommended Senate ratification on April 25, 1996, and the ratification vote
of the full Senate is expected to occur in late spring or early summer 1996.
In reports released by the United States Department of Defense, the United
States military and other government agencies have estimated that
approximately $12 billion will be spent over the next ten years for the
destruction of domestic stockpile and non-stockpile chemical weapons and
chemical warfare agents.
As with any new technology or process, there will be initial resistance to
the use of AGENT 313 on a large scale, especially in connection with a strong
vested interest on the part of the United States military (based on
substantial expenditures and commitments previously made) to use incineration
for the destruction of weapons. In addition, other prospective projects for
the Company have already been committed to other forms of destruction
technology, including incineration, plasma arc, vitrification, molten metal,
molten salt, chemical neutralization, biological treatment, catalytic
electrochemical oxidation and supercritical wet oxidation. The Company and
its collaborative partners will attempt to overcome such competition by
introducing AGENT 313 in smaller clean-up projects and through feasibility
studies demonstrating its applicability to larger projects, such as the
clean-up of a portion of the New Bedford, Massachusetts harbor.
It may also be anticipated that, over an extended period, the market for
decontamination of hazardous materials will continue to decline as past
environmental degradation is corrected, and as the private and public sectors
limit further pollution through the prohibition on the production and use of
a broad range of hazardous materials and through the modification and
improved efficiency of varied manufacturing processes. See "Risk Factors --
Uncertainty of Market Acceptance."
SOLVATED ELECTRON CHEMISTRY
The liquid solutions resulting from solvated electron chemical reactions
are one of the most powerful reducing agents known, and accordingly represent
one of the most powerful dehalogenating agents available in modern chemistry.
Occasionally referred to as dissolving metal solutions, solvated electron
solutions are formed by dissolving alkali or alkaline-earth metals, such as
sodium, calcium, lithium and potassium, in anhydrous liquid ammonia or other
solvents. The solutions, which form rapidly when the metal enters the
solvent, turn a deep blue coloration and register an electrical conductivity
approaching that of liquid metals, which in turn releases free electrons. As
an example, when contaminated soil containing halogenated organic compounds
(such as PCBs) is placed in a solvated electron solution, a chlorine atom is
exchanged for a hydrogen atom. The chlorine atoms combine with calcium or
sodium ions to form a simple salt, turning the molecule into a harmless
biphenyl.
Although it has been believed that solvated electron chemistry could
theoretically treat halogenated compounds, practical applications were
thought unattainable due to offsetting or competing chemical reactions in
soil and other elements from non-hazardous elements such as iron, other
metallic oxides, water and carbon dioxide. However, testing conducted by the
Company has demonstrated that these other reactions do not interfere with the
AGENT 313 process and that AGENT 313 can be effective in the treatment of
halogenated compounds.
23
<PAGE>
AGENT 313
AGENT 313 technology mixes anhydrous liquid ammonia and/or other solvents
with reactive metals and contaminated elements to effect the selective
destruction or neutralization of halogenated organic compounds (such as PCBs,
pesticides and dioxins). The Company has demonstrated that AGENT 313 can
achieve consistently high levels of contaminant destruction when working with
PCBs, dioxins and pesticides. AGENT 313 has treated soils containing up to
10,000 parts-per-million (ppm) of contaminants, and oils containing up to
250,000 ppm, leaving residual soils and oils with contamination levels of
less than 1 ppm. In addition, AGENT 313 has been successfully applied to
other PCB-contaminated surfaces such as concrete. No hazardous or toxic
residues have resulted from the use of AGENT 313, nor have there been any
toxic emissions into the air, water, soils or other surfaces to date. By
example, most contaminated soils treated with AGENT 313 can be used
subsequently for planting or for any other use for which non-contaminated
soils are appropriate.
The AGENT 313 process consists of tanks, pumps and piping to handle
anhydrous ammonia and other solvents in liquid and vapor forms, and reactor
vessels for holding contaminated materials and for the introduction of
solvating solutions. The system can be transported to field sites and
configured in numerous sizes.
The AGENT 313 process requires placing the contaminated materials into a
reactor where they are mixed with a solvent and charged with a base metal.
The chemical reaction produces metal salts such as calcium chloride, calcium
hydroxide, and non-halogenated inert organics. The ammonia within the reactor
is then removed to a discharge tank. The materials are removed, sampled for
residual traces of PCB or other halogenated organic compounds, and placed in
storage for disposal. In many cases, the decontaminated soil and metals can
be replaced in their original location, recycled or reused. The solvents do
not enter the chemical reaction, but merely serve as the solute for the
solvated electron solution.
EPA NATIONWIDE PERMIT AND TESTING RESULTS
In order to treat PCBs within the United States on all non-Superfund
sites, the treating entity must obtain a permit from the EPA. Most EPA
permits granted to date for PCB destruction are solely for single-site
incineration treatment centers. In August 1995, the Company demonstrated
AGENT 313 to the EPA in order to obtain the Nationwide Permit. In March 1996,
the EPA issued the Nationwide Permit to the Company. The Nationwide Permit
allows the Company to use AGENT 313 on-site to treat PCB-contaminated soil at
any location in the United States. In addition to soil treatment, the
Nationwide Permit allows the Company to treat PCB-contaminated metallic
surfaces. The Nationwide Permit only covers the destruction of PCBs in soils
and on metallic surfaces.
Based on currently published lists of EPA national operating permits, the
Company believes that it possesses the only non-thermal PCB treatment
technology for multiple applications permitted under the EPA's Alternate
Destruction Technology Program. EPA regulations governing permitting have
been in effect for more than 15 years, and according to the latest EPA
published list of non-thermal destructive processes, only seven companies
have met EPA's stringent requirements for commercial operation. Of these,
only the Company is permitted to remediate PCB-contaminated soils and
metallic surfaces. The EPA's Alternative Destruction Technology Program is
designed to encourage remediation technologies as an alternative to
incineration.
The Nationwide Permit states that, among other matters, AGENT 313 treats
soils and metallic surfaces highly contaminated with PCBs to levels which
render the PCBs to an unregulated status of less than 2 ppm under the Toxic
Substances Control Act ("TSCA"), and treats various metallic materials whose
surfaces are highly contaminated with PCBs to TSCA unregulated status (less
than 10 micrograms per 100 square centimeters).
The Nationwide Permit became effective on March 15, 1996, expires on March
15, 2001, and may be renewed subject to providing any requested additional
information to the EPA at the time of renewal. The Nationwide Permit imposes
certain continuing obligations on the Company, including notification of all
job sites, periodic reporting to the EPA as to activities at the job sites,
prior notification to and approval by the EPA with respect to any single-site
centralized remediation facility that the Company may seek to establish, and
certain restrictions on the disposal of AGENT 313 by-products. The Nationwide
Permit further specifies that the Company must continue to comply with all
otherwise applicable federal, state and local laws regarding the handling and
disposition of hazardous substances.
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<PAGE>
In order to obtain the Nationwide Permit, the Company demonstrated AGENT
313 to the EPA. In these tests, AGENT 313 successfully treated
PCB-contaminated soil and metallic surfaces to levels substantially below
those required by current regulations (generally phrased in terms of parts
per million (ppm) or micrograms (Ug) per 100 square centimeters (cm(2)).
The results of the August 1995 test are summarized below:
<TABLE>
<CAPTION>
PCB Level
--------------------------------------------------
Material Before Treatment After Treatment
------------------ --------------------- -------------------
<S> <C> <C>
Soils 1,200 ppm less than 1 ppm
900 ppm less than 1 ppm
1,050 ppm less than 1 ppm
Metal Surfaces 24,000 Ug/100 cm(2) 4.1 Ug/100 cm(2)
26,000 Ug/100 cm(2) 1.1 Ug/100 cm(2)
22,000 Ug/100 cm(2) 3.8 Ug/100 cm(2)
</TABLE>
In September 1995, the Company received a national research and
development permit from the EPA for experimentation with PCBs. In more than
1,000 tests using AGENT 313, levels of PCB contamination exceeding 6,000 ppm
were reduced to levels approaching non-detectable, with the destruction
process occurring in a matter of minutes. The following table is a summary of
the results of those tests.
<TABLE>
<CAPTION>
PCB Level
-----------------------------------------------
Soil Type/Material Before Treatment After Treatment
---------------------- -------------------- -------------------
High PCBs
--------------------
<S> <C> <C>
Clay 290 ppm less than 1 ppm
Organic 660 ppm less than 1 ppm
Sandy 6,200 ppm less than 1 ppm
Oil 250,000 ppm less than 1 ppm
Low PCBs
--------------------
Clay 29 ppm less than 1 ppm
Organic 83 ppm less than 1 ppm
Sandy 130 ppm less than 1 ppm
</TABLE>
These tests were conducted on limited quantities of contaminated material,
and there can be no assurance that AGENT 313 will be able to replicate any of
these test results on a large-scale commercial basis or on any specific
project. See "Risk Factors -- Limited Operating History; Net Losses; Future
Losses; Initial Commercialization Stage; Going Concern Disclosure in
Independent Auditors' Report."
In September 1995 and December 1995, the Company retained Geomet
Technologies, Inc. ("Geomet"), an independent surety laboratory licensed by
the United States government to conduct tests on live chemical warfare
agents. Geomet conducted two series of laboratory tests on AGENT 313's
ability to neutralize chemical weapons materials and warfare agents. Such
tests, conducted on a small scale, demonstrated destruction efficiencies of
more than 99.99999% on nerve agents and chemical mustards. Such tests are not
necessarily indicative of results that would be obtained from testing on a
larger scale. The Company is continuing to test AGENT 313 on chemical weapons
by-products, as well as on larger quantities of these chemical weapons
materials.
COMPETITIVE AND OPERATIONAL ASPECTS OF AGENT 313
Substantially all existing systems in use for the destruction of PCBs and
other halogenated compounds involve incineration or other thermal approaches,
and either require the permanent installation of highly complex and expensive
incinerators and waste disposal equipment at the affected site, or the
removal of contaminated materials to off-site facilities. The Company
believes that AGENT 313 represents an approach to resolving serious
environmental remediation issues, without the safety risks of air pollution
and transportation of hazardous materials. The Company believes that AGENT
313 is more effective than incineration and other destruction methods for
toxic substances in that:
25
<PAGE>
o AGENT 313 does not emit toxic fumes into the atmosphere, as is
sometimes the case with thermal or incineration methods;
o AGENT 313 is portable and can be moved directly to the contaminated
site, thereby reducing the risk of off-site contamination.
o AGENT 313 equipment can be customized and configured to address various
treatment applications;
o AGENT 313 has been shown to neutralize or destroy all chemical weapons
material and warfare agents in the United States stockpile, and
Lewisite (the primary chemical weapons material and warfare agent of
the former Soviet Union), in tests conducted by an independent surety
laboratory;
o AGENT 313's reaction time is substantially less than that of
alternative processes, such as thermal desorption and chemical
treatment.
o AGENT 313 equipment may be able to be installed and operated inside
industrial plant facilities to treat hazardous wastes on line as a
continuation of the manufacturing process; and
o AGENT 313 when used to treat soils, yields nitrogen-enriched soils that
can be reused on-site, avoiding replacement and the post-treatment
costs of off-site disposal.
The Company believes that AGENT 313 is the only technology currently
available which possesses all of these features and is capable of treating a
wide variety of contaminants.
However, the Company also believes that AGENT 313 may have the following
disadvantages:
o like incineration and other destruction methods, AGENT 313 destroys the
organic content of soil, creating a need to reblend the soil with
organic matter to restore its ability to support vegetative growth;
o the handling of ammonia and active metals such as calcium and sodium,
in connection with the operation of AGENT 313, requires special
training in materials handling and safety procedures which may be
unfamiliar to some personnel;
o the requirement of AGENT 313 to operate within a vessel at an average
pressure of 150 pounds per square inch adds to the processing time of
contaminated materials and to the engineering complexity of the system;
and
o the Company will be required to overcome the widespread use of
incineration and other destruction methods for treating PCBs and
related contaminants in its marketing of AGENT 313.
COMMERCIALIZATION AND MARKETING STRATEGY
The Company's strategy is to use AGENT 313 on a select number of
industrial, municipal and governmental clean-up and related projects through
one or more collaborative working arrangements with well-recognized
participants in the industry. Subject to domestic acceptance of AGENT 313,
the Company will seek, through similar joint working arrangements, to
penetrate international markets.
The Company's proposed joint ventures or joint working and marketing
arrangements will be designed either for specified individual projects, or
specific industries or market segments.
The Company will seek to enter into joint ventures or working arrangements
which obligate the Company's collaborative partner to (i) purchase the
capital equipment (which the Company currently estimates will represent
approximately 10% of the cost of each project), (ii) be responsible for
handling transportation of the equipment to and from the site, (iii) be
responsible for removal of the treated soil or other material, and (iv) be
responsible for labor and project supervision. The Company will be primarily
responsible for (i) technical and marketing support and personnel, (ii)
creating and monitoring the formulations and specifications of AGENT 313,
including the mixture of liquid ammonia and other fluids with sodium, calcium
or other reactive metals, and (iii) designing and monitoring the performance
of the operating equipment.
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<PAGE>
It is contemplated that control of each collaborative venture will be
shared between the Company and its collaborative partner, and the Company
will thus account for its investment using the equity method, in which the
Company will only include in its financial statements the Company's allocable
share of the net income or net loss of the venture.
In addition to, or as an alternative to, collaborative joint working
agreements with strategic partners, the Company may elect or need (if
commercially attractive collaborative joint working agreements are not
entered into) to license AGENT 313 to unaffiliated third parties who will
either be owners or operators of contaminated sites or engaged by such owners
or operators to remediate such sites. The Company's strategy would be to
limit the number and scope of any licenses it negotiates and to require the
payment of both initial cash royalties and minimum periodic royalties in
connection with such licenses. Although the Company has not as yet sought to
negotiate any such licenses, the Company would expect that royalties will be
based upon a percentage or fixed amount payable on measured amounts of
contaminated materials treated using AGENT 313.
There can be no assurance that the Company will be successful in
consummating any collaborative joint working arrangements that could prove
profitable to the Company, or that it will be able to enter into any license
agreements that generate any revenues. See "Risk Factors -- No Assurance of
Collaborative Agreements, Licenses or Project Contracts" and "--
Collaborative Working Arrangements."
COLLABORATIVE WORKING ARRANGEMENTS
As of the date of this Prospectus, the Company has entered into
non-binding agreements with Teledyne Brown to use AGENT 313 to destroy
chemical warfare agents, and with Resources Conservation Company, a
subsidiary of Ionics Inc. ("RCC"), Sverdrup Corporation and Groundwater
Technology, Inc. for various uses and applications of AGENT 313 for
PCB-decontamination. However, neither the Company nor any of such joint
working arrangements has consummated any definitive collaborative joint
ventures or been awarded any specific decontamination projects. The Company
is currently in various stages of formalizing the collaborative working
arrangements described below.
Proposed Teledyne Brown Joint Venture
The Company has entered into a non-binding memorandum of understanding
with Teledyne Brown, pursuant to which it is contemplated that the Company
and Teledyne Brown (or one of its affiliates) will form a joint venture to
market AGENT 313 to United States government military agencies as the
enabling technology for a non-thermal method for the destruction of chemical
weapon materials, projectiles and warfare agents. Teledyne Brown will also
license AGENT 313 from the Company on a limited basis in connection with an
existing agreement between Teledyne Brown and the United States military
dedicated toward non-stockpile chemical decontamination projects on certain
"small burial" sites located in various locations throughout the United
States. Small burial sites are defined as those containing less than 100
chemical agent items, such as munitions, rockets, bombs and storage
containers.
The proposed joint venture contemplates the initial establishment of a
small-scale pilot plant to be dedicated to specific small burial sites.
Depending on the success achieved by AGENT 313 on these small sites, the
proposed venture contemplates bidding on large burial contracts to
decontaminate government stockpile chemical decontamination sites which
contain 1,000 or more chemical agent items. International marketing
activities would also be undertaken at this stage of the venture.
The memorandum of understanding contemplates that the joint venture will
be 50% owned by the Company and 50% owned by Teledyne Brown, and will
maintain a small management, sales, financial and administrative staff, with
Teledyne Brown and the Company performing the essential activities of the
joint venture under subcontracts with the joint venture. It is currently
anticipated that the Company's role will concentrate on engineering and site
operations related to the AGENT 313 process and related equipment. Teledyne
Brown will be primarily responsible for site development, facilities
engineering, facilities construction and maintenance, utility connections,
materials recovery, transportation, waste management and transport and site
decommissioning. In addition, the Company and Teledyne Brown will jointly
coordinate the engineering, construction, installation and decommissioning of
the AGENT 313 process controls and monitoring instrumentation. As of the date
of this Prospectus, the Company has not determined the amount of net proceeds
of this Offering to be applied to this venture.
27
<PAGE>
New Bedford Harbor Project
The New Bedford, Massachusetts harbor and waterfront area contains some of
the highest concentrations of PCBs in the nation and, in 1982, this
18,000-acre site was placed on the EPA's Superfund national priorities list.
The contaminated sediments and sludges from this site were to be disposed of
by incineration. However, public and political opposition related to the
risks associated with incineration has caused the EPA to halt these plans.
Ebasco Services, Inc. ("Ebasco"), a subsidiary of Foster Wheeler Corp. and
general contractor on the New Bedford Harbor Project to the EPA, sought out
non-thermal methods for on-site destruction or neutralization of these PCBs.
In February 1996, Ebasco awarded a contract to RCC to perform tests and
conduct a feasibility study utilizing the RCC dewatering system to remove
liquids from the sediments and sludges in conjunction with AGENT 313 as the
enabling PCB-destruction technology.
In addition, the Company believes that, sufficient water removal can be
achieved to enable AGENT 313 to be utilized as a single PCB destruction
mechanism, by mixing various levels of ammonia with the contaminated
sediments, and by incorporating a specialized filtering process. Accordingly,
in March 1996, in response to another request by Ebasco for the New Bedford
Harbor Project, the Company, Sverdrup and TriRex Consulting Company, an
environmental project management company ("TriRex"), submitted a proposal for
a competing feasibility study under which AGENT 313 would represent the
stand-alone technology for the destruction of PCBs at the site, with Sverdrup
providing equipment and TriRex providing monitoring services.
These separate competing feasibility studies involving AGENT 313 represent
two of three options currently being considered for the New Bedford Harbor
project. In the event that AGENT 313, either in conjunction with the RCC or
with Sverdrup and TriRex, is selected as the preferred technology, the
Company estimates that follow-up work will involve a contract to eliminate
PCBs from approximately 15,000 cubic yards of contaminated sediments, which
the EPA estimates as representing approximately 45% of the PCB contaminated
material. The balance of the PCB contaminated material is spread over the
18,000-acre site.
The Company and its proposed working partners have not, as yet, been
awarded a follow-up contract with respect to the New Bedford Harbor project,
and there can be no assurance that any such contract will be awarded, or if
awarded, that it will be on terms which are profitable to the Company. There
can also be no assurance that AGENT 313 will be successful in performing on a
large-scale basis, as would be contemplated by a follow-up agreement. In the
event that AGENT 313 proves unable to duplicate on a large-scale basis the
success achieved in the laboratory and in demonstration projects, the
business prospects of the Company would be materially and adversely affected.
As of the date of this Prospectus, the Company has not determined the amount
of net proceeds of this Offering to be applied to this project.
Proposed Sverdrup Joint Venture
The Company and Sverdrup have entered into a non-binding memorandum of
understanding to establish one or more joint ventures or related arrangements
to utilize AGENT 313 as the enabling technology for the decontamination of
PCBs and other toxic substances on a variety of Superfund sites and military
installations. The Company has conducted extensive discussions with Sverdrup
whereby AGENT 313 would be marketed through Sverdrup primarily to
governmental agencies such as the EPA for clean-up of Superfund and other
sites, and branches of the United States armed forces. In addition to
collaboration on the New Bedford Harbor project, the Company and Sverdrup
have also jointly responded to a request for proposal from the Department of
the Navy in respect of an alternative method of decontaminating various naval
installations in the United States.
It is contemplated that under the terms of the proposed joint venture, the
Company and Sverdrup will form a limited liability company or similar
business entity to be equally owned by the companies. The proposed joint
venture contemplates a five-person Board of Directors, with two
representatives of each of the Company and Sverdrup and one independent
director; provided that the vote of 66 2/3 % of the directors will be
required for certain significant actions, including (i) sales or offerings of
interests by the joint venture company; (ii) accepting any fixed-price bids
on projects in excess of an amount to be determined; (iii) accepting any bids
with potential maximum non-indemnified liability in excess of an amount to be
determined; (iv) borrowing by the joint venture company in excess of an
amount to be determined; and (v) certain international activities. In
addition,
28
<PAGE>
it is contemplated that the proposed joint venture agreement will restrict
any sales by either the Company or Sverdrup of their interests in the joint
venture company for a time period to be determined, without the approval of
the other company, and will contain certain "buy/sell" agreements in the
event of any permitted sales of a joint venturer's equity. As of the date of
this Prospectus, the Company has not determined the amount of net proceeds of
this Offering to be applied to this venture.
Sharp & Associates
The Company has entered into a non-binding memorandum of understanding
with Sharp & Associates, Inc., a Columbus, Ohio-based consulting and
remediation company ("Sharp"), to explore the applicability of AGENT 313 to
the remediation of dioxin-contaminated soils. The memorandum of understanding
contemplates that the Company and Sharp will contact owners of
dioxin-contaminated sites with proposals to demonstrate the applicability of
AGENT 313 at such sites. As of the date of this Prospectus, the Company has
not determined the amount of net proceeds of this Offering to be applied to
this project.
Proposed ESEERCO Project
The Company has submitted a proposal in association with Groundwater
Technology, Inc. to the Empire State Electric Energy Research Corporation
("ESEERCO"), a trade association of New York State utilities, to demonstrate
AGENT 313's effectiveness in the clean-up of PCB contamination at electric
utility sites in New York State. The initial phase of the proposal involves
the testing of AGENT 313 on sample materials from various sites at the
Company's laboratory. If the results of the tests are favorable, the Company
would then do a larger scale on-site demonstration. As of the date of this
Prospectus, the Company has not determined the amount of net proceeds of this
Offering to be applied to this project.
Although the Company believes that it will enter into definitive joint
working agreements with one or more collaborative partners, there can be no
assurance that any of these discussions will result in any actual joint
ventures or related agreements, or, even if such agreements are executed,
that the Company and its prospective collaborators will be awarded any
decontamination projects that will ultimately result in revenues and earnings
for the Company. There is also no assurance that AGENT 313 will ultimately
prove to be commercially viable, or that it will not be superseded by other
competing technologies. See "Risk Factors."
INTELLECTUAL PROPERTY
The Company has seven United States patents which issued between 1987 and
1996, and which relate to AGENT 313, electrochemistry of halogenated organic
compounds, separation and destruction of CFCs and decontamination of soils
containing mercury and radioactive metals. The Company also has one Canadian
patent relating to its AGENT 313 technology and is in the process of
prosecuting one patent in Japan on such technology. The Company has filed
five additional United States patent applications relating to separation and
destruction of CFCs and removal of heavy metals from soil. In November 1995,
the Company filed a provisional patent application relating to the
destruction of chemical warfare agents. The Company is pursuing foreign
patent protection where it deems appropriate.
To protect its trade secrets and the unpatented proprietary information in
its development activities, the Company's employees, consultants and
contractors are required to enter into agreements providing for the
confidentiality and the Company's ownership of such trade secrets and other
unpatented proprietary information originated by them while in the employ of
the Company.
There can be no assurance that any patents will issue on any of the
pending patent applications, nor can there be any assurance that any of the
Company's confidential non-disclosure agreements will provide meaningful
protection of the Company's confidential or proprietary information in the
case of unauthorized use or disclosure. In addition, there can be no
assurance that the Company will not incur significant costs and expenses,
including the cost of litigation in the future, to defend its rights under
such patents, licenses and non-disclosure agreements. See "Risk Factors --
Unpredictability of Patent Protection and Proprietary Technology."
LICENSE TO COMMODORE
The Company has granted to Commodore and its subsidiaries (other than the
Company and its subsidiaries) the exclusive world-wide right with the right
to sublicense, to make, use, sell and exploit, for itself or jointly
29
<PAGE>
with other third parties, in all domestic and international markets and for
all applications, all of the inventions and technology under all patents,
discoveries, technology and other intellectual property now or hereafter
owned or otherwise possessed by the Company in connection with AGENT 313;
provided that such license expressly limits the licensees' rights to the
licensed patents and technology to the destruction of CFCs and other ozone-
depleting substances. It is contemplated that, following the Offering, the
Company's subsidiaries, Commodore Labs (which serves as the Company's
research laboratory) and Commodore Technologies, Inc. (which manufactures and
designs the Company's equipment), will furnish certain personnel and
equipment to Commodore in respect of the CFC Business. See "Risk Factors --
Conflicts of Interest" and "Certain Relationships and Related Transactions."
COMPETITION
The hazardous and non-hazardous waste and industrial by-products treatment
and disposal market is characterized by several large domestic and
international companies and numerous small companies, many of whom, including
Molten Metal Technology, Inc. and ELI Eco Logic, Inc., have substantially
greater financial and other resources than the Company. Although the Company
believes that it possesses the only Nationwide Permit for destroying PCBs,
any one or more of the Company's competitors or other enterprises not
presently known may develop technologies which are superior to the
technologies utilized by the Company. To the extent that the Company's
competitors are able to offer comparable services at lower prices or of
higher quality, or more cost- effective remediation alternatives, the
Company's ability to compete effectively could be adversely affected.
The domestic and international governmental public sector of the market is
dominated by many large multinational corporations who are presently engaged
in providing incineration and other conventional technologies in
decontaminating chemical weapons and warfare agents, concentration of nuclear
wastes and the decontamination of military vessels and other hardware. These
competitors include Raytheon Corporation (the current general contractor for
the Johnston Atoll incinerator), EG&G, Inc. (the general contractor for the
Tooele army depot), Mason and Hanger (the general contractor for the Newport
News naval facility), Waste Management Corporation (a bidder for domestic
"large burial" stockpile weapons decontamination), and others, including
Browning-Ferris Industries, Inc., Jacobs Engineering, Inc., Fluor Daniel
Corporation and Lockheed Martin Marietta Corporation. All of these
corporations have substantially greater financial, personnel and other
resources than those to be possessed by the Company after giving effect to
this Offering. In addition, many prospective users of AGENT 313 have already
committed substantial resources to other forms of environmental remediation
technology, including incineration, plasma arc, vitrification, molten metal,
molten salt, chemical neutralization, catalytic electrochemical oxidation and
supercritical wet oxidation.
The Company believes that its ability to compete in both the commercial
private and governmental public sectors is dependent upon AGENT 313 being a
superior, more cost-effective method to achieve decontamination of a variety
of materials. In the event that the Company is unable to demonstrate that
AGENT 313 is a viable, cost-effective alternative to other decontamination
processes on a commercial scale, the Company will not be able to successfully
compete with other companies active in the environmental remediation
industry.
RESEARCH AND DEVELOPMENT
Research and development activities with respect to AGENT 313 are ongoing
and utilize the Company's internal technical staff as well as independent
consultants retained by the Company. All such activities are
Company-sponsored. Research and development expenditures for the Company were
$368,422, $1,815,231, $380,387 and $170,992 for the three months ended March
31, 1996 and each of the years ended December 31, 1995, 1994 and 1993,
respectively.
ENVIRONMENTAL MATTERS
Environmental Laws and Regulations Creating a Need for AGENT 313
Environmental protection laws have been enacted and amended in response to
public concern over the environment. The Company's operations are subject to
these evolving laws and the implementing regulations. The Company believes
that compliance with these laws and regulations is the reason a market exists
for the Company's services.
30
<PAGE>
The environmental legislation and policies which the Company believes are
applicable to AGENT 313 in the United States primarily include the Toxic
Substances Control Act ("TSCA"), and the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, ("CERCLA") as amended by
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), and may
include on a case by case basis, the Clean Air Act of 1970, as amended (the
"Clean Air Act"). These laws regulate the management and disposal of toxic
and hazardous substances, provide for the protection of land and groundwater
resources, and control the discharge of pollutants into the air. Many of
these laws have international counterparts, particularly in Europe and
elsewhere in North America.
TSCA regulates the manufacture, distribution, and sale of chemical
substances, and requires testing of new chemicals and new uses of known
chemicals that may present an unreasonable risk of injury to health or the
environment. The EPA, through TSCA, has adopted comprehensive regulations for
PCB's and other halogenated substances, as part of a vast regulatory program
covering thousands of chemicals.
CERCLA and subsequent amendments under SARA (often referred to
collectively as Superfund) impose strict, retroactive liability upon persons
who generated, transported or arranged for the transportation of hazardous
substances or owned or operated the vessels or facilities at which such
substances were disposed. CERCLA provides for the investigation and
remediation of hazardous substance sites and mandates that any hazardous
substances remaining on-site must meet certain regulatory requirements, with
a preference for innovative technology. These program regulations may create
an incentive to utilize environmental-friendly technologies such as AGENT
313, which destroy targeted wastes without creating additional residual waste
product. Moreover, to the extent hazardous substances are effectively
destroyed, potential liability can be eliminated or significantly reduced.
The Clean Air Act empowered the EPA to establish and enforce ambient air
quality standards and limitations on emissions of air pollutants from
specific facilities. In 1987, the EPA began to enforce stricter standards for
incineration emissions. With more stringent regulations on waste reduction
technologies, the Company believes that AGENT 313 could obtain a desired
market share since, in most cases, it produces little or no air emissions.
U.S. Environmental Laws and Regulations Affecting the Use of AGENT 313
CERCLA imposes strict, joint and several liability upon owners or
operators of facilities when a release or threatened release of a hazardous
substance has occurred, upon parties who generated hazardous substances that
were released at such facilities and upon parties who arranged for the
transportation of hazardous substances to and from such facilities. The
Company's plans to own and operate AGENT 313 at on-site installations expose
the Company to potential liability under CERCLA for releases of hazardous
substances at those sites. In the event that off-site treatment, storage or
disposal facilities utilized by the Company for final disposition of residues
from AGENT 313 are targeted for investigation and cleanup under CERCLA, the
Company could incur liability as a generator of such materials or by virtue
of having arranged for their transportation and disposal.
In light of such potential liability, the Company has designed AGENT 313
to attempt to minimize the potential for release of hazardous substances into
the environment. In addition, the Company has developed plans to manage the
risk of CERCLA liability, including training of operators, use of operational
controls and structuring of its relationships with the entities responsible
for the handling of waste materials and by-products. The Company also
maintains insurance with respect to environmental claims, although there can
be no assurance that such insurance will be adequate.
The Clean Air Act Amendments of 1990 impose strict requirements upon
owners and operators of facilities that discharge pollutants into the
environment. These amendments may require that certain air emission control
technology be installed on the AGENT 313 systems in the event that there is
any discharge of non-recovered gases into the environment. Such additional
air emission controls can be costly and require an air permit to construct
and operate.
New and Proposed Legislative Initiatives
On April 3, 1996, the Company was selected by the U.S. Department of
Commerce as one of nine companies to participate in the RCI, which is a
component of the Clinton Administration's efforts to streamline the
31
<PAGE>
commercialization process for new environmental technologies, and to build
cooperative interactions between business and government to bring
environmental technologies to market more rapidly and efficiently. Under the
RCI, the Company intends to form "working partnerships" with the EPA and
other governmental agencies for the purpose of developing and implementing
policies and strategies for the commercialization of AGENT 313. Although
there is no funding through the RCI, it is expected that the EPA and other
governmental agencies will provide permitting and siting assistance under the
program to facilitate and expedite the issuance of permits for site specific
demonstrations of AGENT 313, as well as assistance to certify and publish the
on-site test results of such demonstrations.
Effective March 18, 1996, the EPA lifted a ban dating to 1980 on the
import of waste materials containing certain high concentrations of PCBs. The
new regulations are expected to make disposal capacity in the United States
available to waste generators in Mexico and Canada, where PCB waste disposal
capacity is less available. The EPA has estimated that these regulations may
create an additional market for United States-based PCB disposers, such as
the Company, of between $50,000,000 and $100,000,000 per year for the next
five years. The Company believes it is one of six companies holding a PCB
disposal permit and the only company not using incinerators, monitored
landfills or thermal processes.
Environmental Permitting Implications
The Company possesses a Nationwide Permit issued by the EPA under the
Alternative Destruction Technology Program that allows the Company to use
AGENT 313 on-site to treat PCB-contaminated soils and metallic surfaces. The
Nationwide Permit contains numerous conditions for maintaining the Nationwide
Permit and there can be no assurance that the Company will be able to comply
with such conditions to maintain and/or secure renewal of the Nationwide
Permit. In addition, if new environmental legislation or regulations are
amended, or are interpreted or enforced differently, the Company may be
required to meet stricter standards of operation and/or obtain additional
operating permits or approvals. Failure to obtain such permits or otherwise
comply with such regulatory requirements, could have a material adverse
effect on the Company and its operations. See "-- EPA Nationwide Permit and
Testing Results."
Environmental Liability Insurance
The Company maintains environmental liability insurance with limits of
$1,000,000 per occurrence and $1,000,000 in the aggregate. The Company may be
required to obtain environmental liability insurance in the future in amounts
greater than those it currently maintains as AGENT 313 is commercialized.
EMPLOYEES
As of March 31, 1996, the Company had 17 full-time employees. The Company
believes that it has been successful in attracting experienced and capable
process development, operations and management personnel. All of the
Company's employees have entered into agreements with the Company requiring
them not to disclose the Company's proprietary information, assigning to the
Company all rights to inventions made during their employment, and
prohibiting them from competing with the Company. The Company's employees are
not represented by any labor union. The Company believes that relations with
its employees are satisfactory.
PROPERTIES
The Company leases approximately 7,000 square feet of space in Columbus,
Ohio from an unaffiliated third party under a lease expiring on September 30,
1996, which the Company uses as its laboratory and offices. The Company also
leases approximately 10,000 square feet of space in Marengo, Ohio
(approximately 30 miles north of Columbus, Ohio) from an unaffiliated third
party under a lease expiring in August 1996 with a one-year renewal option,
which the Company uses as its equipment and AGENT 313 demonstration and
testing facilities. In the event that the Company does not extend or renew
such leases, the Company believes that there are comparable facilities
available in the same geographic area at lease rates comparable to those
currently paid by the Company.
The Company's principal executive offices are located in approximately
2,000 square feet of office space in New York, New York, which also serves as
the principal executive offices of Commodore and of Bentley J. Blum
32
<PAGE>
and Paul E. Hannesson, the Chairman and the President and Chief Executive
Officer of each of the Company and Commodore, respectively. The Company also
maintains administrative offices in approximately 2,000 square feet of space
in Great Neck, New York, which also serves as Commodore's main administrative
offices. The Company pays $2,500 per month, on a month-to-month basis,
representing 50% of the total current monthly occupancy costs for the two
offices. See "Certain Relationships and Related Transactions -- Offices."
After this Offering, the Company intends to lease approximately 50,000
square feet of space for testing, additional research and development,
equipment demonstration and assembly, and executive and administrative
offices, however no specific site has to date been identified by the Company.
See "Use of Proceeds." Upon commencement of its occupancy at such facility,
the Company will terminate its month-to-month lease together with Commodore
and may elect to terminate its other existing leases in Columbus and Marengo,
Ohio.
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company or
its properties is subject.
ADVISORY BOARD
The Company has established an Advisory Board comprised of four members
with experience in the areas of environmental science and international
business. The Advisory Board will meet periodically with the Company's Board
of Directors and management to discuss matters relating to the Company's
business activities, including formulating programs to establish ventures
with international governments for the use of AGENT 313 to destroy chemical
weapons materials and warfare agents, and establishing commercial business
alliances and working projects with corporations and government agencies on
an international basis. Members of the Advisory Board will be reimbursed by
the Company for out-of-pocket expenses incurred in serving on the Advisory
Board.
Some of the members of the Advisory Board may serve as consultants to the
Company under consulting agreements for which they will receive compensation.
To the Company's knowledge, none of its Advisory Board members or other
consultants has any conflict of interest between their obligations to the
Company and their obligations to others.
The members of the Company's Advisory Board and their primary professional
or academic affiliations are listed below.
Noel Brown, Ph.D. -- Dr. Brown serves as President of The Friends of the
United Nations, a non- governmental organization committed to supporting the
United Nations and explaining its activities to citizens' organizations
worldwide. Dr. Brown was formerly the regional director of the United Nations
Environment Programme for North America. His career at the U.N. includes
service as Political Affairs Officer in the Department of Political and
Security Council Affairs prior to heading the North American office of the
United Nations Environment Programme. He has represented the United Nations
Environment Programme at such conferences as the United Nations Conference on
Science and Technology in Vienna and the United Nations Conference on the Law
of the Sea in Geneva. He holds a Ph.D. in International Law and Relations
from Yale University and a diploma from Hague Academy of International Law.
Olivier Giscard D'Estaing -- A former Minister of the French Parliament,
Mr. D'Estaing is the former chairman of the European Center for International
Cooperation and currently serves as Chairman of The European League for
Economic Cooperation and Chairman of a United Nations committee working on
international economic matters. Mr. D'Estaing is the founder and Deputy
Chairman of the European Institute of Business Administration. He is
currently a member of the Board of Directors of IBM France, Generali France
and Societe Internationale de Technologie. He previously served on the
international boards of directors of Rockwell International Corporation,
Purolator Corporation, S.C. Johnson, Inc. and Corning Glass Corporation. Mr.
D'Estaing holds a law degree from Paris University and an M.B.A. from Harvard
University.
Misha Krakowsky -- Since 1995, Mr. Krakowsky has been Managing Director
and Chief Executive Officer of Allied Pacific Group, Ltd., a business and
investment company based in Hong Kong which focuses on infrastructure
projects and privatization opportunities involving state-owned enterprises in
China and throughout
33
<PAGE>
Southeast Asia. He is also currently Vice Chairman of Dongfeng Trump
Commercial Vehicle Co., Ltd. and Chairman of CHX International, Ltd., both
Sino-foreign joint ventures; a director of The Hong Kong Israeli Chamber of
Commerce; and Managing Director of Century International Investment Ltd., a
Sino-American investment and merchant banking company. Mr. Krakowsky was, for
approximately 12 years prior to forming Allied Pacific Group, Ltd., the
Managing Director of The Eisenberg Group of Companies, one of the largest
investment conglomerates in The People's Republic of China. He also served as
Vice Chairman of North United Toys Co., Ltd., a joint venture between The
Eisenberg Group and a large Chinese industrial company. Mr. Krakowsky holds
an M.B.A. from New York University.
Edward L. Rowny -- Dr. Rowny is currently head of International
Negotiating Consultants, Inc., a consulting firm that advises government
officials and the private sector on military affairs and in establishing
businesses in Japan, Poland and certain of the Russian Republics. He
previously served as Special Advisor to the President and Secretary of State
for arms control matters in both the Reagan and Bush administrations.
Following a military career which included assignments in Africa, Europe and
Asia during World War II and the Korean Conflict, Dr. Rowny retired in 1979
from the military with the rank of Lieutenant General. From 1973 to 1979, he
served as Joint Chiefs of Staff Representative to the SALT II talks in
Geneva, and was appointed an ambassador in 1981 by President Reagan to head
the Delegation to the Strategic Arms Reduction Talks. Dr. Rowny is a graduate
of Johns Hopkins University and the United States Military Academy, and holds
a Masters degree in Engineering and International Relations from Yale
University and a Ph.D. in International Studies from American University.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The names and ages of the executive officers, key employees and directors
of the Company, and their positions with the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position
--------------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
Bentley J. Blum 55 Chairman of the Board of Directors
Paul E. Hannesson 55 President, Chief Executive Officer and Director
Albert E. Abel 53 Senior Vice President and Chief Scientist
Neil L. Drobny, P.E., Ph.D. 55 Executive Vice President, Commercial Operations (1)
Carl O. Magnell, P.E. 55 Executive Vice President, Governmental Operations (1)
Vincent Valeri, P.E. 60 Senior Vice President and Chief Engineer (1)
Gerry D. Getman, Ph.D. 48 Vice President and Director of Research and Development
Andrew P. Oddi 35 Vice President of Finance, Chief Financial Officer and Secretary
Kenneth L. Adelman, Ph.D. 49 Director (1)
Herbert A. Cohen 62 Director (1)
David L. Mitchell 74 Director (1)
</TABLE>
- ------
(1) Positions will be assumed upon completion of this Offering.
BENTLEY J. BLUM has been Chairman of the Board of Directors of the Company
and Commodore Labs since 1993. Mr. Blum has been Chairman of the Board of
Directors of Commodore since 1984. For more than 15 years, Mr. Blum has been
actively engaged in real estate acquisitions and currently is the sole
stockholder and director of a number of corporations which hold real estate
interests, oil drilling interests and other corporate interests. Mr. Blum is
a director of Lanxide Corporation, a research and development company
developing metal and ceramic materials; Federal Resources Corporation, a
company formerly engaged in manufacturing, retail distribution and natural
resources development; Specialty Retail Services, Inc., a former distributor
of professional beauty products; and North Valley Development Corp., an
inactive real estate development company. Mr. Blum is the controlling
stockholder of Commodore. Mr. Blum is the brother-in-law of Paul E.
Hannesson, the President and Chief Executive Officer and a director of the
Company.
PAUL E. HANNESSON has been President and Chief Executive Officer and a
director of the Company since March 1996. Mr. Hannesson has also been
President and Chief Executive Officer and a director of Commodore since
February 1993. Upon completion of this Offering, Mr. Hannesson will resign
from Commodore. Mr. Hannesson was a private investor and business consultant
from 1990 to 1993, and was also an officer and director of Specialty Retail
Services, Inc. from 1989 to August 1991. He currently serves as Chairman of
the Board of Lanxide Corporation, where he also serves on its Compensation
Committee. Mr. Hannesson is the brother-in-law of Bentley J. Blum, the
Chairman of the Board of Directors of the Company and Commodore.
ALBERT E. ABEL founded Commodore Labs (formerly A.L. Sandpiper
Corporation), an environmental technology company, in 1980 and was a Vice
President and one of its principal stockholders until its sale to Commodore
in 1993. Mr. Abel has been the President of Commodore Labs since December
1993, and has been a Senior Vice President and Chief Scientist of the Company
since March 1996.
NEIL L. DROBNY, P.E., Ph.D. has served as a Vice President of Commodore
since June 1995 and, upon completion of this Offering, Mr. Drobny will resign
from his office at Commodore to become Executive Vice President, Commercial
Operations of the Company. From October 1994 to May 1995, Dr. Drobny served
as a private consultant for Commodore. From 1981 to October 1994, Dr. Drobny
served as President and a principal stockholder of ERM-Midwest, Inc., an
environmental consulting firm that is now part of ERM, Inc., an interna-
35
<PAGE>
tional environmental consulting group. He also founded and served as
President of ERM/EnviroClean-Midwest, Inc., an affiliated remediation
company, from 1989 to October 1993. From 1966 to 1981, Dr. Drobny held
numerous positions ranging from Project Engineer to Director of Business
Development of Battelle Memorial Institute, an international contract
research organization. Dr. Drobny received his Ph.D. in Civil Engineering
from Ohio State University in 1971.
CARL O. MAGNELL, P.E. has served as a Vice President of Commodore since
September 1995, and upon completion of this Offering, Mr. Magnell will resign
his office at Commodore to become Executive Vice President, Governmental
Operations of the Company. From 1992 to 1995, Mr. Magnell served as Director
of Research for Civil Engineering Research Foundation (an industry-sponsored
engineering research group), and from 1964 to 1992, Mr. Magnell served in
various engineering capacities with the U.S. Army Corps of Engineers. Mr.
Magnell holds a B.S. degree from the United States Military Academy, and an
M.S. in Civil Engineering and Political Science from the Massachusetts
Institute of Technology.
VINCENT VALERI, P.E. has supervised equipment development for AGENT 313
with Commodore Labs since November 1994, and will serve as Senior Vice
President and Chief Engineer of the Company upon completion of this Offering.
From July 1993 to November 1994, he was a private consultant for Commodore.
From 1992 to July 1993, Mr. Valeri served as Vice President of Manufacturing
at Moen, Inc., a manufacturer of faucets and plumbing parts, and for five
years prior thereto was Vice President and a co-founder of General Management
Technologies, Inc., a management consulting firm. From 1965 to 1987, Mr.
Valeri served in various capacities with Westinghouse Electric Corporation,
and was Director and General Manager of its Factory Automation Systems
Division from 1984 to 1987.
GERRY D. GETMAN, Ph.D. joined Commodore Labs on March 1, 1996 as Vice
President and Director of Research and Development and will serve in the same
capacity for the Company upon completion of this Offering. Prior to joining
Commodore Labs, he was employed by Calgon Corporation from 1991 to 1995 as
Director of Research. From January to March 1996, he was a private consultant
for Commodore. From 1982 to 1991, Dr. Getman served in various capacities at
Calgon including ISO 9000 Director, Quality Assurance Director, and
Analytical Laboratory Manager. From 1975 to 1981, he was employed by Velsicol
Chemical Corporation in several capacities including Manager of Analytical
Research. Dr. Getman received his Ph.D. in chemistry from Rensselear
Polytechnic Institute.
ANDREW P. ODDI is currently Vice President of Finance, Chief Financial
Officer and Secretary of the Company and has served as Vice President of
Finance and Chief Financial Officer of Commodore and its subsidiaries since
1987. From 1982 to 1987, he was employed as an auditor with Ernst & Young,
independent accountants.
KENNETH L. ADELMAN, Ph.D. has agreed to join the Board of Directors of the
Company upon the completion of this Offering. Since 1987, Dr. Adelman has
been an independent consultant on international issues to various
corporations, including Lockheed Martin Marietta Corporation and Loral
Corporation. Previously, Dr. Adelman held positions of responsibility in arms
control during most of the Reagan Administration. From 1983 to the end of
1987, he was Director of the United States Arms Control and Disarmament
Agency. Dr. Adelman was a Professor at Georgetown University and a writer for
Washingtonian Magazine from 1987 to 1991. Dr. Adelman accompanied President
Reagan on summits with Mikhail Gorbachev, and negotiated with Soviet
diplomats on nuclear and chemical weapons control issues, from 1985 to 1987.
He also headed the United States team on annual arms control discussions with
top-level officials of the People's Republic of China from 1983 through 1986.
From 1981 to 1983, he served as Deputy United States Representative to the
United Nations with the rank of Ambassador Extraordinary and Plenipotentiary.
Dr. Adelman holds M.A. and Ph.D. degrees from Georgetown University.
HERBERT A. COHEN has agreed to join the Board of Directors of the Company
upon the completion of this Offering. For the past three decades Mr. Cohen
has been a practicing negotiator acting in an advisory capacity in hostage
negotiations and crisis management. He has been an advisor to Presidents
Carter and Reagan in the Iranian hostage crisis, the government's response to
the skyjacking of TWA Flight 847 and the seizure of the Achille Lauro. Mr.
Cohen's clients have included large corporations and government agencies such
as the Department of State, the Federal Bureau of Investigation, the
Conference of Mayors, the Bureau of Land Man-
36
<PAGE>
agement, Lands and Natural Resources Division in Conjunction with the EPA,
and the United States Department of Justice. In addition, Mr. Cohen was an
advisor and consultant to the Strategic Arms Reduction Talks negotiating
team. Mr. Cohen holds a law degree from New York University School of Law,
and has lectured at numerous academic institutions.
DAVID L. MITCHELL has agreed to join the Board of Directors of the Company
upon the completion of this Offering. For the past thirteen years, Mr.
Mitchell has been President and co-founder of Mitchell & Associates, Inc., a
banking firm providing financial advisory services in connection with
corporate mergers, acquisitions and divestitures. Prior to forming Mitchell &
Associates in 1982, Mr. Mitchell was a Managing Director of Shearson/American
Express Inc. from 1979 to 1982, a Managing Director of First Boston
Corporation from 1976 to 1978, and a Managing Director of the investment
banking firm of S.G. Warburg & Company from 1965 to 1976. Mr. Mitchell holds
a bachelor's degree from Yale University.
The Company's Board of Directors has an Audit Committee, a Compensation
Committee, and a Stock Option Committee. The responsibilities of the Audit
Committee (which, upon completion of this Offering, will consist of Mr.
Mitchell as Chairman, and Mr. Cohen) include recommending to the Board of
Directors the firm of independent accountants to be retained by the Company,
reviewing with the Company's independent accountants the scope and results of
their audits, and reviewing with the independent accountants and management
the Company's accounting and reporting principles, policies and practices, as
well as the Company's accounting, financial and operating controls and staff.
The Compensation Committee (which, upon completion of this Offering, will
consist of Mr. Cohen, as Chairman, and Messrs. Mitchell and Hannesson) has
responsibility for establishing and reviewing employee compensation. The
Stock Option Committee (which, upon completion of this Offering, will consist
of Mr. Adelman, as Chairman, and Messrs. Mitchell and Blum) has
responsibility for administering and interpreting the Company's 1996 Stock
Option Plan (the "Plan"), and determining the recipients, amounts, and other
terms (subject to the requirements of the Plan) of options which may be
granted under the Plan from time to time.
Non-management directors of the Company will receive directors' fees of
$500 per meeting for attendance at Board of Directors meetings, and are
reimbursed for actual expenses incurred in respect of such attendance. The
Company does not intend to separately compensate employees for serving as
directors.
The Company has agreed for a period of five years after the date of this
Prospectus, if requested by the Representative, to use its best efforts to
nominate for election to the Company's Board of Directors two persons
designated by the Representative. In addition, the Representative may
designate a person to receive all notices of meetings of the Company's Board
of Directors and all other correspondence and communications sent by the
Company to its Board of Directors and to attend all such meetings of the
Company's Board of Directors. The Company has agreed to reimburse designees
of the Representative for their out-of-pocket expenses incurred in connection
with their attendance of meetings of the Company's Board of Directors. No
person has yet been designated by the Representative to be nominated for
election to the Company's Board of Directors. See "Underwriting."
Pursuant to a Voting Agreement among Commodore, Mr. Blum, the Company and
the Representative, Commodore has agreed, for a period of two years after the
date of this Prospectus, to vote its shares of Common Stock in favor of (i)
the two Board designees named by the Representative, and (ii) any matters the
subject of a stockholder vote at any annual or special meeting or by consent
which have been approved or authorized by not less than 80% of the
independent directors, and if any such matters have not been so approved or
authorized by the requisite percentage of the independent directors, in
accordance with the majority vote of all other stockholders. Mr. Blum has
agreed, for a period of two years after the date of this Prospectus, to vote
his shares of Commodore common stock in a manner consistent for Commodore to
satisfy its voting requirements as described above.
37
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by
Commodore and/or its affiliates and allocated to the Company's operations for
services rendered during each of 1993, 1994 and 1995 to the person serving as
the Company's current Chief Executive Officer and to each of the Company's
four most highly compensated executive officers other than the Chief
Executive Officer whose total salary and bonus compensation exceeded $100,000
during any such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------
Name and Other
Principal Fiscal Annual All Other
Position Year Salary($) Bonus($) Compensation($) Compensation($)
------------------------- -------- ---------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Paul E. Hannesson 1995 $186,476 $0 $96,000(1) $0
President and Chief 1994 186,476 0 24,000(1) 0
Executive Officer 1993 165,000 0 0 0
Neil L. Drobny 1995 75,000 0 0 81,995(2)
Executive Vice President, 1994 0 0 0 0
Commercial Operations 1993 0 0 0 0
Albert E. Abel 1995 114,577 12,500 0 0
Senior Vice President 1994 104,666 12,500 0 0
and Chief Scientist 1993 41,667 0 0 0
Vincent Valeri 1995 140,000 20,000 0 0
Senior Vice President 1994 11,666 0 0 0
and Chief Engineer 1993 0 0 0 0
Andrew P. Oddi 1995 100,000 0 0 0
Vice President and 1994 90,000 15,000 0 0
Chief Financial Officer 1993 90,000 0 0 0
</TABLE>
- ------
(1) Represents amounts paid to Mr. Hannesson as an allowance for living
expenses in the New York metropolitan area.
(2) Represents consulting fees paid to Dr. Drobny prior to his full-time
employment.
EMPLOYMENT AGREEMENTS
Upon completion of this Offering, the Company will enter into a two-year
employment agreement with Paul E. Hannesson under which he shall devote
substantially all of his business and professional time to the Company and
its business development. Under such agreement, Mr. Hannesson shall receive
an annual salary of $335,000 per annum. Mr. Hannesson's duties and employment
as President and Chief Executive Officer of Commodore will terminate as of
the date of this Prospectus.
Upon completion of this Offering, the Company will assume and amend an
employment agreement entered into between Commodore and Neil L. Drobny,
effective June 1995 and expiring May 1997. Under such agreement, as amended,
Dr. Drobny receives an annual salary of $180,000 through May 1997. The
Company has an option to extend Dr. Drobny's agreement through May 1998 at an
annual salary of $180,000.
Upon completion of this Offering, the Company will assume and amend an
employment agreement entered into between Commodore and Carl O. Magnell,
effective September 1995 and expiring September 1997. Under such agreement,
as amended, Mr. Magnell receives an annual base salary of $150,000 through
September 1996 and $180,000 through September 1997. The Company has an option
to extend Mr. Magnell's agreement through September 1998 at an annual salary
of $180,000.
38
<PAGE>
Upon completion of this Offering, the Company will assume and modify an
employment agreement entered into between Commodore and Albert E. Abel,
effective August 1993 and expiring August 1997, pursuant to which he is
receiving an annual salary of $121,000 through August 1996, $133,100 through
August 1997 and $146,410 through August 1998. Pursuant to the modification of
Mr. Abel's employment agreement, which is to become effective upon the
completion of this Offering, the employment agreement will be extended so as
to terminate on the fifth anniversary of the completion of this Offering,
with a base salary of $140,000 for the first 12 months of such modified
agreement, subject to minimum annual increases of not less than 5% each year
thereafter based upon changes in an applicable cost of living index.
Upon completion of this Offering, the Company will assume an employment
agreement entered into between Commodore and Vincent Valeri, effective
November 1994 and expiring November 1997, pursuant to which he receives an
annual base salary of $140,000.
Each of Messrs. Hannesson, Drobny, Magnell, Abel and Valeri, as well as
Andrew P. Oddi and Gerry D. Getman, are entitled to participate in the
Company's Executive Bonus Program. See "Executive Compensation- Executive
Bonus Plan."
Each of the employment agreements with Messrs. Drobny, Magnell, Abel and
Valeri require the full-time services of such employees, subject to permitted
service with professional-related service organizations and other outside
activities that do not materially interfere with the individuals' duties to
the Company. The agreements also contain covenants (a) restricting the
employee from engaging in any activities competitive with the business of the
Company during the term of such employment agreements, (b) prohibiting the
employee from disclosure of confidential information regarding the Company,
and (c) confirming that all intellectual property developed by the employee
and relating to the business of the Company constitutes the sole property of
the Company. In addition, each of Messrs. Hannesson, Getman and Oddi has
entered into a similar non-competition, non-disclosure and intellectual
property agreement with the Company.
The Company is the sole beneficiary of a $2,500,000 key man life insurance
policy on the life of Mr. Abel, and has applied for $1,000,000 key man life
insurance policies on the lives of each of Messrs. Hannesson, Drobny, Magnell
and Valeri.
STOCK OPTIONS
On March 28, 1996, Commodore (as sole stockholder of the Company) approved
the Company's 1996 Stock Option Plan, as previously adopted by the Company's
Board of Directors (the "Plan"), pursuant to which officers, directors,
and/or key employees and/or consultants of the Company can receive incentive
stock options and non-qualified stock options to purchase up to an aggregate
of 2,000,000 shares of the Company's Common Stock (of which no more than
1,500,000 shares may be issued pursuant to non-qualified stock options). On
March 29, 1996, the Company's Board of Directors awarded, effective upon
completion of this Offering, non-qualified stock options under the Plan to
certain key executive officers entitling them to purchase an aggregate of
1,150,000 shares of Common Stock, all of which provide for an exercise price
of $6.00 per share, are exercisable at the rate of 20% of the number of
options granted in each of calendar 1996 through 2000, inclusive, beginning
on March 31, 1996 and, unless exercised, expire on December 31, 2000 (subject
to prior termination in accordance with the applicable stock option
agreements). In addition, non-qualified options to purchase an aggregate of
202,500 shares of Common Stock were awarded, effective upon completion of
this Offering, to members of the Board of Directors who are not employed or
otherwise affiliated with the Company, all of which are exercisable at $6.00
per share, are exercisable at the rate of 33 1/3 % of the number of options
granted in each of calendar 1996 through 1998, inclusive, beginning on March
31, 1996, and, unless exercised, expire on December 31, 2000 (subject to
prior termination in accordance with the applicable stock option agreements).
The exercise price applicable to all outstanding stock options represents not
less than 100% of the fair market value of the underlying Common Stock as of
the date that such options were granted, as determined by the Board of
Directors of the Company on the date that such options were granted.
With respect to incentive stock options, the Plan provides that the
exercise price of each such option must be at least equal to 100% of the fair
market value of the Common Stock on the date that such option is granted (and
110% of fair market value in the case of stockholders who, at the time the
option is granted, own more than 10% of the total outstanding Common Stock),
and requires that all such options have an expiration date not later than
that date which is one day before the tenth anniversary of the date of the
grant of such options (or the fifth anniversary of the date of grant in the
case of 10% stockholders). However, with certain limited exceptions,
39
<PAGE>
in the event that the option holder ceases to be associated with the Company,
or engages in or is involved with any business similar to that of the
Company, such option holder's incentive options immediately terminate.
Pursuant to the provisions of the Plan, the aggregate fair market value,
determined as of the date(s) of grant, for which incentive stock options are
first exercisable by an option holder during any one calendar year cannot
exceed $100,000.
With respect to non-qualified stock options, the Plan requires that the
exercise price of all such options be at least equal to 100% of the fair
market value of the Common Stock on the date such option is granted, provided
that non-qualified options may be issued at a lower exercise price (but in no
event less than 85% of fair market value) if the net pre-tax income of the
Company in the full fiscal year immediately preceding the date of the grant
of such option (the "Prior Year") exceeded 125% of the mean annual average
net pre-tax income of the Company for the three fiscal years immediately
preceding such Prior Year. Non-qualified options must have an expiration date
not later than that date which is the day before the eighth anniversary of
the date of the grant of the subject option. However, with certain limited
exceptions, in the event that the option holder ceases to be associated with
the Company, or engages in or becomes involved with any business similar to
that of the Company, such option holder's non-qualified options immediately
terminate.
The following table lists information on stock options granted to each of
the Company's executive officers and directors and to all executive officers
and directors as a group. All of such stock options were granted on March 29,
1996, and (i) with respect to all stock options other than those in favor of
Messrs. Adelman, Cohen and Mitchell, are exercisable at the rate of 20% per
calendar year in each of 1996 through 2000, inclusive (subject to prior
termination under the terms of the applicable option agreements), or (ii)
with respect to the stock options granted to Messrs. Adelman, Cohen and
Mitchell, are exercisable at the rate of 33-1/3% per calendar year in each of
1996 through 1998, inclusive (subject to prior termination under the terms of
the applicable option agreements), and, to the extent not exercised, expire
on December 31, 2000. As of the date of this Prospectus, none of such options
have been exercised.
<TABLE>
<CAPTION>
Number of Percentage of
Shares Total
Underlying Type of Options Exercise
Name of Options Option Granted Price per
Officer or Director Granted Granted Under Plan Share
----------------------------------------------- ------------ --------------- --------------- -----------
<S> <C> <C> <C> <C>
Paul E. Hannesson 400,000 Non-Qualified 29.6% $6.00
Neil L. Drobny 175,000 Non-Qualified 13.0% $6.00
Carl O. Magnell 175,000 Non-Qualified 13.0% $6.00
Vincent Valeri 125,000 Non-Qualified 9.2% $6.00
Albert E. Abel 125,000 Non-Qualified 9.2% $6.00
Andrew P. Oddi 75,000 Non-Qualified 5.5% $6.00
Gerry D. Getman 75,000 Non-Qualified 5.5% $6.00
Kenneth L. Adelman 67,500 Non-Qualified 5.0% $6.00
Herbert A. Cohen 67,500 Non-Qualified 5.0% $6.00
David L. Mitchell 67,500 Non-Qualified 5.0% $6.00
------------ ---------------
All executive officers and directors as a group
(11 persons) 1,352,500 100.0%
============ ===============
</TABLE>
EXECUTIVE BONUS PLAN
In March 1996, the Company's Board of Directors established a five-year
Executive Bonus Plan (the "Bonus Plan") to reward executive officers and
other key employees based upon the Company achieving certain performance
levels. Under the Bonus Plan, commencing with the Company's 1997 fiscal year
and for each of the four fiscal years thereafter, the Company will have
discretion to award bonuses in an aggregate amount in each fiscal year equal
to 1% of the Company's consolidated net sales revenues for such fiscal year,
provided and on condition that the Company achieves a consolidated net profit
before taxes of not less than 5% of consolidated net sales in each year, and
provided that the aggregate bonuses in each year (out of the maximum amount
of 1% of annual net sales) shall not be in excess of the proportion by which
the Company's consolidated net profit before taxes is greater than 5% of
consolidated net sales but less than 15% of consolidated net sales. The
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Compensation Committee of the Board of Directors of the Company will
determine the allocable amounts or percentages of the bonus pool which may be
paid annually to participants; provided, that for fiscal 1997, the following
persons shall (subject to their continued full-time employment with the
Company) be entitled to receive the following percentages of the bonus
payments, if any, payable in respect of fiscal 1997:
Percentage of
Name of Participant Available Bonus Pool
----------------------- ------------------------
Paul E. Hannesson 20%
Neil L. Drobny 15%
Carl O. Magnell 15%
Albert E. Abel 10%
Vincent Valeri 10%
Gerry D. Getman 5%
Andrew P. Oddi 5%
Other employees 20%
Bonuses under the Bonus Plan are not exclusive of other bonuses that may
be awarded by the Board of Directors or the Compensation Committee from time
to time.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company has included in its Certificate of Incorporation and By-laws
provisions to (i) eliminate the personal liability of its directors and
officers for monetary damages resulting from breaches of their fiduciary duty
(provided that such provisions do not eliminate liability for breaches of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under
Section 174 of the Delaware General Corporation Law (the "Delaware Law"), or
for any transaction from which the director and/or officer derived an
improper personal benefit), and (ii) indemnify its directors and officers to
the fullest extent permitted by the Delaware Law, including circumstances in
which indemnification is otherwise discretionary. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus with respect to (i) the beneficial ownership of the Common Stock
of the Company by each beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company, each director, each executive officer
and all executive officers and directors of the Company as a group, and (ii)
the number of shares of Common Stock owned by each such person and group.
Unless otherwise indicated, the owners have sole voting and investment power
with respect to their respective shares.
Number of Shares Percentage of Outstanding
of Common Stock Common Stock
Name and Address of Beneficially Beneficially Owned
---------------------------------
Beneficial Owner(1) Owned (2) Before Offering After Offering
----------------------- ---------------- --------------- --------------
Commodore Environmental
Services, Inc. ....... 15,000,000 100.0% 75.0%
Bentley J. Blum ....... 15,000,000 (3) 100.0% 75.0%
Paul E. Hannesson ..... 1,466,250 (4) 9.7% 7.3%
Neil L. Drobny ........ 99,404 (5) * *
Albert E. Abel ........ 703,101 (6) 4.7% 3.5%
Carl O. Magnell ....... 97,534 (7) * *
Vincent Valeri ........ 155,323 (8) 1.0% *
Andrew P. Oddi ........ 80,332 (9) * *
Gerry D. Getman ....... 15,000 (10) * *
Kenneth L. Adelman .... 22,500 (11) * *
Herbert A. Cohen ...... 22,500 (11) * *
David L. Mitchell ..... 22,500 (11) * *
All executive officers
and directors as
a group (11 persons) . 15,000,000 100.0% 75.0%
- ------
* Percentage ownership is less than 1%.
(1) The addresses of each of Commodore Environmental Services, Inc., Bentley
J. Blum, Paul E. Hannesson, Andrew P. Oddi, Kenneth L. Adelman, Herbert
A. Cohen and David L. Mitchell is 150 East 58th Street, Suite 3400, New
York, New York 10155. The addresses of Messrs. Drobny, Abel, Getman,
Magnell and Valeri is 1487 Delashmut Avenue, Columbus, Ohio 43212.
Bentley J. Blum and Paul E. Hannesson are brothers-in-law.
(2) As used herein, the term beneficial ownership with respect to a security
is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the
power to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose or direct the disposition of) with
respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire
such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting and investment
rights.
(3) Represents all of the shares of Common Stock held by Commodore, based
upon Mr. Blum's beneficial ownership of 28,224,050 shares and his
spouse's ownership of 2,000,000 shares of common stock of Commodore,
representing together 52.7% of the outstanding shares of Commodore
common stock. As of March 31, 1996, there were 57,348,953 outstanding
shares of Commodore common stock. Does not include
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440,000 shares of Commodore common stock owned by Simone Blum, the
mother of Mr. Blum, and 405,000 shares of Commodore common stock owned
by Samuel Blum, the father of Mr. Blum. Mr. Blum disclaims any
beneficial interest in the shares of Commodore common stock owned by his
spouse, mother and father.
(4) Consists of 80,000 shares of Common Stock underlying stock options,
representing 20% of the 400,000 stock options granted to Mr. Hannesson
under the Plan, which are currently exercisable, as well as an aggregate
of 2,650,000 shares of Commodore common stock owned by Suzanne
Hannesson, the spouse of Mr. Hannesson, and 2,650,000 shares of
Commodore common stock owned by the Hannesson Family Trust (Suzanne
Hannesson and John D. Hannesson, trustees) for the benefit of Mr.
Hannesson's spouse, representing together 9.7% of the outstanding shares
of Commodore common stock. Does not include 1,000,000 shares of
Commodore common stock owned by each of Jon Paul and Krista Hannesson,
the adult children of Mr. Hannesson. Mr. Hannesson disclaims any
beneficial interest in the shares of Commodore common stock owned by or
for the benefit of his spouse and children.
(5) Consists of (i) Dr. Drobny's indirect beneficial interest in the shares
of Common Stock, based upon his beneficial ownership of 7,266 shares of
Commodore common stock and options to purchase 240,000 shares of
Commodore common stock at $.50 per share, and (ii) 35,000 shares of
Common Stock underlying stock options, representing 20% of the 175,000
stock options granted to Dr. Drobny under the Plan, which are currently
exercisable.
(6) Consists of (i) Mr. Abel's indirect beneficial interest in the shares of
Common Stock, based upon his ownership of 1,000,000 shares of Commodore
common stock, currently exercisable options to purchase an additional
1,000,000 shares of Commodore common stock, and a warrant to purchase
667,964 shares of Commodore common stock at $.05 per share, and (ii)
25,000 shares of Common Stock, representing 20% of the 125,000 stock
options granted to Mr. Abel under the Plan, which are currently
exercisable.
(7) Consists of (i) Mr. Magnell's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 20,000 shares of Commodore
common stock, and currently exercisable options to purchase 220,000
shares of Commodore common stock at $.50 per share, and (ii) 35,000
shares of Common Stock, representing 20% of the 175,000 stock options
granted to Mr. Magnell under the Plan, which are currently exercisable.
(8) Consists of (i) Mr. Valeri's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 300,000 shares of Commodore
common stock, and currently exercisable options to purchase 200,000
shares of Commodore common stock at $.14 per share, and (ii) 25,000
shares of Common Stock, representing 20% of the 125,000 stock options
granted to Mr. Valeri under the Plan, which are currently exercisable.
(9) Consists of (i) Mr. Oddi's indirect beneficial interest in the shares of
Common Stock, based upon his current ownership of 200,000 shares of
Commodore common stock and currently exercisable options to purchase
50,000 shares of Commodore common stock at $.01 per share, and (ii)
15,000 shares of Common Stock, representing 20% of the 75,000 stock
options granted to Mr. Oddi under the Plan, which are currently
exercisable.
(10) Consists of 20% of the 75,000 stock options granted to Dr. Getman under
the Plan, which are currently exercisable.
(11) Consists of 33-1/3% of the 67,500 stock options granted to each of
Messrs. Adelman, Cohen and Mitchell under the Plan, which are
immediately exercisable. See "Executive Compensation -- Stock Options."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION AND CAPITALIZATION OF THE COMPANY
Since its acquisition of the capital stock of Commodore Labs (formerly
A.L. Sandpiper Corporation) in 1993, Commodore has advanced an aggregate of
$8,925,426 to the Company, which has been used to finance the development of
AGENT 313, including salaries of personnel, equipment, facilities and patent
prosecution. These cash advances by Commodore were evidenced by successive
unsecured 8% promissory notes of the Company's predecessors, and, at December
31, 1995, by the Commodore Funding Note. Kraft Capital Corporation ("Kraft"),
a corporation wholly owned by Bentley J. Blum, the principal stockholder of
Commodore and Chairman of the Board of the Company and of Commodore, provided
approximately $656,000 of such financing to Commodore. Commodore has provided
additional advances to the Company of $978,896 for the three months ended
March 31, 1996, which were repaid by the Company subsequent to its obtaining
a line of credit provided by a commercial bank in April 1996.
In March 1996, the Company was formed as a wholly-owned subsidiary of
Commodore. Prior to this Offering, in exchange for the issuance of 15,000,000
shares of Common Stock, Commodore contributed to the Company (i) all of the
assets and properties (including joint working proposals, quotations and bids
in respect of projects and contracts awarded for feasibility studies),
subject to all of the liabilities, of its operating divisions relating to
AGENT 313 and the exploitation of the AGENT 313 technology and processes in
all commercial and governmental applications; (ii) all of the outstanding
shares of the capital stock of each of Commodore Labs, Inc., Commodore
Remediation Technologies, Inc., Commodore Government Environmental
Technologies, Inc., Commodore Technologies, Inc. and Sandpiper Properties,
Inc. (except for a 9.95% minority interest in Commodore Labs, which is
currently held by Albert E. Abel and will be acquired by Commodore (and
thereafter contributed by Commodore to the Company) upon completion of this
Offering); and (iii) a portion of the Commodore Funding Note in the amount of
$3,000,000.
Upon completion of this Offering, Commodore will convert $4,000,000 under
the Commodore Funding Note into the New Commodore Note, which bears interest
at 8% per annum, payable as to interest only on a quarterly basis, requires
payment of all principal on the fifth anniversary of the completion of this
Offering, and is subject to mandatory prepayment, at Commodore's option, from
any net proceeds which the Company may receive from the exercise of the
Over-allotment Option, and the Company will pay $1,925,426, to Commodore in
repayment of the balance of the Commodore Funding Note from a portion of the
net proceeds of this Offering. Out of such $1,925,426 Commodore will repay
approximately $656,000 to Kraft in respect of the advances made by Kraft to
Commodore. See "Risk Factors -- Benefits to Related Parties" and "Use of
Proceeds."
In April 1996, Bentley J. Blum personally guaranteed a $2,000,000 line of
credit for the Company from a commercial bank. The initial borrowings under
the line of credit, in the approximate amount of $1,000,000, were utilized to
repay advances made by Commodore to the Company in 1996, and Commodore, in
turn, utilized such funds to repay to Kraft the funds provided by Kraft to
Commodore for purposes of the advances to the Company. It is anticipated that
the entire $2,000,000 available under the line of credit will have been drawn
down at the time of completion of this Offering. The Company will apply
$2,000,000 of the net proceeds of this Offering to repay the line of credit,
and Mr. Blum's guarantee may be released at such time. See "Use of Proceeds."
Upon completion of this Offering, Commodore will acquire from Albert E.
Abel, the Company's Senior Vice President and Chief Scientist, the remaining
9.95% of the outstanding shares of common stock of Commodore Labs which is
not presently owned by the Company, and Commodore will contribute such shares
to the Company, for no additional consideration. To acquire the remaining
shares of Commodore Labs, Commodore will pay to Mr. Abel the sum of $750,000
in cash, and will issue a ten-year, 8% promissory note to Mr. Abel in the
principal amount of $2,250,000, payable as to interest only until the
maturity of the note on the tenth anniversary of the date of issuance.
Simultaneously, the Company will settle all outstanding obligations for
accrued compensation payable to Mr. Abel and for amounts receivable by the
Company from Mr. Abel, and it is expected that the net payment to Mr. Abel
arising therefrom will be in the approximate amount of $120,000. The Company
intends to pay such amount to Mr. Abel from the net proceeds of this
Offering. See "Use of Proceeds." The Company will also assume and modify Mr.
Abel's employment agreement at that time. See "Executive Compensation --
Employment Agreements."
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LICENSES OF AGENT 313 TECHNOLOGY
As a result of its acquisition of the capital stock of Commodore Labs, the
Company currently owns all patents, discoveries, technology and other
intellectual property in connection with the AGENT 313 process and system.
Commodore licenses from the Company the exclusive worldwide right with the
right to sublicense, to make, use, sell and exploit, itself or jointly with
other third parties, for the life of all patents now or hereafter owned by
the Company, the AGENT 313 process and all related technology underlying such
patents and intellectual property in all domestic and international
commercial and industrial applications; provided that such license expressly
limits the rights of the licensee(s) and any sub-licensees or users of the
Company's patents and technologies to the CFC Business.
The Company and its stockholders, other than Commodore, will not receive
any direct or indirect benefit from any revenues delivered from the CFC
Business, and any losses or other contingent liabilities incurred by CFC
Technologies and other entities operating businesses related to the CFC
Business may have a material adverse effect on Commodore, which, in turn, may
adversely affect the value of the Securities. See "Risk Factors -- Potential
Conflicts of Interest."
TECHNOLOGY SERVICES
Upon completion of this Offering, the Company will enter into a five-year
technology and technical support agreement with Commodore and CFC
Technologies. Pursuant to such agreement, the Company will provide certain
research and development, equipment engineering and technical support to
enable Commodore and CFC Technologies to exploit the CFC Business. Under such
agreement, the Company will provide Commodore and CFC Technologies the
services of certain Company personnel and equipment. The Company will charge
CFC Technologies and Commodore a fee equal to the sum of (a) the actual cost
of all materials and equipment utilized in connection with such services; and
(b) an hourly rate allocable to the services rendered by all Company
personnel which shall be equal to 120% of the average hourly rate of
compensation then payable by the Company to such persons (based on a 35-hour
work week). Under the terms of the technology and technical services
agreement, in no event will employees of the Company be required to expend in
excess of 25% of their business and professional time in any 90-day period to
rendering services to Commodore or CFC Technologies, without the majority
approval or consent of Kenneth L. Adelman, Herbert A. Cohen and David L.
Mitchell, or such other members of the Board of Directors of the Company not
otherwise affiliated with or employed by Commodore, the Company or any of
their respective subsidiaries.
OFFICES
The Company's principal executive offices are located in approximately
2,000 square feet of office space in New York, New York, which also serves as
the principal executive offices of Commodore and of Messrs. Bentley J. Blum
and Paul E. Hannesson, the Chairman and the President and Chief Executive
Officer of each of the Company and Commodore, respectively. The Company also
maintains administrative offices in approximately 2,000 square feet of space
in Great Neck, New York, which also serves as Commodore's main administrative
offices. The Company pays $2,500 per month, on a month-to-month basis,
representing 50% of the total current monthly occupancy costs for the two
offices. See "Business -- Properties."
FUTURE TRANSACTIONS
In connection with the Offering, the Company's Board of Directors has
adopted a policy whereby any future transactions between the Company and any
of its subsidiaries, affiliates, officers, directors, principal stockholders
and any affiliates of the foregoing will be on terms no less favorable to the
Company than could reasonably be obtained in "arm's length" transactions with
independent third parties, and that any such transactions also be approved by
a majority of the Company's disinterested outside directors, including one of
the Representative's designees so long as they are then serving on the
Company's Board of Directors. In addition, the Underwriting Agreement
contains certain restrictions on the Company involving transactions with
affiliates.
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DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 50,000,000 shares of Common Stock, par value $.001 per share,
and 5,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"), which Preferred Stock may be issued with such rights,
designations and privileges (including redemption and voting rights) as the
Board of Directors may, from time to time, determine.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share and,
subject to the rights of the holders of the Preferred Stock (discussed
below), to receive dividends when and as declared by the Board of Directors,
and to share ratably in the assets of the Company legally available for
distribution in the event of the liquidation, dissolution or winding up of
the Company. Holders of the Common Stock do not have subscription, redemption
or conversion rights, nor do they have any preemptive rights. In the event
the Company were to elect to sell additional shares of its Common Stock
following this Offering, investors in this Offering would have no right to
purchase such additional shares. As a result, their percentage equity
interest in the Company would be diluted. The shares of Common Stock offered
hereby will be, when issued and paid for, fully-paid and not liable for
further call or assessment. Holders of the Common Stock do not have
cumulative voting rights, which means that the holders of more than half of
the outstanding shares of Common Stock (subject to the rights of the holders
of the Preferred Stock) can elect all of the Company's Directors, if they
choose to do so. In such event, the holders of the remaining shares would not
be able to elect any Directors. The Board is empowered to fill any vacancies
on the Board. Except as otherwise required by the Delaware Law, all
stockholder action is taken by vote of a majority of the outstanding shares
of Common Stock voting as a single class present at a meeting of stockholders
at which a quorum (consisting of a majority of the outstanding shares of the
Company's Common Stock) is present in person or by proxy.
PREFERRED STOCK
The Company is authorized by its Certificate of Incorporation to issue a
maximum of 5,000,000 shares of Preferred Stock, in one or more series and
containing such rights, privileges and limitations, including voting rights,
conversion privileges and/or redemption rights, as may, from time to time, be
determined by the Board of Directors of the Company. Preferred Stock may be
issued in the future in connection with acquisitions, financings or such
other matters as the Board of Directors deems to be appropriate. In the event
that any such shares of Preferred Stock shall be issued, a Certificate of
Designation, setting forth the series of such Preferred Stock and the
relative rights, privileges and limitations with respect thereto, shall be
filed with the Secretary of State of the State of Delaware. The effect of
such Preferred Stock is that the Company's Board of Directors alone, within
the bounds and subject to the federal securities laws and the Delaware Law,
may be able to authorize the issuance of Preferred Stock which could have the
effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect
the voting and other rights of holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may also adversely affect
the voting power of the holders of Common Stock, including the loss of voting
control to others.
WARRANTS
The following is a brief summary of certain provisions of the Warrants.
Reference is made to the actual text of the Warrant Agreement between the
Company and The Bank of New York (the "Warrant Agent"), a copy of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part, for a more complete description of the Warrants. See
"Additional Information."
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time during the four year period commencing one
year after the date of this Prospectus, one share of Common Stock at a price
of $8.40 per share, subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The holder of any
Warrant may exercise such Warrant by surrendering the certificate repre-
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senting the Warrant to the Warrant Agent, with the subscription form thereon
properly completed and executed, together with payment of the exercise price.
Commencing one year after the date of this Prospectus, the Warrants may be
exercised at any time in whole or in part at the applicable exercise price
until expiration of the Warrants. No fractional shares will be issued upon
the exercise of the Warrants.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon
the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock, or sale by the Company
of shares of its Common Stock or other securities convertible into Common
Stock (exclusive of options and shares under the Plan, and other limited
exceptions) at a price below the then-applicable exercise price of the
Warrants. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable
warrantholders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Common Stock that might have been purchased upon the exercise of
the Warrant.
Redemption Provisions. Commencing December 28, 1997, the Warrants are
subject to redemption at $.01 per Warrant on 30 days' prior written notice
provided that the average closing sale price of the Common Stock as reported
on the AMEX equals or exceeds $18.00 per share (subject to adjustment for
stock dividends, stock splits, combinations or reclassifications of the
Common Stock), for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice
of redemption. In the event the Company exercises the right to redeem the
Warrants, such Warrants will be exercisable until the close of business on
the business day immediately preceding the date for redemption fixed in such
notice. If any Warrant called for redemption is not exercised by such time,
it will cease to be exercisable and the holder will be entitled only to the
redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at
any time on or prior to their expiration date five years from the date of
this Prospectus, at which time the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the
Warrants instead of exercising them. There can be no assurance, however, that
a market for the Warrants will develop or continue.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do
not adversely affect the interests of the warrantholders. The Company may, in
its sole discretion, lower the exercise price of the Warrants for a period of
not less than 30 days on not less than thirty (30) days' prior written notice
to the warrantholders and the Representative. Modification of the number of
securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Warrants, without the consent of two-thirds of the warrantholders.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered,
qualified or deemed to be exempt under the securities laws of the state of
residence of the exercising holder of the Warrants. Although the Company will
use its best efforts to have all of the shares of Common Stock issuable upon
exercise of the Warrants registered or qualified on or before the exercise
date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there can be no assurance that it will be able to
do so.
The Warrants are separately transferable immediately upon issuance.
Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise
qualified for sale, purchasers may buy Warrants in the aftermarket or may
move to jurisdictions in which the shares underlying the Warrants are not so
registered or qualified during the period that the Warrants are exercisable.
In this event, the Company would be unable to issue shares to those persons
desiring to exercise their Warrants, and holders of Warrants would have no
choice but to attempt to sell the Warrants in a jurisdiction where such sale
is permissible or allow them to expire unexercised.
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SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held 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 the person became an interested stockholder, unless (i) prior to the
date of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock, or
(iii) on or after such date, the business combination is approved by the
board of directors and by the affirmative vote of at least 66 2/3 % of the
outstanding voting stock that is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns
(or within three years, did own) 15% or more of the corporation's voting
stock.
TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT
The Transfer Agent and Registrar for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York, 101 Barclay Street, New York,
New York 10286.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 20,000,000 shares
of Common Stock outstanding, of which only the 5,000,000 shares offered
hereby (and the 5,000,000 Warrants) will be transferable without restriction
under the Securities Act. The other 15,000,000 outstanding shares of Common
Stock, all of which are owned by Commodore, are "restricted securities" (as
that term is defined in Rule 144 promulgated under the Securities Act) which
may be publicly sold only if registered under the Securities Act or if sold
in accordance with an applicable exemption from registration, such as 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, who has beneficially owned restricted securities for at least
two years, is entitled to sell (together with any person with whom such
individual is required to aggregate sales), within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number
of outstanding shares of the same class, or, if the Common Stock is quoted on
the AMEX or another national securities exchange, the average weekly trading
volume during the four calendar weeks preceding the sale. Sales under Rule
144 are also subject to certain manner of sale provisions, notice
requirements, and the availability of current public information regarding
the Company. A person who has not been an affiliate of the Company for at
least three months, and who has beneficially owned restricted securities for
at least three years, is entitled to sell such restricted shares under Rule
144 without regard to any of the limitations described above.
No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will
have on the market prices of the Common Stock and the Warrants prevailing
from time to time. The Company and Commodore, as well as all holders of
outstanding securities exercisable for or convertible into Common Stock
(other than the Representative's Warrants), have agreed not to, directly or
indirectly, issue, agree or offer to sell, sell, transfer, assign,
distribute, grant an option for purchase or sale of, pledge, hypothecate or
otherwise encumber or dispose of any beneficial interest in such securities
for a period of 24 months following the date of this Prospectus without the
prior written consent of the Representative. The sale or issuance, or the
potential for sale or issuance, of Common Stock after such 24-month period
could have an adverse impact on the market prices of the Common Stock and/or
the Warrants. Sales of substantial amounts of Common Stock or the perception
that such sales could occur could adversely affect prevailing market prices
for the Securities. See "Underwriting."
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement (the "Underwriting Agreement"), to purchase
from the Company and the Company has agreed to sell to the Underwriters on a
firm commitment basis, the respective number of shares of Common Stock and
Warrants set forth opposite their names:
Number of
Underwriters Securities
------------------------------------ ------------
National Securities Corporation .... 1,080,000
Carroll & Koster NV ................ 600,000
Baird, Patrick & Co., Inc. ......... 500,000
Cohig & Associates, Inc. ........... 400,000
First London Securities Corp. ...... 400,000
First Southwest Company ............ 325,000
Frederick & Company, Inc. .......... 325,000
Kashner Davidson Securities Corp. .. 325,000
Smith Moore & Co. .................. 325,000
Network 1 Financial Securities Inc. . 200,000
Nutmeg Securities Ltd. ............. 175,000
Redstone Securities Inc. ........... 175,000
LaJolla Securities Corp. ........... 90,000
Suppes Securities, Inc. ............ 80,000
Total ......................... 5,000,000
============
The Underwriters are committed to purchase all the shares of Common Stock
and Warrants offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the several
Underwriters are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $.24 per share of
Common Stock and $.004 per Warrant. After the commencement of the Offering,
the public offering price and concession may be changed by the
Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company and Bentley J. Blum have each agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. The Company has also agreed to pay to the Representative a
non-accountable expense allowance equal to 3% of the gross proceeds derived
from the sale of the Securities underwritten, of which $50,000 has been paid
to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase up to an additional 750,000 shares of Common Stock and/or an
additional 750,000 Warrants at the initial public offering prices per share
and per Warrant, respectively, offered hereby, less underwriting discounts
and the non-accountable expense allowance. Such option may be exercised only
for the purpose of covering over-allotments, if any, incurred in the sale of
the Securities offered hereby. To the extent such option is exercised in
whole or in part, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the number of the additional Securities
proportionate to its initial commitment.
The Company and all officers, directors and stockholders of the Company
and all holders of any options, warrants or other securities convertible,
exercisable or exchangeable for Common Stock have agreed not to, directly or
indirectly, offer, agree or offer to sell, sell, transfer, assign, encumber,
grant an option for the purchase or sale of, pledge or otherwise dispose of
any beneficial interest in such securities for a period of 24 months
following the date of this Prospectus without the prior written consent of
the Representative. An appropriate legend shall be marked on the face of
certificates representing all such securities.
49
<PAGE>
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the
Company up to 500,000 shares of Common Stock and/or up to 500,000 Warrants
(the "Representative's Warrants"). The Representative's Warrants are
initially exercisable at a price of $7.20 per share and $.12 per Warrant for
a period of four years, commencing June 28, 1997 and are restricted from
sale, transfer, assignment or hypothecation for a period until June 28, 1997,
except to officers of the Representative. The Representative's Warrants
provide for adjustment in the number of securities issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Common
Stock. The Representative's Warrants grant to the holders thereof certain
rights of registration for the securities issuable upon exercise thereof.
The Underwriting Agreement provides that the Representative has a right of
first refusal for a period of three years after the date of this Prospectus
with respect to any sale of securities by the Company or any of its present
or future subsidiaries; provided, however, that the Company may terminate
such right of first refusal upon the payment of $150,000 to the
Representative in the event the Company elects to proceed with a firm
commitment public offering through another investment banking firm.
The Company has agreed for a period of five years after the date of this
Prospectus, if requested by the Representative, to use its best efforts to
nominate for election to the Company's Board of Directors two persons
designated by the Representative. In addition, the Representative may
designate a person to receive all notices of meetings of the Company's Board
of Directors and all other correspondence and communications sent by the
Company to its Board of Directors and to attend all such meetings of the
Company's Board of Directors. The Company has agreed to reimburse designees
of the Representative for their out-of-pocket expenses incurred in connection
with their attendance of meetings of the Company's Board of Directors. No
person has yet been designated by the Representative to be nominated for
election to the Company's Board of Directors. See "Management."
Although the Representative has been in business for over 40 years, the
Representative has participated in only seven public offerings as an
underwriter during the last five years. In evaluating an investment in the
Company, prospective purchasers of the Securities offered hereby should
consider the Representative's limited experience.
Prior to this Offering, there has been no public market for the
Securities. Consequently, the initial public offering prices of the
Securities and the terms of the Warrants have been determined by negotiation
between the Company and the Representative and do not necessarily bear any
relationship to the Company's asset value, net worth, or other established
criteria of value. The factors considered in such negotiations were
prevailing market conditions, the history of and prospects for the industry
in which the Company competes, an assessment of the Company's technology and
management, the prospects of the Company, its capital structure, the market
for initial public offerings and market prices of similar securities of
comparable publicly-traded companies.
Upon the exercise of any Warrants more than one year after the date of
this Prospectus, which exercise was solicited by the Representative, and to
the extent not inconsistent with the guidelines of the National Association
of Securities Dealers, Inc. and the Rules and Regulations of the Commission,
the Company has agreed to pay the Representative a commission of 5% of the
aggregate exercise price of such Warrants. However, no compensation will be
paid to the Representative in connection with the exercise of the Warrants if
(a) the market price of the Common Stock is lower than the exercise price,
(b) the Warrants are held in a discretionary account, or (c) the Warrants are
exercised in an unsolicited transaction where the holder of the Warrant has
not stated in writing that the transaction was solicited and has not
designated in writing the Representative as soliciting agent. Unless granted
an exemption by the Commission from Rule 10b-6 under the Exchange Act, the
Representative and any soliciting broker-dealers will be prohibited from
engaging in any market-making activities or solicited brokerage activities
with regard to the Company's securities for the periods prescribed by
exemption (xi) to Rule 10b-6 before the solicitation activity or the
termination (by waiver or otherwise) of any right that the Representative and
any soliciting broker-dealers may have to receive a fee for the exercise of
the Warrants following such solicitation. As a result, the Representative and
any soliciting broker-dealers may be unable to continue to provide a market
for the Common Stock or Warrants during certain periods while the Warrants
are exercisable. If the Representative has engaged in any of the activities
prohibited by Rule 10b-6 during the periods described above, the
Representative has undertaken to waive unconditionally its rights to receive
a commission on the exercise of such Warrants.
50
<PAGE>
The foregoing is a summary of the principal terms of the agreements
described above. Reference is made to a copy of each such agreement which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part for a more complete description thereof. See "Additional Information."
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by the law firm of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, New York, New York, as counsel to the Company in
connection with this Offering. Orrick, Herrington & Sutcliffe, New York, New
York, has acted as counsel to the Underwriters in connection with this
Offering. A shareholder of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel is the holder of stock options to purchase an aggregate of 400,000
shares of Commodore common stock, representing less than 1% of Commodore's
outstanding common stock.
EXPERTS
The consolidated financial statements included in this Prospectus and in
the Registration Statement of which this Prospectus is a part have been
audited by Tanner + Co., independent certified public accountants, to the
extent and for the periods set forth in the report of such firm contained
herein and in the Registration Statement of which this Prospectus is a part.
All such financial statements have been included in reliance upon such report
given upon the authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C., a Registration Statement under the
Securities Act with respect to the Securities offered hereby. This
Prospectus, filed as a part of the Registration Statement, does not contain
certain information set forth in or annexed as exhibits to the Registration
Statement. For further information regarding the Company and the Securities
offered hereby, reference is made to the Registration Statement and to the
exhibits filed as a part thereof, which may be inspected at the office of the
Commission without charge or copies of which may be obtained therefrom upon
request to the Commission and payment of the prescribed fee. With respect to
each contract, agreement or other document referred to in this Prospectus and
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved.
The Registration Statement and such exhibits and schedules may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048, and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
51
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
--------
Independent Auditors' Report ...................... F-2
Consolidated Balance Sheet ........................ F-3
Consolidated Statement of Operations .............. F-4
Consolidated Statement of Stockholders' Deficit ... F-5
Consolidated Statement of Cash Flows .............. F-6
Notes to Consolidated Financial Statements ........ F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT LOGO
-----------------------------
TANNER+Co.
CERTIFIED PUBLIC ACCOUNTANTS
------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS 675 East 500 South, Suite 640
OF COMMODORE APPLIED TECHNOLOGIES, INC. Salt Lake City, Utah 84102
Telephone (801) 532-7444
Fax (801) 532-4911
A PROFESSIONAL CORPORATION
We have audited the accompanying consolidated balance sheet of Commodore
Applied Technologies, Inc., and subsidiaries, (a development stage company)
as of December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the three years then
ended, and cumulative amounts since January 1, 1994 (date of commencement of
the development stage) to December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Commodore
Applied Technologies, Inc., and subsidiaries, (a development stage company)
as of December 31, 1994 and 1995, and the results of their operations and
their cash flows for the three years then ended, and cumulative amounts since
January 1, 1994 (date of commencement of the development stage) to December
31, 1995, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
note 10, the Company's significant losses, and deficits in working capital
and stockholders' equity raise substantial doubt about its ability to
continue as a going concern. Management's plans in regards to these matters
are also described in note 10. The accompanying consolidated financial
statements do not include any adjustment that might result from the outcome
of this uncertainty.
As described in note 2 of the consolidated financial statements, the
consolidated financial statements at December 31, 1994 and for the year then
ended reflect the application of cost based accounting arising from an
acquisition.
TANNER + CO.
Salt Lake City, Utah
January 19, 1996
except for notes 1, 2, 3, 7, 8 and 12
which are dated April 8, 1996 and
except for note 13 which is
dated June 24, 1996
F-2
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------------ March 31,
1994 1995 1996
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................... $ -- $ 3,754 $ 10,497
Receivables:
Current portion related party note receivable 65,639 65,639 65,639
Interest from related party ............... 26,260 32,788 34,442
------------- ------------- -------------
91,899 98,427 100,081
Less allowance for loan loss .............. -- (98,427) (100,081)
------------- ------------- -------------
Total current assets ................. 91,899 3,754 10,497
------------- ------------- -------------
Property and equipment:
Furniture and equipment ........................ 85,116 120,404 133,190
Research equipment ............................. 619,035 799,749 822,710
Leasehold improvements ......................... 53,884 64,422 64,422
------------- ------------- -------------
758,035 984,575 1,020,322
Less accumulated amortization and depreciation 56,546 84,928 104,926
------------- ------------- -------------
Net property and equipment ........... 701,489 899,647 915,396
------------- ------------- -------------
Other assets:
Patent - net ................................... 58,674 183,776 195,004
Other .......................................... 3,416 3,416 53,416
------------- ------------- -------------
Total other assets ................... 62,090 187,192 248,420
------------- ------------- -------------
$ 855,478 $ 1,090,593 $ 1,174,313
============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Cash deficit ................................... $ 7,641 $ -- $ --
Accounts payable ............................... 279,483 208,980 245,899
Notes payable to related parties ............... 428,677 428,677 428,677
Accrued compensation ........................... 65,978 69,881 59,417
Note payable to principal stockholder .......... 4,760,089 8,925,426 6,904,322
------------- ------------- -------------
Total current liabilities .................... 5,541,868 9,632,964 7,638,315
------------- ------------- -------------
Minority interest ................................... -- -- 19,372
Commitments and contingencies ....................... -- -- --
Stockholders' (deficit):
Preferred stock (Commodore Labs), series "B", $1 par
value 10% noncumulative 600,000 shares authorized
19,372 shares issued and outstanding ......... 19,372 19,372 --
Common stock (Commodore Labs), $.01, 1,000,000
authorized; 147,012 shares issued and outstanding
at December 31, 1994 and 1995 ................ 1,470 1,470 --
Preferred stock, $.001 par value 5,000,000 shares
authorized, and no shares issued ............. -- -- --
Common stock, $.001, 50,000,000 shares authorized;
15,000,000 shares issued and outstanding at March
31, 1996 ..................................... -- -- 15,000
Additional paid-in capital ..................... 9,635 9,635 2,996,105
Deficit accumulated during development stage ... (4,716,867) (8,572,848) (9,494,479)
------------- ------------- -------------
Total stockholders' (deficit) ............. (4,686,390) (8,542,371) (6,483,374)
------------- ------------- -------------
$ 855,478 $ 1,090,593 $ 1,174,313
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------------------------
1993 1994 1995
------------------ -------------- --------------
Commodore
Laboratories, Inc.
(Predecessor
Company)
<S> <C> <C> <C>
Revenue:
Research and
development projects $ 154,489 $ 116 $ --
------------------ -------------- --------------
Costs and expenses:
Research and
development ........ 170,992 380,387 1,815,231
General and
administrative ..... 173,292 1,368,938 1,772,909
Write-off of acquired
in process
technology ......... -- 2,423,662 --
------------------ -------------- --------------
Total costs and
expenses ...... 344,284 4,172,987 3,588,140
------------------ -------------- --------------
Loss from operations ...... (189,795) (4,172,871) (3,588,140)
------------------ -------------- --------------
Other income (expense):
Interest income ...... 6,546 6,546 6,528
Interest expense --
related party ...... (290,386) (550,542) (274,369)
------------------ -------------- --------------
Net other income
(expense) ..... (283,840) (543,996) (267,841)
------------------ -------------- --------------
Loss before
income taxes .. (473,635) (4,716,867) (3,855,981)
Income taxes .............. -- -- --
------------------ -------------- --------------
Net loss ........ $ (473,635) $(4,716,867) $(3,855,981)
================== ============== ==============
Loss per share .. $ (.31) $ (.26)
============== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<PAGE>
<TABLE>
<CAPTION>
Cumulative
Amounts Since
January 1,
1994 (Date
of Commence-
ment of the
Three Months Ended Development
March 31, Stage) to
---------------------------- March 31,
1995 1996 1996
------------ ------------ ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue:
Research and
development projects $ -- $ -- $ 116
------------ ------------ ---------------
Costs and expenses:
Research and
development ........ 396,786 368,422 2,564,040
General and
administrative ..... 358,627 364,493 3,506,340
Write-off of acquired
in process
technology ......... -- -- 2,423,662
------------ ------------ ---------------
Total costs and
expenses ...... 755,413 732,915 8,494,042
------------- ------------ ---------------
Loss from operations ...... (755,413) (732,915) (8,493,926)
------------ ------------ ---------------
Other income (expense):
Interest income ...... 1,632 1,654 14,728
Interest expense --
related party ...... (58,821) (190,370) (1,015,281)
------------ ------------ ---------------
Net other income
(expense) ..... (57,189) (188,716) (1,000,553)
------------ ------------ ---------------
Loss before
income taxes .. (812,602) (921,631) (9,494,479)
Income taxes .............. -- -- --
------------ ------------ ---------------
Net loss ........ $(812,602) $(921,631) $(9,494,479)
============= ============ ===============
Loss per share .. $ (.05) $ (.06)
============= ============
</TABLE>
- ------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (AUDITED)
AND THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND CUMULATIVE AMOUNTS SINCE
JANUARY 1, 1994 (DATE OF COMMENCEMENT
OF THE DEVELOPMENT STAGE) THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
Commodore Laboratories, Inc.
(Predecessor Company)
---------------------------------------------------
Preferred Stock Preferred Stock
Series A Series B
----------------------- --------------------------
Number Amount Number Amount
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 ..... 977 $ 977,000 -- $ --
Issuance of a dividend of
preferred stock to common
stockholders ................ -- -- 577,081 577,081
Net loss ..................... -- -- -- --
-------- ----------- ----------- -----------
Balance, December 31, 1993 ... 977 977,000 577,081 577,081
Push down of Parent equity at
acquisition ................. -- -- -- --
Retirement of preferred stock (977) (977,000) (557,709) (557,709)
Net loss (development stage) . -- -- -- --
-------- ----------- ----------- -----------
Balance, December 31, 1994 ... -- -- 19,372 19,372
Net loss (development stage) . -- -- -- --
-------- ----------- ----------- -----------
Balance, December 31, 1995 ... -- -- 19,372 19,372
Capitalization of Commodore
Applied Technologies, Inc.:
Conversion of note payable to
principal stockholder to
equity (unaudited) .......... -- -- -- --
Reclassification of preferred
stock of subsidiary to
minority interest (unaudited) -- -- (19,372) (19,372)
Net loss (development stage)
(unaudited) ................. -- -- -- --
-------- ----------- ----------- -----------
Balance, March 31, 1996
(unaudited) ................. -- $ -- -- $ --
======== =========== =========== ===========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
------------------------- Paid-In Accumulated Development
Number Amount Capital Deficit Stage
------------ --------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ..... 147,012 $ 1,470 $ 816,111 $(2,179,422)
Issuance of a dividend of
preferred stock to common
stockholders ................ -- -- (577,081) --
Net loss ..................... -- -- -- (473,635)
------------ --------- ------------ --------------
Balance, December 31, 1993 ... 147,012 $ 1,470 $ 239,030 $(2,653,057)
========= ============ ==============
Push down of Parent equity at
acquisition ................. -- $ 1,470 $ 9,635 $ --
Retirement of preferred stock -- -- -- --
Net loss (development stage) . -- -- -- -- $(4,716,867)
------------ --------- ------------ -------------- --------------
Balance, December 31, 1994 ... 147,012 1,470 9,635 -- (4,716,867)
Net loss (development stage) . -- -- -- -- (3,855,981)
------------ --------- ------------ -------------- --------------
Balance, December 31, 1995 ... 147,012 1,470 9,635 -- (8,572,848)
Capitalization of Commodore
Applied Technologies, Inc.:
Conversion of note payable to
principal stockholder to
equity (unaudited) .......... 14,852,988 13,530 2,986,470 -- --
Reclassification of preferred
stock of subsidiary to
minority interest (unaudited) -- -- -- -- --
Net loss (development stage)
(unaudited) ................. -- -- -- -- (921,631)
------------ --------- ------------ -------------- --------------
Balance, March 31, 1996
(unaudited) ................. 15,000,000 $15,000 $2,996,105 $ -- $(9,494,479)
============ ========= ============ ============== ==============
</TABLE>
See acompanying notes to consolidated financial statements.
F-5
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
Amounts Since
January 1,
1994 (Date
of Commence-
ment of the
Years Ended Three Months Ended Development
December 31, March 31, Stage) to
--------------------------------------- --------------------- March 31,
1993 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- ----
Commodore (Unaudited) (Unaudited) (Unaudited)
Laboratories, Inc
(Predecessor
Company)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................. $(473,635) $(4,716,867) $(3,855,981) $ (812,602) $(921,631) $(9,494,479)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .......... 5,307 27,535 40,411 16,747 23,193 91,139
Provisions for bad debts -- related party -- -- 98,427 -- 1,654 100,081
Write-off of in process technology ..... -- 2,423,662 -- -- -- 2,423,662
Decrease (increase) in:
Accounts receivable -- trade ...... (51) 51 -- -- -- 51
Accrued interest receivable ....... (6,546) (6,546) (6,528) (4,569) (1,654) (14,728)
Other assets ...................... 403 (1) -- -- (50,000) (50,001)
Increase (decrease) in:
Cash overdraft .................... -- 7,641 (7,641) (7,641) -- --
Accounts payable .................. 2,431 220,496 (70,503) (69,229) 36,919 186,912
Other accrued liabilities ......... 1,360 -- -- -- -- --
Accrued compensation .............. 40,080 19,097 3,903 (3,061) (10,464) 12,536
--------- ---------- ---------- --------- -------- ----------
Net cash used in operating activities (430,651) (2,024,932) (3,797,912) (880,355) (921,983) (6,744,827)
--------- ---------- ---------- --------- -------- ----------
Cash flows from investing activities:
Construction of equipment ................. -- (592,605) -- -- -- (592,605)
Purchase of equipment ..................... (9,140) (112,189) (226,540) (100,314) (35,747) (374,476)
Acquisition of patents .................... (21,335) (41,409) (137,131) (30,287) (14,423) (192,963)
--------- ---------- ---------- --------- -------- ----------
Net cash used in investing activities (30,475) (746,203) (363,671) (130,601) (50,170) (1,160,044)
--------- ---------- ---------- --------- -------- ----------
Cash flows from financing activities:
Borrowings from principal stockholder ..... 504,801 2,720,579 4,165,337 1,048,666 978,896 7,864,812
Increase in long-term debt ................ -- 486 -- -- -- 486
--------- ---------- ---------- --------- -------- ----------
Net cash provided by financing
activities ................... 504,801 2,721,065 4,165,337 1,048,666 978,896 7,865,298
--------- ---------- ---------- --------- -------- ----------
Increase (decrease) in cash ................. 43,675 (50,070) 3,754 37,710 6,743 (39,573)
Cash, beginning of period ................... 6,395 50,070 -- -- 3,754 50,070
--------- ---------- ---------- --------- -------- ----------
Cash, end of period ......................... $ 50,070 $ -- $ 3,754 $ 37,710 $ 10,497 $ 10,497
========= ========== ========== ========= ======== ==========
</TABLE>
- ------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS -- CONTINUED
<TABLE>
<CAPTION>
Cumulative
Amounts Since
January 1,
1994 (Date
of Commence-
ment of the
Years Ended Three Months Ended Development
December 31, March 31, Stage) to
--------------------------------------- --------------------- March 31,
1993 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- ----
Commodore (Unaudited) (Unaudited)
Laboratories, Inc
(Predecessor
Company)
<S> <C> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest .......................... $363 -- -- -- -- --
==== ==== ==== ==== ==== ====
Income taxes ...................... $ -- -- -- -- -- --
==== ==== ==== ==== ==== ====
</TABLE>
- ------
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the period ending March 31, 1996, the Company performed the
following noncash transactions:
The Company was capitalized through the contribution by the Company's
principal stockholder of $3,000,000 of a note payable to such stockholder
for 15,000,000 shares of common stock. Series B preferred stock of
Commodore Labs in the amount of $19,372 became minority interest as a
result of such capitalization.
During the year ended December 31, 1994, the Company performed the
following noncash transactions:
Accrued interest payable of $19,570 was converted to long-term debt.
During the year ended December 31, 1993, the Company performed the
following noncash transactions:
Accrued compensation totaling $170,934 was converted to notes payable.
The Company issued 577,081 shares of Commodore Labs series B preferred
stock, $1 par value, as a common stock dividend.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
On March 28, 1996, Commodore Environmental Services, Inc. (Commodore)
filed a Certificate of Incorporation for Commodore Applied Technologies, Inc.
(Company). On March 29, 1996, Commodore capitalized the Company by (i)
contributing to the Company 90.05% of the common stock of Commodore
Laboratories, Inc., formerly A.L. Sandpiper Corporation, and subsidiary
(Commodore Labs), 100% of the outstanding capital stock of Commodore
Technologies, Inc., 100% of the outstanding capital stock of Commodore
Remediation Technologies, Inc., 100% of the outstanding capital stock of
Commodore Government Environmental Technologies, Inc., and 100% of the
outstanding capital stock of Sandpiper Properties, Inc., (ii) assigning any
and all rights and interests of Commodore in all contracts, assets or
properties relating to or in respect of the AGENT 313 solvated electron
chemistry technology and processes and the exploitation thereof in any manner
or for any purpose and (iii) contributing $3,000,000 in principal amount of a
promissory note owed to Commodore by Commodore Labs in exchange for the
issuance of 15,000,000 shares of common stock of the Company. At the time of
the capitalization of the Company, a related party owned 9.95% of the
outstanding common stock of Commodore Labs and unrelated parties owned 19,372
shares of series B preferred stock, $1 par value, of Commodore Labs which are
presented as minority interest in the financial statements.
Commodore, the sole stockholder of the Company, acquired 90.05% of the
outstanding common stock of Commodore Labs in December 1993. The financial
statements for 1994 and 1995 include the accounts of Commodore Labs on the
same basis as they are included in Commodore's consolidated financial
statements, which give effect to allocating the cost of Commodore's
investment in Commodore Labs (Commodore's cost basis) as though it was
acquired on January 1, 1994 (push-down accounting). No material transactions
occurred with respect to Commodore Labs between December 22, 1993 and
December 31, 1993.
The consolidated financial statements include the accounts of Commodore
Labs and its wholly owned subsidiary, PCB Sandpiper, for the period January
1, 1993 through December 31, 1995 and the unaudited accounts through March
31, 1996. The consolidated financial statements of operations, stockholders'
deficit and cash flows for the year ended December 31, 1993 are those of the
predecessor company, Commodore Labs and Subsidiary, and are therefore not
comparable to the consolidated financial statements of the Company for
subsequent periods. It does not include transactions for the Company, as it
was not organized until March 1996, and transactions from the other
contributed companies as there were no material transactions, assets or
liabilities in the companies during the period January 1, 1993 through March
31, 1996.
After the capitalization of the Company, Commodore retained 100% ownership
of the Company, and the Company retained its 90.05% ownership of the common
stock of Commodore Labs. No minority interest for the common stock of
Commodore Labs was reflected because losses applicable to the minority
interest exceeded the minority interest in the equity capital of the
subsidiary.
All material intercompany accounts, transactions and profits have been
eliminated in the consolidation.
(2) SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company is an environmental technology company which has developed and
intends to commercialize its patented process known as AGENT 313 to treat and
decontaminate soils and other materials, including sludges, sediments, oils
and other hydrocarbon liquids, metals and porous and non-porous structures
and surfaces, by destroying polycholorinated biphenyls (PCBs), pesticides,
dioxins, chlorinated substances, chemical and biological phosphates and other
toxic contaminants to an extent sufficient to satisfy current federal
guidelines. AGENT 313 is based upon solvated electron chemistry, which mixes
solvents such as anhydrous liquid ammonia with various base metals to produce
a solvated electron solution. In January 1994, Commodore made the decision to
focus on developing and securing world wide rights for AGENT 313 rather than
performing services for other entities.
F-8
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements - (Continued)
(2) Significant Accounting Policies - (Continued)
DEVELOPMENT STAGE COMPANY
As a result of this decision effective January 1, 1994, the Company is
considered a development stage company as defined in SFAS No. 7. The Company
has, at the present time, not paid any dividends and any dividends that may
be paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
COST BASED ACCOUNTING OF ACQUISITION
Commodore, the sole stockholder of the Company, acquired 90.05% of the
outstanding common stock of Commodore Labs in December 1993. The financial
statements for 1994 and 1995 include the accounts of Commodore Labs on the
same basis as they are included in Commodore's consolidated financial
statements, which gives effect to allocating the cost of Commodore's
investment in Commodore Labs (Commodore's cost basis) as though it was
acquired on January 1, 1994 (push-down accounting). No material transactions
occurred with respect to Commodore Labs between December 22, 1993 and
December 31, 1993. The consolidated financial statements for 1993 are
presented on the historical basis of accounting of Commodore Labs and include
the accounts of Commodore Labs.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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
reporting period. Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are charged to operations as
incurred except for those costs relating to the design or construction of an
asset having an economic useful life which are then capitalized and
depreciated over the estimated life.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. Financial
instruments subject to possible material market variations from the recorded
book value are notes payable to related parties and advances from related
parties. There are no material differences in these financial instruments
from the recorded book value as of December 31, 1995.
LOSS PER SHARE
Loss per share is computed based on the number of shares outstanding as
though the capitalization (contribution of $3,000,000 of a note payable to
principal stockholder for 15,000,000 shares of the Company's common stock) of
the Company had taken place January 1, 1993. Shares used to determine loss
per share exclude common stock equivalents as they are antidilutive.
Accordingly, loss per share is based on weighted average shares outstanding
of 15,000,000 shares for each of the years ended December 31, 1993, 1994 and
1995, and the three month periods ended March 31, 1995 and 1996.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.
F-9
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements - (Continued)
(2) Significant Accounting Policies - (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major addition and improvements
are capitalized while minor replacements, maintenance and repairs which do
not increase the useful lives of the assets are expensed as incurred.
Depreciation and amortization have been provided using straight-line and
accelerated methods over estimated useful lives of the assets. Research
equipment has been constructed by the Company and management anticipates it
will be placed in service in 1996. In connection with the construction, the
Company has not capitalized interest as part of the asset cost as the amount
has not been material.
PATENTS
The Company has incurred costs associated with the obtaining of certain
patents. These costs are being amortized over 17 years. Accumulated
amortization was $16,100, $19,295 and $4,071 at December 31, 1994 and 1995
and March 31, 1996 (unaudited), respectively.
INCOME TAXES
Deferred income taxes are provided, when material, in amounts sufficient
to give affect to timing differences between financial and tax reporting.
UNAUDITED FINANCIAL INFORMATION
The unaudited consolidated financial statements include the accounts of
Commodore Applied Technologies, Inc., and subsidiaries, and include all
adjustments (consisting of normal recurring items) which are, in the opinion
of management, necessary to present fairly the financial position as of March
31, 1996 and the results of operations and cash flows for the three months
ended March 31, 1995 and 1996 and the period January 1, 1994 (date of
commencement of the development stage) to March 31, 1996. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the entire year.
RECLASSIFICATION
Certain balances in the 1993 and 1994 financial statements have been
reclassified to conform to the 1995 presentation.
(3) MINORITY INTEREST
Commodore Labs has two classes of preferred stock, series A and series B,
and one class of common stock. During the year ended December 31, 1994, the
preferred stockholders of Commodore Labs exchanged all 977 shares of their
series A and 557,709 of the 577,081 shares of series B stock for 1,534,709
shares of preferred stock in Commodore. Inasmuch as all but 19,372 shares of
preferred stock was converted in 1994 to preferred stock owned by Commodore
only the $19,372 has been reflected as preferred stock at December 31, 1994
and 1995 and as minority interest at the time control of Commodore Labs was
acquired by the Company in March 1996. The remaining $1,534,709 has been
included in note payable to principal stockholder.
No value has been assigned to the minority interest in the common stock as
losses applicable to the minority interest exceeded the minority interest in
the equity capital of the subsidiary. See Note (1) of Notes to Consolidated
Financial Statements.
(4) ACQUISITION
On December 22, 1993, the shareholders of Commodore Labs entered into a
plan of merger with Commodore. Under terms of the agreement, Commodore
acquired 90.05% of Commodore Labs outstanding common stock in exchange for
1,000,000 shares of Commodore common stock valued at $.01 per share and
warrants to purchase an aggregate of 3,000,000 shares of Commodore common
stock at an exercise price of $.05 per share.
F-10
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements - (Continued)
(4) Acquisition - (Continued)
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed based on their respective fair values on the
date of acquisition (given effect as of January 1, 1994) as follows:
Current assets
Cash ..................... $ 50,070
Accounts receivable ...... 51
-------------
Total current assets ... 50,121
Property and equipment ........ 11,423
Intangible assets
Patents .................. 20,080
In process technology .... 2,423,662
Related party receivables ..... 245,109
Other assets .................. 3,415
-------------
Total assets .............. 2,753,810
Liabilities assumed ........... (1,188,624)
Preferred stock assumed ....... (1,554,081)
Minority interest common stock . (1,105)
-------------
Net assets acquired ........... $ 10,000
=============
As required by generally accepted accounting principles, the in process
technology was charged against operations on the effective date of
acquisition because the technological feasibility of the in process
technology acquired had not yet been established and had no alternative
future use.
(5) NOTE RECEIVABLE RELATED PARTY
The Company holds a note receivable from CFC Technologies, Inc. (CFCT).
The Company and CFCT have officers and shareholder in common. The note bears
interest at 10% and was due on September 12, 1995. The note has a principal
balance of $65,639 at December 31, 1994 and 1995. The note is secured by a
technology license granted to CFCT by the Company. As of December 31, 1995,
CFCT has not generated significant revenue from its technology license. With
CFCT in default on the note and the lack of revenue from the CFCT license the
full amount of the note and accrued interest has been reserved for at
December 31, 1995.
(6) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of amounts due to
officers/shareholders for salaries bearing interest at 8% until December 22,
1993 and are non-interest bearing thereafter. The notes are due upon the
Company's ability to repay the notes and they are unsecured.
(7) INCOME TAXES
The difference between the income tax benefit at statutory rates for 1993,
1994 and 1995 and the amount presented in the financial statements is as
follows:
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
-------------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ------------- ------------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tax benefit at statutory rates . $ 161,000 $ 1,604,000 $ 1,311,000 $ 276,000 $ 313,000
Valuation allowance ........... (161,000) (1,604,000) (1,311,000) (276,000) (313,000)
----------- ------------- ------------- ----------- -----------
$ -- $ -- $ -- $ -- $ --
=========== ============= ============= =========== ===========
</TABLE>
F-11
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements - (Continued)
(7) Income Taxes - (Continued)
Deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------ March 31,
1994 1995 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Net operating loss carryforward . $ 780,000 $ 2,057,000 $ 2,370,000
In process technology expense .. 824,000 824,000 824,000
Allowance for loan losses ...... -- 34,000 34,000
Valuation allowance ............ (1,604,000) (2,915,000) (3,228,000)
------------- ------------- -------------
Net deferred tax asset .... $ -- $ -- $ --
============= ============= =============
</TABLE>
The Company has net operating loss carryforwards of approximately
$6,970,000 which expire in the years 2000 through 2010. The amount of net
operating loss carryforward that can be used in any one year will be limited
by the applicable tax laws which are in effect at the time such carryforward
can be utilized. The change in ownership of the Company may reduce the amount
of loss allowable. A valuation allowance at December 31, 1995 of $2,915,000
has been established to offset any benefit from the net operating loss
carryforward as it cannot be determined when or if the Company will be able
to utilize the net operating losses.
(8) RELATED PARTY TRANSACTIONS
The Company has a note payable to Commodore aggregating in the amount of
$4,760,089, $8,925,426, and $6,904,322 as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited), respectively, after reflecting the capitalization
of the Company by the issuance of 15,000,000 shares of common stock through
the contribution by the Company's principal stockholder of $3,000,000 of a
note payable. The interest expense accrued on the notes has been included in
the note payable balance at December 31, 1994 and 1995 and March 31, 1996.
The note payable bears interest at 8 percent and is due on demand. Interest
expense related to the note payable was $290,386, $550,542, $274,369,
$58,821, $190,370, and $1,015,281 for the years ended December 31, 1993,
1994, and 1995, and the three months ended March 31, 1995 (unaudited) and
1996 (unaudited) and cumulative amounts since January 1, 1994 to March 31,
1996 (unaudited).
As discussed in note 5, the Company holds a note receivable from CFCT. The
Company and CFCT have officers and shareholders in common. In connection with
this note, the Company has recorded interest income of $6,546, $6,546 and
$6,528 for the years ended December 31, 1993, 1994 and 1995, respectively,
and accrued interest receivable of $26,260, $32,788 and $34,442 at December
31, 1994, 1995 and March 31, 1996 (unaudited), respectively. At December 31,
1995, all amounts relating to CFCT have been fully reserved with the Company
recognizing a bad debt expense of $98,427 for 1995.
The Company had several note payable agreements with current and former
officers/shareholders of the Company at December 31, 1995. Interest expense
on these notes amounted to $2,386 in 1993, and at December 31, 1993, the
Company had a total of $19,556 of accrued interest payable related to those
notes. During 1994, the accrued interest payable was converted to notes
payable pursuant to the plan of merger. The notes had a balance of $428,677
at December 31, 1994, 1995 and March 31, 1996 (unaudited).
On September 12, 1990, the Company entered into a technology license
agreement and noncompetition agreement with CFCT. The Company and CFCT have
officers and shareholder in common. Under the terms of the agreement, the
Company granted to CFCT a technology license for certain proprietary
technologies in exchange for cash, a note receivable and a covenant not to
compete for a period of two years. The agreement also provides for royalties
of 3% of gross sales. The agreement expires at the discretion of CFCT or upon
expiration of the patents underlying the technology. These patents expire in
the year 2007. The Company has not received any royalty payments under the
terms of the agreement.
Commodore allocated certain expenses to the Company based upon the
utilization of Commodore's resources. The utilization included the
consideration of personnel and management's time, rent, travel, cost of
F-12
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements - (Continued)
(8) Related Party Transactions - (Continued)
borrowings, professional fees, and other expenses incurred on behalf of the
Company by Commodore. Management has based the allocation of costs upon
actual time of personnel and actual out of pocket costs relating to the
Company and its activities. Management believes the method by which costs
were allocated to the Company by Commodore is reasonable and that the
allocated costs would be materially the same had the Company incurred the
costs rather than Commodore. Allocated expenses included in the statement of
operations for the years ended December 31, 1993, 1994 and 1995, and the
three month periods ended March 31, 1995 (unaudited) and 1996 (unaudited) are
approximately $260,000, $1,560,000, $1,069,000, $188,622, and $205,052,
respectively.
(9) OPERATING LEASES
The Company has an operating lease from an unrelated third party for its
laboratory space in Marengo, Ohio which expires in August 1996. Monthly lease
payments are $2,500. The Company also leases office and additional laboratory
space on a month to month lease in Columbus, Ohio for approximately $1,520
per month. Total lease expense for office and laboratory space was
approximately $9,000, $30,000, and $50,000 for the years ended 1993, 1994,
and 1995, respectively.
The Company has entered into a noncancelable operating lease agreement
with an unrelated third party for office equipment. Future maturities under
the lease for the next five years are as follows:
Year Amount
------- ---------
1996 ............. $ 4,140
1997 ............. 4,140
1998 ............. 4,140
1999 ............. 4,140
2000 ............. 1,380
---------
Total ............ $17,940
=========
(10) GOING CONCERN
The Company has sustained significant losses in 1993, 1994, and 1995. In
addition, the Company has significant deficits in working capital and
stockholders' equity. These factors create an uncertainty about the Company's
ability to continue as a going concern. The Company has received significant
advances in working capital from its majority shareholder which has allowed
it to continue its operations. There can be no assurance that it will
continue to receive such assistance.
In 1996, the Company commenced drafting and preparing a Securities and
Exchange Commission registration statement for a public offering of 5 million
shares of its common stock and 5 million warrants. If the proposed public
offering is consummated it will provide funds for continuing operations.
There is no assurance that the Company will be successful in raising the
needed working capital and equity through the proposed public offering. The
ability of the Company to continue as a going concern is dependent on the
Company obtaining external financing and attaining future profitable
operations. The financial statements do not include any adjustment that might
be necessary if the Company is unable to continue as a going concern.
(11) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standard Statement No. 121, "Accounting for Long Lived
Assets" and No. 123 "Accounting and Disclosure of Stock-Based Compensation."
Statement No. 121 is effective for years beginning after December 15, 1995.
The effect of adoption of Statement No. 121 will not have a material effect
on the Company's financial statements. Statement No. 123 is effective for
awards granted after December 31, 1994, and has required financial
presentation for years beginning after December 15, 1995. The effect of
adoption of Statement No. 123 is not expected to have a material effect on
the Company's financial statements, as the Company has adopted only the
disclosure requirements of Statement No. 123.
F-13
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements - (Continued)
(12) SUBSEQUENT EVENTS
PUBLIC STOCK OFFERING AND ACQUISITION OF REMAINING COMMON STOCK OF
SUBSIDIARY
Subsequent to December 31, 1995, the Company commenced drafting and
preparing a Securities and Exchange Commission registration statement for a
public offering of 5 million shares of common stock and 5 million warrants.
If the offering is consummated, Commodore will acquire the remaining 9.95% of
Commodore Labs and CFCT owned by the minority shareholder for a purchase
price of $3 million, of which $750,000 represents cash paid at closing and a
$2,250,000 note payable with a portion of the interest payable quarterly and
the balance along with principal payable after 10 years. Commodore will then
contribute all of the outstanding common stock of Commodore Labs to the
Company.
STOCK OPTION PLAN
On March 28, 1996, Commodore (as sole stockholder of the Company) approved
the Company's 1996 Stock Option Plan, as previously adopted by the Company's
Board of Directors (the "Plan"), pursuant to which officers, directors, key
employees and/or consultants of the Company can receive incentive stock
options and non-qualified stock options to purchase up to an aggregate of
2,000,000 shares of the Company's Common Stock (of which no more than
1,500,000 shares may be issued pursuant to non-qualified stock options). On
March 29, 1996, the Company's Board of Directors awarded, under the Plan,
based upon completion of the public offering non-qualified stock options to
certain key executive officers and directors entitling them to purchase an
aggregate of 1,150,000 shares of Common Stock, all of which provide for an
exercise price of $6.00 per share, are exercisable at the rate of 20% of the
number of options granted in each of calendar years 1996 through 2000,
inclusive, beginning on March 31, 1996 and, unless exercised, expire on
December 31, 2000 ( subject to prior termination in accordance with the
applicable stock option agreements). In addition, non-qualified options to
purchase an aggregate of 202,500 shares of Common Stock were awarded, based
upon completion of the public offering, to members of the Board of Directors
who are not employed or otherwise affiliated with the Company, all of which
are exercisable at $6.00 per share, are exercisable at the rate of 33 1/3 %
of the number of options granted in each of calendar years 1996 through 1998,
inclusive, beginning on March 31, 1996, and, unless exercised, expire on
December 31, 2000 (subject to prior termination in accordance with the
applicable stock option agreements). The exercise price applicable to all
outstanding stock options represent no less than 100% of the fair market
value of the underlying Common Stock as of the date that such options were
granted, as determined by the Board of Directors of the Company on the date
that such options were granted.
EMPLOYMENT AGREEMENTS
Employment agreements state that, upon completion of the public offering,
the Company will enter into employment agreements and assume other employment
agreements from Commodore. Commitments under the existing, new and assumed
employment agreements would be as follows:
Annual
Year Compensation
---- --------------
1996 ............ $ 885,000
1997 ............ 787,000
1998 ............ 252,000
1999 ............ 140,000
2000 ............ 140,000
--------------
$2,204,000
==============
(13) LINE OF CREDIT
On April 5, 1996, the Company obtained a line of credit bearing interest
at the prime rate (8.25% as of June 24, 1996) with a bank to borrow up to $2
million. The line of credit is due July 31, 1996, and is secured by cash
collateral guaranteed by the majority stockholder of Commodore. On June 24,
1996, approximately $1,690,000 was outstanding under such line of credit.
F-14
<PAGE>
==============================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation 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 or any
Underwriter. Neither the delivery of this Prospectus nor any sale made
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 date subsequent to
the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby by anyone in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so
or to any person to whom it is unlawful to make such offer or solicitation.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary ............................... 3
Risk Factors ..................................... 7
The Company ...................................... 14
Use of Proceeds .................................. 15
Capitalization ................................... 16
Dividend Policy .................................. 17
Dilution ......................................... 17
Selected Financial Data .......................... 18
Management's Discussion and Analysis of Financial
Condition and Results of
Operations ...................................... 19
Business ......................................... 22
Management ....................................... 35
Executive Compensation ........................... 38
Principal Stockholders ........................... 42
Certain Relationships and Related Transactions ... 44
Description of Securities ........................ 46
Shares Eligible for Future Sale .................. 48
Underwriting ..................................... 49
Legal Matters .................................... 51
Experts .......................................... 51
Additional Information ........................... 51
Index to Consolidated Financial Statements ....... F-1
Until July 23, 1996 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This delivery requirement is in addition to
the obligations of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
==============================================================================
<PAGE>
==============================================================================
COMMODORE APPLIED
TECHNOLOGIES, INC.
5,000,000 Shares of
Common Stock
and
5,000,000 Redeemable
Common Stock Purchase
Warrants
------
Prospectus
------
NATIONAL SECURITIES
CORPORATION
June 28, 1996
==============================================================================
