SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of Commission
Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMODORE APPLIED TECHNOLOGIES, INC.
(Name of Registrant as Specified in Its Charter)
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(Names of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials:
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|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, of the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[COMMODORE APPLIED LETTERHEAD]
April 30, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Commodore Applied Technologies, Inc. (the "Company") to be held on Wednesday,
June 3, 1998, at 11:00 a.m., local time, at The Links Club, 36 East 62nd Street,
New York, New York 10021. Enclosed is a formal Notice of Annual Meeting and
Proxy Statement, together with a proxy card and return envelope for use of
stockholders who are unable to be present in person at the Annual Meeting. Also
enclosed for your review is the Company's 1997 Annual Report to Stockholders.
The formal Notice of Annual Meeting and Proxy Statement describe the
specific business to be acted upon at the Annual Meeting, and we urge you to
read these materials carefully. In addition to electing directors, stockholders
will be entitled to vote upon the ratification of the selection of Price
Waterhouse LLP as the Company's independent auditors for the ensuing year. Your
Board of Directors unanimously believes that the election of the nominees named
in the Proxy Statement as directors of the Company, and the ratification of the
appointment of Price Waterhouse LLP as the Company's independent auditors for
the year ending December 31, 1998 are in the best interests of the Company and
its stockholders and, accordingly, recommends a vote "FOR" the foregoing
proposals.
Whether or not you plan to attend the Annual Meeting in person, and
regardless of the size of your holdings, it is very important that your shares
be represented and voted at the Annual Meeting. After reading the enclosed
Notice of Annual Meeting and Proxy Statement, please complete, sign, date and
return the enclosed proxy card in the self-addressed, postage paid envelope
provided for your convenience. Because mail delays occur frequently, it is
important that the enclosed proxy card be returned well in advance of the Annual
Meeting. If the address on the accompanying material is incorrect, please advise
our Transfer Agent, The Bank of New York, in writing, at 101 Barclay Street, New
York, New York 10286. If, after returning your proxy card, you find that you are
able to attend the Annual Meeting in person and wish to personally vote your
shares, you may revoke your proxy at that time and personally vote your shares
at the Annual Meeting.
I hope to see you at the Annual Meeting and to have the opportunity to
introduce you to our management team and the other members of the Board of
Directors. On behalf of your Board of Directors, we greatly appreciate your
continued support.
Sincerely yours,
PAUL E. HANNESSON
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
150 East 58th Street, Suite 3400
New York, New York 10155
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 3, 1998
----------------------------
To the Stockholders of COMMODORE APPLIED TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Commodore Applied Technologies, Inc., a Delaware corporation (the
"Company"), will be held at 11:00 a.m., local time, on Wednesday, June 3, 1998,
at The Links Club, 36 East 62nd Street, New York, New York 10021, for the
following purposes:
1. To elect nine directors to hold office until the Annual Meeting of
Stockholders to be held in 1999, and until their respective successors
are duly elected and have qualified;
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent auditors for the year ending December 31, 1998; and
3. To consider and transact such other business as may properly come
before the Annual Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 27, 1998,
as the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting or any adjournment thereof. A list of stockholders
entitled to vote at the Annual Meeting will be open for examination for ten days
preceding the Annual Meeting, during ordinary business hours, at the location of
the principal executive offices of the Company set forth above and will also be
available for inspection at the Annual Meeting.
By Order of the Board of Directors
MICHAEL D. FULLWOOD
Senior Vice President, Chief Financial and
Administrative Officer, Secretary and General Counsel
New York, New York
April 30, 1998
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YOUR VOTE IS IMPORTANT
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares you hold. Therefore, whether or not you plan
to attend the Annual Meeting, please complete, sign, date and return the
enclosed proxy card promptly in the enclosed self-addressed, postage-paid
envelope provided for your convenience. Proxies may be revoked at any time
before the shares subject to the proxy are voted, and stockholders who are
present at the Annual Meeting may revoke their proxies at that time and vote in
person if they desire.
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<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
150 East 58th Street, Suite 3400
New York, New York 10155
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JUNE 3, 1998
This Proxy Statement is being furnished to the stockholders of Commodore
Applied Technologies, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board of Directors" or the "Board") from holders of outstanding
shares of common stock, par value $0.001 per share, of the Company (the "Common
Stock"), for use at the Annual Meeting of Stockholders to be held on Wednesday,
June 3, 1998, and at any adjournment or postponement thereof (the "Annual
Meeting").
The costs of preparing, assembling and mailing the proxy material will be
borne by the Company. Solicitations will be made only by use of the mail except
that, if deemed desirable, officers and other employees of the Company may
solicit proxies by telephone, facsimile and/or other means of communication.
Such persons will receive no compensation therefor in addition to their regular
salaries, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will be made with banks, brokers
and other custodians, nominees and fiduciaries to forward copies of the proxy
material to the beneficial owners of the stock held of record by such persons
and to request authority for the execution of proxies. The Company will
reimburse such persons for their reasonable expenses incurred in this
connection.
It is anticipated that the mailing to stockholders of this Proxy Statement,
the attached Notice of Annual Meeting and the enclosed proxy card will commence
on or about April 30, 1998. The Company's 1997 Annual Report to Stockholders
accompanies but does not constitute a part of this Proxy Statement.
The purpose of the Annual Meeting, and the matters to be acted upon are set
forth in the attached Notice of Annual Meeting. As of the date of this Proxy
Statement, the Board of Directors knows of no other business which will be
presented for consideration at the Annual Meeting. A stockholder who executes a
proxy may revoke such proxy, at any time before the shares subject to the proxy
are voted, by: (i) filing with the Secretary of the Company at the Company's
principal executive offices (a) a written notice of revocation bearing a later
date than the proxy, or (b) a duly executed proxy relating to the same shares
bearing a later date than the original proxy; or (ii) attending the Annual
Meeting, withdrawing the proxy and voting in person. Attendance at the Annual
Meeting will not in and of itself constitute revocation of a proxy. No
revocation of a previously delivered proxy shall be effective unless it is
received by the Secretary of the Company before the shares subject to the proxy
are voted at the Annual Meeting.
Unless contrary instructions are indicated on the proxy cards, all shares
represented by valid proxies received pursuant to this solicitation (and which
have not been revoked in accordance with the procedures set forth above) will be
voted "FOR" the election of the nine nominees for director named herein, and
"FOR" the ratification of the appointment of Price Waterhouse LLP as the
Company's independent auditors for the year ending December 31, 1998. If any
other business shall properly come before the Annual Meeting, votes will be cast
pursuant to said proxies in respect of any such other business in accordance
with the judgment and in the discretion of the persons acting thereunder.
The Company's principal executive offices are located at 150 East 58th
Street, Suite 3400, New York, New York 10155, and its telephone number at that
address is (212) 308-5800.
<PAGE>
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors has set the close of business on April 27, 1998 as
the record date (the "Record Date") for determining the stockholders of the
Company entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof. As of the Record Date there were 23,103,200 shares of
Common Stock issued and outstanding, all of which are entitled to be voted at
the Annual Meeting. There was no beneficial owner (as defined under the rules of
the Securities and Exchange Commission) of more than 5% of the outstanding
shares of Common Stock known to the Company at the Record Date, other than as
set forth under the caption "Security Ownership of Certain Beneficial Owners and
Management" below. Each share of Common Stock entitles the holder to one vote on
each matter submitted to stockholders for a vote at the Annual Meeting.
A quorum of stockholders is necessary to take action at the Annual Meeting.
A quorum is established if at least a majority of the outstanding shares of
Common Stock as of the Record Date is present in person or represented by proxy
at the Annual Meeting. Directors will be elected by a plurality of the votes of
the shares of Common Stock present in person or represented by proxy at the
Annual Meeting. Ratification of the appointment of Price Waterhouse LLP as the
Company's independent auditors for the year ending December 31, 1998 requires
the affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting. All other matters at the
meeting will be decided by the affirmative vote of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the subject matter. Votes cast in person or by proxy at the
Annual Meeting will be counted and certified by two Inspectors of Election, of
which one is expected to be an employee of the Company and the other is expected
to be an employee of The Bank of New York, the Company's transfer agent. The
Inspectors of Election will also determine whether or not a quorum is present at
the Annual Meeting.
In accordance with Delaware law, abstentions and "broker non-votes" (which
occur when a broker or other nominee holding shares for a beneficial owner does
not vote on a particular proposal, because such broker or other nominee does not
have discretionary voting power with respect to that matter and has not received
instructions from the beneficial owner) will be treated as present for purposes
of determining the presence of a quorum at the Annual Meeting. Directions to
withhold authority will have no effect on the election of directors at the
Annual Meeting, because directors are elected by a plurality of votes cast. For
purposes of determining approval of a matter presented at the Annual Meeting,
abstentions will be deemed present and entitled to vote and will, therefore,
have the same legal effect as a vote "against" a matter presented at the Annual
Meeting. Broker non-votes will be deemed not entitled to vote on the subject
matter as to which the non-vote is indicated and, consequently, will not affect
the outcome of the matter. If less than a majority of the outstanding shares of
Common Stock as of the Record Date are represented at the Annual Meeting, a
majority of the shares so represented may adjourn the Annual Meeting from time
to time without further notice.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of the Record Date by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock of the Company, (ii) each director, (iii)
each individual listed in the Summary Compensation Table herein, and (iv) all
executive officers and directors of the Company as a group, as reported by such
persons. Unless otherwise indicated, the owners have sole voting and investment
power with respect to their respective shares.
<TABLE>
<CAPTION>
Number of Shares Percentage of Outstanding
Name and Address of of Common Stock Shares of Common Stock
Beneficial Owner (1) Beneficially Owned (2) Beneficially Owned
-------------------- ---------------------- ------------------
<S> <C> <C>
Commodore Environmental
Services, Inc...................... 9,823,702 (3) 42.5%
Bentley J. Blum...................... 4,851,091 (4) 21.0%
Mellon Bank Corporation (5).......... 1,994,000 (6) 8.6%
Mellon Bank, N.A.(5)................. 1,994,000 (6) 8.6%
The Dreyfus Corporation (5).......... 1,994,000 (6) 8.6%
Paul E. Hannesson.................... 1,426,382 (7) 6.2%
Ed L. Romero......................... 495,000 (8) 2.1%
Tom J. Fatjo, Jr..................... 289,800 (9) 1.3%
Kenneth L. Adelman, Ph.D............. 188,396(10) *
Michael D. Fullwood.................. 81,729(11) *
Herbert A. Cohen..................... 85,183(12) *
David L. Mitchell.................... 84,183(13) *
Thomas E. Noel....................... 100,000(14) *
Peter E. Harrod...................... 50,000(15) *
Rayburn Hanzlik...................... 30,000(16) *
All executive officers
and directors as
a group (12 persons)............... 7,681,764 33.2%
</TABLE>
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(1) Unless otherwise indicated, the address of each beneficial owner is 150
East 58th Street, Suite 3400, New York, New York 10155. The address of
Mellon Bank Corporation, Mellon Bank, N.A. and The Dreyfus Corporation is
c/o Mellon Bank Corporation, One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258. Messrs. Blum and Hannesson are brothers-in-law. Mr.
Harrod is the son-in-law of Mr. Romero.
(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
(the "Exchange Act"), as consisting of sole or shared voting power
(including the power to vote 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)
3
<PAGE>
during the next 60 days. Unless otherwise noted, beneficial ownership
consists of sole ownership, voting and investment rights.
(3) Excludes warrants to purchase an aggregate of 10,514,000 shares of Common
Stock at exercise prices ranging from $4.50 per share to $10.00 per share.
See "Certain Relationships and Related Transactions."
(4) Represents Mr. Blum's indirect beneficial ownership of Common Stock based
upon his beneficial ownership of 28,479,737 shares and his spouse's
ownership of 2,000,000 shares of common stock of Commodore Environmental
Services, Inc. ("Environmental"), representing together 49.4% of the
outstanding shares of Environmental common stock at the Record Date. Does
not include 450,400 shares of Environmental common stock owned by Simone
Blum, the mother of Mr. Blum, and 385,000 shares of Environmental common
stock owned by Samuel Blum, the father of Mr. Blum. Mr. Blum disclaims any
beneficial interest in the shares of Environmental common stock owned by
his spouse, mother and father.
(5) The information set forth above with respect to Mellon Bank, N.A., Mellon
Bank Corporation and The Dreyfus Corporation is based on information
provided in a Schedule 13G, dated January 28, 1998 (the "Mellon Bank 13G"),
furnished to the Company. According to the Mellon Bank 13G, The Dreyfus
Corporation is a subsidiary of Mellon Bank, N.A. which, in turn, is a
subsidiary of Mellon Bank Corporation. Mellon Bank Corporation is reporting
as a parent holding company in accordance with Rule 13d-1(b)(1)(ii)(G) of
the Exchange Act, Mellon Bank, N.A. is reporting as a bank as defined in
Section 3(a)(6) of the Exchange Act in accordance with Rule
13d-1(b)(1)(ii)(B) of the Exchange Act, and The Dreyfus Corporation is
reporting as an investment advisor registered under Section 203 of the
Investment Advisers Act of 1940 in accordance with Rule 13d-1(b)(1)(ii)(E)
of the Exchange Act.
(6) According to the Mellon Bank 13G, the shares reported include all shares
held of record by Mellon Bank, N.A., as trustee of a benefit plan, which
have not been allocated to the individual accounts of employee participants
in such benefit plan.
(7) Consists of: (i) 240,000 shares of Common Stock underlying currently
exercisable stock options granted to Mr. Hannesson by the Company under the
Company's 1996 Stock Option Plan (the "Plan"); and (ii) Mr. Hannesson's
indirect beneficial ownership of Common Stock based upon his ownership of
an aggregate of (a) 2,650,000 shares of Environmental common stock owned by
Suzanne Hannesson, the spouse of Mr. Hannesson, (b) 2,650,000 shares of
Environmental common stock owned by the Hannesson Family Trust (Suzanne
Hannesson and John D. Hannesson, trustees) for the benefit of Mr.
Hannesson's spouse and (c) currently exercisable options to purchase
500,000 and 1,950,000 shares of Environmental common stock at $.53 per
share and $0.84 per share, respectively, representing collectively 12.1% of
the outstanding shares of Environmental common stock at the Record Date.
Does not include 1,000,000 shares of Environmental common stock owned by
each of Jon Paul and Krista Hannesson, the adult children of Mr. Hannesson,
and additional stock options to purchase 1,500,000 shares of Environmental
common stock at $0.84 per share, which vest and become exercisable ratably
on November 18 of each of 1998 through 2000. Mr. Hannesson disclaims any
beneficial interest in the shares of Environmental common stock owned by or
for the benefit of his spouse and children.
(8) Consists of: (i) 450,000 shares of Common Stock; and (ii) 45,000 shares of
Common Stock underlying currently exercisable stock options granted to Mr.
Romero by the Company under the Plan.
(9) Consists of: (i) 41,400 shares of Common Stock directly owned by Mr. Fatjo;
and (ii) 248,400 shares of Common Stock owned by First Financial Alliance
Partnership, Inc., in which trusts controlled by Mr. Fatjo own 20% of the
capital stock. Does not include 124,200 shares of Common Stock owned by Tom
J. Fatjo III, the adult son of Mr. Fatjo. Mr. Fatjo disclaims any
beneficial interest in the shares of Common Stock owned by or for the
benefit of his son.
(10) Consists of: (i) 127,500 shares of Common Stock underlying currently
exercisable stock options granted to Dr. Adelman by the Company under the
Plan; and (ii) Dr. Adelman's indirect beneficial ownership of Common Stock
based upon his beneficial ownership of currently exercisable stock options
to purchase 385,000 shares of Environmental common stock.
4
<PAGE>
(11) Consists of: (i) 50,000 shares of Common Stock underlying currently
exercisable stock options granted to Mr. Fullwood by the Company under the
Plan; and (ii) Mr. Fullwood's indirect beneficial ownership of Common Stock
based upon his beneficial ownership of currently exercisable stock options
to purchase 200,000 shares of Environmental common stock.
(12) Consists of: (i) 1,000 shares of Common Stock; (ii) 67,500 shares of Common
Stock underlying currently exercisable stock options granted to Mr. Cohen
by the Company under the Plan; and (iii) Mr. Cohen's indirect beneficial
ownership of Common Stock based upon his beneficial ownership of currently
exercisable stock options to purchase 105,000 shares of Environmental
common stock.
(13) Consists of: (i) 67,500 shares of Common Stock underlying currently
exercisable stock options granted to Mr. Mitchell by the Company under the
Plan; and (iii) Mr. Mitchell's indirect beneficial ownership of Common
Stock based upon his beneficial ownership of currently exercisable stock
options to purchase 105,000 shares of Environmental common stock.
(14) Represents shares of Common Stock underlying currently exercisable stock
options granted to Mr. Noel by the Company under the Plan.
(15) Represents shares of Common Stock underlying currently exercisable stock
options granted to Mr. Harrod by the Company under the Plan.
(16) Represents shares of Common Stock underlying currently exercisable stock
options granted to Mr. Hanzlik by the Company under the Plan.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
At this year's Annual Meeting, nine directors will be elected to hold
office for a term expiring at the Annual Meeting of Stockholders to be held in
1999, and until their respective successors are duly elected and have qualified.
The Executive Committee of the Board of Directors has nominated the individuals
listed below as directors to be elected at the Annual Meeting, each of whom is
presently serving as a director of the Company. Each director shall be elected
by a plurality of the votes of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting. The persons named in the enclosed
proxy card intend to vote the shares represented by valid proxies for the
election of the persons listed below as directors of the Company, unless the
vote for such persons is expressly withheld.
The Board of Directors has no reason to believe that any nominee will
refuse or be unable to accept election; however, in the event that a nominee for
director is unable to accept election or if any other unforeseen contingencies
should arise, it is intended that proxies will be voted for the remaining
nominees and for such other person or persons as may be designated by the Board
of Directors, unless the proxies instruct otherwise.
The following information, including principal occupation or employment for
the past five or more years, is furnished with respect to the following nominees
for directors:
Paul E. Hannesson--Age 57
Director since March 1996
Mr. Hannesson has been a director of the Company since March 1996 and was
appointed Chairman of the Board in November 1996. Mr. Hannesson also served as
Chief Executive Officer of the Company from March to October 1996 and as
President from March to September 1996, and was re-appointed Chief Executive
Officer in November 1996 and President in May 1997. Mr. Hannesson has been a
director of Environmental since February 1993 and was appointed its Chairman of
the Board and Chief Executive Officer in November 1996. Mr. Hannesson also
served as President of Environmental from February 1993 to July 1996 and was
re-appointed President in May 1997. Mr. Hannesson also currently serves as the
Chairman of the Board and Chief Executive Officer of Commodore Separation
Technologies, Inc., an 87% owned, publicly traded subsidiary of the Company
("Separation"), Commodore Solution Technologies, Inc., a wholly owned subsidiary
of the Company ("Solution"), Commodore CFC Technologies, Inc., a wholly owned
subsidiary of the Company ("CFC Technologies"), and certain other wholly owned
subsidiaries of the Company. 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 served as Chairman of the
Board of Lanxide Corporation ("Lanxide"), a research and development company
developing metal and ceramic materials, from 1983 to February 1998. Mr.
Hannesson is the brother-in-law of Bentley J. Blum, a director of the Company.
Kenneth L. Adelman, Ph.D.--Age 49
Director since July 1996
Dr. Adelman joined the Board of Directors of the Company and Environmental
in July 1996 and was appointed Vice Chairman of the Company in April 1998. Dr.
Adelman also served as Executive Vice President--Marketing and International
Development of the Company from May 1997 to March 1998, and has served as
Executive Vice President--Marketing and International since April 1998. Dr.
Adelman also joined the Board of Directors of Separation in April 1997. Dr.
Adelman served as President and Chief Operating Officer of Solution from
November 1997 to April 1998. 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 writer for Washingtonian Magazine from 1987 to 1991.
Dr. Adelman accompanied President Ronald 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.
6
<PAGE>
Bentley J. Blum--Age 56
Director since March 1996
Mr. Blum has served as a director of the Company since March 1996 and
served as its Chairman of the Board from March to November 1996. Mr. Blum has
served as a director of Environmental since 1984 and served as its Chairman of
the Board from 1984 to November 1996. Mr. Blum also currently serves as a
director of Separation, Solution and CFC Technologies. 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; 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 a principal stockholder of Environmental. Mr.
Blum is the brother-in-law of Paul E. Hannesson, the Chairman of the Board,
President and Chief Executive Officer of the Company.
Herbert A. Cohen--Age 64
Director since July 1996
Mr. Cohen has served as a director of the Company and Environmental since
July 1996 and joined the Board of Directors of Separation in March 1998. Mr.
Cohen has been a practicing negotiator for the past three decades 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 Management, 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--Age 76
Director since July 1996
Mr. Mitchell has served as a director of the Company and Environmental
since July 1996 and as a director of Separation since April 1997. Mr. Mitchell
has also served as a consultant to the Company since July 1997. 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 diversities. 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.
Ed L. Romero--Age 64
Director since October 1996
Mr. Romero has served as a director of the Company since October 1996 and
as the Chief Executive Officer of Commodore Advanced Sciences, Inc., a wholly
owned subsidiary of the Company ("Advanced Sciences"), since its inception. Mr.
Romero founded Advanced Sciences in 1977 and was its controlling stockholder
from 1977 to October 1996 (when Advanced Sciences was acquired by the Company).
Mr. Romero served as a director of TransAmerican Waste Industries, Inc. from
November 1991 to April 1992 and was re-appointed a director in December 1992.
Mr. Romero is currently the owner of the Professional Developers, a New
Mexico-based real estate and development company, and is a prominent member of
many veteran groups and Hispanic business organizations. He is President of the
Hispanic Culture Foundation and also a member of the board of the Democratic
National Committee's Finance Committee. Mr. Romero is the father-in-law of Peter
E. Harrod, the President of Advanced Sciences and the President and Chief
Operating Officer of Solution.
7
<PAGE>
Thomas E. Noel--Age 59
Director since October 1996
Mr. Noel has served as a director of the Company since October 1996 and
served as the Company's President and Chief Executive Officer from October to
November 1996. Mr. Noel served as President and Chief Operating Officer of
Solution from December 1996 to September 1997. Mr. Noel has held numerous
executive positions in hazardous, non-hazardous and low-level nuclear waste
industries. He previously served as the President of TransAmerican Waste
Industries, Inc., a non-hazardous waste disposal company, from January 1996 to
November 1996, and as President of Ecova Corporation, an Amoco subsidiary in the
environmental services business, from August 1993 to August 1995. From 1984 to
1992, he was at Chemical Waste Management, Inc., where he served as Senior Vice
President of operations, managing that company's core business with more than
6,000 employees and $1.5 billion in annual revenues. He also previously served
as President of Pakhoed, USA and DSI Terminals, Inc. After graduating from the
United States Military Academy at West Point, New York, he served 14 years in
the Army, including two years as an aide to General Creighton Abrams, Commander
of all U.S. forces in Vietnam and Army Chief of Staff. Mr. Noel was a
presidential appointee as Assistant Secretary of the DOE, responsible for the
U.S. Strategic Petroleum Reserve, a $20 billion federal program created
following the Arab oil boycott in the early 1970's.
Tom J. Fatjo, Jr.--Age 57
Director since November 1996
Mr. Fatjo has served as a director of the Company since November 1996. Mr.
Fatjo has served as the Chairman of the Board and Chief Executive Officer of
TransAmerican Waste Industries, Inc., a Houston-based solid waste management
company, since April 1992 and served as its President from April 1994 to January
1996. He was the founder and served as Chairman of the Board and Chief Executive
Officer of Republic Waste Industries, Inc., a publicly-held company in the waste
management business, from January 1990 to August 1991. Mr. Fatjo is also the
developer of The Houstonian, a 22-acre fitness and preventative medicine complex
and luxury condominium. Mr. Fatjo has served on the boards of several other
public companies including Western Waste, Inc., Rolm Corporation, Consolidated
Fibers, Inc., Health Resources Corporation of American, Criterion Capital
Corporation, Advanced Sciences and American Title, Inc., among others. He holds
a B.S. from Rice University. He has also co-authored a book, With No Fear of
Failure (1981), a treatise on his personal business philosophy.
William R. Toller--Age 66
Director since March 1998
Mr. Toller joined the Board of Directors of the Company in March 1998. Mr.
Toller has also served as a member of the Board of Directors of Separation since
April 1997 and has served as a consultant to Environmental since July 1997. Mr.
Toller served as the Vice Chairman of Lanxide from July 1997 to February 1998.
Mr. Toller also currently serves as Chairman and Chief Executive Officer of
Titan Consultants, Inc. Mr. Toller had been the Chairman and Chief Executive
Officer of Witco Corporation since October 1990 and retired in July 1996. Mr.
Toller joined Witco in 1984 as an executive officer when it acquired the
Continental Carbon Company of Conoco, Inc., where he had been its President and
an officer since 1955. Mr. Toller is a graduate of the University of Arkansas
with a Bachelor's degree in Economics, and the Stanford University Graduate
School Executive Program. Mr. Toller serves on the board of directors of Chase
Industries, Inc., Fuseplus, Inc., where he is also Chairman of the Organization
and Compensation Committee, and the United States Chamber of Commerce, where he
is also a member of the Labor Relations and International Policy Committees. Mr.
Toller is also a member of the Board of Trustees and the Executive and Finance
Committees of the International Center for the Disabled, a member of the Board
of Associates of the Whitehead Institute for Biomedical Research, a member of
the National Advisory Board of First Commercial Bank in Arkansas, a member of
the Dean's Executive Advisory Board and the International Business Committee at
the University of Arkansas, College of Business Administration, and a member of
the Board of Presidents of the Stamford Symphony Orchestra.
Messrs. Hannesson and Blum are brothers-in-law, and Mr. Romero is the
father-in-law of Mr. Harrod. No family relationship exists among any other
directors or executive officers of the Company. No arrangement or understanding
exists between any director and any other person pursuant to which any director
was selected as a director of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE NOMINEES FOR DIRECTORS LISTED ABOVE.
8
<PAGE>
INFORMATION REGARDING BOARD
MEETINGS, COMMITTEES AND MANAGEMENT
The Board of Directors held five meetings and took certain actions by
written consent during the year ended December 31, 1997. Each incumbent director
attended, either in person or by telephone, at least 75 percent of the aggregate
of (i) the total number of meetings of the Board of Directors (held during the
period for which he has been a director) and (ii) the total number of meetings
held by all committees of the Board on which he served (during the periods that
he served), except Tom J. Fatjo, Jr.
Committees of the Board
Audit Committee. The Board of Directors has a standing Audit Committee that
is presently composed of David L. Mitchell (Chairman), Herbert A. Cohen and
William R. Toller, each of whom is not an employee of the Company. The Audit
Committee held two meetings during 1997. The responsibilities of the Audit
Committee 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, 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, supervising the
Company's policies relating to business conduct and dealing with conflicts of
interest relating to officers and directors of the Company.
Compensation, Stock Option and Benefits Committee. The Board of Directors
also has a standing Compensation, Stock Option and Benefits Committee (the
"Compensation Committee") that is presently composed of Herbert A. Cohen
(Chairman), David L. Mitchell and William R. Toller, each of whom is not an
employee of the Company. The Compensation Committee held three meetings during
1997. The responsibilities of the Compensation Committee include establishing
and reviewing employee and consultant/advisor compensation, bonuses and
incentive compensation awards, administering and interpreting 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
and providing guidance to management in connection with establishing additional
benefit plans.
Executive and Finance Committee. The Board of Directors, during 1997,
created an Executive and Finance Committee that is presently composed of Paul E.
Hannesson (Chairman), Bentley J. Blum and David L. Mitchell. Mr. Hannesson is
the Chairman of the Board, President and Chief Executive Officer of the Company.
Messrs. Blum and Mitchell are not employees of the Company. The Executive and
Finance Committee held one meeting during 1997. The Executive and Finance
Committee has the authority and responsibility of the full Board of Directors to
supervise and oversee the financial practices and policies of the Company, to
oversee the adoption of significant accounting policies, and to manage the
Company between meetings of the Board of Directors, subject to certain
limitations. The Executive and Finance Committee also has the authority and
responsibility for making recommendations to the Board of Directors regarding
nominees to serve as directors of the Company. The Executive and Finance
Committee will consider nominees for directors recommended by stockholders.
Nominating Committee. The Board of Directors does not have a standing
nominating committee. The functions of a nominating committee are performed by
the Executive and Finance Committee of the Board of Directors.
Compensation of Directors
Non-management directors of the Company receive director's 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
separately compensate employees for serving as directors.
9
<PAGE>
Management
The names and ages of the executive officers of the Company and certain
senior executive officers of the Company's operating subsidiaries, and their
positions with the Company and/or the Company's subsidiaries, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Paul E. Hannesson 57 Chairman of the Board, President and Chief Executive Officer
Kenneth L. Adelman, Ph.D. 49 Vice Chairman and Executive Vice President--Marketing and
International
Michael D. Fullwood 51 Senior Vice President, Chief Financial and Administrative
Officer, Secretary and General Counsel
Ed L. Romero 64 Chief Executive Officer of Advanced Sciences
Peter E. Harrod, P.E. 48 President of Advanced Sciences and President and Chief Operating
Officer of Solution
Kenneth J. Houle 59 President and Chief Operating Officer of Separation
</TABLE>
- ---------
See "Proposal 1--Election of Directors" above for certain biographical
information concerning Paul E. Hannesson, Kenneth L. Adelman, Ph.D. and Ed L.
Romero.
Michael D. Fullwood was appointed Senior Vice President, Chief Financial
and Administrative Officer, Secretary and General Counsel of the Company,
Environmental, Solution, Separation and CFC Technologies in May 1997. Mr.
Fullwood served as a director and the Senior Vice President, Chief Financial and
Administrative Officer and General Counsel of Lanxide from July 1997 to February
1998. From 1987 to August 1996, Mr. Fullwood held numerous positions ranging
from Senior Attorney to Executive Vice President and Chief Financial Officer of
Witco Corporation, a worldwide specialty chemicals company. From 1983 to 1987,
Mr. Fullwood served as Senior Attorney at Scallop Corporation (Royal Dutch/Shell
Group), where he specialized in corporate matters, mass tort litigation and
international law. Mr. Fullwood also previously served as Senior Attorney of
Caltex Petroleum and Arabian American Oil Company, handling corporate,
contractual and transnational matters. Mr. Fullwood holds a law degree from
Harvard Law School.
Peter E. Harrod, P.E. has served as an executive officer of Advanced
Sciences since 1991 and as its President since October 1996. Mr. Harrod was
appointed President and Chief Operating Officer of Solution in April 1998, after
having served as its Senior Vice President since November 1997. Prior to such
time, Mr. Harrod held numerous executive positions in environmental engineering,
hazardous waste remediation, design engineering and construction management
companies, including ABB Environmental Services, Inc. from 1983 to 1991, Neill &
Gunter, Inc. from 1981 to 1983 and E.C. Jordan Co. from 1975 to 1981. Mr. Harrod
is currently a member of the National Society of Professional Engineers and the
American Society of Civil Engineers, and is the author of several environmental,
remediation and design engineering publications. Mr. Harrod received M.S. and
B.S. degrees in Civil Engineering from the University of Vermont. Mr. Harrod is
the son-in-law of Ed L. Romero, a director of the Company and the Chief
Executive Officer of Advanced Sciences.
Kenneth J. Houle was elected President and Chief Operating Officer of
Separation in January 1997. Mr. Houle previously served as the President of The
Hall Chemical Company, a manufacturer of inorganic metal catalysts and
compounds, from March 1995 to September 1996. Prior to such time, Mr. Houle had
served as Vice President and Business Director of the Personal Care Business
Unit of International Specialty Products, Inc., a producer of specialty
chemicals, from March 1992 to December 1994, and the President and Chief
Executive Officer of Ruetgers-Nease Chemical Company, a manufacturer of organic
chemical intermediates and surfactants, from February 1990 to January 1991. Mr.
Houle was an independent consultant in the chemical industry from October 1996
to January 1997. Mr.
10
<PAGE>
Houle is a graduate of Siena College, with a Bachelor's degree in Chemistry, and
the Accounting and Financial Management Program at Columbia University. Mr.
Houle also participated in the Masters degree program in Organic Chemistry at
Iowa State University. He is a member of the Board of Trustees of The Chemists'
Club (New York, New York) and a member of the American Chemical Society,
American Institute of Chemical Engineers and Societe de Chemie Industrielle
(American section). Mr. Houle is also a trustee and board member of the Ohio
Center of Science and Industry.
The Company's officers are elected by, and serve at the pleasure of, the
Board of Directors, subject to the terms of any employment agreements. Messrs.
Hannesson and Blum are brothers-in-law, and Mr. Harrod is the son-in-law of Mr.
Romero. No family relationship exists among any other directors or executive
officers of the Company. No arrangement or understanding exists between any
executive officer and any other person pursuant to which any executive officer
was selected as an executive officer of the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the outstanding shares
of the Company's Common Stock, to file initial reports of beneficial ownership
and reports of changes in beneficial ownership of shares of Common Stock with
the Securities and Exchange Commission (the "Commission") and each securities
exchange on which the Company's Common Stock is traded. Such persons are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the year ended December 31, 1997, and upon a
review of Forms 5 and amendments thereto furnished to the Company with respect
to the year ended December 31, 1997, or upon written representations received by
the Company from certain reporting persons that no Forms 5 were required for
those persons, the Company believes that no director, executive officer or
holder of more than 10% of the outstanding shares of Common Stock failed to file
on a timely basis the reports required by Section 16(a) of the Exchange Act
during, or with respect to, the year ended December 31, 1997, except the
following: (i) Herbert A. Cohen, a director of the Company, who inadvertently
failed to file a Form 4 with respect to a purchase of Common Stock that occurred
in November 1997 (such transaction was reported on a Form 5 timely filed with
the Commission on February 17, 1998); (ii) Environmental, a principal
stockholder of the Company, which inadvertently failed to file (a) a Form 4 with
respect to two transactions that occurred in September 1997, (b) a Form 4 with
respect to three transactions that occurred in October 1997, (c) a Form 4 with
respect to nine transactions that occurred in November 1997, and (d) a Form 4
with respect to 11 transactions that occurred in December 1997 (all of such
transactions were reported on a Form 5 timely filed with the Commission on
February 17, 1998); (iii) Bentley J. Blum, a director of the Company, who
inadvertently failed to file (a) a Form 4 with respect to two transactions that
occurred in September 1997, (b) a Form 4 with respect to three transactions that
occurred in October 1997, (c) a Form 4 with respect to nine transactions that
occurred in November 1997, and (d) a Form 4 with respect to 11 transactions that
occurred in December 1997 (all of such transactions were reported on a Form 5
timely filed with the Commission on February 17, 1998); and (iv) Jeane J.
Kirkpatrick, Ph.D., a director of the Company, who inadvertently failed to
timely file (a) a Form 3 with respect to her election as a director of the
Company in December 1997 (such Form 3 was filed late with the Commission on
March 17, 1998) and (b) a Form 5 with respect to an award of stock options by
the Company in December 1997 (such transaction was reported on a Form 5 filed
late with the Commission on March 17, 1998).
The transactions which gave rise to the aforementioned reporting
obligations of Environmental and Mr. Blum were transfers of Common Stock by
Environmental upon conversions of Environmental's 7% Series D Convertible
Preferred Stock, par value $0.01 per share and liquidation preference of $100
per share (the "Series D Preferred Stock"). The Series D Preferred Stock is
convertible into shares of Company Common Stock held by Environmental at
conversion prices based upon the fluctuating market price of the Common Stock.
Mr. Blum's reporting obligations arose solely from his controlling equity
interest in Environmental during 1997.
11
<PAGE>
EXECUTIVE COMPENSATION AND RELATED MATTERS
Summary Compensation
The following table sets forth the amount of all compensation paid by the
Company and/or its affiliates and allocated to the Company's operations for
services rendered during each of 1997, 1996, and 1995 to the person serving as
the Company's current Chief Executive Officer, to each of the Company's most
highly compensated executive officers other than the Chief Executive Offer whose
total salary and bonus compensation exceeded $100,000 during any such year, and
to two additional individuals who served as executive officers of the Company
during 1997, but not at December 31, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------------------- ---------------------------------
Other Securities
Annual Restricted Under- All Other
Compen- Stock lying LTIP Compen-
Name and Principal Salary Bonus sation Award(s) Options Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -------------------------- ---- ---------- --------- ------ ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul E. Hannesson 1997 250,256(1) 63,356(2) 15,205(3) -0- -0- -0- -0-
Chief Executive Officer 1996 265,836(1) 50,000(2) -0- -0- 400,000 -0- -0-
1995 186,476 -0- 96,000(4) -0- -0- -0- -0-
Kenneth L. Adelman, Ph.D. 1997 83,444(5) 54,937(6) -0- -0- 150,000 -0- -0-
Executive Vice President 1996 -0- -0- -0- -0- 67,500(7) -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
Michael D. Fullwood 1997 68,620(8) 38,463(9) -0- -0- 125,000 -0- -0-
Senior Vice President 1996 -0- -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
Edwin L. Harper, Ph.D.(10) 1997 236,048(11) 97,221(12) -0- -0- -0- -0- -0-
Former President and 1996 -0- -0- -0- -0- 162,375 -0- -0-
Chief Operating Officer 1995 -0- -0- -0- -0- -0- -0- -0-
Rayburn Hanzlik(13) 1997 79,123(14) 16,481(15) -0- -0- 75,000 -0- -0-
Vice President 1996 -0- -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- ----------
(1) Represents the amount of Mr. Hannesson's base salary paid by the Company.
Mr. Hannesson's total base salary for 1996 and 1997 was $310,627 and
$395,000, respectively. Certain portions of such base salaries were also
paid by Environmental and Separation. See "Certain Relationships and
Related Transactions--Services Agreement."
(2) Represents the amount of Mr. Hannesson's annual incentive bonus paid by the
Company. Mr. Hannesson's total annual incentive bonus for 1996 and 1997 was
$200,000 and $100,000, respectively. Certain portions of such annual
incentive bonuses were also paid by Environmental and Separation.
(3) Represents the amount of Mr. Hannesson's automobile allowance paid by the
Company. Mr. Hannesson's total automobile allowance for 1997 was $24,000,
certain portions of which were also paid by Environmental and Separation.
(4) Represents the amount paid by the Company to Mr. Hannesson as an allowance
for living expenses in the New York metropolitan area.
12
<PAGE>
(5) Represents the amount of Dr. Adelman's base salary paid by the Company. Dr.
Adelman's total base salary for 1997 was $151,980. Certain portions of such
base salary were also paid by Environmental and Separation.
(6) Represents the amount of Dr. Adelman's annual incentive bonus paid by the
Company. Dr. Adelman's total annual incentive bonus for 1997 was $100,000.
Certain portions of such annual incentive bonus were also paid by
Environmental and Separation.
(7) Represents shares of Common Stock underlying stock options granted to Dr.
Adelman by the Company in his capacity as a director of the Company.
(8) Represents the amount of Mr. Fullwood's base salary paid by the Company.
Mr. Fullwood's total base salary for 1997 was $133,805. Certain portions of
such base salary were also paid by Environmental and Separation.
(9) Represents the amount of Mr. Fullwood's annual incentive bonus paid by the
Company. Mr. Fullwood's total annual incentive bonus for 1997 was $75,000.
Certain portions of such annual incentive bonus were also paid by
Environmental and Separation.
(10) Dr. Harper served as a director of the Company and Environmental from
November 1996 to March 1998, as the President and Chief Operating Officer
of both the Company and Environmental from November 1996 to April 1997, and
as Vice Chairman of the Company and Environmental from April to December
1977. Dr. Harper also served as Chairman of the Board and Chief Executive
Officer of Separation, Solution and CFC Technologies from January to April
1997, and as a private consultant to the Company and certain of its
affiliates from May to December 1997.
(11) Represents the amount of Dr. Harper's base salary paid by the Company. Dr.
Harper's total base salary for 1997 was $354,076. Of such base salary,
$257,512 was paid to Dr. Harper in his capacity as a consultant to the
Company and its affiliates. Certain portions of such base salary were also
paid by Environmental and Separation.
(12) Represents the amount of Dr. Harper's annual incentive bonus paid by the
Company. Dr. Harper's total annual incentive bonus for 1997 was $145,833.
Of such annual incentive bonus, $106,064 was paid to Dr. Harper in his
capacity as a consultant to the Company and its affiliates. Certain
portions of such annual incentive bonus were also paid by Environmental and
Separation.
(13) Mr. Hanzlik served as General Counsel, Chief Administrative Officer and
Secretary of the Company from January to April 1997.
(14) Represents the amount of Mr. Hanzlik's base salary paid by the Company. Mr.
Hanzlik's total base salary for 1997 was $144,025. Certain portions of such
base salary were also paid by Environmental and Separation.
(15) Represents the amount of Mr. Hanzlik's annual incentive bonus paid by the
Company. Mr. Hanzlik's total annual incentive bonus for 1997 was $30,000.
Certain portions of such annual incentive bonus were also paid by
Environmental and Separation.
13
<PAGE>
Stock Options
The following table sets forth certain information concerning options
granted during the year ended December 31, 1997 to the individuals listed in the
Summary Compensation Table pursuant to the Plan. The Company has no outstanding
stock appreciation rights and granted no stock appreciation rights during the
year ended December 31, 1997.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------
Percent of Potential Realizable Value at
Number of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation for
Underlying Granted Exercise of Option Term
Options To Employees Base Price Expiration -------------------------------
Name Granted (#) In Fiscal Year(3) ($/Sh) Date 5%($) 10%($)
- ---------------------------- ----------- ----------------- ----------- ---------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth L. Adelman, Ph.D.... 150,000(1) 11.6% 6.69 05/31/07 -0- -0-
Michael D. Fullwood......... 125,000(1) 9.7% 6.69 05/31/07 -0- -0-
Rayburn Hanzlik............. 75,000(2) 5.8% 6.69 06/30/07 -0- -0-
</TABLE>
- ----------
(1) Options to purchase 150,000 and 125,000 shares of Common Stock were granted
to Dr. Adelman and Mr. Fullwood, respectively, in June 1997 pursuant to the
Plan and are exercisable at the rate of 20% in each of calendar year 1997
through 2001, inclusive, beginning in June 1997 and, unless exercised,
expire on June 31, 2007 (subject to prior termination in accordance with
the applicable stock option agreements). Upon announcement of a Change in
Control (pursuant to and as defined in the Plan), such options will become
immediately exercisable. Upon consummation of a Change in Control, all
unexercised options will terminate.
(2) Options to purchase 75,000 shares of Common Stock were granted to Mr.
Hanzlik in June 1997 pursuant to the Plan and are exercisable at the rate
of 20% in each of calendar year 1997 through 2001, inclusive, beginning in
June 1997 and, unless exercised, expire on June 30, 2007 (subject to prior
termination in accordance with the applicable stock option agreements).
Upon announcement of a Change in Control (pursuant to and as defined in the
Plan), such options will become immediately exercisable. Upon consummation
of a Change in Control, all unexercised options will terminate.
(3) Percentages based on 1,295,000 stock options granted during the year ended
December 31, 1997.
14
<PAGE>
The following table sets forth certain information concerning the exercise
of options and the value of unexercised options held under the Plan at December
31, 1997 by the individuals listed in the Summary Compensation Table.
<TABLE>
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values
<CAPTION>
Number Of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options
Options At Fiscal Year-
Shares Value At Fiscal Year-End(#) End($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable(2)
- ---------------------------- ------------ ------ --------------------- ----------------
<S> <C> <C> <C> <C>
Paul E. Hannesson........... -0- -0- 160,000/240,000 -0-/-0-
Kenneth L. Adelman, Ph.D.... -0- -0- 75,000/142,500 -0-/-0-
Michael D. Fullwood......... -0- -0- 25,000/100,000 -0-/-0-
Edwin L. Harper, Ph.D....... -0- -0- 162,375/-0- -0-/-0-
Rayburn Hanzlik............. -0- -0- 15,000/60,000 -0-/-0-
</TABLE>
- ----------
(1) Represents the difference between the exercise price and the closing price
on the date of exercise, multiplied by the number of shares acquired.
(2) Represents the difference between the last reported sale price of the
Common Stock on December 31, 1997, and the exercise price of the option
multiplied by the applicable number of options exercised.
Employment Agreements
Paul E. Hannesson, the Company's Chairman of the Board, President and Chief
Executive Officer, entered into an employment agreement with Environmental on
November 18, 1996, for a term expiring on December 31, 1999. Pursuant to such
employment agreement, Mr. Hannesson agreed to devote his business and
professional time and efforts to the business of Environmental as a senior
executive officer, and to serve in senior executive positions with one or more
of Environmental's subsidiaries at the time, including the Company. The
employment agreement provides that Mr. Hannesson shall receive, among other
things, a base salary at an annual rate of $395,000 through December 31, 1997,
and will receive not less than $434,500 through December 31, 1998 and not less
than $477,950 through December 31, 1999, for services rendered to Environmental
and certain of its affiliates, including the Company. Pursuant to the employment
agreement, Mr. Hannesson received, among other things: (i) a signing bonus of
(a) $150,000 cash and (b) options to purchase 950,000 shares of common stock of
Environmental, which options vested on the date of his employment agreement; and
(ii) options to purchase an aggregate of 2,500,000 shares of Environmental
common stock, exercisable in installments over a period of five years commencing
on the date of his employment agreement. Mr. Hannesson also received options to
purchase common stock of the Company and Separation in the amount of 1.0% of
each company's total outstanding shares of common stock on the date of grant,
and is eligible to receive incentive compensation of up to $225,000 per year for
achieving certain goals.
15
<PAGE>
Kenneth L. Adelman, Ph.D., the Company's Vice Chairman and Executive Vice
President--Marketing and International Development, entered into an employment
agreement with the Company on May 7, 1997 for a term expiring on April 30, 2000.
Pursuant to such employment agreement, Dr. Adelman agreed to devote his business
and professional time and efforts to the business of the Company as its
Executive Vice President--Marketing and International Development. The
employment agreement provides that Dr. Adelman shall receive, among other
things, a fixed base salary at an annual rate of $250,000 for services rendered
to the Company. Pursuant to the employment agreement, Dr. Adelman received
options to purchase an aggregate of 150,000 shares of Common Stock of the
Company, exercisable in installments over a period of five years commencing on
the date of his employment agreement. Dr. Adelman also received options to
purchase 700,000 shares of common stock of Environmental, exercisable in
installments over a period of five years commencing on the date of his
employment agreement. Dr. Adelman is also eligible to receive incentive
compensation of up to $150,000 per year for achieving certain goals, but in no
event less than $100,000, regardless of whether such goals are attained.
Michael D. Fullwood, the Company's Senior Vice President, Chief Financial
and Administrative Officer, Secretary and General Counsel, entered into an
employment agreement with Environmental on May 7, 1997 for an initial term
expiring on April 30, 1999. Pursuant to such employment agreement, Mr. Fullwood
agreed to devote his business and professional time and efforts to the business
of Environmental as its Senior Vice President, Chief Financial and
Administrative Officer, Secretary and General Counsel, and to serve as a senior
executive officer of certain of Environmental's subsidiaries at the time,
including the Company. The employment agreement provides that Mr. Fullwood shall
receive, among other things, a base salary at an annual rate of $225,000 for
services rendered to Environmental and certain of its affiliates, including the
Company, which base salary shall be increased by not less than 5% per year
during the term of his agreement. Pursuant to the employment agreement, Mr.
Fullwood received options to purchase an aggregate of 500,000 shares of
Environmental common stock, exercisable in installments over a period of five
years commencing on the date of his employment agreement. Mr. Fullwood also
received options to purchase 125,000 shares of Common Stock of the Company and
67,500 shares of common stock of Separation, exercisable in installments over a
period of five years commencing on the date of his employment agreement. Mr.
Fullwood is also eligible to receive incentive compensation of up to $75,000 per
year for achieving certain goals, which incentive compensation shall be
increased by 5% per year during the term of his agreement.
All of the foregoing employment agreements require the full-time services
of the employees, subject to permitted service with professional-related service
organizations and other outside activities that do not materially interfere with
the individual's 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 and
one year thereafter, (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.
Compensation Committee Interlocks and Insider Participation
The individuals who served as members of the Compensation Committee during
the year ended December 31, 1997 were Herbert A. Cohen (Chairman), David L.
Mitchell, Kenneth L. Adelman, Ph.D. and Edwin L. Harper, Ph.D. At December 31,
1997, the members of the Compensation Committee were Messrs. Cohen (Chairman),
Mitchell and Harper. Dr. Adelman resigned as a member of the Compensation
Committee effective May 1, 1997, upon his appointment as the Company's Executive
Vice President--Marketing and International Development, and was not replaced.
Dr. Harper was appointed to the Compensation Committee on December 16, 1997.
Messrs. Cohen, Mitchell and Harper also constituted the Compensation, Stock
Option and Benefits Committee of Environmental, and Messrs. Mitchell and Harper
also constituted two-thirds of the Compensation, Stock Option and Benefits
Committee of Separation at December 31, 1997. Dr. Harper served as the President
and Chief Operating Officer of the Company and Environmental from November 1996
to April 1997, as Vice Chairman of the Company and Environmental from April to
December 1997, and as the Chairman of the Board and Chief Executive Officer of
Solution, Separation and CFC Technologies from January to April 1997. Dr. Harper
also served as a consultant to the Company and its affiliates from May to
December 1997. Dr. Harper resigned as an executive officer of, and as a
consultant to, the Company and each of its subsidiaries and affiliates effective
upon his appointment to the
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Compensation Committee on December 16, 1997, and resigned as a director of the
Company and each of its affiliates on March 13, 1998. Mr. Mitchell has served as
a consultant to the Company since July 1997 and receives compensation in the
amount of $10,000 per month for services rendered to the Company in such
capacity.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee was established in November 1996 and is
responsible for, among other things, establishing the compensation policies
applicable to executive officers of the Company. The Compensation Committee was
composed of Herbert A. Cohen (Chairman), David L. Mitchell and Edwin L. Harper,
Ph.D. at December 31, 1997, all of whom were non-employee directors of the
Company. Messrs. Cohen, Mitchell and Harper also constituted the Compensation,
Stock Option and Benefits Committee of Environmental, and Messrs. Mitchell and
Harper also constituted two-thirds of the Compensation, Stock Option and
Benefits Committee of Separation at December 31, 1997. Decisions on compensation
of the executives officers of Environmental and Separation were made by such
individuals in their capacities as members of the Compensation, Stock Option and
Benefits Committees of such companies. All decisions of the Compensation
Committee relating to the compensation of the Company's executive officers are
reviewed by, and are subject to the final approval of, the full Board of
Directors of the Company. Set forth below is a report prepared by Messrs. Cohen,
Mitchell and Harper, in their capacities as members of the Compensation
Committee at December 31, 1997, addressing the Company's compensation policies
for 1997 as they affected the Company's executive officers.
Overview and Philosophy
The Company's executive compensation program is designed to be linked to
corporate performance and returns to stockholders. Of particular importance to
the Company is its ability to grow and enhance its competitiveness for the rest
of the decade and beyond. Shorter-term performance, although scrutinized by the
Compensation Committee, stands behind the issue of furthering the Company's
strategic goals. To this end, the Company has developed an overall compensation
strategy and specific compensation plans that tie a significant portion of
executive compensation to the Company's success in meeting specified performance
goals.
The objectives of the Company's executive compensation program are to:
o attract, motivate and retain the highest quality executives;
o motivate them to achieve tactical and strategic objectives in a manner
consistent with the Company's corporate values; and
o link executive and stockholder interest through equity-based plans and
provide a compensation package that recognizes individual
contributions as well as overall business results.
To achieve these objectives, the Company's executive compensation program
is designed to:
o focus participants on high priority goals to increase stockholder
value;
o encourage behavior that exemplifies the Company's values relating to
customers, quality of performance, employees, integrity, teamwork and
good citizenship;
o assess performance based on results and pre-set goals that link the
business activities of each individual to the goals of the Company;
and
o increase stock ownership to promote a proprietary interest in the
success of the Company.
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Executive Officer Compensation
Each year the Compensation Committee conducts a full review of the
Company's executive compensation program. This review includes a comprehensive
evaluation of the competitiveness of the Company's compensation program and a
comparison of the Company's executive compensation to certain other public
companies which, in the view of the Compensation Committee, represent the
Company's most direct competitors for executive talent. It is the Compensation
Committee's policy to target overall compensation for executive officers of the
Company taking into account the levels of compensation paid for such positions
by such other public companies. A variety of other factors, however, including
position and time in position, experience, and both Company performance and
individual performance, will have an impact on individual compensation amounts.
The key elements of the Company's executive compensation program in 1997
consisted of base salary, annual incentive compensation and long-term incentive
compensation in the form of stock options. The Compensation Committee's policies
with respect to each of these elements, including the basis for the compensation
awarded to the Company's Chief Executive Officer, are discussed below.
Base Salaries. Base salaries for executive officers are established by
evaluating, on an annual basis, the performance of such individuals (which
evaluation involves management's consideration of such factors as
responsibilities of the positions held, contribution toward achievement of the
Company's strategic plans, attainment of specific individual objectives and
interpersonal managerial skills), and by reference to the marketplace for
executive talent, including a comparison to base salaries for comparable
positions at other similar public companies.
In 1997, total compensation was paid to executives primarily based upon the
terms of their employment agreements with the Company, if any, and upon
individual performance and the extent to which the business plans for their
areas of responsibility were achieved or exceeded. On balance, performance goals
were substantially met or exceeded and therefore compensation was paid
accordingly.
Mr. Hannesson, the Chairman of the Board, President and Chief Executive
Officer of the Company and Environmental, and the Chairman of the Board and
Chief Executive Officer of Solution, Separation and CFC Technologies, receives
annual compensation based upon, among other things, the terms of his employment
agreement with Environmental. Pursuant to the terms of his employment agreement,
Mr. Hannesson is entitled to receive a base salary at an annual rate of not less
than $395,000 through December 31, 1997, not less than $434,500 through December
31, 1998, and not less than $477,950 through December 31, 1999, for services
rendered to Environmental and certain of its affiliates, including the Company.
The amount actually received by Mr. Hannesson each year as base salary for
services rendered to the Company and its affiliates is established by the
members of the Compensation Committee who, as set forth above, also constituted
the Compensation, Stock Option and Benefits Committee of Environmental at
December 31, 1997. In establishing Mr. Hannesson's base salary for 1997, the
Compensation Committee took into account the salaries of chief executive
officers at other similar public companies, future objectives and challenges,
and Mr. Hannesson's individual performance, contributions and leadership. The
Compensation Committee reviewed in detail Mr. Hannesson's achievement of his
1996 goals and his individual contributions to the Company and its affiliates.
The Compensation Committee concluded that he had achieved his 1996 goals and had
provided a leadership role in achieving the Company's and its affiliates'
strategic priorities for 1996. The Compensation Committee also considered Mr.
Hannesson's decisive management of operational and strategic issues, his drive
to reinforce a culture of innovation and his ability and dedication to enhance
the long-term value of the Company and its affiliates for their respective
stockholders. In making its salary decisions with respect to Mr. Hannesson, the
Compensation Committee exercised its discretion and judgement based on the above
factors, and no specific formula was applied to determine the weight of each
factor.
Mr. Hannesson's base salary increased from $310,627 for 1996 to $395,000
for 1997, representing an increase of approximately 27%. Such base salary was
allocated among the Company, Environmental and Separation based upon the amount
of time and effort devoted by Mr. Hannesson to the respective businesses of such
companies. Consequently, the Company, Environmental and Separation paid
$250,256, $15,302 and $129,442,
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<PAGE>
respectively, of such salary. Mr. Hannesson also received an automobile
allowance of $24,000 for 1997, and the Company, Environmental and Applied paid
$15,205, $930 and $7,865, respectively, of such allowance.
Annual Incentive Bonus. Annual incentive bonuses for executive officers are
intended to reflect the Compensation Committee's belief that a significant
portion of the annual compensation of each executive officer should be
contingent upon the performance of the Company.
For 1997, annual incentive bonuses were paid to the individuals named in
the Summary Compensation Table and certain other officers and employees of the
Company in part based upon recommendations of senior executive officers of the
Company as to appropriate levels of incentive compensation. The Compensation
Committee exercised its discretion to determine the final value of each 1997
incentive award, which values were then reviewed and approved by the full Board
of Directors. The Compensation Committee assessed performance against goals and
leadership performance, with each of these two categories weighted equally. The
goal category included an evaluation of performance areas such as increase in
stockholder value, operations development and employee satisfaction. The
leadership category was evaluated based upon the Compensation Committee's
judgment of leadership performance, including factors such as innovation,
strategic vision, marketplace orientation, customer focus, collaboration and
managing change.
Pursuant to his employment agreement with Environmental, Mr. Hannesson is
eligible to receive incentive compensation of up to $225,000 per year for
achieving certain of the performance goals set forth above. For 1997, Mr.
Hannesson was awarded an incentive bonus of $100,000. Such bonus was allocated
among the Company, Environmental and Separation based upon the amount of time
and effort devoted by Mr. Hannesson to the respective businesses of such
companies. Consequently, the Company, Environmental and Separation paid $63,356,
$3,874 and $32,770, respectively, of such bonus.
Stock Options. The Compensation Committee has the power to grant stock
options under the Plan. With respect to executive officers, it has been the
Compensation Committee's practice to grant, on an annual basis, stock options
that vest at the rate of 20% upon grant and 20% in each calendar year thereafter
for four years, and that are exercisable over a ten-year period at exercise
prices per share set at the fair market value per share on the date of grant.
Generally, the executives must be employed by the Company at the time the
options vest in order to exercise the options and, upon announcement of a Change
in Control (pursuant to and as defined in the Plan), such options become
immediately exercisable. The Compensation Committee believes that stock option
grants provide an incentive that focuses the executives' attention on managing
the Company from the perspective of an owner with an equity stake in the
business. The Company's stock options are tied to the future performance of the
Company's stock and will provide value to the recipient only when the price of
the Company's stock increases above the option grant price.
A total of 1,295,000 stock options were granted pursuant to the Plan in
1997, none of which were granted to Mr. Hannesson and 350,000 of which were
granted (in the aggregate) to three other individuals named in the Summary
Compensation Table. Such number does not include 275,000 stock options granted
to Dr. Adelman and Mr. Fullwood in May 1997, which were rescinded in June 1997.
The number of stock options granted in 1997 were determined by reference to the
long-term compensation for comparable positions at other similar public
companies and based upon an assessment of individual performance.
Impact of Section 162(m) of the Internal Revenue Code
The Compensation Committee's policy is to structure compensation awards for
executive officers that will be consistent with the requirements of Section
162(m) of the U.S. Internal Revenue Code of 1986 (the "Code"). Section 162(m)
limits the Company's tax deduction to $1.0 million per year for certain
compensation paid in a given year to the Chief Executive Officer and the four
highest compensated executives other than the Chief Executive Officer named in
the Summary Compensation Table. According to the Code and corresponding
regulations, compensation that is based on attainment of pre-established,
objective performance goals and complies with certain other requirements will be
excluded from the $1.0 million deduction limitation. The Company's policy is to
structure compensation awards for covered executives that will be fully
deductible where doing so will further
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<PAGE>
the purposes of the Company's executive compensation program. However, the
Compensation Committee also considers it important to retain flexibility to
design compensation programs that recognize a full range of performance criteria
important to the Company's success, even where compensation payable under such
programs may not be fully deductible. The Company expects that all compensation
payments in 1997 to the individuals listed in the Summary Compensation Table
will be fully deductible by the Company.
Conclusion
The Compensation Committee believes that the quality of executive
leadership significantly affects the long-term performance of the Company and
that it is in the best interest of the stockholders to compensate fairly
executive leadership for achievement meeting or exceeding the high standards set
by the Compensation Committee, so long as there is a corresponding risk when
performance falls short of such standards. A primary goal of the Compensation
Committee is to relate compensation to corporate performance. Based on the
Company's performance in 1997, the Compensation Committee believes that the
Company's current executive compensation program meets such standards and has
contributed, and will continue to contribute, to the Company's and its
stockholders' long-term success.
COMPENSATION, STOCK OPTION AND BENEFITS COMMITTEE
Herbert A. Cohen (Chairman)
David L. Mitchell
Edwin L. Harper
The Report of the Compensation Committee on Executive Compensation shall
not be deemed incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act of
1933, as amended, or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.
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<PAGE>
Stockholder Return Performance Presentation
The following line graph compares the value of $100 invested in the
Company's Common Stock from July 1, 1996 through December 31, 1997, with a
similar investment in the AMEX Market Value Index and the Dow Jones Pollution
Control/Waste Management Index.
<TABLE>
<CAPTION>
Research Data Group, Inc. Total Return - Data Summary
CXI Cumulative Total Return
------------------------------------------------------
7/01/96 9/96 12/96 3/97 6/97 9/97 12/97
<S> <C> <C> <C> <C> <C> <C> <C>
COMMODORE APPLIED TECHNOLOGIES, INC. 100 126 95 136 113 105 57
AMEX MARKET VALUE INDEX 100 99 101 101 111 125 123
DOW JONES POLLUTION CONTROL/WASTE MA 100 99 101 100 109 120 109
</TABLE>
21
<PAGE>
Certain Relationships and Related Transactions
Organization and Capitalization of the Company
Since its acquisition of the capital stock of Commodore Laboratories, Inc.
(the Company's predecessor) in 1993, Environmental has advanced an aggregate of
$8,925,426 to the Company, which has been used to finance the development of
SET, including salaries of personnel, equipment, facilities and patent
prosecution. These cash advances by Environmental have been evidenced by
successive unsecured 8% promissory notes (the most recent note being hereinafter
referred to as the "Environmental Funding Note"). Kraft Capital Corporation
("Kraft"), a corporation wholly owned by Bentley J. Blum, a principal
stockholder of Environmental and a director of the Company and of Environmental,
provided approximately $656,000 of such financing to Environmental.
Environmental provided additional advances to the Company of $978,896 for the
first fiscal quarter of 1996, which were repaid by the Company subsequent to its
obtaining a line of credit from a commercial bank in April 1996.
In March 1996, the Company was formed as a wholly-owned subsidiary of
Environmental. Prior to the Company's initial public offering in June 1996 (the
"IPO"), in exchange for the issuance of 15,000,000 shares of Common Stock,
Environmental contributed to the Company (i) all of the assets and properties
(including joint working proposals, quotations and bids in respect to projects
and contracts awarded for feasibility studies), subject to all of the
liabilities, of its operating divisions relating to SET and the exploitation of
the SET technology and processes in all commercial and governmental
applications; (ii) all of the outstanding shares of the capital stock of each of
Commodore Laboratories, 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 Laboratories, Inc. which, at the time, was held by Albert E. Abel);
and (iii) a portion of the Environmental Funding Note in the amount of $3.0
million.
In April 1996, Bentley J. Blum personally guaranteed a $2.0 million line of
credit for the Company from a commercial bank. The initial borrowings under the
line of credit, in the approximate amount of $1.0 million, were utilized to
repay advances made by Environmental to the Company in 1996, and Environmental,
in turn, utilized such funds to repay Kraft the funds provided by Kraft to
Environmental for purposes of the advances to the Company. The Company applied
$2.0 million of the net proceeds of its IPO to repay the line of credit, and Mr.
Blum's guarantee was released at such time.
Upon completion of the IPO in June 1996, Environmental acquired from Albert
E. Abel the remaining 9.95% of the outstanding shares of common stock of
Commodore Laboratories, Inc. and contributed such shares to the Company for no
additional consideration. To acquire the remaining shares of Commodore
Laboratories, Inc., Environmental paid Mr. Abel the sum of $750,000 in cash, and
issued 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 settled
all outstanding obligations for accrued compensation payable to Mr. Abel and for
amounts receivable by the Company from Mr. Abel, and the net payment to Mr. Abel
arising therefrom approximated $120,000. The Company paid such amount to Mr.
Abel from the proceeds of the IPO.
In October 1996, the Company acquired all of the outstanding shares of
capital stock of Advanced Sciences. Advanced Sciences, together with its
subsidiaries, provides a full range of environmental and technical services,
including identification, investigation, remediation and management of hazardous
and mixed waste sites, to government agencies, including the DOD and DOE, and to
private companies located in the United States and abroad. In consideration for
all of the outstanding shares of capital stock of Advanced Sciences, the former
shareholders of Advanced Sciences received an aggregate of 450,000 shares of
Common Stock. Simultaneously, the Company also acquired of all of the
outstanding shares of capital stock of ASE. ASE, a newly formed entity with no
history of operations, had an option to purchase all of the outstanding capital
stock of Advanced Sciences and was acquired by the Company for the purpose of
enabling the Company to effect its acquisition of Advanced Sciences. The former
shareholders of ASE received, in consideration for all of the outstanding shares
of capital stock of ASE, an aggregate of 450,000 shares of Company Common Stock.
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<PAGE>
In December 1996, the Company transferred certain of its operating assets
related to its SET technology to Solution, subject to certain liabilities
related to such assets, in exchange for 100 shares of common stock of Solution,
representing all of the issued and outstanding shares of capital stock of
Solution. Solution agreed to assume all of the net assets of the Company
relating to its SET technology at December 1, 1996, which assets had an
aggregate value of approximately $4.0 million at such date, and all known or
unknown contingent or unliquidated liabilities of and claims against the Company
and its subsidiaries to the extent they relate to or arise out of the
transferred assets. The Company retained, among other things, (a) all temporary
cash investments of the Company at December 1, 1996, aggregating approximately
$14.1 million, and (b) the principal executive offices and related assets of the
Company which, at the time, were located in McLean, Virginia.
In December 1996, as part of a corporate restructuring to consolidate all
of its current environmental technology businesses within the Company,
Environmental transferred to the Company all of the capital stock of Separation
and CFC Technologies. In addition, Environmental assigned to the Company notes
aggregating $976,200 at December 2, 1996, representing advances previously made
by Environmental to Separation. Such advances have been capitalized by the
Company as its capital contribution to Separation. In consideration for such
transfers, the Company paid Environmental $3.0 million in cash and issued to
Environmental a warrant expiring December 2, 2003 to purchase 7,500,000 shares
of the Company's Common Stock at an exercise price of $15.00 per share, valued
at $2.4 million. Such warrant was subsequently amended to, among other things,
reduce the exercise price thereof to $10.00 per share. See "--February 1998
Intercompany Note."
Services Agreement
In September 1997, the Company, Environmental, Separation, Advanced
Sciences, and certain other affiliates of the Company (the "Affiliated Parties")
entered into a services agreement, dated as of September 1, 1997 (the "Services
Agreement"), whereby the Company and the Affiliated Parties agreed to cooperate
in sharing, where appropriate, costs related to accounting services, financial
management, human resources and personnel management and administration,
information systems, executive management, sales and marketing, research and
development, engineering, technical assistance, patenting, and other areas of
service as are appropriately and necessarily required in the operations of the
Company and the Affiliated Parties (collectively, the "Services"). Pursuant to
the Services Agreement, services provided by professional employees of the
Company and the Affiliated Parties to one another are charged on the basis of
time actually worked as a percentage of salary (including cost of benefits)
attributable to that professional. In addition, charges for rent, utilities,
office services and other routine charges regularly incurred in the normal
course of business are apportioned to the professionals working in the office on
the basis of salary, and then charged to any party in respect of whom the
professional devoted such time based upon time actually worked. Furthermore,
charges from third parties, including, without limitation, consultants,
attorneys and accountants, are levied against the party actually receiving the
benefit of such services. Pursuant to the Services Agreement, the Company acts
as the coordinator of billings and payments for Services on behalf of itself and
the other Affiliated Parties.
Transactions with Lanxide
In August 1996, the Company loaned $1.5 million to Lanxide Performance
Materials ("LPM"), a wholly-owned subsidiary of Lanxide, evidenced by a
promissory note, dated August 30, 1996 (the "LPM Note"). Lanxide, which
specializes in the manufacture of ceramic bonding and refractory materials, is
related to the Company by significant common beneficial ownership. The LPM Note
is collateralized by the assets of LPM and guaranteed by Lanxide. The LPM Note
became due on February 28, 1998. In March 1998, the Company transferred the LPM
Note to Environmental, together with $500,000 in cash, as partial prepayment of
a $4.0 million unsecured loan from Environmental to the Company in September
1997. See "--September 1997 Intercompany Convertible Note."
Sale of Company Common Stock by Environmental
In February 1998, Environmental sold (i) 1,381,692 shares of Common Stock
of the Company and (ii) three-year warrants to purchase an aggregate of 150,000
shares of Company Common Stock at an exercise price equal to $6.00 per share,
for an aggregate purchase price of $6.0 million (the "First Tranche Sale") in a
private placement (the "Environmental Private Placement") to certain "accredited
investors" as defined in Rule 501 of the
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<PAGE>
Securities Act. After deduction of fees and transaction costs associated with
the First Tranche Sale totaling approximately $550,000, Environmental received
aggregate net proceeds of approximately $5,450,000 from the First Tranche Sale.
The shares of Company Common Stock issued and to be issued to the investors in
connection with the Environmental Private Placement have been and will be issued
from the account of Environmental, which, immediately prior to the First Tranche
Sale, owned approximately 52% of the outstanding shares of Company Common Stock.
As of March 26, 1998, Environmental owned approximately 43% of the outstanding
shares of Company Common Stock.
Pursuant to the terms of the Environmental Private Placement, Environmental
may be required to issue up to a maximum of 1,618,308 additional shares of
Company Common Stock to the investors, for no additional consideration, in the
event that 90% of the average closing bid price of the Common Stock for a
certain period of time is less than the $4.3425 per share purchase price of the
Common Stock sold in the First Tranche Sale. Environmental will, for a certain
period of time, have the right and option (but not the obligation) to require
the investors to purchase (i) an aggregate amount of additional shares of
Company Common Stock equal to 4,000,000 divided by 90% of the average closing
price per share of the Common Stock for the five trading days immediately prior
to the closing date of such sale and (ii) warrants to purchase an aggregate of
100,000 shares of Company Common Stock at an exercise price per share equal to
the greater of $6.00 or 125% of the per share purchase price of the shares of
Common Stock sold pursuant to (i) above, for an aggregate purchase price of $4.0
million (the "Second Tranche Sale"). As in the case of the First Tranche Sale,
Environmental may be required to issue additional shares of Company Common Stock
to the investors in connection with the Second Tranche Sale, for no additional
consideration, in the event that 90% of the average closing bid price of the
Common Stock for a certain period of time is less than the per share purchase
price of the Common Stock sold in the Second Tranche Sale.
Pursuant to the terms of the Environmental Private Placement, if during a
certain period of time Environmental sells, or the Company issues, any shares of
Common Stock ("First Future Shares") at a price per share that is less than the
per share purchase price of the Common Stock sold in the First Tranche Sale or
Environmental sells, or the Company issues, any shares of Common Stock ("Second
Future Shares") at a price per share that is less than the per share purchase
price of the Common Stock sold in the Second Tranche Sale, Environmental will
issue to the investors, for no additional consideration, a number of additional
shares of Company Common Stock equal to (a) with respect to First Future Shares,
an amount equal to the difference between (i) 6,000,000 divided by the price at
which the First Future Shares were sold or issued and (ii) 1,381,692, and (b)
with respect to Second Future Shares, an amount equal to the difference between
(i) 4,000,000 divided by the price at which the Second Future Shares were sold
or issued and (ii) the amount equal to the number of shares of Common Stock sold
in the Second Tranche Sale. Notwithstanding the foregoing, the terms "First
Future Shares" and "Second Future Shares" do not include any shares of Common
Stock which may be issued in the future upon conversion or exercise of, or
pursuant to the terms of any agreement entered into by the Company or
Environmental in respect of, securities of the Company and/or Environmental
which have been issued prior to February 9, 1998.
The Company has agreed to file registration statements (the "Registration
Statements") on Form S-3, or other applicable form of registration statement,
under the Securities Act covering all of the shares of Common Stock that have
been and may be issued to the investors in the Environmental Private Placement,
and to keep such Registration Statements continuously effective under the
Securities Act for a period of two years after their respective effective dates
or such earlier date when all shares covered by the Registration Statements have
been sold or may be sold without volume restrictions under the Securities Act
(the "Effective Period").
February 1998 Intercompany Note
Upon receipt of the net proceeds of the Environmental Private Placement,
Environmental provided a $5,450,000 unsecured loan to the Company, evidenced by
the Intercompany Note. Pursuant to the terms of the Intercompany Note, interest
on the unpaid principal balance of the Intercompany Note is payable at the rate
of 8% per annum semiannually in cash. The unpaid principal amount of the
Intercompany Note is due and payable, together with accrued and unpaid interest,
on the earlier to occur of (a) December 31, 1999, or (b) consummation of any
public offering or private placement (other than the Environmental Private
Placement) of securities of the Company with net proceeds aggregating in excess
of $6.0 million, other than in respect of working capital financing
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<PAGE>
or secured financing of assets received by the Company in the ordinary course of
business from any bank or other lending institution, provided that if such funds
are raised in a private placement during the period commencing on February 9,
1998 and ending on the last day of the Effective Period, then the Intercompany
Note will not be payable unless a Registration Statement has been effective for
75 consecutive days and is effective on the date of such repayment. The Company
will use the net proceeds of the loan solely for working capital and general
corporate purposes and not for the satisfaction of any portion of Company debt
or to redeem any Company equity or equity-equivalent securities.
In connection with the loan, the Company amended and restated in its
entirety a five-year warrant to purchase 7,500,000 shares of Common Stock issued
to Environmental on December 2, 1996 to, among other things, reduce the exercise
price of the warrant from $15.00 per share to $10.00 per share. In addition, the
Company issued to Environmental an additional five-year warrant to purchase
1,500,000 shares of Common Stock at an exercise price of $10.00 per share.
September 1997 Intercompany Convertible Note
In September 1997, Environmental provided a $4.0 million unsecured loan to
the Company, evidenced by the Company's 8% convertible subordinated note (the
"Convertible Note"). Pursuant to the terms of the Convertible Note, the Company
is obligated to pay Environmental interest only at the rate of 8% per annum,
payable quarterly. Unless converted into Common Stock at any time, the unpaid
principal amount of the Convertible Note is due and payable, together with
accrued and unpaid interest, on August 31, 2002. Payment of principal and
accrued interest under the Convertible Note is subordinated to all other
indebtedness for money borrowed of the Company. Environmental has the right to
convert the Convertible Note into shares of Common Stock at a conversion price
of $3.89 per share. Such conversion price was fixed at approximately 85% of the
five day average closing bid price of Common Stock ($4.575 per share) prior to
August 22, 1997, the date that the executive committees of the respective boards
of directors of the Company and Environmental authorized such loan. In
connection with the $4.0 million loan, the Company issued Environmental a
five-year warrant to purchase 1,000,000 shares of Common Stock at an exercise
price of $5.0325 per share (approximately 110% of the $4.575 five day average
closing bid price of Common Stock prior to August 22, 1997).
In March 1998, the Company prepaid $2.0 million of the Convertible Note by
(i) paying Environmental the sum of $500,000 in cash and (ii) transferring to
Environmental the LPM Note. To induce Environmental to accept the Company's
prepayment of $2.0 million of the Convertible Note (and thereby give up the
right to convert $2.0 million of the Convertible Note into Common Stock), the
Company issued to Environmental an additional warrant to purchase up to 514,000
shares of Common Stock at an exercise price of $4.50 per share. Such exercise
price was fixed at approximately 110% of the closing sale price of the Common
Stock on February 20, 1998, the trading day immediately prior to the date the
Board of Directors of the Company approved such prepayment. The estimated fair
value of such warrant is approximately $340,000. See "--Transactions with
Lanxide."
Sale of Series D Preferred Stock by Environmental
In May and August 1997, Environmental sold an aggregate of 88,000 shares of
its Series D Preferred Stock for an aggregate purchase price of approximately
$7.8 million. The Series D Preferred Stock is convertible into shares of the
Company's Common Stock held by Environmental, at a conversion price equal to 85%
of the lower of (a) the average of the low prices, or (b) the average of the
closing bid prices of the Common Stock of the Company for the previous five
business days ending on the day prior to conversion (the "Average Closing Bid
Price"). The conversion price of the Series D Preferred Stock will be equal to
certain amounts set forth in the Certificate of Designation, Rights and
Preferences for the Series D Preferred Stock if the Average Closing Bid Price of
the Common Stock for any consecutive 30 days is equal to or less than $2.00,
provided that in no event will the conversion price of the Series D Preferred
Stock be less than $1.50.
The purchasers of the Series D Preferred Stock also received five-year
warrants to purchase an aggregate of 1,175,000 shares of the Company's Common
Stock held by Environmental at exercise prices ranging from $5.15 per share to
$7.14 per share. Such exercise prices are (in addition to customary
anti-dilution adjustments) subject to
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reset on August 18, 1998 to an exercise price equal to the lesser of (i) the
exercise price in effect immediately prior to August 18, 1998, or (ii) 110% of
the closing bid price of the Common Stock on August 17, 1998. In addition, if
the Common Stock trades at less than 50% of the August 17, 1998 closing bid
price for any 10 consecutive trading days, the exercise price is subject to
further reset (on one occasion only) to 50% of such August 17, 1998 closing bid
price. In addition, affiliates of the finder received warrants to purchase an
aggregate of 85,000 shares of Common Stock from Environmental at exercise prices
ranging from $5.15 per share to $7.14 per share. The Company has an effective
registration statement on file with the Commission covering the shares of Common
Stock into which the shares of Series D Preferred Stock are convertible, as well
as the 1,260,000 shares of Common Stock transferable by Environmental upon
exercise of the foregoing warrants.
License of SET Technology
As a result of its acquisition of the capital stock of Commodore Labs, the
Company acquired all patents, discoveries, technology and other intellectual
property in connection with the SET process which it later transferred to
Solution effective December 1, 1996. Environmental licenses from Solution 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 Solution, the SET process and all related technology
underlying such patents and intellectual property in all domestic and
international commercial and industrial applications, in connection with the
destruction of CFCs and other ozone-depleting substances (the "CFC Business");
provided that such license expressly limits the rights of the licensee(s) and
others who may be sub-licensees or users of the Company's patents and
technologies to the CFC Business.
CFC Technology and Support Agreement
The Company has entered into a five-year technology and technical support
agreement with Environmental and CFC Technologies. Pursuant to such agreement,
the Company will provide certain research and development, equipment engineering
and technical support to enable Environmental and CFC Technologies to exploit
the CFC Business. Under such agreement, the Company will provide Environmental
and CFC Technologies the services of certain Company personnel and equipment.
The Company will charge CFC Technologies and Environmental a fee equal to the
sum of (a) the actual costs 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 the employees of the Company be required to
expend in excess of 25% of their business and professional time in any 90-day
period in rendering services to Environmental or CFC Technologies, without the
majority approval or consent of 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 Environmental, the Company or any of their respective
subsidiaries.
Future Transactions
In June 1996, the Company's Board of Directors adopted a policy whereby any
future transactions between the Company and any of its subsidiaries, affiliates,
officers, directors and principal stockholders, or 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 any such transactions will also be approved by a majority of
the Company's disinterested non-management directors.
26
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PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On December 11, 1996, the Company and its former auditors, Tanner + Co.
("Tanner"), mutually agreed to terminate the client-auditor relationship between
the Company and Tanner effective as of such date. Additionally, as of December
19, 1996, the Company retained Price Waterhouse LLP to serve as independent
accountants. The decision to terminate the Company's client-auditor relationship
with Tanner and to retain Price Waterhouse LLP was recommended by the Audit
Committee of the Board of Directors and unanimously approved by the Board of
Directors of the Company.
During the Company's fiscal year ended December 31, 1995, Tanner's report
on the Company's financial statements neither contained any adverse opinion or
disclaimer of opinion, nor were qualified or modified as to any uncertainty,
audit scope or accounting principles, except that Tanner's auditors reports on
the Company's consolidated financial statements for the year ended December 31,
1995 contained an additional paragraph relating to the Company continuing as a
going concern, due to significant losses and a deficit in working capital.
During the Company's fiscal year ended December 31, 1995, there were no
disagreements between the Company and Tanner on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Tanner,
would have caused Tanner to make reference to the subject matter of the
disagreements in connection with its report.
No "reportable events" as described under Item 304(a)(1)(v) of Regulation
S-K occurred during the Company's fiscal year ended December 31, 1995.
Prior to engaging Price Waterhouse LLP, the Company did not consult Price
Waterhouse LLP regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-K.
The Board of Directors has selected Price Waterhouse LLP, which served as
the Company's independent auditors for the years ended December 31, 1997 and
1996, to serve as the Company's independent auditors for the year ending
December 31, 1998. The Board of Directors is submitting its selection of Price
Waterhouse LLP as the Company's independent auditors for ratification at the
Annual Meeting in order to ascertain the views of stockholders of the Company
regarding such selection. If the appointment of Price Waterhouse LLP is not
ratified, the Board of Directors will reconsider its selection and, if
practicable, retain another firm to serve as the Company's independent auditors.
The Board of Directors reserves the right to select new independent auditors at
any time which it may deem advisable or necessary.
Ratification of this proposal requires the affirmative vote of a majority
of the shares of Common Stock present in person or represented by proxy at the
Annual Meeting. Unless contrary instructions are indicated on the proxy cards,
all shares represented by valid proxies received pursuant to this solicitation
(and which have not been revoked in accordance with the procedures set forth
herein) will be voted "FOR" the ratification of the appointment of Price
Waterhouse LLP as the Company's independent auditors for the year ending
December 31, 1998.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDED DECEMBER 31, 1998.
27
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STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders who wish to present proposals appropriate for consideration at
the Company's Annual Meeting of Stockholders to be held in 1999 must submit the
proposal in proper form to the Secretary of the Company at the Company's address
set forth on the first page of this Proxy Statement not later than December 31,
1998, in order for the proposal to be considered for inclusion in the Company's
proxy statement and form of proxy relating to such annual meeting. It is
suggested that such proposal be sent by Certified Mail, Return Receipt
Requested.
OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
stockholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournment thereof, it
is the intention of the persons named in the accompanying proxy card to vote the
same in accordance with their own judgment and their discretion.
OTHER INFORMATION
A copy of the Company's 1997 Annual Report to Stockholders is being
furnished herewith to each stockholder of record as of the Record Date.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF SUCH PERSON, A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER
31, 1997. SUCH REQUEST SHOULD BE ADDRESSED TO MICHAEL D. FULLWOOD, SENIOR VICE
PRESIDENT, CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER, SECRETARY AND GENERAL
COUNSEL, COMMODORE APPLIED TECHNOLOGIES, INC., 150 EAST 58TH STREET, SUITE 3400,
NEW YORK, NEW YORK 10155.
By Order of the Board of Directors
MICHAEL D. FULLWOOD
Senior Vice President, Chief Financial and
Administrative Officer, Secretary and General Counsel
New York, New York
April 30, 1998
28
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FORM OF PROXY
COMMODORE APPLIED TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY
The undersigned, a stockholder of COMMODORE APPLIED TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), hereby appoints Paul E. Hannesson and
Michael D. Fullwood, and each of them, as proxies for the undersigned, each with
full power of substitution, and hereby authorizes them to represent and to vote,
as designated below, all of the shares of Common Stock of the Company held of
record by the undersigned at the close of business on April 27, 1998 at the
Annual Meeting of Stockholders of the Company to be held on Wednesday, June 3,
1998, at 11:00 a.m., local time, at The Links Club, 36 East 62nd Street, New
York, New York 10021, and at any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR PROPOSAL 2
SET FORTH BELOW.
1. To elect the following nominees as directors of the Company to hold office
until the Annual Meeting of Stockholders to be held in 1999, and until
their respective successors are duly elected and have qualified: Paul E.
Hannesson, Kenneth L. Adelman, Ph.D., Bentley J. Blum, Herbert A. Cohen,
David L. Mitchell, Ed L. Romero, Thomas E. Noel, Tom J. Fatjo, Jr. and
William R. Toller.
FOR ALL NOMINEES (except as marked to the contrary) WITHHOLD ALL NOMINEES
( ) ( )
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD
BE INDICATED BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE
NOMINEE.
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent auditors for the year ending December 31, 1998.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. Upon such other matters as may properly come before such Annual Meeting and
any adjournments or postponement thereof. In their discretion, the proxies
are authorized to vote upon such other business as may properly come before
the Annual Meeting and any adjournment or postponement thereof.
(See reverse side)
<PAGE>
(Continued from other side)
The undersigned hereby acknowledges receipt of (1) the Notice of Annual
Meeting for the 1998 Annual Meeting, (2) the Proxy Statement and (3) the
Company's 1997 Annual Report to Stockholders.
Dated: ______________________, 1998 _________________________________
Signature
_________________________________
Print Name
_________________________________
Signature, if Jointly Held
_________________________________
Print Name
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREIN, if signing as attorney, executor,
administrator, trustee or guardian,
indicate such capacity. All joint tenants
must sign. If a corporation, please sign
in full corporate name by president or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
The Board of Directors requests that you
fill in the date and sign the proxy and
return it in the enclosed envelope.
IF THE PROXY IS NOT DATED IN THE ABOVE
SPACE, IT IS DEEMED TO BE DATED ON THE DAY
ON WHICH IT WAS MAILED BY THE CORPORATION.
