PRELIMINARY COPIES
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:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of Commission Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMODORE APPLIED TECHNOLOGIES, INC.
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required
|X| 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:
common stock, par value $0.001 per share
2) Aggregate number of securities to which transaction applies: 24,300
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):
The filing fee of $82.27 has been calculated in accordance with Rule
0-11 under the Securities Exchange Act of 1934, as amended, and is
equal to 1/50 of 1% of $411,000 (the book value of the 24,300 shares
of common stock, par value $.10 per share, of Dispute Resolution
Management, Inc. transferred to Commodore Applied Technologies,
Inc.).
4) Proposed maximum aggregate value of transaction: $411,000.00
5) Total fee paid: $82.27
|_| Fee paid previously with preliminary materials:
|_| 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:
____________________________________________________________________
2) Form, Schedule or Registration Statement no.:
____________________________________________________________________
3) Filing Party:
____________________________________________________________________
4) Date Filed:
____________________________________________________________________
<PAGE>
PRELIMINARY COPIES
COMMODORE APPLIED TECHNOLOGIES, INC.
150 East 58th Street, Suite 3238
New York, New York 10155
October ___, 2000
Dear Commodore Stockholder:
Our Board of Directors has unanimously approved the acquisition by our
company of 81% of the issued and outstanding shares of common stock of Dispute
Resolution Management, Inc., or DRM, in exchange for 15,500,000 shares of our
common stock and warrants to purchase an aggregate of an additional 1,000,000
shares of our common stock. Our Board of Directors has also unanimously approved
a proposal to amend our certificate of incorporation to increase the number of
authorized shares of our common stock from 100,000,000 shares to 125,000,000
shares.
We have described the details of the acquisition of DRM and the reasons
for the proposed amendment to our certificate of incorporation in the
accompanying proxy statement and encourage you to read the proxy statement and
the annex to that document carefully and in their entirety before deciding how
to vote on both these matters.
We completed the DRM acquisition as of August 30, 2000 and issued a total
of 6,000,000 shares of our common stock to two DRM stockholders in connection
with the acquisition. However, under the rules of the American Stock Exchange,
we must first obtain the approval of our stockholders before the remaining
9,500,000 shares of our common stock and the warrants to purchase an aggregate
of 1,000,000 shares of our common stock may be issued. Similarly, under Delaware
law, our stockholders must approve the proposed amendment to our certificate of
incorporation. A vote "FOR" the DRM acquisition and the issuance of shares of
our common stock in connection with the DRM acquisition by at least a majority
of the votes cast in person or by proxy at the special meeting is required to
approve the DRM acquisition and the issuance of our shares. The amendment to our
certificate of incorporation to increase the authorized number of shares of our
common stock requires a vote "FOR" that proposal by the holders of at least a
majority of the outstanding shares of our common stock.
Holders of record of our common stock on October 2, 2000, the record date,
are entitled to vote at the special meeting of stockholders. Commodore
Environmental Services, Inc. and some of our other stockholders, who
collectively owned a total of approximately 58.1% of our outstanding common
stock as of October 2, 2000, have agreed to vote "FOR" the DRM acquisition and
the issuance of shares of our common stock in connection with the DRM
acquisition and "FOR" the amendment to our certificate of incorporation.
Accordingly, approval of both proposals by the holders of a majority of our
outstanding common stock is assured.
After careful consideration of a number of factors and circumstances which
are described in the attached proxy statement, our Board of Directors has
determined that the DRM acquisition and the issuance of shares of our common
stock in connection with the DRM acquisition and the increase in the number of
authorized shares of our common stock are advisable and in your best interests
and recommends that you vote "FOR" each of these proposals.
Whether or not you plan to attend the special meeting in person, and
regardless of the size of your holdings, it is important that your shares be
represented and voted. The special meeting will commence at 10:30 a.m. local
time, on November 17, 2000, at the American Stock Exchange, 86 Trinity Place,
New York, New York 10006. IN ORDER TO PROPERLY VOTE YOUR SHARES, you can attend
the special meeting in person or use the enclosed proxy card. If you plan on
voting by proxy, please complete, sign, date and return the enclosed proxy card
in the self-addressed, postage-paid envelope provided for your convenience. YOUR
VOTE IS IMPORTANT. To approve either or both proposals, you must indicate a
"FOR" vote by following the instructions appearing on the enclosed proxy card.
If you do not vote, it will count as a vote against the proposed matters.
I hope to see you at the special 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 3238
New York, New York 10155
(212) 308-5800
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held November 17, 2000, 10:30 A.M. at the
American Stock Exchange
86 Trinity Place
New York, New York 10006
----------------------------
Dear COMMODORE APPLIED TECHNOLOGIES, INC. stockholders:
We invite you to attend a special meeting of stockholders of Commodore
Applied Technologies, Inc. to be held at 10:30 a.m., local time, on Friday,
November 17, 2000, at the American Stock Exchange, 86 Trinity Place, New York,
New York 10006. The special meeting will be held for the following very
important purposes:
1. To approve the acquisition by our company of 81% of the capital stock of
Dispute Resolution Management, Inc. and the issuance of up to 16,500,000
of our shares of common stock in connection with the DRM acquisition;
2. To authorize an amendment to our company's certificate of incorporation
increasing the number of shares of common stock, par value $0.001 per
share, that we are authorized to issue from 100,000,000 shares to
125,000,000 shares; and
3. To consider and transact such other business as may properly be presented
at the special meeting or any adjournment or postponement of the special
meeting.
These items of business are described for you in detail in the attached
proxy statement. We encourage you to read these materials very carefully and in
their entirety.
Only holders of record of our common stock at the close of business on
October 2, 2000 are entitled to notice of and to vote at the special meeting or
any adjournment or postponement of the special meeting. A list of holders
eligible to vote at the special meeting will be available for inspection at the
special meeting and for a period of 10 days prior to the special meeting at
regular business hours at our principal business address indicated above.
After careful consideration of a number of factors and circumstances which
are described in the attached proxy statement, our Board of Directors has
determined that the DRM acquisition and the issuance of shares of our common
stock in connection with the DRM acquisition and the increase in the number of
authorized shares of our common stock are advisable to you and in your best
interests. Our Board of Directors has approved both proposals and recommends
that you vote "FOR" each of those proposals.
BY ORDER OF YOUR BOARD OF DIRECTORS
JAMES M. DEANGELIS
Secretary
New York, New York
October ___, 2000
--------------------------------
YOUR VOTE IS IMPORTANT
It is important that your shares be represented at the special meeting,
regardless of the number of shares you hold. Therefore, whether or not you plan
to attend the special 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 those of you who are
present at the special meeting may revoke their proxies at that time and vote in
person if you desire.
--------------------------------
<PAGE>
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MEETING.....................................
SUMMARY.....................................................................
COMMODORE APPLIED TECHNOLOGIES, INC.
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA.....................
COMPARATIVE PRICE PER SHARE DATA.........................................
THE SPECIAL MEETING.........................................................
FORWARD-LOOKING STATEMENTS..................................................
MARKET PRICES AND DIVIDEND POLICY...........................................
SELECTED FINANCIAL DATA.....................................................
COMMODORE APPLIED TECHNOLOGIES, INC. SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA ..........................................................
DRM SELECTED HISTORICAL FINANCIAL DATA ..................................
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
OF COMMODORE APPLIED TECHNOLOGIES, INC......................................
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2000.............
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET..................
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
DATA FOR THE SIX MONTHS ENDED JUNE 30, 2000 ................................
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 1999 .......................................
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ......
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COMMODORE APPLIED TECHNOLOGIES, INC............
Overview................................................................
Results of Operations...................................................
Liquidity And Capital Resources.........................................
Net Operating Loss Carryforwards........................................
Impact of Inflation.....................................................
Recent Accounting Pronouncements........................................
Year 2000 Issue.........................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF DISPUTE RESOLUTION MANAGEMENT, INC............................
Overview................................................................
Results of Operations...................................................
Liquidity and Capital Resources.........................................
Impact of Inflation.....................................................
BUSINESS OF COMMODORE APPLIED TECHNOLOGIES, INC.............................
BUSINESS OF DRM.............................................................
MANAGEMENT OF COMMODORE APPLIED TECHNOLOGIES, INC...........................
PRINCIPAL STOCKHOLDERS OF COMMODORE APPLIED TECHNOLOGIES, INC...............
PROPOSAL ONE: APPROVAL OF THE DRM ACQUISITION
AND THE ISSUANCE OF SHARES OF OUR COMMON STOCK TO DRM
AND THE FORMER DRM SHAREHOLDERS.............................................
PROPOSAL TWO: AMENDMENT TO CERTIFICATE OF INCORPORATION OF THE COMPANY.....
STOCKHOLDER PROPOSALS.......................................................
<PAGE>
OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING......................
WHERE YOU CAN FIND MORE INFORMATION.........................................
INDEX TO FINANCIAL STATEMENTS...............................................
ANNEX I.....................................................................
<PAGE>
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QUESTIONS AND ANSWERS ABOUT THE MEETING
1. Q: What is the time and place of the special meeting:?
A: The special meeting will be held at 10:30 a.m., local time, at the
American Stock Exchange, 86 Trinity Place, New York, New York 10006, on November
17, 2000.
2. Q: Who may be present at the special meeting and who may vote?
A: All holders of our common stock and other interested persons may
attend the special meeting in person. However, only stockholders of record as at
October 2, 2000 may cast their vote in person or by proxy at the special
meeting.
3. Q: What is the vote required?
A: Approval of the DRM acquisition and the issuance of shares of our
common stock in connection with the DRM acquisition requires the affirmative
vote of a majority of the votes cast on the proposal in person or by proxy at
the special meeting. Approval of the increase in the number of authorized shares
of our common stock from 100,000,000 shares to 125,000,000 shares requires the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock. Each holder of shares of our common stock on the October 2, 2000
record date is entitled to cast one vote for each share of our common stock
registered in his, her or its name.
4. Q: Who is soliciting my proxy?
A: The Board of Directors of Commodore Applied Technologies, Inc.
5. Q: What am I being asked to vote on?
A: You are being asked to vote to approve two matters; the first is our
company's acquisition of 81% of the issued and outstanding shares of DRM and the
issuance of up to 16,500,000 shares of our common stock in connection with the
DRM acquisition, and the second is an amendment to our certificate of
incorporation increasing the total number of authorized shares of our common
stock from 100,000,000 shares to 125,000,000 shares.
6. Q: Who is Dispute Resolution Management, Inc.?
A: DRM is an international consulting firm providing services in
connection with the settlement of complex insurance claims and disputes,
involving environmental, asbestos, products liability and other matters. DRM
represents policyholders, typically large multi-national corporations, in the
non-litigated resolution of large insurance claims. DRM facilitates the
settlement of claims by utilizing a series of proprietary systems to perform
insurance policy archeology, policy coverage analysis and prioritization, claim
documentation, coverage trigger allocation, settlement value targeting, risk
allocation modeling and settlement structuring and documentation. DRM commits to
manage the entire settlement process, typically in exchange for a monthly
retainer and a percentage success fee payable when the insurers enter into a
settlement agreement with the DRM client. Prior to our acquisition of 81% of
DRM, it was wholly-owned by William J. Russell and Tamie P. Speciale.
7. Q: Is DRM profitable?
A: For its fiscal year ended December 31, 1999, DRM earned before
income taxes and minority interest approximately $4.3 million, or approximately
$2.98 million following the termination of a minority interest, on revenues of
approximately $6.4 million. DRM's pretax earnings and revenues for the six
months ended June 30, 2000 were approximately $2.3 million and $3.7 million,
respectively.
8. Q: What are the principal terms of the DRM acquisition?
A: Effective as of August 30, 2000, we acquired 81% of the outstanding
shares of DRM common stock. Under the terms of our agreements with Mr. Russell
and Ms. Speciale, the individuals who held all of the outstanding shares of DRM
capital stock prior to our acquisition:
o As consideration for our acquisition of 81% of the outstanding shares of DRM
capital stock, we agreed to issue a total of 10,500,000 shares of our common
stock to Mr. Russell and Ms. Speciale, and to DRM for distribution to certain
key employees of
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DRM and a third party. However, up to 9,500,000 of these 10,500,000 shares are
subject to our option to repurchase any or all of these 9,500,000 shares at a
price equal to the greater of $1.50 per share or 65% of the average closing
price per share of our common stock for the three trading days immediately prior
to our exercise of this option. This repurchase option commenced as of August
30, 2000 and expires on August 29, 2001. We have the right to assign this
repurchase option to any third party who provides us with the funds necessary to
pay the option price.
o We agreed to issue to Mr. Russell, Ms. Speciale and a key employee of DRM
five-year warrants to purchase an aggregate of up to 1,000,000 shares of our
common stock at an exercise price of $2.00 per share.
o Mr. Russell and Ms. Speciale will be entitled to receive quarterly earnout
distributions equal to 35% of the cash flow of DRM over an earnout period
commencing as of September 1, 2000 and ending December 31, 2005. The aggregate
total of these earnout distributions is not to exceed approximately $37.1
million. We also agreed that if DRM has not distributed to Mr. Russell and Ms.
Speciale a total of $10.0 million in cash in earnout payments by December 31,
2003, we will be liable to make up any short-fall in an amount equal to the
difference between $10.0 million and the actual cash distributed to them
pursuant to these payments. We can satisfy this short-fall liability through
either a cash payment or, at our sole option, by issuing to Mr. Russell and Ms.
Speciale additional shares of our common stock valued at the market price of our
shares at the time of issuance. If this obligation requires us to issue more
than 2,000,000 shares of our common stock, we have the right to defer the
issuance of any shares in excess of 2,000,000 shares to December 31, 2005, based
on the market price at that later date.
o We also agreed to issue to Mr. Russell and Ms. Speciale an additional
5,000,000 shares of our common stock in exchange for our option to purchase
their remaining 19% equity interest in DRM. We can exercise this option over a
five-year period, commencing January 2006. If and when we exercise this option,
the option price will be based upon an independent appraisal of the value of the
business of DRM as compared to the consolidated appraised value of our company
as a whole, including DRM, and will be paid to Mr. Russell and Ms. Speciale in
additional shares of our common stock, based on the market value of our common
stock at that time.
o We have an absolute obligation to repurchase by August 30, 2001 up to
9,500,000 shares of our common stock from Mr. Russell and Ms. Speciale so as to
provide them with a total of $14.5 million in cash, less any proceeds previously
received by them from the exercise of our repurchase option. The price at which
we will be required to repurchase these shares will be equal to the greater of
$1.50 per share or 65% of the average closing price per share of our common
stock for the three trading days immediately prior to our repurchase.
o Mr. Russell and Ms. Speciale have agreed that until September 30, 2001 they
will not sell any of the shares of our common stock which they have received or
may receive pursuant to the stock purchase agreement. However, they can
terminate our repurchase option, and their agreement not to sell any of our
shares of common stock which they have received or may receive in the
transaction, at any time prior to August 30, 2001; provided, that if they do so,
our obligation to repurchase from them a number of shares of our common stock as
ensures their overall receipt from us of $14.5 million in cash will also
terminate.
o To secure our commitment to obtain final stockholder approval of the DRM
acquisition by no later than December 1, 2000, and to secure our $14.5 million
repurchase obligation and certain other covenants we made under the stock
purchase agreement, we have pledged to Mr. Russell and Ms. Speciale our entire
81% equity interest in DRM. If final stockholder approval is timely obtained and
we satisfy by September 29, 2001 our
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$14.5 million repurchase obligation (or this obligation is waived), then 50% of
the pledged equity will be released to us from this pledge. Our pledge of the
balance of our equity interest in DRM will terminate at such time as we pay or
issue, as the case may be, to Mr. Russell and Ms. Speciale through the quarter
ending December 1, 2003, pursuant to the cash earnout and any short-fall
liability, a total of either $10.0 million in cash, a number of shares of our
common stock equal to $10.0 million or any combination of cash or shares of our
common stock equal to $10.0 million.
o In the event that by September 29, 2001 we are unable to fully discharge our
$14.5 million repurchase obligation, then Mr. Russell and Ms. Speciale (acting
on their own behalf and on behalf of certain other parties) may foreclose on all
of the shares of DRM capital stock that we recently purchased. They may also
retain, as liquidated damages, a number of shares of our common stock equal to
1,000,000 plus 50% of the difference between 9,500,000 and the number of shares
of our common stock that we arranged to purchase prior to September 30, 2001
under our purchase option. In addition, Mr. Russell and Ms. Speciale may retain
the 5,000,000 shares of our common stock we issued to them in consideration for
our option to acquire from them the remaining 19% equity interest in DRM, and
they, in conjunction with the other holder of warrants to purchase an aggregate
of up to 1,000,000 shares of our common stock granted in connection with this
acquisition, may retain these warrants. Accordingly, if we default on our $14.5
million repurchase obligation, we would be subject to losing all of our equity
interest in DRM, as well as forfeiting up to an aggregate of 10,750,000 shares
of our common stock.
o We have agreed to register for resale under the Securities Act of 1933, as
amended, the 15,500,000 shares of common stock that have been or may be issued
in connection with the DRM acquisition, as well as the 1,000,000 shares of our
common stock that underlie the warrants that were issued in connection with the
DRM transaction.
o Mr. Russell and Ms. Speciale entered into five-year employment agreements with
DRM and executed five-year non-competition agreements with DRM and our company.
o We completed the closing of the DRM acquisition effective as of August 30,
2000. Although both Commodore Environmental Services, Inc. and Paul E. Hannesson
and members of his family, as holders of in excess of 50% of the 32,800,000
outstanding shares of our common stock at the effective date of the closing,
consented to the acquisition and related transactions, at closing only 6,000,000
shares of our common stock were issued. In accordance with the rules of the
American Stock Exchange, the remaining 9,500,000 shares of our common stock to
be issued in connection with the DRM acquisition, and the warrants to purchase
an aggregate of an additional 1,000,000 shares of our common stock which we
granted, may only be issued after the increase in the number of authorized
shares of our common stock has been approved by the holders of a majority of our
outstanding common stock at a special meeting of our stockholders held in
accordance with the proxy rules under the Securities Exchange Act of 1934, as
amended.
9. Q: Does our company have the funds to exercise its purchase option or meet
its financial obligations to the DRM stockholders if they demand payment in cash
for a portion of their shares of our common stock?
A: At the present time, we do not have the necessary funds to fulfill
our repurchase obligation nor do we have any offers or commitments for those
funds. There is no assurance that we can obtain outside financing on
commercially attractive terms, if at all.
10. Q: What happens if the matters submitted for vote at the special meeting
are not approved by our stockholders at the special meeting?
A: Under the terms of our agreements, the DRM stock we acquired will
revert back to Mr. Russell and Ms. Speciale, and they will be entitled to
receive, as liquidated damages, reimbursement for their out-of-pocket expenses.
Also, they will be
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entitled to retain all of the 6,000,000 shares of our common stock that we
issued to them at the closing.
11. Q: What happens if we are unable to raise financing in an amount
sufficient to exercise our repurchase option or pay all or any portion of the
$14.5 million obligation owed to Mr. Russell and Ms. Speciale at the expiration
of our option period?
A: Under the terms of our pledge agreement, if the payment is not made by
September 29, 2001, then Mr. Russell and Ms. Speciale may foreclose on the
pledged stock and reacquire all of the DRM shares we purchased at closing, and
they may retain as much as 10,750,000 of the 16,500,000 shares of our common
stock issued to them in the transaction.
12. Q: What is the recommendation of our Board of Directors regarding the DRM
acquisition?
A: Our Board of Directors believes that the purchase price for acquiring
DRM was fair and on commercially attractive terms to our company. In addition,
after careful consideration of a number of factors, including the current status
of the securities markets and prevailing prices of our publicly traded common
stock, our Board of Directors has determined that the benefits of the DRM
acquisition, including our access to 65% of the anticipated significant cash
flow from the DRM business, outweighed the risk of dilution to our stockholders
in the event we are unable to finance our repurchase obligations to the DRM
stockholders.
Accordingly, our Board of Directors has determined that the DRM acquisition is
advisable and in your best interests. Our Board of Directors has therefore
approved the DRM acquisition and the issuance of shares of our common stock in
connection with the DRM acquisition and recommends that you vote "FOR" approval
of this matter.
13. Q: What is the recommendation of our Board of Directors regarding the
proposal to increase the number of authorized shares of our common stock?
A: Our Board of Directors believes that an increase in the number of
authorized shares of our common stock is advisable and in your best interests.
There are currently approximately 38,500,000 of our shares of common stock
outstanding; if all outstanding options, warrants and other securities
convertible into shares of our common stock were exercised or converted,
however, we would have approximately 90,700,000 shares outstanding. In view of
the fact that we may require additional funds for working capital and to finance
obligations incurred in connection with the DRM acquisition, and also may wish
to consider other acquisitions or strategic opportunities, we may require
additional shares of our common stock to be available for those purposes. The
authorization of an additional 25,000,000 shares would give our Board of
Directors flexibility to rapidly respond to available capital and acquisition
opportunities that may arise in the future.
Accordingly, our Board of Directors has determined that the proposed increase in
the number of authorized shares of our common stock is advisable and in your
best interests. Our Board of Directors has therefore approved the proposal to
increase the number of authorized shares of our common stock and recommends
that you vote "FOR" approval of this proposal.
14. Q: What do I need to do now?
A: Please sign, date and complete your proxy card and promptly return it
in the enclosed, self addressed, prepaid envelope so that your shares of our
common stock can be represented at the special meeting.
15. Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares for you ONLY if you instruct your
broker how to vote for you. Your broker should mail information to you that will
explain how to give these instructions.
16. Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. Just send by mail a written revocation or a later-dated, completed
and signed proxy card before the special meeting or simply attend the special
meeting and vote in person. You may not change your vote by facsimile or
telephone.
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17. Q: What if I don't send back a proxy card or vote my shares in person at the
special meeting?
A: If you don't return your proxy card or vote your shares in person at
the special meeting, each of those shares will be treated as a vote against each
of the proposals presented at the special meeting.
18. Q: Will I have appraisal rights if I do not approve of the DRM transaction?
A: No. You will not have any right to dissent from the DRM acquisition and
receive a value for your shares of our common stock as determined by a court.
19. Q: Is there any risk that the DRM acquisition will not be approved at the
special meeting?
A: No, unless litigation is commenced to enjoin the special meeting and
the plaintiff ultimately prevails in terminating the DRM acquisition. Since
holders of approximately 58.1% of the outstanding shares of our common stock
entitled to vote at the special meeting have already agreed and issued
irrevocable proxies to vote "FOR" the DRM acquisition approval of this matter is
assured.
20. Q: How will I know if the DRM acquisition has been approved?
A: We will make a public announcement.
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SUMMARY
The following summary highlights selected information from this proxy
statement and may not contain all of the information that is important to you.
To better understand and for a more complete description of the DRM acquisition
and the proposed matters on which you will vote, you should carefully read this
entire document and the documents to which we have referred you. See "Where You
Can Find More Information" on page 50. We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary.
The Companies (see pages ___-___)
Commodore Applied Technologies, Inc.
150 East 58th Street, Suite 3238
New York, New York 10155
(212) 308-5800
We are an environmental treatment and services company which, through our
operating subsidiaries, provides a range of technologies and services directed
principally at remediating contamination in soils and other materials,
protecting the integrity of water and air and disposing or reusing certain waste
by-products through development of inert and environmentally sound technologies.
We believe we provide the only patented, non-thermal, portable and scalable
process, known as SET (solvated electron technology), for treating and
decontaminating soils and other materials containing PCBs, pesticides, dioxins
and other toxic contaminants. We also provide a full range of services related
to on-site waste containment, management of on-site and off-site remediation,
waste removal using environmentally safe methods, and engineering and technical
services in connection with environment waste management and waste minimization.
Dispute Resolution Management, Inc.
39 Exchange Place, Suite 30
Salt Lake City, Utah 84111
(801) 355-1444
DRM is an international consulting firm that provides services in
connection with the settlement of complex, long-tail and latent insurance claims
and disputes involving environmental, asbestos, products liability and other
matters. DRM represents policyholders, typically large multi-national
corporations, in the non-litigated resolution of large insurance claims, and
facilitates the settlement of claims by utilizing a series of proprietary
systems to perform insurance policy archeology, policy coverage analysis and
prioritization, claim documentation, coverage trigger allocation, settlement
value targeting, risk allocation modeling and settlement structuring and
documentation.
Our reasons for the transactions (see pages ___-___)
Our Board of Directors believes that acquiring DRM has strengthened us in
many ways, and has identified various benefits that we believe are likely to
result from our acquisition of DRM. Some of these anticipated benefits include:
o Our access to 65% of DRM's cash flow, which will provide us with immediate
liquidity and is anticipated to serve as collateral for any of our future
financings;
o diversification of our client base across a broad range of governmental and
private industries;
o access to professionals with experience negotiating insurance claim
settlements large-dollar;
o Our acquisition of a client list of satisfied, large multinational customers
and a portfolio of products and services with significant cross-selling
potential;
o Our ability to offer our clients comprehensive solutions to environmental
problems and a complementary array of international teaming and partnering
arrangements;
o Our ability to market ourselves as a "one stop" multi-disciplinary team with
technical, engineering, financial, legal and insurance expertise; and
o Our enhanced ability to identify properties suitable for environmental cleanup
and remediation.
These and other reasons identified by our Board of Directors for approving
the DRM acquisition and for recommending that our
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stockholders approve the DRM acquisition and the issuance of shares of our stock
in connection with the DRM acquisition are explained in greater detail on pages
___ through ___ of this proxy statement.
Considerations of Our Board of Directors (see page ___)
Our Board of Directors has determined that the DRM acquisition and related
transactions are advisable and in your best interests, and has unanimously
approved the DRM acquisition and the issuance of up to 16,500,000 shares of our
common stock in connection with the DRM acquisition and the amendment to our
certificate of incorporation. We believe the DRM acquisition represents a
significant step in our strategic plan to enhance stockholder value. In
considering the DRM acquisition, our Board of Directors carefully considered a
number of relevant factors, both positive and negative. These included:
o The historical earnings and cash flows of DRM;
o DRM's access to and professional relationships with a number of industrial
companies who could benefit from the use of our technologies;
o delays we continue to face in commercializing our SET technologies and
generating meaningful positive cash flows;
o our need for additional working capital and liquidity;
o the current depressed state of the equity capital markets; and
o DRM's perceived ability to assist us in marketing our current hazardous waste
remediation technologies, and augment our business portfolio to include
expertise in the area of commercial environmental insurance recovery.
The Special Meeting (see pages ___-___)
The special meeting of our stockholders will be held at the American Stock
Exchange, 86 Trinity Place, New York, New York on November 17, 2000 at 10:30
a.m., local time.
At the special meeting, our common stockholders will be asked to:
o Approve the acquisition by our company of 81% of the capital stock of Dispute
Resolution Management, Inc. and the issuance of up to 16,500,000 of our shares
of common stock in connection with the DRM acquisition; and
o Authorize an amendment to our company's certificate of incorporation
increasing the number of shares of common stock, par value $0.001 per share,
that we are authorized to issue from 100,000,000 shares to 125,000,000 shares.
Each share of our common stock outstanding as of October 2, 2000 is
entitled to one vote at the special meeting.
Holders of our common stock, including Mr. Russell and Ms. Speciale, who,
in the aggregate, represented in excess of 50% of our outstanding common stock
as of August 30, 2000, agreed to vote all of their shares in favor of both
proposals.
Accordingly, adoption of each of the proposals at the special meeting is
assured.
Recommendations to Stockholders (see page ___)
Our Board of Directors believes that the DRM acquisition and the issuance
of up to 16,500,000 shares of our common stock in connection with the DRM
acquisition and the increase in the number of authorized shares of our common
stock are advisable and in your best interests and recommends that you vote
"FOR" each of the proposals at the special meeting.
Stockholder Votes Required (see page ___)
o To approve the DRM acquisition and our issuance of up to 16,500,000 shares of
our common stock in connection with the DRM acquisition, the holders of at least
a majority of the shares of our common stock present in person or represented by
proxy at the special meeting must vote in favor of the proposal.
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o The holders of at least a majority of the outstanding shares of our common
stock must vote in favor of the proposal to authorize an amendment to our
certificate of incorporation increasing the number of authorized shares of our
common stock from 100,000,000 shares to 125,000,000 shares.
Holders of approximately 58.1% of the outstanding shares of our common
stock as of October 2, 2000, have agreed to vote in favor of the DRM acquisition
and the issuance of up to 16,500,000 shares of our common stock in connection
with the DRM acquisition and the increase in the number of authorized shares of
our common stock from 100,000,000 shares to 125,000,000 shares. Accordingly,
adoption of each of the proposals at the special meeting is assured.
The DRM Acquisition (see pages ___-___)
Effective as of August 30, 2000, we acquired 81% of the outstanding shares
of DRM common stock. Under the terms of our agreements with Mr. Russell and Ms.
Speciale, the sole stockholders of DRM capital stock:
The Exchange of Stock (see page ___)
o As consideration for our acquisition of 81% of the outstanding shares of DRM
capital stock, we agreed to issue a total of 10,500,000 shares of our common
stock to Mr. Russell and Ms. Speciale, and to DRM for distribution to certain
key employees of DRM and a third party. However, up to 9,500,000 of these
10,500,000 shares are subject to our option to repurchase any or all of these
9,500,000 shares at a price equal to the greater of $1.50 per share or 65% of
the average closing price per share of our common stock for the three trading
days immediately prior to our exercise of this option. This repurchase option
commenced as of August 30, 2000 and expires on August 29, 2001. We have the
right to assign this repurchase option to any third party who provides us with
the funds necessary to pay the option price.
The Warrants (see page ___)
o We agreed to issue to Mr. Russell, Ms. Speciale and a key employee of DRM
five-year warrants to purchase an aggregate of up to 1,000,000 shares of our
common stock at an exercise price of $2.00 per share.
The Cash Earnout (see page ___)
o Mr. Russell and Ms. Speciale will be entitled to receive quarterly earnout
distributions equal to 35% of the cash flow of DRM over an earnout period
commencing as of September 1, 2000 and ending December 31, 2005. The aggregate
total of these earnout distributions is not to exceed approximately $37.1
million. We also agreed that if DRM has not distributed to Mr. Russell and Ms.
Speciale a total of $10.0 million in cash in earnout payments by December 31,
2003, we will be liable to make up any short-fall in an amount equal to the
difference between $10.0 million and the actual cash distributed to them
pursuant to these payments. We can satisfy this short-fall liability through
either a cash payment or, at our sole option, by issuing to Mr. Russell and Ms.
Speciale additional shares of our common stock valued at the market price of our
shares at the time of issuance. If this obligation requires us to issue more
than 2,000,000 shares of our common stock, we have the right to defer the
issuance of any shares in excess of 2,000,000 shares to December 31, 2005, based
on the market price at that later date.
Our Option to Purchase the Minority Interest (see page ___)
o We also agreed to issue to Mr. Russell and Ms. Speciale an additional
5,000,000 shares of our common stock in exchange for our obtaining an option to
purchase their remaining 19% equity interest in DRM. We can exercise this option
over a five-year period, commencing January 2006. If and when we exercise this
option, the option price will be based upon an independent appraisal of the
value of the business of DRM as compared to the consolidated appraised value of
our company as a whole, including DRM, and will be paid to Mr. Russell and Ms.
Speciale in additional shares of our common stock, based on the market value of
our common stock at that time.
The Repurchase Obligation (see page ___)
o We have an absolute obligation to repurchase by August 30, 2001 up to
9,500,000 shares of our common stock from Mr. Russell and Ms. Speciale so as to
provide them with a total of $14.5 million in cash, less any proceeds previously
received by them from the exercise of our repurchase option. The price at which
we will be required to repurchase these shares will be equal to the greater of
$1.50 per share or 65% of the average closing price per share of our common
stock for the three trading days immediately prior to our repurchase.
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The Lockup (see page ___)
o Mr. Russell and Ms. Speciale have agreed that until September 30, 2001 they
will not sell any of the shares of our common stock which they have received or
may receive pursuant to the stock purchase agreement. However, they can
terminate our repurchase option, and their agreement not to sell any of our
shares of common stock which they have received or may receive in the
transaction, at any time prior to August 30, 2001; provided, that if they do so,
our obligation to repurchase from them a number of shares of our common stock as
ensures their overall receipt from us of $14.5 million in cash will also
terminate.
The Pledge (see page ___)
o To secure our commitment to obtain final stockholder approval of the DRM
acquisition by not later than December 1, 2000 and the issuance of shares of our
common stock in connection with the DRM acquisition, and to secure our $14.5
million repurchase obligation and certain other covenants we made under the
stock purchase agreement, we have pledged to Mr. Russell and Ms. Speciale our
entire 81% equity interest in DRM. If final stockholder approval of the DRM
acquisition and the issuance of up to 16,500,000 shares of our common stock in
connection with the DRM acquisition is timely obtained, and we satisfy by
September 29, 2001 our $14.5 million repurchase obligation (or this obligation
is waived), then 50% of the pledged equity will be released to us from this
pledge. Our pledge of the balance of our equity interest in DRM will terminate
at such time as we pay or issue, as the case may be, to Mr. Russell and Ms.
Speciale through the quarter ending December 1, 2003, pursuant to the cash
earnout and any short-fall liability, a total of either $10.0 million in cash, a
number of shares of our common stock equal to $10.0 million or any combination
of cash or shares of our common stock equal to $10.0 million.
o In the event that by September 29, 2001 we are unable to fully discharge our
$14.5 million repurchase obligation to DRM and the DRM stockholders, then Mr.
Russell and Ms. Speciale (acting on their own behalf and on behalf of certain
other parties) may foreclose on all of the shares of DRM capital stock that we
recently purchased. They may also retain, as liquidated damages, a number of
shares of our common stock equal to 1,000,000 plus 50% of the difference between
9,500,000 and the number of shares of our common stock that we purchased or
arranged to have purchased from the DRM stockholders, prior to September 29,
2001, under our purchase option. In addition, Mr. Russell and Ms. Speciale may
retain the 5,000,000 shares of our common stock which we issued to them in
consideration for our option to acquire from them the remaining 19% equity
interest in DRM, and they, in conjunction with the other holder of warrants to
purchase an aggregate of 1,000,000 shares of our common stock granted in
connection with this acquisition, may retain these warrants. Accordingly, if we
default on our $14.5 million repurchase obligation, we would be subject to
losing all of our equity interest in DRM capital stock as well as forfeiting up
to an aggregate of 10,750,000 shares of our common stock.
Registration Rights (see page ___)
o We have agreed to register for resale under the Securities Act of 1933, as
amended, the 15,500,000 shares of common stock that have been and may be issued
in connection with the DRM acquisition, as well as the 1,000,000 shares of our
common stock that underlie the warrants to purchase shares of our common stock
that were issued in connection with the DRM transaction.
The Employment Agreements (see page ___)
o Mr. Russell and Ms. Speciale entered into five-year employment agreements with
DRM and executed five-year non-competition agreements with DRM and our company.
Federal Income Tax Consequences of the DRM acquisition (see page ___)
As a stockholder of our company, you will not incur any federal income tax
as a consequence of our acquisition of 81% of the outstanding shares of DRM
capital stock.
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Accounting Treatment (see page ___)
We intend to treat our purchase of 81% of the outstanding shares of DRM
capital stock as a purchase for financial reporting purposes. This means that
the assets and results of operations of DRM will be included on our financial
statements, along with our assets and results of operations, as of August 30,
2000, the date the purchase was completed. It also means we will value the
assets acquired at their relative fair values based upon the average market
value of our common stock received by DRM and the DRM stockholders in connection
with the DRM acquisition.
Appraisal Rights (see page ___)
Under Delaware law, you as a stockholder of our company do not have the
right to an appraisal of your shares of our capital stock in connection with the
DRM acquisition.
Comparative Market Price Information (see page ___)
Shares of our common stock are listed on the American Stock Exchange. On
August 10, 2000, the last full trading day prior to the public announcement of
the proposed transactions, the last reported sale price of our common stock was
$1.06 per share.
On October 13, 2000, the most recent practicable date prior to the filing
of this Proxy Statement, the last sale price for our common stock as reported by
the American Stock Exchange was $0.75 per share. Stock prices can fluctuate
dramatically, however; so we urge you to obtain current market quotations for
our common stock.
Listing of Our Common Stock (see page ___)
We will apply to the American Stock Exchange to list all 16,500,000 shares
of our common stock distributed or to be distributed in connection with the DRM
acquisition in the near future.
Forward-Looking Statements May Prove Inaccurate (see page ___)
We have made forward-looking statements in this Proxy Statement that are
subject to risks and uncertainties. Forward-looking statements include the
information concerning strategies, objectives, expectations and intentions of
our company and DRM and trends affecting the financial condition, future results
of operations and the adequacy of resources of the companies. Also, when we use
words such as "believes," "expects," "anticipates" or similar expressions, we
are making forward-looking statements. You should note that many factors could
affect the future financial results of our company and DRM, and could cause
these results to differ materially from those expressed in our forward-looking
statements.
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COMMODORE APPLIED TECHNOLOGIES, INC.
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
(in thousands, except per share data)
The following summary pro forma condensed financial data should be read in
conjunction with the unaudited pro forma condensed consolidated financial
statements included in this proxy statement. The pro forma condensed financial
data is not necessarily indicative of the operating results that would have been
achieved had the DRM acquisition been effective during the periods presented or
the results that would have been achieved had the DRM acquisition been effective
during the periods presented or the results that may be obtained in the future.
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
----------------- ----------------
Statement of Operations Data:
Net revenues........................... $24,585 $12,559
Net (loss)............................. (4,457) (1,288)
Net (loss) per share................... (0.11) (0.03)
Cash dividends per share............... 0 0
Balance Sheet Data:
Working capital........................ ($12,420)
Total assets........................... 43,539
Long-term debt (less current portion).. 7,759
Stockholders' equity................... 17,639
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COMPARATIVE PRICE PER SHARE DATA
We have set forth below certain selected (i) historical per share data of
our company and DRM, (ii) pro forma per share data for these companies giving
effect to the DRM acquisition, and (iii) pro forma per share data for DRM giving
effect to a pro forma provision for income taxes. DRM did not make any
provisions for income taxes because tax returns were filed annually and income
taxes on earnings were paid by the stockholders and stockholders of DRM as
specified in the Internal Revenue Code for S Corporations and Partnerships.
Historical DRM numbers were use in the preparation of pro forma numbers for the
purchase of DRM capital stock because we have significant net operating loss
carryforwards for income tax purposes which would have offset any income taxes
payable by DRM.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
----------------- ------------------
Commodore DRM Commodore DRM
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Historical:
Income (loss) per basic & diluted share ($0.16) $99.25 ($0.06) $75.70
Book value per share ................... 0.32 26.65 0.31 84.04
Cash dividends per share ............... 0.00 95.76 0.00 18.32
DRM Pro Forma:
Income (loss) per basic & diluted share N/A 46.18 N/A 60.55
Book value per share ................... N/A (12.06) N/A 54.51
Cash dividends per share ............... N/A 95.76 N/A 18.32
Pro Forma:
Income (loss) per basic & diluted share (0.08) (0.04) (0.02) (0.01)
Book value per share ................... N/A N/A 0.25 0.12
Cash dividends per share ............... 0.00 0.00 0.00 0.00
</TABLE>
Pro forma information was computed by allocating the income, book value
and cash dividends per share in total to our company and DRM based on the
exchange ratio of the relative ownership resulting from the DRM acquisition. Pro
forma book value per share for either of the two companies was not available for
the year ended December 31, 1999.
Shares of our common stock are listed on the American Stock Exchange. On
August 10, 2000, the last full trading day prior to the public announcement of
the proposed transactions, the last reported sale price of our common stock was
$1.06 per share.
On October 13, 2000, the most recent practicable date prior to the filing
of this proxy statement, the last sale price for our common stock as reported by
the American Stock Exchange was $0.75 per share. Stock prices can fluctuate
dramatically, however, so we urge you to obtain current market quotations for
our common stock.
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<PAGE>
THE SPECIAL MEETING
General
This proxy statement is being furnished in connection with the
solicitation of proxies by our Board of Directors for use at the special meeting
of our stockholders. This proxy statement, the attached notice of stockholders'
meeting and the enclosed form of proxy are first being mailed to you as a
stockholder of our company on or about October 30, 2000.
Matters to Be Considered at the Special Meeting
At the special meeting, our stockholders will be asked to consider and
vote on the following proposals:
o To approve the acquisition by our company of 81% of the capital
stock of Dispute Resolution Management, Inc. and the issuance of up
to 16,500,000 of our shares of common stock in connection with the
DRM acquisition; and
o To authorize an amendment to our company's certificate of
incorporation increasing the number of shares of common stock, par
value $0.001 per share, that we are authorized to issue from
100,000,000 shares to 125,000,000 shares.
After careful consideration, our Board of Directors has unanimously
determined that the DRM acquisition and the issuance of up to 16,500,000 shares
of our common stock in connection with the DRM acquisition, and the increase in
the number of authorized shares of our common stock from 100,000,000 shares to
125,000,000 shares is advisable and in your best interests. Our Board of
Directors has unanimously approved the DRM acquisition and the issuance of up to
16,500,000 shares of our common stock in connection with the DRM acquisition,
and the increase in the number of authorized shares of our common stock from
100,000,000 shares to 125,000,000 shares and unanimously recommends that our
stockholders vote to approve and adopt these matters at the special meeting.
Voting and Proxies
Our Board of Directors has fixed the close of business on October 2, 2000
as the record date for determining which of our stockholders are entitled to
notice of, and to vote at, the special meeting. At that date, there were
outstanding 38,526,172 shares of our common stock. Each holder of our common
stock will be entitled to one vote per share on each matter submitted to the
special meeting. We do not have outstanding voting securities other than our
common stock.
The special meeting of our stockholders will be held at the American Stock
Exchange, 86 Trinity Place, New York, New York on November 17, 2000 at 10:30
a.m., local time.
The presence at the special meeting, in person or by proxy, of the holders
of a majority of the shares of our common stock entitled to vote constitutes a
quorum for the transaction of business at the special meeting. If a quorum is
not present, the special meeting may be adjourned from time to time until a
quorum is obtained. Assuming a quorum is present, then:
o To approve the DRM acquisition and our issuance of up to 16,500,000
shares of our common stock in connection with the DRM acquisition,
the holders of at least a majority of the shares of our common stock
present in person or represented by proxy at the special meeting
must vote in favor of the proposal.
o The holders of at least a majority of the outstanding shares of our
common stock must vote in favor of the proposal to amend to our
certificate of incorporation to increase the number of authorized
shares of our common stock from 100,000,000 shares to 125,000,000
shares.
Holders of approximately 58.1% of the outstanding shares of our common
stock as of October 2, 2000, including Mr. Russell and Ms. Speciale, have agreed
to vote in favor of the DRM acquisition and the issuance of up to 16,500,000
shares of our common stock in connection with the DRM acquisition, and in favor
of the increase in the number of authorized shares of our common stock. As a
result, adoption of these proposals at the special meeting is assured.
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If your shares of our common stock are represented by properly executed
proxies, then they will, unless you revoke your proxy, be voted in accordance
with your instructions indicated on the proxies. If you do not complete and
return your proxy, then your shares of our common stock will be counted as votes
against the matters submitted for vote.
You may revoke any proxy you give if, at any time prior to your shares of
our common stock being voted, you file a notice of revocation, or a duly
executed proxy bearing a later date, with the secretary of our company at the
address given on the notice of stockholders' meeting accompanying this proxy
statement. You may also revoke your proxy by attending the special meeting and
voting in person. A notice of revocation need not be on any specific form. If
you abstain from voting on the matters submitted for vote by properly marking
the "ABSTAIN" box on the proxy, then your shares of our common stock will be
counted as present for the purpose of determining the existence of a quorum.
Under the rules of the National Association of Securities Dealers, Inc.,
while brokers who hold your shares of our common stock in street name have the
authority to vote on certain items when they have not received instructions from
you as the beneficial owner of our common stock, they cannot vote on the matters
we have submitted for vote without instructions from you. If you do not give
your broker proper instructions on how to vote your shares of our common stock
but your broker is present, in person or by proxy, at the special meeting, then
your shares of our common stock will be counted as present for quorum purposes
but will be treated as a neither a vote for nor as a vote against the adoption
of the matters submitted for vote at the special meeting.
Our principal accountants for the current year and for the most recently
completed fiscal year are not expected to be present at the special meeting and
they will not have the opportunity to make a statement. They are also not
expected to be available to respond to appropriate questions from our
stockholders.
Solicitation of Proxies
Your proxy is being solicited by and on behalf of our Board of Directors.
We will incur all expenses related to printing, filing and mailing the proxy
statement and all the Securities and Exchange Commission and other regulatory
filing fees incurred in connection with the proxy statement. In addition to
soliciting proxies by mail, our officers, directors, and employees, without
receiving additional compensation, may solicit proxies by telephone, telegraph,
in person or by other means. We have also made arrangement with brokerage firms
and other custodians, nominees and fiduciaries to forward proxy solicitation
material to the beneficial owners of our common stock which they hold, and we
will reimburse them for the reasonable expenses they incur in forwarding those
materials.
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FORWARD-LOOKING STATEMENTS
Certain matters discussed in this proxy statement are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act of 1934, as amended. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as we "believe," "anticipate," "expect" or
words of similar import. Similarly, statements that describe our future plans,
objectives or goals are also forward-looking statements. Such statements may
address future events and conditions concerning, among other things, our results
of operations and financial condition; the consummation of acquisition and
financing transactions and the effect thereof on our business; capital
expenditures; litigation; regulatory matters; and our plans and objectives for
future operations and expansion. Any such forward-looking statements would be
subject to the risks and uncertainties that could cause actual results of
operations, financial condition, acquisitions, financing transactions,
operations, expenditures, expansion and other events to differ materially from
those expressed or implied in such forward-looking statements. Any such
forward-looking statements would be subject to a number of assumptions
regarding, among other things, future economic, competitive and market
conditions generally. Such assumptions would be based on facts and conditions as
they exist at the time such statements are made as well as predictions as to
future facts and conditions, the accurate prediction of which may be difficult
and involve the assessment of events beyond our control. Further, our business
is subject to a number of risks that would affect any such forward-looking
statements. These risks and uncertainties include, but are not limited to, our
ability to commercialize our technology; product demand and industry pricing;
our ability to obtain patent protection for our technology; developments in
environmental legislation and regulation; our ability to obtain future financing
on favorable terms; and other circumstances affecting anticipated revenues and
costs. These risks and uncertainties could cause our actual results to differ
materially from those projected or implied by such forward-looking statements.
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MARKET PRICES AND DIVIDEND POLICY
Market Information
Our common stock and warrants began trading publicly on June 28, 1996 at
initial public offering prices of $6.00 per share and $0.10 per warrant and are
traded on the American Stock Exchange, or Amex, under the symbols "CXI" and
"CXIW", respectively. On October 2, 2000, there were 164 holders of record of an
aggregate of 38,526,172 shares of our common stock and 44 holders of record of
public warrants.
The following table sets forth, for the fiscal periods shown, the high and
low sale prices, rounded to the nearest cent, for our common stock and public
warrants as reported on the Amex.
<TABLE>
<CAPTION>
Common Stock Warrants
---------------- ----------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
Fiscal 2000
First Quarter .............................................. $2.75 $0.88 $0.50 $0.16
Second Quarter ............................................. 1.94 0.75 0.31 0.13
Third Quarter .............................................. 1.62 0.81 0.34 0.13
For the period from October 1, 2000 to October 13, 2000 .... 0.94 0.75 0.18 0.16
Fiscal 1999
First Quarter .............................................. $0.44 $0.38 $0.16 $0.03
Second Quarter ............................................. 0.38 0.19 0.02 0.02
Third Quarter .............................................. 1.50 0.25 0.63 0.02
Fourth Quarter ............................................. 1.44 0.63 0.38 0.02
Fiscal 1998
First Quarter .............................................. $6.75 $2.56 $2.06 $0.75
Second Quarter ............................................. 5.19 1.75 1.50 0.63
Third Quarter .............................................. 2.81 0.19 0.81 0.06
Fourth Quarter ............................................. 0.75 0.25 0.25 0.03
</TABLE>
On August 10, 2000, the date prior to our announcement of the DRM
acquisition, the last reported sale price for our common stock was $1.06 per
share. On October 13, 2000, the last practicable date prior to the filing of
this proxy statement, the last reported sale price for our common stock was
$0.75 per share.
Dividend Information
The holders of our Series E Convertible Preferred Stock, par value $0.001
per share are entitled to a variable rate dividend beginning at 12% and
averaging 8.15% over the term of the securities. As of October 2, 2000, we had
paid $225,567 in dividends on these shares. We have the option to pay these
dividends in common stock for all periods after April 30, 2000.
The holders of our Series F Convertible Preferred Stock, par value $0.001
per share are entitled to a variable rate dividend beginning at 12% and
averaging 8.15% over the term of the securities. As of December 31, 1999, we had
paid $91,567 in dividends on these shares. We have the option to pay these
dividends in common stock for all periods after September 30, 2000.
We have never paid cash dividends on our common stock. Any future
determination as to the payment of cash dividends on our common stock will
depend on our ability to service our outstanding indebtedness and future
earnings, capital requirements, our financial condition and other factors as our
Board of Directors may consider. We currently intend to retain our earnings to
finance the growth and development of our business and to repay outstanding
indebtedness and we do not anticipate paying cash dividends on our common stock
in the foreseeable future.
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SELECTED FINANCIAL DATA
COMMODORE APPLIED TECHNOLOGIES, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial data at December 31, 1995, 1996, 1997,
1998 and 1999, and the years then ended, are derived from the Consolidated
Financial Statements contained in the annual reports and other information we
have filed with the Securities and Exchange Commission. The selected financial
data as of June 30, 2000, and for the six months ended June 30, 1999 and 2000
are unaudited and, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of such data. Financial data for the six months ended June 30, 2000
are not necessarily indicative of the results of operations to be expected for
the entire year. This should be read in conjunction with our historical
financial statements and related notes contained in the annual reports and other
information that we have filed with the Securities and Exchange Commission.
Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $0 $5,123 $19,493 $17,470 $18,147 $8,550 $8,870
Costs and expenses:
Cost of sales....................... 0 4,135 16,325 15,421 16,127 7,368 7,858
Research and development............ 1,815 2,022 3,074 2,722 1,145 562 600
General and administrative.......... 1,773 3,412 12,196 8,118 4,037 1,655 1,845
Depreciation and amortization....... 0 561 1,282 1,150 696 364 379
Minority interest................... 0 0 (82) 300 0 0 0
------- ------- -------- -------- ------- ------- --------
Total costs and expenses........ 3,588 10,131 32,795 27,711 22,005 9,949 10,682
------- ------- -------- -------- ------- ------- --------
Loss from operations..................... (3,588) (5,008) (13,302) (10,241) (3,858) (1,399) (1,812)
Equity in losses of unconsolidated
subsidiary............................ 0 (495) (1,827) (2,383) 0 0 0
Write-off of original in process
technology............................ 0 0 0 0 0 0 0
Interest income.......................... 6 477 745 337 39 23 39
Interest expense......................... (274) (617) (1,310) (1,066) (166) (30) (103)
------- ------- -------- -------- ------- ------- --------
Loss before income taxes................. (3,856) (5,643) (15,694) (13,353) (3,985) (1,406) (1,876)
Income tax benefit....................... 0 0 0 0 0 0 0
------- ------- -------- -------- ------- ------- --------
Net loss................................. ($3,856) ($5,643) ($15,694) ($13,353) ($3,985) ($1,406) ($1,876)
======= ======= ======== ======== ======= ======= =======
Net loss per share--basic and diluted.... ($0.26) ($0.31) ($0.73) ($0.58) ($0.15) ($0.06) ($0.06)
======= ======= ======== ======== ======= ======= =======
Weighted average number of common
shares outstanding (in thousands)..... 15,000 18,100 21,844 23,194 24,819 23,702 31,525
======= ======= ======== ======== ======= ======= =======
Cash dividends paid per share............ $0 $0 $0 $0 $0 $0 $0
======= ======= ======== ======== ======= ======= =======
</TABLE>
12
<PAGE>
Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
------------------------------------- June 30,
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Working capital .......................... $ 8,838 $11,170 $ 1,817 $ 806 $ 971
Total Assets ............................. 33,456 29,696 15,617 16.047 15,190
Long-term debt (less current portion)..... 29 3,587 185 716 964
Total liabilities ........................ 13,380 10,521 3,709 6,096 5,073
Minority interest ........................ 0 6,645 0 0 0
Redeemable preferred stock ............... 0 876 0 0 0
Stockholders' equity (deficit) ........... 20,076 11,654 11,908 9,951 10,117
</TABLE>
13
<PAGE>
DRM SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except per share data)
The following selected financial data as of December 31, 1999, and for
the years ended December 31, 1997, 1998 and 1999 are derived from the
Consolidated Financial Statements appearing elsewhere herein beginning on page
F-1. The selected financial data as of June 30, 2000, and for the six months
ended June 30, 1999 and 2000 are unaudited and, in the opinion of management
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of such data. Financial data for the six
months ended June 30, 2000 are not necessarily indicative of the results of
operations to be expected for the entire year. This should be read in
conjunction with the Consolidated Financial Statements and the accompanying
notes contained in this proxy statement beginning on page F-1.
Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
Six Months Ended
Year ended December 31, June 30,
--------------------------- -------------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenue $1,704 $5,189 $6,438 $4,835 $3,689
Costs and expenses:
Cost of sales....................... 592 1,064 1,647 865 924
General and Administrative.......... 232 342 555 294 566
Depreciation and amortization....... 0 0 0 0 0
Minority interest................... 215 1,001 1,293 969 0
------ ------ ------ ------ ------
Total costs and expenses........ 1,039 2,407 3,495 2,128 1,490
====== ====== ====== ====== ======
Income (loss) from operations........... 35 2,782 2,943 2,707 2,199
Option and other income................. 0 (3) 8 (4) 66
Interest income......................... 8 22 35 30 6
Interest expense........................ (8) (8) (8) (4) 0
------ ------ ------ ------ ------
Net income.............................. $35 $2,793 $2,978 $2,729 $2,271
====== ====== ====== ====== ======
</TABLE>
Note: Earnings per share data not meaningful.
Consolidated Balance Sheet Data:
December 31, June 30,
1997 1998 1999 2000
---- ----- ----- ------
Working capital (deficit).............. $52 $959 $883 $2,361
Total assets........................... 439 1,210 1,232 2,718
Long-term debt (less current portion).. 105 112 120 0
Total liabilities...................... 437 515 432 197
Stockholders' equity (deficit)......... 2 695 800 2,521
14
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
OF COMMODORE APPLIED TECHNOLOGIES, INC.
The following pro forma condensed consolidated balance sheet and the
pro forma statements of operations for the periods ended June 30, 2000 and 1999
and the years then ended are presented to give effect to the DRM acquisition.
Historical financial data used to prepare the pro forma financial
statements were derived from the following sources:
o the audited consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31,
1999, as amended;
o the unaudited consolidated financial statements included in
our Quarterly Report on Form 10-Q for the quarter ended June
30, 2000; and
o the audited financial statements of DRM for the years ended
December 31, 1999, 1998 and 1997, which are contained in this
proxy statement beginning on page F-1.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with these historical financial statements.
The pro forma balance sheet and the pro forma statements of operations
of our company are based on assumptions and approximations and therefore do not
reflect in precise numerical terms the impact of the transaction on the
historical financial statements. In addition, these unaudited pro forma
condensed consolidated financial statements should not be used as a basis for
forecasting our future operations.
15
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2000
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Acquisition
Commodore DRM Adjustments Pro-Forma
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 1,155 $ 238 $ 1,393
Account receivable, net ............................. 3,115 2,291 (2,013) (1) 3,393
Notes and advances to related parties ............... 310 310
Prepaid assets and other current assets ............. 500 29 529
-------- -------- -------- --------
Total current assets ........................... 5,080 2,558 (2,013) 5,625
Investments and Advances ................................ 325 40 365
Property and equipment, net ............................. 2,143 120 2,263
Other assets
Patents and completed Technology, net ............... 929 929
Goodwill, net ....................................... 6,713 25,019 (2) 31,732
Covenants not to compete ............................ 0 0 2,625 (2) 2,625
-------- -------- -------- --------
Total Assets ................................... $ 15,190 $ 2,718 $ 25,631 $ 43,539
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .................................... $ 1,289 $ 110 $ 1,399
Current portion of LT debt and notes payable ........ 953 0 13,122 (2) 14,075
Line of credit ...................................... 823 823
Other accrued liabilities ........................... 1,661 87 1,748
-------- -------- -------- --------
Total current liabilities ...................... 4,726 197 13122 18,045
Long term debt .......................................... 162 7,412 (2) 7,574
Notes payable to related parties ........................ 185 0 185
-------- -------- -------- --------
Total liabilities .............................. 5,073 197 20,534 25,804
Minority interest in subsidiary ......................... 0 0 97 (2) 97
Stockholder's equity .................................... 10,117 2,521 (2,013) (1) 17,639
6,563 (2)
959 (2)
(508) (2)
-------- -------- -------- --------
Total liabilities and stockholders equity ............... $ 15,190 $ 2,718 $ 25,631 $ 43,539
======== ======== ======== ========
</TABLE>
See Accompanying Notes to Unaudited
Pro Forma Condensed Consolidated Balance Sheet
16
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in Thousands)
(1) Represents amounts distributed by DRM to its stockholders prior to
August 30, 2000 in connection with the DRM acquisition and pursuant
to DRM's Subchapter S election.
(2) Represents the adjustments to our historical financial statements to
record our investment in DRM and to establish the amount of goodwill
that will be recorded as a result of our acquisition of DRM. This
note also calculates the amount of net equity of DRM that will
appear in the consolidated financial statements:
<TABLE>
<S> <C> <C> <C> <C>
Our contribution: DRM:
9,500,000 common shares (A) $13,122
5,000,000 option common shares (B) 5,469 Stock and warrant contributed by us $2,053
1,000,000 common shares (C) 1,094 NBV contributed by DRM 508
Warrant to purchase 1,000,000 shs (C) 959 0
Future payment guarantee 10,000 Stock and warrant distribution (2,053)
------
DRM Beginning Equity $508
======
Interest discount on net guarantee (D) (2,588)
DRM Equity owned by us (81%) $411
======
-------
Total invested by us $28,056
=======
DRM Equity owned by former
stockholders (19%) $97
======
Excess of our investment over value of its interest in DRM equity $27,644
=======
Covenants not to compete 2,625 (E)
Goodwill $25,019
-------
$27,644
=======
</TABLE>
(A) These 9,500,000 shares are restricted and cannot be sold for one
year and are subject to an absolute and irrevocable obligation by us
to purchase any and all of the shares by the end of one year. Our
total obligation to fund is $14.5 million. The present value of
$14.5 million using a discount factor of 10.5% is $13.122 million.
It is our intention to exercise our option to repurchase these
shares throughout the year and immediately resell these shares to
pay off this entire obligation.
(B) 5,000,000 common shares are unregistered and are restricted as to
sale for 13 months. These shares are valued at an average trading
value of our common stock of $1.09375 per share. See Note C.
(C) Average stock value for the five days before and five days after
August 11, 2000, the date this acquisition was announced, was
$1.09375 per share and the option value computed using the
Black-Scholes mode was $.959 per share.
(D) Net guarantee discounted at 10.5% for three years.
(E) Covenants not to complete will last five years. Value was estimated
to be the same as value of salary guarantees to former DRM owners
based on employment agreement with these former owners.
17
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Commodore DRM Acquisition
(1) (2) Adjustments Pro-Forma
--------- ----- ----------- ---------
<S> <C> <C> <C> <C>
Revenue ......................................... $8,870 $3,689 $0 $12,559
Costs and expenses:
Cost of sales............................... 7,858 924 0 8,782
Research and development.................... 600 566 0 1,155
General and administrative.................. 1,845 0 0 1,845
Depreciation and amortization............... 37 0 888 (3) 1,267
Minority interest........................... 0 0 406 (6) 406
------ ----- ------ ------
Total costs and expenses................ 10.682 1,490 1,294 13,466
------ ----- ------ ------
Loss from operations........................ (1,812) 2,199 1,294 (907)
Gain on sale of affiliate................... 0 0 0 0
Equity in losses of unconsolidated
subsidiary.............................. 0 0 0 0
Option and other income..................... 0 66 0 66
Interest income............................. 39 6 0 45
Interest expense............................ (103) 0 (389) (5) (492)
------ ----- ------ ------
Loss before income taxes and
extraordinary item...................... (1,876) 2,271 (1,683) (1,288)
Income tax benefit.......................... 0 0 0 0
------ ----- ------ ------
Net loss.................................... (1,876) 2,271 (1,683) (1,288)
====== ===== ====== ======
Net loss per share--basic and diluted ...... ($0.06) ($0.03)
====== ======
Weighted average number of common
shares outstanding (in
thousands) (4)......................... 31,525 47,025
====== ======
</TABLE>
See Accompanying Notes to Unaudited
Pro Forma Condensed Consolidated Statements of Operations
18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Commodore DRM Acquisition
(1) (2) Adjustments Pro-Forma
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue ............................................ $18,147 $6,438 $0 $24,585
Costs and Expenses:
Cost of sales................................... 16,127 1,647 0 17,774
Research and development........................ 1,145 0 0 1,145
General and administrative...................... 4,037 555 0 4,592
Depreciation and amortization................... 6956 0 1,776 (3) 2,472
Minority interest............................... 0 1,293 811 (6) 811
(1,293) (6)
------- ------ ------- -------
Total costs and expenses...................... 22,005 3,495 1,294 26,794
------- ------ ------- -------
Income (loss) from operations................... (3,858) 2,943 (1,294) 26,794
Gain on sale of affiliate....................... 0 0 0 0
Equity in losses of
unconsolidated subsidiary..................... 0 0 0 0
Other income.................................... 0 8 0 8
Interest income................................. 39 35 0 74
Interest expense................................ (166) (8) (778) (5) (2,330)
(1,378) (7)
------- ------ ------- -------
Income (loss) before income taxes .............. (3,985) 2,978 (3,450) (4,457)
Income tax benefit.............................. 0 0 0 0
------- ------ ------- -------
Net (loss)...................................... ($3,985) $2,978 ($3,450) ($4,457)
======= ====== ======= =======
Net loss per share-basic and diluted............ ($0.16) ($0.11)
======= =======
Weighted average number of common
shares outstanding (in thousands)(4) ....... 24,819 40,319
======= =======
</TABLE>
See Accompanying Notes to Unaudited
Pro Forma Condensed Consolidated Statements of Operations
19
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands)
(1) Represents our historical results.
(2) Represents the historical results of DRM.
(3) Represents amortization of DRM goodwill over a twenty-year period
and covenants not to compete over five years.
(4) Assumes our historical shares outstanding and the proposed issuance
of 15,500,000 common shares with the purchase of DRM. As exercise of
warrants and/or options will only dilute the loss per share they are
not considered in this calculation.
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
1999 2000
------------ --------------
<S> <C> <C>
Historical weighted number of shares 24,819 31,525
Anticipated shares added with DRM purchase 15,500 15,500
------ ------
Pro Forma weighted average number of shares after DRM acquisition 40,319 47,025
====== ======
</TABLE>
(5) Discount on guarantee payment debt is amortized over 3 years at an
effective interest rate of 10.5%.
(6) DRM principals will be entitled to 35% of DRM's cash flow until
December 31, 2005. DRM has settled its amount due to the accounting
firm of KPMG Peat Marwick, thus the minority interest shown by DRM
in 1999 will be eliminated for purposes of this pro forma.
(7) Amortization of interest imputed on purchase obligation on 9,500,000
option shares.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
COMMODORE APPLIED TECHNOLOGIES, INC.
The following is a discussion of our consolidated financial condition and
results of operations for the six months ended June 30, 2000 and 1999, and for
the years ended December 31, 1999, 1998 and 1997, as well as certain factors
that may affect our prospective financial condition. This section should be read
in conjunction with the selected financial data of our company and the
accompanying notes thereto, included in this proxy statement.
Overview
We are engaged in the destruction and neutralization of hazardous waste
from other materials. We own technologies related to the separation and
destruction of polychlorinated biphenyls, or PCBs, and chlorofluorocarbons, or
CFCs. Until September 1998, we were engaged in the separation of hazardous waste
through our 87%-owned subsidiary, Commodore Separation Technologies, Inc.
Effective September 28, 1998, we sold our investment in Commodore Separation,
which has caused significant variations in results for the periods presented.
We are currently working on the commercialization of the technologies we
own through development efforts, licensing arrangements and joint ventures.
Through Commodore Advanced Sciences, Inc., formerly Advanced Sciences, Inc., a
subsidiary we acquired on October 1, 1996, we have contracts with various
government agencies and private companies in the United States. As some
government contracts are funded in one-year increments, there is a possibility
for cutbacks; as these contracts constitute a major portion of Commodore
Advanced's revenues, such a reduction would materially affect our operations.
However, we believe that Commodore Advanced's existing client relationships will
allow us to obtain new contracts in the future.
We have revised our previously issued Consolidated Financial Statements
for the year ended December 31, 1998. The revised net loss reflects a change of
now recording as a contribution of capital both the previously reported
recognition of a $3,154,000 gain on satisfying a debt obligation to a company
which is one of our material stockholders and a $4,664,000 previously reported
gain relating to the difference between the carrying value of a publicly held
subsidiary and the fair market value of the subsidiary at the time of the
contribution of the subsidiary to one of our material stockholders.
Results of Operations
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues were $4,538,000 and $8,870,000, respectively, for the three and
six months ended June 30, 2000, compared to $4,754,000 and $8,550,000,
respectively, for the three and six months ended June 30, 1999. These revenues
were primarily from our Commodore Advanced subsidiary, and consisted of
engineering and scientific services performed for the United States government
under a variety of contracts, most of which provide for reimbursement of cost
plus fixed fees. Revenue under cost-reimbursement contracts is recorded under
the percentage of completion method as costs incurred and includes estimated
fees in the proportion that costs to date bear to total estimated costs. We have
seen some increase in annualized sales volume as there was unusually high
activity on a major contract in the first six months of 2000 that we expect to
reduce to normal levels for the remainder of the year. We have two major
customers, each of which represent more than 10% of total revenue. The combined
revenue for these two customers was $7,681,000 or 87.5% of total revenues for
the six months ending June 30, 2000.
Cost of sales were $3,927,000 and $7,858,000, respectively, for the three
and six-month periods ending June 30, 2000 compared to $3,914,000 and
$7,386,000, respectively, for the three and six-month periods ending June 30,
1999. These amounts reflect an increasing percentage of sales. Commodore
Advanced has certain fixed price contracts that limit cost recovery to certain
maximum rates. We have experienced increases in salaries and benefit costs,
especially health insurance, that could not be recovered, in full, under
existing contracts.
For the three and six months ended June 30, 2000, we have incurred
research and development costs of $354,000 and $600,000, respectively, as
compared to $277,000 and $562,000, respectively, for the three and six-months
ended June 30, 1999. Excluding the one time credit of $143,000 in 2000, research
and development costs would have been $743,000 for the first six months of 2000.
This increase over 1999 is attributable to performing the successful U.S.
Environmental Protection Agency tests that should result in a new permit for the
S-10 machine in the second half of 2000. Research and development costs include
salaries, wages, and other related costs of personnel
21
<PAGE>
engaged in research and development activities, contract services and materials,
test equipment and rent for facilities involved in research and development
activities. Research and development costs are expensed when incurred, except
that those costs related to the design or construction of an asset having an
economic useful life are capitalized, and then depreciated over the estimated
useful life of the asset.
General and administrative expenses for the three and six months ended
June 30, 2000 were $1,065,000 and $1,845,000, respectively, as compared to
$903,000 and $1,655,000, respectively, for the three and six months ended June
30, 1999. This difference is primarily related to professional fees incurred in
2000 to file a registration statement with the Securities and Exchange
Commission in connection with our sale of Series F preferred stock and
professional fees and travel costs related to the negotiations and financing
activities on the proposed acquisition of Dispute Resolution Management, Inc.
Interest income was $23,000 and $39,000, respectively, for the three and
six months ended June 30, 2000, as compared to $6,000 and $23,000, respectively,
for the three and six months ended June 30, 1999.
Interest expense for the three and six months ended June 30, 2000 was
$55,000 and $103,000, respectively, as compared to $15,000 and $30,000,
respectively, for the three and six months ended June 30, 1999. This is due to
the increase in debt between periods, primarily the line of credit.
Year ended December 31, 1999 compared to Year ended December 31, 1998
Revenues were $18,147,000 for the year ended December 31, 1999, as
compared to $17,470,000 for the year ended December 31, 1998. Such revenues were
primarily from our Commodore Advanced subsidiary, and consisted of engineering
and scientific services performed for the United States government under a
variety of contracts, most of which provide for reimbursement of cost plus fixed
fees. Revenue under cost-reimbursement contracts is recorded under the
percentage of completion method as costs incurred and includes estimated fees in
the proportion that costs to date bear to total estimated costs. We have two
major customers, each of which represents more than 10% of annual total revenue.
The combined revenue for these two customers was $15,979,000 or 88% of total
1999 revenue. Costs of sales were $16,127,000 for the year ended December 31,
1999, as compared to $15,421,000 for the year ended December 31, 1998.
Variations arise from the changes in subcontract activities in relations to
total revenue.
For the year ended December 31, 1999, we incurred research and development
costs of $1,145,000, as compared to $2,722,000 for the year ended December 31,
1998. In 1999, research and development costs were reduced in accordance with
our cost saving program initiated in late 1998. Research and development costs
include salaries, wages, and other related costs of personnel engaged in
research and development activities, contract services and materials, test
equipment and rent for facilities involved in research and development
activities. Research and development costs are expensed when incurred, except
that those costs related to the design or construction of an asset having an
economic useful life are capitalized, and then depreciated over the estimated
useful life of the asset. 1998 numbers included research and development costs
of $501,000 for Commodore Separation.
General and administrative expenses for the year ended December 31, 1999
were $4,037,000, as compared to $8,118,000 for the year ended December 31, 1998.
The savings in 1999 are a result of restructuring steps taken during the last
half of 1998. Also, Commodore Separation had $1,896,000 in general and
administrative costs in 1998.
Interest expense for the year ended December 31, 1999 was $166,000 as
compared to $1,066,000 for the year ended December 31, 1998. Interest changes in
1999 result from favorable rate and terms on a line of credit put in place in
April 1998 and the elimination of non-cash interest expense that totaled
$777,000 in 1998.
Equity in losses of unconsolidated subsidiary for the year ended December
31, 1999 was $0, as compared to $2,383,000 for the year ended December 31, 1998.
Our Teledyne-Commodore, LLC joint venture commenced operations in October 1996.
We recorded our liability for all capital contributions at December 31, 1998.
Our 1999 obligation to fund the LLC for $176,500 has been included in research
and development costs.
22
<PAGE>
Year ended December 31, 1998 compared to Year ended December 31, 1997
Revenues were $17,470,000 for the year ended December 31, 1998, compared
to $19,493,000 for the year ended December 31, 1997. Revenues in 1998 were
primarily from engineering and scientific services performed for the United
States government under a variety of contracts similar to those in place in
1997. We have three major customers, each of which represents more than 10% of
annual revenue. The combined revenue for these three customers was $16,706,000
or 96% of total 1998 revenue. The decline in revenues is primarily the result of
less subcontract work being performed in 1998. The U.S. government decided to
deal directly with the subcontractor rather than having Commodore Advanced
subcontract this work on behalf of the U.S. government. The U.S. government took
this action, as the subcontracts became too large. Cost of sales decreased from
$16,325,000 for 1997 to $15,421,000 for 1998. A reduction in cost of sales at
Commodore Advanced resulted from decreased revenues. Anticipated losses on
contracts are provided for by a charge to income during the period such losses
are first identified.
For the year ended December 31, 1998, we incurred research and development
costs of $2,722,000, as compared to $3,074,000 for the year ended December 31,
1997. In 1998, we invested more money in capital expenditures and less in
laboratory work and consultants than we had in 1997.
General and administrative expenses for the year ended December 31, 1998
were $8,118,000, as compared to $12,196,000 for the year ended December 31,
1997. This decrease reflects the impact of some restructuring steps we made in
1997 and the fourth quarter of 1998. Also, we only show nine months of expenses
for Commodore Separation as this subsidiary was sold on September 28, 1998. In
1998, we recorded a $486,000 reserve through general and administrative expenses
to reflect the costs to be incurred in 1999 for severance pay for laid-off
employees. This reserve also recognizes the liability for certain administrative
and laboratory offices that have been closed, but for which some lease
commitments continue.
In 1998, we completed a debt restructuring plan which, in part, had us
transfer all 10,000,000 of shares of Commodore Separation stock that we owned,
representing approximately 87% of the issued and outstanding shares of capital
stock of Commodore Separation, to a limited liability company wholly owned by
Commodore Environmental Services Inc. The transfer was effective as of September
28, 1998. Accordingly, our 1998 consolidated financial statements include the
activity of Commodore Separation only through September 28, 1998. As a result of
this sale, we recognized a gain of $4,664,000 as a direct increase to additional
paid-in capital as Commodore Environmental and we are deemed to be related
parties.
The debt-restructuring plan also included an exchange of our preferred
stock for debt we owed to Commodore Environmental. We recorded the gain from
this early extinguishment of debt of $3,154,000 as a direct increase in
additional paid-in capital due to our relationship with Commodore Environmental.
This represents the difference between the value assigned to the preferred
stock, based on a third-party appraisal, and the net book value of the debt
forgiven.
The decrease in interest income of $408,000 from 1997 to 1998 reflects the
reduction in our cash reserves and our subsidiaries and therefore the reduction
of funds available for investing. The decrease in interest expense of $244,000
from 1997 to 1998 represents savings from the reduction of the average line of
credit balance between years.
Equity in net loss from unconsolidated subsidiary for the year ended
December 31, 1998 was $2,383,000 as compared to $1,827,000 for the year ended
December 31, 1997. This was due to increased cost of revenues and increased bid
and proposal costs incurred by Commodore Environmental in 1998 while protests
were being filed with the U.S. government.
Liquidity And Capital Resources
From our inception through the second quarter of 1996, our operations were
financed principally by loans and investments from our stockholders. In June
1996, we successfully completed our initial public offering from which we
received net proceeds of approximately $30,500,000. We allocated approximately
$12.0 million of the net proceeds for the funding of proposed collaborative
joint ventures, $2.0 million of which was allocated to Teledyne-Commodore, LLC.
23
<PAGE>
In July 1996, we utilized a portion of the net proceeds from our initial
public offering to repay an outstanding line of credit of $2.0 million, as well
as a $5,925,426 promissory note to our principal stockholder. We set aside $1.0
million cash collateral to support a loan made by a commercial bank to our
principal stockholder in December 1993. In September 1996, such cash collateral
was released by the bank.
In August 1996, we loaned $1.5 million to Lanxide Performance Materials,
Inc., or LPM, a wholly-owned subsidiary of Lanxide Corporation, which loan was
evidenced by a promissory note. Lanxide specializes in the manufacture of
ceramic bonding and refractory materials and is related to us 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, we transferred the LPM note to Commodore Environmental, together
with $500,000 in cash, as partial prepayment of the $4.0 million unsecured loan
from Commodore Environmental to us in September 1997.
In December 1996, we acquired
o all of the outstanding capital stock of Commodore Separation and
o all of the outstanding capital stock of CFC Technologies from
Commodore Environmental, as part of a corporate restructuring of
Commodore Environmental to consolidate all of its current
environmental technology businesses with us. In addition, Commodore
Environmental assigned to us outstanding Commodore Separation notes
aggregating $976,200 at December 2, 1996, representing advances
previously made by Commodore Environmental to Commodore Separation,
which we have contributed to the equity of Commodore Separation. In
consideration for the transfer of all of the outstanding capital
stock of Commodore Separation and CFC Technologies to us, we paid
Commodore Environmental $3.0 million in cash and issued to Commodore
Environmental a warrant expiring December 2, 2003 to purchase
7,500,000 shares of our common stock at an exercise price of $15.00
per share, valued at $2.4 million.
In April 1997, Commodore Separation completed an initial public offering
of its equity securities, from which it received net proceeds of approximately
$11,100,000. Such funds were used primarily to finance Commodore Separation's
operations through 1998.
In August 1997, we completed a private placement of shares of our stock
from which we received net proceeds of approximately $1.6 million. In connection
with the sale, we incurred cash transaction costs of approximately $117,000 and
issued warrants, expiring on August 15, 2002, to the placement agent.
In September 1997, Commodore Environmental provided us with a $4.0 million
unsecured loan, evidenced by a convertible note due August 31, 2002. In
connection with the convertible note, we issued to Commodore Environmental
warrants to purchase 1,000,000 shares of our common stock, valued at $660,000,
and provided a beneficial conversion privilege with an intrinsic value of
$750,000 as of the date of the transaction. In March 1998, we prepaid $2.0
million of the convertible note by (i) paying Commodore Environmental the sum of
$500,000 in cash and (ii) transferring to Commodore Environmental a promissory
note, dated August 30, 1996, in the principal amount of $1.5 million from
Lanxide. To induce Commodore Environmental to accept our 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 shares of our common stock, we issued to
Commodore Environmental an additional warrant to purchase up to 514,000 shares
of our 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 our common stock on
February 20, 1998, the trading day immediately prior to the date our Board of
Directors approved such prepayment. The estimated fair value of such warrant is
approximately $340,000. The remaining balance of this convertible note was paid
off by December 31, 1998.
In October 1997, we completed a private placement of shares of our stock
from which we received aggregate net proceeds of approximately $2.4 million. In
connection with the private placement, we incurred cash transaction costs of
approximately $209,000 and issued warrants, expiring on September 30, 2002, to
the placement agent.
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In February 1998, Commodore Environmental provided us with a $5,450,000
uncollateralized loan, evidenced by the note due on the earlier to occur of (a)
December 31, 1999, or (b) consummation of any public offering or private
placement of our securities with net proceeds aggregating in excess of $6.0
million, other than in respect of working capital financing or secured financing
of assets received by us in the ordinary course of business from any bank or
other lending institution, subject to certain conditions. We have used the net
proceeds of the loan solely for working capital and general corporate purposes
and not for the satisfaction of any portion of our debt or to redeem any of our
equity or equity-equivalent securities. During 1998, we repaid $828,000 of the
principal balance on this note before the note was paid off in its entirety
through the September 28, 1998 transaction described above. In connection with
the loan, we amended and restated in its entirety a five-year warrant to
purchase 7,500,000 shares of our common stock issued to Commodore 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, we issued to
Commodore Environmental an additional five-year warrant to purchase 1,500,000
shares of our common stock at an exercise price of $10.00 per share.
Effective September 28, 1998, we repaid $6,756,000 of our debt to
Commodore Environmental, representing the balances on the September 1997 note
and the February 1998 note, by exchanging the debt for (i) 10,000,000 shares of
Commodore Separation common stock, as repayment of $1,250,000 of debt; (ii)
20,909 shares of our newly created 6% Series B Convertible Preferred Stock, as
repayment of $2,090,870 of debt; (iii) 10,189 shares of our newly created 6%
Series C Convertible Preferred Stock, as repayment of $1,018,864 of debt; (iv)
20,391 shares of our newly created 6% Series D Convertible Preferred Stock, as
repayment of $2,039,100 of debt; (v) assignment to Commodore Environmental of an
account receivable due to us from Commodore Separation in the amount of
$357,000, as repayment of $357,000 of debt; and (vi) amendment of an existing
warrant owned by Commodore Environmental to purchase 1,500,000 shares of our
common stock at $10.00 per share, reducing the exercise price to $1.50 per
share. The terms of the debt restructuring were determined as a result of
arm's-length negotiations between representatives of both Commodore
Environmental and us, and were supported by fairness opinions by an independent,
third-party appraiser. Commodore Environmental currently owns approximately 35%
of the outstanding shares of our common stock.
As part of this restructuring plan, we consummated the transfer of all
10,000,000 of the shares of common stock, par value $.001 per share, of
Commodore Separation owned by us representing approximately 87% of the issued
and outstanding shares of capital stock of Commodore Separation, to Commodore
Environmental. The transfer was effective as of September 28, 1998. Accordingly,
our 1998 consolidated financial statements include the activity of Commodore
Separation only through September 28, 1998. As a result of this sale, we
recognized a contribution to capital of $4,664,000.
In November 1999, we completed $2.5 million in financing through a private
placement. We issued 335,000, shares of a new Series E convertible preferred
stock, convertible into shares of our common stock at the market price after
April 30, 2000 and up through April 30, 2003, at which time it automatically
converts to our common stock. The Series E convertible preferred stock has a
variable rate dividend averaging 8.15% over the term of the securities. We
reserved the right to redeem all of the Series E preferred stock on or before
April 30, 2000 by payment of $2.8 million plus any accrued dividends.
In March 2000, we completed $2 million in financing through a private
placement. We issued 266,700 shares of a new Series F convertible preferred
stock, convertible into shares of our common stock at any time on or after
September 30, 2000. On conversion the investor will receive for each converted
preferred share a number of shares of our common stock equal to the greater of
(1) the face value per share of our Series F preferred stock ($10), plus accrued
dividends, divided by the average of the per-share closing prices of our common
stock over a ten consecutive trading day period ending on the trading day
immediately preceding the conversion date or (2) $7.50 (the cash invested for
each preferred share of our Series F preferred stock) divided by $1.93875.
The Series F convertible preferred stock has a liquidation preference of
$10 per share. In addition, we issued warrants to purchase 363,475 shares of our
common stock at $1.93875 per share. These warrants expire on March 16, 2005.
The Series F convertible preferred stock has an annual dividend rate of
12% through September 30, 2000 and 5% thereafter, paid quarterly. Transaction
costs totaled $230,000 resulting in net proceeds to us of $1.77 million.
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At June 30, 2000 and December 31, 1999, Commodore Advanced had a $823,000
and $948,000 outstanding balance, respectively, on its revolving line of credit.
In August 1998, Commodore Advanced refinanced their line of credit. The line of
credit is not to exceed the lesser of 75% of eligible receivables or $2,000,000
and is due August 4, 2000 with interest payable monthly at prime plus 1.5
percent (9.25 percent as of June 30, 2000). The credit line is collateralized by
the assets of Commodore Advanced and is guaranteed by us. This line of credit
contains certain financial covenants and restrictions including minimum ratios
that Commodore Advanced must satisfy. Commodore Advanced was in compliance with
the covenants at June 30, 2000 and December 31, 1999. We expect to place this
line of credit, at essentially the same terms, with a new lender in the near
future. We have verbal assurances from the current lender that the current line
will be extended while we negotiate a final credit line with a new lender. These
negotiations are currently ongoing.
The line of credit was amended July 15, 1999 to include a promissory note
of $1,000,000 secured by substantially all of our property and equipment. The
term loan is payable at $16,667 per month plus interest.
In addition, the line-of-credit agreement stipulates that no payments
shall be made by Commodore Advanced to us other than monthly scheduled payments
of principal with respect of $6,300,000 subordinated indebtedness owed by
Commodore Advanced to us, which is eliminated in consolidation, and intercompany
indebtedness not to exceed $20,000 in any month. In addition, Commodore Advanced
cannot incur indebtedness in excess of $25,000, other than trade payables, the
above subordinated indebtedness and other contractual obligations to suppliers
and customers incurred in the ordinary course of business.
For the six months ended June 30, 2000, we incurred a net loss of
$1,876,000 as compared to a net loss of $1,406,000 for the six months ended June
30, 1999. For the year ended December 31, 1999, we incurred a net loss of
$3,985,000, as compared to a net loss of $13,353,000 for the year ended December
31, 1998. As shown in the financial statements for the years ended December 31,
1999, 1998 and 1997, we incurred losses exclusive of our gain on the sale of
affiliate and extraordinary item of $3,985,000, $13,353,000, and $15,694,000,
respectively. We have also experienced net cash outflows from operating
activities of $2,905,000, $9,176,000, and $8,220,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, 1998 and
1997 we had working capital of $806,000, $1,817,000, and $11,170,000,
respectively, and stockholders' equity of $9,951,000, $11,908,000, and
$11,654,000, respectively. Our decrease in working capital and stockholders'
equity from December 31, 1997 to December 31, 1999 is principally due to the net
loss for the period. At June 30, 2000 we have working capital of $354,000 and
stockholders' equity of $10,117,000.
The contract with one customer, representing $5,962,000, or 67.9% of the
first six months of 2000 revenues is scheduled to end on September 30, 2000. We
expect to be successful with our efforts to rebid this work, but at a
significantly reduced level. We use many subcontractors to service this account,
and it is anticipated that much of this subcontract work will be reduced or
eliminated with the anticipated work reduction. The negative impact on profits
from this work reduction should be offset by increases in other areas of our
business.
Net Operating Loss Carryforwards
We have net operating loss carryforwards of approximately $36,000,000,
which expire in the years 2000 through 2018. The amount of net operating loss
carryforward that can be used in any one year will be limited by the applicable
tax laws which are in effect at the time such carryforward can be utilized. A
full valuation allowance has been established to offset any benefit from the net
operating loss carryforwards. It cannot be determined when or if we will be able
to utilize the net operating losses.
Impact of Inflation
Management does not believe that inflation is likely to have a significant
impact on the results of our current operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivatives
and Hedging Activities", which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, collectively
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referred to as derivatives, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The adoption of SFAS No. 133 is not expected to have a material impact on our
results of operations, financial position, or cash flows.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition", which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the Commission. Adoption of SAB No. 101 has been
delayed until the fourth quarter of 2000 by the Commission. SAB No. 101 outlines
the basic criteria that must be met in order to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Although we
have not fully assessed the impact of adoption SAB No. 101 on our financial
position and results of operations in 2001 and thereafter, we do not expect the
effect, if any, to be material.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. We have taken the
necessary steps to make sure our computer programs or hardware that have
date-sensitive software or embedded chips recognize the year 2000 rather than a
year other than the year 2000. To this date, we have not experienced any failure
of our computerized systems due to the Year 2000 issue and we believe we will
not experience any problems in the future. However, we are aware that there
still exists a minor threat of encountering problems with our computerized
systems due to residual effects of the Year 2000 issue. Nonetheless, if this
were to occur, we believe that such a problem would be temporary and easily
remediable.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF DISPUTE RESOLUTION MANAGEMENT, INC.
The following is a discussion of the consolidated financial condition and
results of operations of DRM, for the six months ended June 30, 2000 and 1999,
and for the years ended December 31, 1999, 1998 and 1997, as well as certain
factors that may affect DRM's prospective financial condition. This section
should be read in conjunction with DRM's Consolidated Financial Statements and
the notes thereto included in this proxy statement.
Overview
The primary focus of DRM is the settlement of complex, long-tail and
latent insurance claims. DRM has several business profit centers that include
U.S. and foreign environmental and asbestos claims, claims to insolvent London
Market insurers, environmental and asbestos reinsurance claims, business
interruption claims, products liability, and Y2K remediation claims. DRM
operates five offices domestically and an international office in London.
Results of Operations
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Gross revenues for the six months ended June 30, 2000 were $3,689,000 as
compared to $4,835,000 for the six months ended June 30, 1999, a decrease of
$1,146,000. The decrease in gross revenues is due to the unpredictability in
timing of the lump sum success fees due to DRM.
For the six months ended June 30, 2000, DRM's cost of sales incurred were
$924,000 as compared to $865,000 for the six months ended June 30, 1999, an
increase of $59,000 or 6.9%. The increase in cost of sales is due to an increase
of project activities and staffing for current and future clients and contracts.
General and administrative expenses totaled $566,000 for the six months
ended June 30, 2000 as compared to $294,000 for the six months ended June 30,
1999, an increase of $272,000. The increase in general and administrative is due
to staffing to complete proprietary information systems, analyze expanded
business objectives and provide infrastructure to additional offices.
Interest expenses were $0 for the six months ended June 30, 2000 as
compared to $4,000 for the six months ended June 30, 1999, a decrease of $4,000.
This decrease is due to the retirement of debt from 1999 to 2000.
DRM had a net income of $2,729,000 for the six month period ended June 30,
1999 as compared to a net income of $2,271,000 for the period ended June 30,
2000, a decrease of $458,000. This decrease is consistent with the decrease in
revenues from 1999 to 2000.
Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended December 31,
1998
Total revenues for the year ended December 31, 1999 were $6,438,000 as
compared with $5,189,000 for the year ended December 31, 1998, an increase of
$1,249,000 or a 24% increase. This increase is the result of continued contract
development and growth from 1998 to 1999.
Costs and expenses for the year ended December 31, 1999 were $3,495,000 as
compared with $2,407,000 for the year ended December 31, 1998. This increase is
attributable to additional current expenditures on developing new and existing
contracts for core and expanded services.
General and administrative expenses were $555,000 for the year ended
December 31, 1999 as compared with $342,000 from the year ended December 31,
1998, an increase of $213,000. This increase is due to the addition of personnel
and overhead due to the opening of additional offices domestically and
internationally.
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Interest expense was $8,000 for the year ended December 31, 1999 as
compared with $8,000 for the year ended December 31, 1998. No additional debt
was incurred during this period.
The net income for the year ended December 31, 1999 was $2,978,000, or
$4,272,000 before a minority interest distribution, as compared with a net
income of $2,793,000, or $3,794,000 before a minority interest distribution, for
the year ended December 31, 1998.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Total revenues for the year ended December 31, 1998 were $5,189,000 as
compared with $1,074,000 for the year ended December 31, 1997. This increase of
$4,115,000 is attributable to the revenues received for lump sum success fees
for the finalization of several contracts initiated in 1996 and 1997.
Costs and expenses for the year ended December 31, 1997 were $447,000 as
compared to $186,000 for the year ended December 31, 1996. This increase of
$261,000 is due to the investment in new projects overseas and their associated
costs.
Interest expense was $8,000 for the year ended December 31, 1998 as
compared with $8,000 for the year ended December 31, 1997. No additional debt
was incurred during this period.
The net income for the year ended December 31, 1998 was $2,793,000, or
$3,794,000 before a minority interest distribution, as compared with a net
income of $35,000, or $250,000 before a minority interest distribution, for the
year ended December 31, 1997.
Liquidity and Capital Resources
DRM had working capital surplus of $2,361,000 on June 30, 2000 as compared
to a working capital surplus of $883,000 at December 31, 1999. This increase is
attributable to the receipt of lump sum contract success fees that are retained
in the company prior to distribution to the principals, increasing equity.
Impact of Inflation
DRM does not believe that inflation is likely to have a significant impact
on the results of DRM's current operations.
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<PAGE>
BUSINESS OF COMMODORE APPLIED TECHNOLOGIES, INC.
We are an environmental treatment and services company which, through our
operating subsidiaries, provides a range of technologies and services directed
principally at remediating contamination in soils and other materials,
protecting the integrity of water and air and disposing or reusing certain waste
by-products through development of inert and environmentally sound technologies.
We believe we provide, through one of our operating subsidiaries, the only
patented, non-thermal, portable and scalable process, known as "solvated
electron technology", for treating and decontaminating soils and other materials
containing PCBs, pesticides, dioxins and other toxic contaminants. We also
provide, through Commodore Advanced, another one of our operating subsidiaries,
a full range of services related to on-site waste containment, management of
on-site and off-site remediation and waste removal using environmentally safe
methods and through the use of our technologies. The operations of Commodore
Advanced, which account for substantially all of our current revenues, also
include engineering and technical services in connection with environment waste
management and waste minimization.
The solvated electron technology is directed principally at treating and
decontaminating soils, as well as other materials and surfaces, by destroying
PCBs, pesticides, dioxins and other toxic contaminants to an extent sufficient
to satisfy current United States federal environmental guidelines for safe
disposal. We also believe that the solvated electron technology is capable of
neutralizing chemical weapons and warfare agents and concentrating certain
radioactive wastes for more effective disposal.
We operate under a nationwide permit for PCB disposal issued by the U.S.
Environmental Protection Agency, which allows us to use solvated electron
technology on-site to treat PCB-contaminated soils, waste oils, organic
materials, radioactive mixed wastes and metallic surfaces anywhere in the United
States. Based on currently published lists of EPA national operating permits, we
believe that we possess the only non-thermal PCB treatment technology for
multiple applications permitted by EPA. Our business strategy is to use solvated
electron technology on a select number of industrial and governmental clean-up
and related projects through collaborative working arrangements with
well-recognized companies in the environmental industry.
Demand for our environmental technologies and services arises principally
from two sources:
o need for alternative environmental treatment and disposal methods
for toxic substances, such as the solvated electron technology,
which do not involve safety risks with respect to air pollution and
transportation of hazardous materials, or result in large volumes of
residual waste that require further treatment prior to disposal, and
o stricter legislation and regulations mandating new or increased
levels of air and water pollution control and solid waste
management.
Our waste remediation technology is of interest primarily to governmental
agencies and quasi-governmental entities.
Our principal executive offices are located at 150 East 58th Street, Suite
3238, New York, New York 10155 and our telephone number is 212-308-5800.
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BUSINESS OF DRM
DRM is an international consulting firm providing services in connection
with the settlement of complex, long-tail and latent insurance claims and
disputes, involving environmental, asbestos, products liability and other
matters. DRM represents policyholders, typically large multi-national
corporations, in the non-litigated resolution of large insurance claims. DRM
facilitates the settlement of claims by utilizing a series of proprietary
systems to perform insurance policy archeology, policy coverage analysis and
prioritization, claim documentation, coverage trigger allocation, settlement
value targeting, risk allocation modeling and settlement structuring and
documentation. DRM commits to manage the entire settlement process, typically in
exchange for a monthly retainer and a percentage success fee payable when the
insurers enter into a settlement agreement with the DRM client. Prior to our
acquisition of DRM, it was wholly-owned by William J. Russell and Tamie P.
Speciale.
DRM maintains five offices domestically and an international office in
London and has five primary business areas/profit centers: (i) U.S. and foreign
environmental and asbestos claims, including claims to insolvent London Market
insurers; (ii) environmental and asbestos reinsurance claims; (iii) business
interruption claims; (iv) products liability claims, and (v) Year 2000
remediation claims. Currently, DRM generates in excess of 95% of its revenue
from environmental claims.
DRM's principal business consists of identifying markets, domestic and
international, where companies have an operating history that may make them a
candidate for the long-tail liability recovery process that DRM offers. After a
survey of each company's available information, DRM designs a preliminary
solution, makes an extensive marketing proposal to the company and secures a
commitment for a six-month exhaustive survey of the company's potential for
financial recovery from their historical insurance policies.
DRM earns compensation for its efforts in the form of retainers, direct
expense reimbursement and percentage success fees from their clients. A typical
client engagement includes a six-month work-up period in which DRM collects,
analyzes, and collates all the pertinent information for the client to determine
their long-tail insurance recovery from their historical insurance policies. At
the end of this six-month period, DRM presents a comprehensive set of
deliverables to the client. At that time, the client determines the feasibility
of continuing the DRM engagement for the ultimate negotiation and final
settlement process with the various insurers. To date, greater than 95% of all
clients that have engaged DRM for the six-month work-up period have continued to
utilize DRM's services to negotiate final settlement with the various insurers,
a process that can take an additional two years. In most instances, DRM receives
retainers, direct expense reimbursements and success fees based on the final
settlement amounts collected from the insurers during this period.
For its fiscal year ended December 31, 1999, DRM earned before income
taxes and minority interest approximately $4.3 million, approximately $2.98
million after a minority interest distribution, on revenues of approximately
$6.4 million. This minority interest was subsequently terminated. DRM's pretax
earnings and revenues for the six months ended June 30, 2000 were approximately
$2.3 million and $3.7 million, respectively.
DRM's principal executive offices are located at 39 Exchange Place, Suite
30, Salt Lake City, Utah 84111 and its telephone number is 801-355-1444.
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MANAGEMENT OF COMMODORE APPLIED TECHNOLOGIES, INC.
Executive Officers and Directors
The names and ages of our executive officers and members of our Board of
Directors and their positions with us and/or our subsidiaries as of October 2,
2000, are as follows:
Name Age Position
---- --- --------
Paul E. Hannesson 60 Chairman of the Board, President and Chief
Executive Officer
Shelby T. Brewer 62 Director, Chairman of the Board and Chief
Executive Officer Commodore Solutions, Inc.
James M. DeAngelis 40 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
William E. Ingram 55 Vice President and Controller
Peter E. Harrod, P.E. 51 President of Commodore Advanced Sciences,
Inc. and President and Chief Operating
Officer of Commodore Solutions, Inc.
Bentley J. Blum 59 Director
Herbert A. Cohen 67 Director
David L. Mitchell 79 Director
Edward L. Palmer 83 Director
William R. Toller 70 Director
Paul E. Hannesson has been a director of our company since March 1996 and
was appointed Chairman of the Board in November 1996. Mr. Hannesson also served
as our Chief Executive Officer and President from March 1996. Mr. Hannesson was
a director of Commodore Environmental from February 1993 and was its Chairman of
the Board and Chief Executive Officer from November 1996 until his resignation
in July 1998. Mr. Hannesson also currently serves as the Chairman of the Board
and Chief Executive Officer of Commodore Separation. Mr. Hannesson was a private
investor and business consultant from 1990 to 1993. Mr. Hannesson is the
brother-in-law of Bentley J. Blum, one of our directors.
Bentley J. Blum has served as a director of our 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 Commodore Environmental since 1984 and served as its
Chairman of the Board from 1984 to November 1996. Mr. Blum also currently serves
as director of Commodore Separation. 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 that hold real estate
interests, oil drilling interests and other corporate interests. Mr. Blum is a
director of Federal Resources Corporation, a company formerly engaged in
manufacturing, retail distribution and natural resources development, and North
Valley Development Corp., an inactive real estate development company. Mr. Blum
is a principal stockholder of Commodore Environmental. Mr. Blum is the
brother-in-law of Paul E. Hannesson, who is our Chairman of the Board, President
and Chief Executive Officer.
Shelby T. Brewer, Ph.D. has served as a director of our company since
August 2000. Mr. Brewer was appointed Chairman and CEO of Commodore Solution in
April 2000. Commodore Nuclear is a wholly owned subsidiary of our company and
has oversight over Commodore Advanced and Commodore Solution. From 1996 to March
2000, Dr. Brewer was President of S. Brewer Enterprises, a consulting firm he
founded that is engaged in supporting mergers and acquisitions, arranging
private and public financing, forming joint ventures abroad, re-positioning
established companies, and helping foster new technology enterprises. Dr. Brewer
served as President and CEO of the nuclear power businesses of ABB Combustion
Engineering from 1985 to 1995. From 1981 to 1984, Dr. Brewer served as Assistant
Secretary of Energy in the Reagan administration, holding the top nuclear post
in the U.S.
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government. Prior to his appointment by President Reagan, Dr. Brewer achieved
positions of increasing line responsibility in private industry, the U.S. Navy,
and the Atomic Energy Commission. Dr. Brewer holds Ph.D. and M.S. degrees in
nuclear engineering from the Massachusetts Institute of Technology. He holds a
B.S. degree in mechanical engineering and a B.A. in humanities from Columbia
University.
Herbert A. Cohen has served as a director of our company since July 1996.
From July 1996 until July 1998, he served as a Director of Commodore
Environmental. In March of 1998 Mr. Cohen joined the Board of Directors of
Commodore Separation where he served until March 2000 when he resigned. 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 United States 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 cruise ship. Mr. Cohen's clients have included
large corporations and government agencies such as the U.S. 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 has served as a director of our company since July 1996.
From July 1996 until July 1998, he served as a Director of Commodore
Environmental. In April 1997 Mr. Mitchell joined the Board of Directors of
Commodore Separation where he served until March 2000 when he resigned. Mr.
Mitchell has also served as a consultant to the company from July 1997 to July
1998. For the past sixteen years, Mr. Mitchell has been President and co-founder
of Mitchell & Associates, Inc., a banking firm providing financial advisory
services in connection with corporate mergers, acquisitions and divestitures.
Prior to forming Mitchell & Associates in 1982, Mr. Mitchell was a Managing
Director of Shearson/American Express Inc. from 1979 to 1982, a Managing
Director of First Boston Corporation from 1976 to 1978, and a Managing Director
of the investment banking firm of S.G. Warburg & company from 1965 to 1976. Mr.
Mitchell holds a bachelor's degree from Yale University.
Edward L. Palmer has served as a director of our company since August
1998. Mr. Palmer currently serves as President of the Mill Neck Consulting
Group, founded in 1983. Mr. Palmer retired in September 1982 as Chairman of the
Executive Committee and Director of Citicorp and Citibank, N.A. after 23 years
of service. Mr. Palmer served as Vice President of the New York Trust, serving
in several executive positions since 1940. Mr. Palmer is Trustee Emeritus of
Brown University, The New York Philharmonic and The Metropolitan Museum of Art.
Mr. Palmer served as Director of Borg-Warner Corp., Citicorp, Corning
Incorporated, Del Monte Corp., First Boston Corp., Grindlays Banks, plc,
Kissinger Associates, Monsanto Co., Mutual Life Ins., Phelps Dodge Corp., Union
Pacific Corp., and Washington National Bank Corp.
William R. Toller has served as a director of our company since March
1998. Mr. Toller served as a Director of Commodore Separation from April 1997
until March 2000. He served as a consultant to Commodore Environmental from July
1997 until February 1998. 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. (August 1996 - Present). 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 Boards 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.
James M. DeAngelis was appointed our Vice President-Finance and Treasurer
in July 1998 and was promoted to the additional positions of Chief Financial
Officer, Chief Administrative Officer and Secretary in December 1998. Mr.
DeAngelis has also served as Senior Vice President-Sales & Marketing of
Commodore Separation since July 1996, after having served as its Vice
President-Marketing since November 1995. Mr. DeAngelis
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has also served as the President of CFC Technologies since September 1994, and
served as Vice President-Marketing of Commodore Environmental from September
1992 to September 1995. Mr. DeAngelis holds a Masters in International
Management degree from the American Graduate School of International Management,
and B.S. degrees in Biology and Physiology from the University of Connecticut.
William E. Ingram served as our Vice President and Controller from October
1996 to March 1997, as our Vice President-Finance from March to May 1997, and
was re-appointed Vice President and Controller in June 1997. Mr. Ingram has also
served as Vice President and Controller of each of Commodore Separation,
Commodore Solution and CFC Technologies since June 1997 and served as Vice
President and Controller of Commodore Environmental from June 1997 to June 1998.
From January 1995 to September 1996 Mr. Ingram was Chief Financial Officer of
HydroChem Industrial Services, Inc., a privately owned company providing
high-pressure water and chemical cleaning services primarily to the
petrochemical industry. Mr. Ingram was Vice President and Region Controller for
Chemical Waste Management, Inc., a subsidiary of Waste Management, Inc., from
September 1983 to December 1994. CWM provides hazardous waste treatment and
disposal services to a wide range of government and industrial customers. Mr.
Ingram also spent two years with the solid waste operations of Waste Management,
Inc. Mr. Ingram is a Certified Public Accountant and has a M.B.A. from the
University of Florida and a B.S. in Accounting from Florida Southern College.
Peter E. Harrod, P.E. has served as an executive officer of Commodore
Advanced since 1991 and as its President since October 1996. Mr. Harrod was
appointed President and Chief Operating Officer of Commodore 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 Commodore Environmental
Services, Inc. from 1983 to 1991, Neil & 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.
Each director is elected to serve for a term of one year or until his or
her successor is duly elected and qualified. Our officers are elected by, and
serve at the pleasure of, our Board of Directors. Currently, none of our
officers have employment agreements. Mr. Hannesson and Mr. Blum are
brothers-in-law. No family relationship exists among any other of our directors
or executive officers. 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 our company.
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PRINCIPAL STOCKHOLDERS OF COMMODORE APPLIED TECHNOLOGIES, INC.
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of October 2, 2000 by (i) each
person known to us to be the beneficial owner of more than 5% of the outstanding
shares of our common stock, (ii) each of the directors of our company, and (iii)
all of our executive officers and directors as a group, as reported by such
persons. Unless otherwise indicated, the stockholders listed below have sole
voting and investment power with respect to their respective shares.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Number of Percentage of of Common Outstanding
Shares Outstanding Stock Shares of
of Common Shares of Beneficially Common Stock
Stock Common Stock Owned Beneficially
Name and Address of Beneficially Beneficially After DRM Owned After
Beneficial Owner(1) Owned(2) Owned Acquisition(3) DRM Acquisition
------------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Commodore Environmental Services, Inc. ...... 15,456,677(4) 37.54% 15,456,677(4) 30.50%
Bentley J. Blum ............................. 15,561,677(5) 37.80% 15,561,677(5) 30.71%
William J. Russell .......................... 3,000,000(6) 7.29% 7,750,000(17) 15.29%
Tamie P. Speciale ........................... 3,000,000(7) 7.29% 7,750,000(18) 15.29%
Paul E. Hannesson ........................... 2,269,078(8) 5.51% 2,269,078(8) 4.48%
Shelby T. Brewer, PhD ....................... 1,240,600(9) 3.01% 1,240,600(9) 2.45%
James M. DeAngelis .......................... 524,011(10) 1.27% 524,011(10) 1.03%
Peter E. Harrod ............................. 353,000(11) 1.00% 353,000(11) *
William E. Ingram ........................... 110,000(12) * 110,000(12) *
Herbert A. Cohen ............................ 106,000(13) * 106,000(13) *
David L. Mitchell ........................... 105,000(14) * 105,000(14) *
Edward L. Palmer ............................ 105,000(15) * 105,000(15) *
William R. Toller ........................... 105,000(16) * 105,000(16) *
All of our executive
officers and directors as
a group (10 persons) ....................... 20,479,366 49.74% 20,479,366 40.41%
</TABLE>
-----------------------------------------------------------
* Percentage ownership is less than 1%.
(1) Unless otherwise noted, the address of each beneficial owner is 150 East
58th Street, Suite 3238, New York, New York 10155. The address of Mr.
Russell and Ms. Speciale is 39 Exchange Place, Suite 30, Salt Lake City,
Utah 8411.
(2) The term beneficial ownership with respect to a security is defined by
Rule 13d-3 under the Exchange Act of 1934, as amended, 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 the power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting and investment
rights.
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<PAGE>
(3) Gives full effect to our acquisition of 81% of the outstanding shares of
DRM common stock and our issuance of an aggregate of 15,500,000 shares of
our common stock and warrants to purchase an aggregate of up to 1,000,000
shares of our common stock in connection with this acquisition. At the
closing of the DRM acquisition on August 30, 2000, we issued an aggregate
of 6,000,000 shares of our common stock in connection with the
acquisition. Issuance of the balance of 9,500,000 shares of our common
stock and warrants to purchase an aggregate of up to 1,000,000 shares of
our common stock is subject to the approval of our stockholders at the
special meeting.
(4) Excludes warrants to purchase an aggregate of 14,410,540 shares of our
common stock at exercise prices ranging from $1.24 per share to $3.10 per
share.
(5) Consists of: (i) 105,000 shares of our common stock underlying currently
exercisable stock options granted to Mr. Blum by us under our 1998 Stock
Option Plan; (ii) Mr. Blum's indirect beneficial ownership of our common
stock based upon his beneficial ownership of 28,479,737 shares of
Commodore Environmental common stock; (iii) 4,500,000 shares of Commodore
Environmental common stock underlying currently exercisable options at
$0.10 per share; and (iv) his spouse's ownership of 2,000,000 shares of
common stock of Commodore Environmental. Items 5(ii), (iii) and (iv)
represent in the aggregate 52.0% of the outstanding shares of Commodore
Environmental common stock on October 2, 2000. It does not include 450,400
shares of Commodore Environmental common stock owned by Simone Blum, the
mother of Mr. Blum, and 385,000 shares of Commodore Environmental common
stock owned by Samuel Blum, the father of Mr. Blum. Mr. Blum disclaims any
beneficial interest in the shares of Commodore Environmental common stock
owned by his spouse, mother and father. The Board of Directors of
Commodore Environmental has the power to direct the vote and to direct the
disposition of the 15,456,677 shares of our common stock owned directly by
Commodore Environmental. Commodore Environmental's board of directors is
currently composed of two directors, one of which is Mr. Blum. By virtue
of Mr. Blum's beneficial ownership of approximately 52% of the outstanding
shares of Commodore Environmental common stock and his position on the
board of directors of Commodore Environmental, Mr. Blum is deemed to be
the indirect beneficial owner of the shares of our common stock owned
directly by Commodore Environmental and shares voting and disposition
power with regard to those shares with the other member of Commodore
Environmental's board of directors.
(6) Consists of 3,000,000 shares of our common stock issued to Mr. Russell by
us at the closing of the DRM acquisition on August 30, 2000. It does not
include 300,000 shares of our common stock underlying stock options
granted to Mr. Russell by us that are not currently exercisable.
(7) Consists of 3,000,000 shares of our common stock issued to Ms. Speciale by
us at the closing of the DRM acquisition on August 30, 2000. It does not
include 300,000 shares of our common stock underlying stock options
granted to Ms. Speciale by us that are not currently exercisable.
(8) Consists of: (i) 750,000 shares of our common stock; (ii) 147,500 shares
of our common stock underlying currently exercisable stock options granted
to Mr. Hannesson by us under our 1998 Stock Option Plan; and (iii) Mr.
Hannesson's indirect beneficial ownership of our common stock based upon
his ownership of an aggregate of (a) 2,650,000 shares of Commodore
Environmental common stock owned by Suzanne Hannesson, the spouse of Mr.
Hannesson, (b) 2,650,000 shares of Commodore Environmental common stock
owned by the Hannesson Family Trust (Suzanne Hannesson and John D.
Hannesson, trustees) for the benefit of Mr. Hannesson's spouse, (c)
500,000 shares of Commodore Environmental common stock issued to the
Hannesson Family Trust, and (d) additional stock options to purchase
525,705 shares of Commodore Environmental common stock at $0.10 per share.
Item 8(iii) collectively represents 10% of the outstanding shares of
Commodore Environmental common stock on October 2, 2000. It does not
include (i) 40,000 shares of our common stock owned by each of Jon Paul
and Krista Hannesson, the adult children of Mr. Hannesson; or (ii)
1,000,000 shares of Commodore Environmental common stock owned by each of
Jon Paul and Krista Hannesson. Mr. Hannesson disclaims any beneficial
interest in the shares of Commodore Environmental common stock owned by or
for the benefit of his spouse and children. Also does not include
2,000,000 shares of our common stock underlying stock options granted to
Mr. Hannesson by us that are not currently exercisable.
(9) Consists of: (i) 570,000 shares of our common stock underlying currently
exercisable options granted to Mr. Brewer by us under our 1998 Stock
Option Plan; (ii) 100,000 shares of our common stock underlying a
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<PAGE>
warrant issued to Mr. Brewer on September 15, 2000; and (iii) 470,600
shares of our common stock underlying a convertible promissory note held
by Mr. Brewer.
(10) Consists of: (i) 381,250 shares of our common stock underlying currently
exercisable stock options granted to Mr. DeAngelis by us under our 1998
Stock Option Plan; and (ii) Mr. DeAngelis' indirect beneficial ownership
of our common stock based upon his ownership of 580,000 shares of
Commodore Environmental common stock.
(11) Consists of 353,000 shares of our common stock underlying currently
exercisable stock options granted to Mr. Harrod by us under our 1998 Stock
Option Plan.
(12) Consists of: (i) 10,000 shares of our common stock; and (ii) 100,000
shares of common stock underlying currently exercisable stock options
granted to Mr. Ingram by us under our 1998 Stock Option Plan.
(13) Consists of (i) 1,000 shares of our common stock; and (ii) 105,000 shares
of our common stock underlying currently exercisable stock options granted
to Mr. Cohen by us under our 1998 Stock Option Plan.
(14) Consists of 105,000 shares of our common stock underlying currently
exercisable stock options granted to Mr. Mitchell by us under our 1998
Stock Option Plan.
(15) Consists of 105,000 shares of our common stock underlying currently
exercisable stock options granted to Mr. Palmer by us under our 1998 Stock
Option Plan.
(16) Consists of 105,000 shares of our common stock underlying currently
exercisable stock options granted to Mr. Toller by us under our 1998 Stock
Option Plan.
(17) Consists of 7,750,000 shares of our common stock. It does not include
300,000 shares of our common stock underlying stock options granted to Mr.
Russell by us that are not currently exercisable.
(18) Consists of 7,750,000 shares of our common stock. It does not include
300,000 shares of our common stock underlying stock options granted to Ms.
Speciale by us that are not currently exercisable.
37
<PAGE>
PROPOSAL ONE
APPROVAL OF THE DRM ACQUISITION AND THE ISSUANCE
OF UP TO 16,500,000 SHARES OF OUR COMMON STOCK IN CONNECTION
WITH THE DRM ACQUISITION
General
At the special meeting, our stockholders will consider and vote upon our
acquisition of 81% of the outstanding capital stock of DRM and our issuance of
up to 16,500,000 shares of our common stock in connection with the DRM
acquisition.
Closing of the DRM Acquisition
Effective as of August 30, 2000, we acquired 81% of DRM's outstanding
capital stock in exchange for the issuance of 10,500,000 shares of our common
stock and warrants to purchase an additional 1,000,000 shares of our common
stock at an exercise price of $2.00 per share. We also agreed to issue an
additional 5,000,000 shares of our common stock in consideration for an option
to purchase the remaining 19% equity interest in DRM at its appraised fair
market value at the time of exercise.
The maximum 16,500,000 shares of our common stock issuable in connection
with the DRM acquisition represented more than 20% of the 32,380,000 shares of
our common stock that were outstanding at the time of the acquisition. Under the
rules of the American Stock Exchange, on which our common stock is listed for
trading, shareholder approval at a meeting held in accordance with the proxy
rules under the Securities Exchange Act of 1934, as amended, is required for any
transaction in which more than 20% of a listed company's shares are to be
issued. Accordingly, in order to comply with the American Stock Exchange rules,
we issued at the closing of the DRM acquisition 6,000,000 shares of our common
stock and agreed to issue 9,500,000 shares of our common stock, representing the
balance of the 15,500,000 shares and the warrants to purchase on aggregate of
1,000,000 shares of our common stock owed to the DRM shareholders, at the time
approval of our stockholders is obtained. We covenanted that in no event would
our stockholder meeting the approval of the DRM acquisition and our issuance of
shares of our common stock in connection with the DRM acquisition be completed
later than December 1, 2000.
In as much as the DRM acquisition was consummated as of August 30, 2000
and 6,000,000 shares of our common stock were issued to Mr. Russell and Ms.
Speciale prior to the October 2, 2000 record date for our special meeting, Mr.
Russell and Ms. Speciale are entitled to vote their share at the special
meeting.
With regard to this vote, Commodore Environmental, a publicly traded
corporation controlled by Bentley J. Blum, one of our directors, and Paul E.
Hannesson, our Chairman, President and Chief Executive Officer, members of Mr.
Hannesson's family, Mr. Russell and Ms. Speciale, who collectively own
approximately 22.7 million shares of our common stock, representing
approximately 58.1% of the outstanding shares of our common stock as of the
October 2, 2000 record date, have agreed to vote all of their shares "FOR" the
DRM acquisition and the issuance of shares of our common stock in connection
with the DRM acquisition. Accordingly, approval of this proposal is assured.
Business Consolidation Strategy
We anticipate that we will be able to combine our environmental-related
management, engineering and technological services experience with DRM's
consulting expertise and pursue opportunities where there exists:
o the need for financial solutions to a company's or
quasi-governmental group's environmental and other long-tail
liabilities;
o the need for cost-effective and safe solutions to the on-going
dangers posed by toxic and radioactive waste;
o environmentally impacted or distressed properties where a
"brownfield" environmental clean-up is warranted; and
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<PAGE>
o the urgent need to prevent proliferation of weapons of mass
destruction by efficiently converting existing, terrorist-vulnerable
nuclear and chemical components into energy and benign materials.
In addressing these opportunities, target markets will include:
o industrial companies in North America and Europe who have maintained
comprehensive general liability insurance coverages with potential
or demonstrated long-tail liabilities;
o mixed-waste (radioactive with hazardous and/or toxic content) U.S.
governmental and international nuclear waste streams;
o governmental entities that are named as additional insureds on
historic general liability coverages;
o spent nuclear fuel and the drying and dehydriding of nuclear fuel
rods;
o U.S. governmental nuclear utilities;
o companies that require specialty environmental cost capping and
finite risk insurance products; and
o U.S. governmental programs for neutralizing nuclear and chemical
weapons and explosives.
Reasons for the DRM Acquisition
We believe the DRM acquisition represents a significant step in our
strategic plan to enhance stockholder value. In considering the DRM acquisition,
our Board of Directors carefully considered a number of relevant factors, both
positive and negative. These included:
o The historical earnings and cash flows of DRM;
o DRM's access to and professional relationships with a number of
industrial companies who could benefit from the use of our
technologies;
o delays we continue to face in commercializing our SET technologies
and generating meaningful positive cash flows;
o our need for additional working capital and liquidity;
o the current depressed state of the equity capital markets; and
o DRM's perceived ability to assist us in marketing our current
hazardous waste remediation technologies, and augment our business
portfolio to include expertise in the area of commercial
environmental insurance recovery.
We believe that acquiring DRM will strengthen us in many ways. The DRM
acquisition is anticipated to provide us with:
o Access to 65% of DRM's cash flow, which will provide immediate
liquidity and is anticipated to serve as collateral for future
financings;
o diversification across a governmental and private industry client
base;
39
<PAGE>
o negotiated insurance claim settlement experience with claims having
a dollar value in excess of $200 million;
o a client list of satisfied, large multinational customers;
o a portfolio of products and services with significant cross-selling
potential;
o the ability to offer clients comprehensive solutions to
environmental problems;
o a "one stop" multi-disciplinary team with technical, engineering,
financial, legal and insurance expertise;
o a complementary array of international teaming and partnering
arrangements; and
o an enhanced ability to identify properties suitable for remediation.
Recommendation of our Board of Directors
After careful consideration, our Board of Directors has unanimously
determined that the DRM acquisition and our issuance of shares of our common
stock in connection with the DRM acquisition is advisable and in your best
interests. Our Board of Directors has unanimously approved the DRM acquisition
and our issuance of shares of our common stock in connection with the DRM
acquisition and unanimously recommends that holders of our common stock vote
"FOR" this proposal at the special meeting.
History and Background of DRM Acquisition
In April 1999, Stephen A. Weiss, a shareholder of Greenberg Traurig, LLP,
our principal corporate and securities legal counsel, was contacted by phone by
Arthur Berry, a business broker located in Boise, Idaho, who had worked on an
unrelated transaction with Mr. Weiss in 1994 and 1995. Mr. Berry advised that he
had been engaged by DRM and its stockholders, William J. Russell and Tamie
Speciale, to assist them in locating a strategic buyer for their business. As an
alternative, Mr. Berry indicated that DRM might be a logical candidate for an
initial public offering. Following this phone call, Mr. Berry submitted certain
business and financial data concerning DRM to Mr. Weiss and arranged for a
meeting among Mr. Russell, Ms. Speciale and Mr. Weiss.
In July 1999, Mr. Weiss met with Mr. Russell and Ms. Speciale. The DRM
stockholders explained the nature of their business and advised Mr. Weiss that
they were entertaining offers for DRM from one potential consulting firm
purchaser. They agreed to retain the Greenberg Traurig law firm as their counsel
to represent them and DRM in a potential sale transaction. They also agreed to
explore the possibilities of an initial public offering of DRM's common stock.
In or about August 1999, Mr. Russell and Mr. Weiss met with an investment
firm that Greenberg Traurig represented from time to time. The firm advised Mr.
Russell that although DRM appeared to be a profitable and attractive business,
in their opinion it was not then a viable candidate for an initial public
offering; rather, it would be better served as part of a larger consulting
organization or in another business engaged in the same or a similar market
segment to which DRM's expertise related. In October 1999, with the approval of
Mr. Russell and Ms. Speciale, Mr. Weiss contacted Bentley Blum, one of our
directors, about the possibility of us acquiring DRM, in view of the fact that
we both served the environmental industry.
After reviewing certain materials regarding DRM's business and financial
history, Mr. Blum advised that he and Paul E. Hannesson, our Chairman, President
and Chief Executive Officer, would like to meet with Mr. Russell and Ms.
Speciale. Between October 1999 and February 2000, a number of meetings were held
among Messrs. Blum, Hannesson, and Russell and Ms. Speciale in our offices in
New York City and in Greenberg Traurig's offices in New York City. At these
meetings we conducted extensive discussions regarding the business of DRM and
our SET technology developments, joint ventures and other initiatives in the
environmental industry.
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<PAGE>
Between December 1999 and January 2000, a series of meetings were held
concerning the pricing and structuring of a possible transaction between us.
During these discussions, Mr. Russell and Ms. Speciale advised that they had
received proposals from third parties to purchase DRM for as much as $22.0
million in cash, publicly traded securities and additional cash payments based
upon the future performance of DRM. After much discussion, we agreed to purchase
81% of DRM's outstanding capital stock for $14.5 million in cash, of which
approximately $2.0 million would be paid as bonuses to certain key employees of
DRM and to defray a finders' fee obligation to Arthur Berry & Company, Inc. In
addition to the cash payments, Mr. Russell and Ms. Speciale would receive
1,000,000 shares of our common stock and warrants to purchase an aggregate of an
additional 1,000,000 shares of our common stock at an exercise price of $2.00
per share.
We also negotiated a series of "earn-out" payments that the DRM
stockholders would be entitled to receive after the acquisition. Such payments,
capped at approximately $37.1 million, would equal 35% of the cash flow of the
"DRM Business", as defined, derived in each quarter following the closing of the
transaction and through December 31, 2005. The definition of the "DRM Business"
was formulated to include specified add-on businesses that the principals of
both our company and DRM believed would represent logical mutual extensions of
our respective businesses and expertise. We also agreed to a series of
post-closing affirmative and negative covenants regarding the operation of and
transactions effecting DRM and its associated add-on businesses, which were
designed to insure that Mr. Russell and Ms. Speciale would have the opportunity
to maximize their chances of achieving the earn-out goals. In view of the fact
that the cash component of our proposal was less than others had offered, Mr.
Russell and Ms. Speciale insisted upon an unconditional guaranty by us that they
would receive not less than $10.0 million in cash earn-out payments by December
31, 2003; failing which we would have to pay any deficiency between $10.0
million and amounts actually received under the earn-out.
We also agreed that if we did not either sell DRM or conduct an initial
public offering of its securities by the end of 2005, then either we would
purchase or the DRM stockholders could require us to purchase from them their
remaining 19% minority equity interest in DRM. The arrangements contemplated
that we would acquire such minority interest and Mr. Russell and Ms. Speciale
would be entitled to receive a number of shares of our common stock based on an
independent appraisal of the relative values of each of our company and our
subsidiaries as a whole, including DRM, and the DRM business on a stand-alone
basis.
On November 17, 1999, at a meeting at Greenberg Traurig, a non-binding
letter of intent was negotiated. Inasmuch as Greenberg Traurig was serving as
counsel to DRM and its stockholders, we retained the services of the law firm of
Silverman Perlstein & Acampora LLP to serve as counsel to us in the transaction,
and appropriate conflict waiver letters were executed among all parties and
counsel.
On February 10, 2000, we executed a definitive agreement, effective as of
January 31, 2000, with Mr. Russell, Ms. Speciale and DRM under which we, through
a newly formed limited liability company, were to acquire an 81% equity interest
in DRM, in accordance with the terms described above. The final agreements were
subject to approval of our Board of Directors. On January 14, 2000, our Board of
Directors conditionally approved the agreement, but objected to the obligation
imposed upon us to pay $10.0 million in cash to the DRM stockholders by 2003,
irrespective of the future performance of DRM under the earn-out arrangements.
Messrs. Blum and Hannesson renegotiated the terms of such "make whole"
arrangements to provide that we could discharge our obligations, if any, by the
issuance to Mr. Russell and Ms. Speciale of additional shares of our common
stock, valued at the then market price. On February 10, 2000, our Board of
Directors unanimously approved the agreement.
Consummation of the transactions under the February 2000 agreement was
subject to us raising financing in the amount of not less than $19 million by
August 31, 2000. Over the next succeeding six months, our representatives held
discussions with a number of possible financing sources, including a potential
investor in England. However, in view of the fact that the market price of our
publicly traded common stock only ranged between $2.38 and $1.19 per share
during that period, our Board of Directors and management were unwilling at that
time to subject us and our stockholders to the significant dilution that would
result if we sold shares of our common stock, or notes or preferred stock
convertible into shares of our common stock, at prices significantly below such
depressed market prices.
In early August 2000, Messrs. Blum and Hannesson had a series of meetings
and discussions with Mr. Russell and Ms. Speciale about the possibility of
restructuring the transaction in a manner that would permit a closing to take
place, and yet enable us to defer our obligation to raise financing to a future
time when, hopefully, anticipated positive
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<PAGE>
developments in our SET technology initiatives and activities and the state of
the capital markets would be reflected in a substantially higher trading price
of our common stock.
On August 11, 2000, Mr. Russell, Ms. Speciale and Messrs. Blum and
Hannesson prepared a one-page term sheet which contemplated the sale of 81% of
the outstanding capital stock of DRM to us. In lieu of $14.5 million in cash,
DRM and the DRM stockholders would receive a total of 14,500,000 shares of our
unregistered common stock, valued for these purposes at $14.5 million. 5,000,000
of these shares were allocated to and were to be given in consideration for our
option to purchase the remaining 19% minority interest in DRM at a later date.
At the time this term sheet was prepared, the closing price of our common stock
on the American Stock Exchange was $1.06 per share. Our original agreement to
issue Mr. Russell and Ms. Speciale 1,000,000 shares of our common stock and to
grant them warrants to purchase an aggregate of 1,000,000 shares of our common
stock at an exercise price of $2.00 per share, pursuant to the February 2000
proposed cash transaction, remained part of the new arrangements. As a result we
agreed, to issue 15.5 million shares and warrants to purchase 1,000,000 shares
of our common stock.
In order to provide Mr. Russell and Ms. Speciale with future liquidity as
to their shares of our common stock and to potentially reduce the dilution to
our stockholders from the issuance of shares of our common stock to them, the
new arrangements contemplated that
o We would receive a one year option to purchase up to 9,500,000
shares of our common stock from Mr. Russell and Ms. Speciale at a
price equal to the greater of $1.50 per share or 65% of the average
closing price per share of our common stock for the three trading
days immediately prior to our exercise of the option; and
o To the extent that they do not receive an aggregate of $14.5 million
in cash as a result of the full or partial exercise of our option,
Mr. Russell and Ms. Speciale have the right to "put" up to 9,500,000
shares of our common stock owned by them back to us for the same
price per share as our exercise price set forth above.
In the event that we would be unable to pay by September 30, 2001 for any
shares that we are required to repurchase from Mr. Russell and Ms. Speciale
under their "put" option, then Mr. Russell and Ms. Speciale can exercise their
rights under the pledge agreement, as more fully described below. We have the
right to assign our purchase option to any third party investor.
At a meeting held on August 22, 2000, our Board of Directors considered
the DRM acquisition and our issuance of shares of our common stock to the DRM
shareholders. All directors were present for this meeting and participated in
the consideration of the DRM acquisition and our issuance of shares of our
common stock to the DRM shareholders upon the revised terms and conditions.
During this meeting, our management advised the Board of Directors as to the
strategic and economic advantages that management believes we will enjoy if the
DRM acquisition was to be completed. In order to assist our Board of Directors
in evaluating the fairness to our company of the DRM acquisition from a
financial point of view, management discussed various pro forma cash flow
scenarios, which previously had been distributed to the Board of Directors, from
current and projected long-tail insurance recovery projects on which DRM is
working. Following this presentation and after deliberation, our Board of
Directors unanimously voted to approve the DRM acquisition and our issuance of
shares of our common stock in connection with the DRM acquisition on the revised
terms.
On September 7, 2000, the stock purchase agreement was executed, and the
acquisition of DRM was consummated effective as of August 30, 2000.
Terms of the DRM Acquisition
The following is a summary of the important provisions of the stock
purchase agreement which is attached to this proxy statement as Annex I. The
summary is qualified in its entirety by reference to the full text of the stock
purchase agreement which, together with the exhibits thereto, are incorporated
the proxy statement by reference. All holders of our common stock are encouraged
to read the stock purchase agreement and its exhibits carefully and in their
entirety.
Financial Terms.
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Under the terms of the agreement, effective as of August 30, 2000, we
purchased from William J. Russell and Tamie P. Speciale, who each owned 50% of
the issued and outstanding capital stock of DRM, an aggregate of 81% of the
issued and outstanding stock of DRM. In addition, Mr. Russell and Ms. Speciale
granted us a five-year option, exercisable at any time after January 1, 2006, to
purchase their remaining 19% equity interest in DRM. In consideration for the
sale of 81% of the issued and outstanding capital stock of DRM, and the grant of
an option to purchase the remaining 19% equity interest in DRM, we agreed to the
following:
o An aggregate of 10,500,000 shares of our common stock are to be
issued to the DRM shareholders in consideration for our purchase of 81% of
the issued and outstanding capital stock of DRM. Of these 10,500,000
shares, 8,859,000 shares are to be issued to Mr. Russell and Ms. Speciale,
and an additional 1,641,000 shares are to be issued to DRM to be
distributed to certain key employees of DRM and to Arthur Berry & Company,
Inc. in payment of a finders' fee.
o In consideration for our option to purchase the remaining 19%
interest in DRM from Mr. Russell and Ms. Speciale, we also agreed to issue
to Mr. Russell and Ms. Speciale an additional 5,000,000 shares of our
common stock. We cannot exercise our option until January 1, 2006. If and
when the option is exercised, the exercise price will be based upon the
relative appraised value of the business of DRM as compared to the
appraised value of our entire company as a whole, including DRM. For
purposes of calculating the value of the business of DRM, all e-commerce
initiatives of our company and our subsidiaries will be excluded, but will
be included in valuing our company as a whole. A mutually acceptable
investment banker will conduct the appraisals, and a final valuation of
the 19% minority interest in DRM will be paid to Mr. Russell and Ms.
Speciale in additional shares of our common stock, based on the market
value of our common stock at that time. It is our intention to exercise
this option as soon as contractually permitted.
o We agreed to issue to Mr. Russell, Ms. Speciale and a key employee
of DRM five-year warrants to purchase up to an aggregate of 1,000,000
shares of our common stock at an exercise price of $2.00 per share.
o In addition to our issuance to Mr. Russell and Ms. Speciale of
shares of our common stock, we agreed to grant Mr. Russell and Ms.
Speciale quarterly earn-out distributions equal to 35% of the cash flow of
DRM and certain defined "add-on businesses" over an earn-out period
commencing as of September 1, 2000 and ending December 31, 2005. These
distributions will not exceed approximately $37.1 million in total,
irrespective of the cumulative cash flow of DRM over this 64-month period.
The "add-on businesses" that will be included in the calculation of DRM
cash flow consist of any business commenced or acquired by DRM or us
during the earn-out period that:
o provides services similar to or compatible with those
currently provided by DRM;
o provides financial services or engages in real estate
activities in connection with environmental matters, including the
purchase, lease or dealing in so-called "brownfields" or related
environmentally-impacted real estate, environmental and other
insurance brokerage or indemnity coverage; or
o provides environmental informational services or systems,
including electronic commerce produce or services, software or other
Internet facilities for private industry or governmental agencies.
In order for an add-on business activity to be included within the
calculation of DRM cash flow, both Mr. Russell and Ms. Speciale must approve of
our or DRM's acquisition or commencement of this business. However, even if Mr.
Russell and Ms. Speciale do not approve any such business initiative or
investment, we may nonetheless consummate such transaction so long as such
business is not operated within DRM or its subsidiaries or does not otherwise
affect the calculation of DRM cash flow.
We also agreed that if DRM has not distributed to Mr. Russell and Ms.
Speciale a total of $10.0 million in cash in earn-out payments by December 31,
2003, we will be responsible to make up any difference between $10.0 million and
the actual cash distributed to them by awarding to Mr. Russell and Ms. Speciale
an amount of consideration equal to this short-fall amount. This consideration
can be paid out by us in cash or, at our sole option, with additional shares of
our common stock valued at the time of issuance. If this obligation requires us
to issue more than 2,000,000 shares of our common
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stock, we have the right to defer the issuance of any shares in excess of
2,000,000 shares to December 31, 2005, based on the market price at that later
date.
Of the 10,500,000 shares of our common stock which we issued in connection
with the DRM acquisition in consideration for 81% of the outstanding DRM stock,
9,500,000 of these shares of our common stock are subject to our 12-month option
to repurchase any or all of these shares at a price equal to the greater of
$1.50 per share or 65% of the average closing price per share of our common
stock for the three trading days immediately prior to our exercise of this
option. Our repurchase option period commenced as of August 30, 2000 and expires
on August 29, 2001.
We have agreed to register for resale under the Securities Act of 1933, as
amended, all of the 15,500,000 shares of our common stock that we committed to
issue under the agreement, as well as the 1,000,000 shares of our common stock
underlying the warrants that we granted to the DRM shareholders and a key
employee of DRM pursuant to the stock purchase agreement. Our obligation is to
promptly file a registration statement under the Securities Act as soon as
practicable and to complete the registration process by December 31, 2000.
Notwithstanding our agreement to register these shares, Mr. Russell, Ms.
Speciale and the other holders of the 15,500,000 shares of our common stock
granted pursuant to the DRM acquisition have agreed not to sell any of those
shares until after September 29, 2001.
We have an absolute obligation to repurchase by not later than August 29,
2001 that number of the 10,500,000 shares of our common stock subject to the
repurchase option so as to provide the holders of those shares with a total of
$14.5 million; in this regard, the dollar amount of the repurchase obligation is
to be reduced in an amount equal to any proceeds previously received by these
holders from the exercise of our one-year purchase option regarding shares of
our common stock. The per-share price at which we will be required to repurchase
these shares will be equal to the greater of $1.50 per share or 65% of the
average closing price per share of our common stock for the three trading days
immediately prior to our repurchase.
Mr. Russell and Ms. Speciale can terminate, at any time prior to the end
of the option period, our purchase option, and their agreement not to sell the
shares of our common stock subject to the option, with regard to either
1,000,000 of the option shares or as to all 9,500,000 of the option shares.
However, if they elect to terminate our entire option, our repurchase obligation
will also terminate.
To secure our $14.5 million repurchase obligation, our obligation to
insure that $10.0 million of cash flow payments are received by Mr. Russell and
Ms. Speciale through December 31, 2003 and other covenants of our company under
the stock purchase agreement, we have pledged to Mr. Russell and Ms. Speciale
our entire 81% equity interest in DRM. Once the $14.5 million repurchase
obligation amount has been paid, or waived by Mr. Russell and Ms. Speciale, then
50% of our pledged equity, which represents 40.5% of the outstanding DRM stock,
will be released from the pledge agreement. At such time as we pay Mr. Russell
and Ms. Speciale $10.0 million in earn-out payments, which payments shall be
made in cash or, in the event of a shortfall, may be made in shares of our
common stock, the pledge of our remaining equity interest in DRM and the pledge
agreement will terminate.
In the event that by September 29, 2001 we are unable to fully discharge
our $14.5 million repurchase obligation, then, pursuant to the pledge agreement
Mr. Russell and Ms. Speciale, acting on behalf of themselves and certain other
parties, may foreclose on all of the shares of DRM capital stock which we
purchased from them. They may also retain, as liquidated damages, that number of
shares of our common stock as will equal 1,000,000 plus 50% of the difference
between 9,500,000 and the number of shares of our common stock which we
purchased from them during our repurchase obligation period. In addition, Mr.
Russell and Ms. Speciale may retain the 5,000,000 shares of our common stock
which we issued to them in consideration for our option to acquire from them
their remaining 19% equity interest in DRM, and they and the other holder of
warrants to purchase an aggregate of up to 1,000,000 shares of our common stock
granted in connection with this transaction may retain those warrants.
Accordingly, if we default on our $14.5 million repurchase obligation, then we
would be subject to losing both our 81% equity interest in DRM as well as
forfeiting up to an aggregate of 10,750,000 shares of our common stock.
As part of the transaction, Mr. Russell and Ms. Speciale each entered into
64-month employment agreements with DRM calling for initial annual salaries of
$250,000, with annual increases of approximately $15,000, commencing in January
2001. Mr. Russell and Ms. Speciale also executed non-competition agreements
under which they agreed, subject to our compliance with our financial and
operational covenants, not to compete with DRM or any business which delivers
15% or more of its revenues through consulting services offered with respect to
the settlement of complex environmental related insurance claims.
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Representations and Warranties.
By all parties. In the stock purchase agreement, we, DRM, Mr. Russell and
Ms. Speciale each made certain customary representations and warranties relating
to:
o our and their respective authorization of, and taking of all
necessary corporate action in connection with, our or their
execution, delivery and performance of the agreement and related
agreements subject, in our case, to receipt of stockholder approval;
o our and their respective power and authority to enter into the
agreement and related agreements;
o the validity and binding effect of the agreement and related
agreements;
o the absence of conflict with, as applicable, charter documents,
agreements and other obligations to which we or they are a party or
by which our or their properties are bound and with applicable laws,
orders, rules and regulations;
o the absence of any required governmental filings, consents or
permits that have not been obtained except for filings required
under the Securities Act of 1933, as amended;
o compliance with all applicable laws material to our or their
respective businesses;
o the due organization of our company and DRM;
o the accuracy and completeness of financial information provided by
us and DRM and the conformity of this information with generally
accepted accounting principles;
o in our case, the accuracy of the periodic filings with the SEC under
the Securities Exchange Act of 1934, as amended;.
o the full disclosure of brokers and finders fees and the like
relating to the acquisition; and
o the fact that all of the respective representations and warranties
made by us and each of them will not, at the time of closing of the
acquisition, contain any untrue statement of a material fact or omit
to state any material fact required to be stated or necessary in
order to make such representations and warranties, in light of the
circumstances under which they are made, not misleading.
By DRM and Mr. Russell and Ms. Speciale. In addition to the
representations and warranties set forth above, DRM and Mr. Russell and Ms.
Speciale, as applicable, made customary business representations and warranties
concerning DRM, including
o their ownership of 100% of the capital stock of DRM;
o the accuracy of DRM's audited and unaudited historical financial
statements;
o the absence of any material adverse changes in DRM's financial
condition, operations or business since December 31, 1999;
o the absence of any damage, destruction or losses materially and
adversely affecting DRM's business, operations, financial condition,
properties or prospects;
o that Mr. Russell and Ms. Speciale have paid all federal income taxes
due on the earnings and profits of DRM, a Subchapter S corporation
prior to its acquisition by us, through December 31, 1999;
o the validity of title to DRM's personal property;
o the compliance with DRM's obligations under leases to its leased
office facilities;
o that all accounts receivable have arisen in the ordinary course of
DRM's business and represent amounts owed by unaffiliated third
party debtors;
o that DRM possesses all required permits and licenses necessary to
operate its business;
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o that all scheduled contracts deemed material are, except as noted,
in full force and effect;
o that DRM has not received notice of any material breach or default
under any scheduled contract, and none of these contracts are
terminable or voidable by reason of DRM entering into the
transaction with us;
o representations as to labor and employment matters;
o representations as to compliance with all applicable laws material
to DRM's business, including environmental matters;
o representations as to the absence of litigation; and
o the absence of ownership by any stockholder or employee of DRM or
patents, licenses, trademarks and other intellectual property
required for use in DRM's business.
Certain Covenants. Under the terms of the agreement, during the 64 month
earn-out period, we must comply with certain affirmative and negative covenants
with respect to the operations of DRM and any "add-on businesses."
Negative Covenants. These covenants include our agreement that following
the closing, and through March 31, 2006 or thereafter and for so long as any
quarterly payments in respect of DRM cash flow shall continue to be due and
owing to the former DRM stockholders, neither DRM nor any add-on business shall,
nor shall we or any of our affiliates permit or cause DRM or any add-on business
to, engage in or consummate any of the following, without, in each instance, the
prior written affirmative vote, consent and approval of both Mr. Russell and Ms.
Speciale:
o merge, consolidate or sell all or substantially all of DRM's assets
or securities;
o issue additional shares of DRM stock or other equity of DRM or any
agreed-upon "add-on business;"
o make any investments or other acquisitions of material assets or
businesses;
o incur indebtedness for borrowed money or capitalized lease
obligations in any one or more transactions aggregating in excess of
$50,000 per annum;
o incur liens, mortgages or security interests in any one or more
transactions aggregating in excess of $50,000 per annum;
o exceed or deviate from mutually agreed upon budgets for DRM;
o modify or terminate the basic DRM business;
o enter into or consummate any transfer or sale of properties or
provide funds or credit to any third parties (other than sales of
inventories in the ordinary course of business) in amounts
aggregating more than $50,000 per annum;
o increase compensation to executive officers or management of DRM
above mutually agreed upon levels;
o except for liabilities of DRM which we shall be obligated to pay, if
any, enter into any related party transactions, including payment to
us or any of our affiliates of any overhead expenses, salaries,
consulting fees, bonuses or other compensation or remuneration to
any of our officers, directors, employees or stockholders;
o amend or terminate any of DRM's material agreements;
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o settle any material DRM litigation which involves the loss of any
rights, or payment of any moneys or royalties;
o prepay or refinance any DRM indebtedness;
o make or accept any additional investments, whether in cash or other
assets or property, to or for DRM or any agreed upon "add-on
business";
o guaranty any obligations or incur any obligations or indebtedness
which would cause the DRM cash flow payments to Mr. Russell or Ms.
Speciale to be subordinated in any manner with respect to the rights
of the holders of such obligations or indebtedness;
o take any action which would adversely affect DRM's ability to
distribute shares of our common stock issued to DRM at closing to
key employees of DRM or to Arthur Berry & Company, Inc., a business
broker, pursuant to the stock purchase agreement; or
o enter into any other transactions not in DRM's ordinary course of
business.
Affirmative Covenants. We also agreed to certain affirmative covenants
following the closing, to the effect that DRM and each agreed upon "add-on
business" shall:
o maintain and preserve their corporate existence, franchises,
intellectual property and assets;
o pay all taxes and other government charges;
o provide the DRM stockholders with prompt notices of any material
events, including changes in location of assets, claims or
litigation, material adverse changes or defaults under any loan or
related credit agreements or to any other creditor(s);
o furnish the DRM stockholders with monthly, quarterly and annual
financial statements and other financial reports of DRM and its
subsidiaries;
o comply with all our business plans with respect to the growth,
development and expansion of the business activities of DRM and any
contemplated add-on businesses or investments;
o provide the DRM stockholders with timely and accurate information as
to business developments and activities of DRM and each add-on
business, including the application of the net proceeds of all
financings;
o pay all insurance premiums, including premiums on officers and
directors liability insurance;
o with respect to each proposed and approved add-on business or
investment: (i) offer the DRM stockholders full access to all
information, facilities and personnel with respect to a potential
add-on business at the same time as other of our affiliates conduct
their due diligence investigation of the potential business, (ii)
offer the DRM stockholders an adequate opportunity to review and
approve or reject all potential add-on businesses and investments,
(iii) if any proposed add-on business or investment shall be
approved by the DRM stockholders and acquired by us or any of our
direct or indirect subsidiaries or affiliates, constitute the same
as an approved add-on business in the calculation of DRM cash flow,
(iv) except for approved add-on businesses involving the
"brownfields" real estate business and the electronic commerce
investments, make all approved add-on investments or businesses
direct or indirect subsidiaries of DRM, and (v) offer DRM
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stockholders the right to include in the calculation of DRM cash
flow, the cash flow of all such potential add-on businesses or
investments; and
o vote all shares of DRM stock owned by us or any of our affiliates to
elect as the entire Board of Directors of DRM and the Board of
Directors of each approved add-on business, with certain limited
exceptions relating to brownfields real estate and electronic
commerce activities, to the extent applicable, the following persons
or their individual designees: (A) Bentley J. Blum, (B) Paul E.
Hannesson, (C) William J. Russell, (D) Tamie P. Speciale, and (E)
one other person who shall be mutually acceptable to us and to Mr.
Russell and Ms. Speciale. Herbert Cohen, a member of our Board of
Directors, was designated by such persons as the fifth DRM director.
For all purposes of the stock purchase agreement, all matters requiring
the approval or consent of the DRM stockholders require that this approval or
consent be given by both Mr. Russell and Ms. Speciale, and if, for any reason,
one of them should fail or refuse to provide his or her consent or approval,
then that matter shall be deemed as though both Mr. Russell and Ms. Speciale did
not approve of that matter or transaction. In the event of the death or
permanent disability of either Mr. Russell or Ms. Speciale, the surviving or
non-disabled stockholder shall, for all purposes, be the only person whose
approval or consent shall thereafter be required in connection with all matters
requiring the approval or consent of both of the DRM stockholders.
Accounting Treatment
We will account for our acquisition of DRM on a purchase accounting basis,
effective as of the closing date. This accounting treatment is reflected in our
pro forma financial statements that are included in this proxy statement. The
transaction will result in our company incurring an aggregate charge of $25.0
million in good-will, which will be amortized over a period of 20 years and
represent a $1.25 million per year charge against future pre-tax earnings, if
any.
Federal Income Tax Consequences of the DRM Acquisition
To our company. Generally, no gain or loss is recognized for tax purposes
upon the purchase of the equity of another business. Accordingly, no current
federal income taxes should result from our consummation of the DRM acquisition.
Our stockholders. The DRM acquisition will have no federal income tax
consequences for our stockholders.
No Appraisal Rights
Under Delaware corporate law, our stockholders are not entitled to
appraisal or dissenters' rights in connection with the DRM acquisition.
Listing of Our Common Stock
We will apply to the American Stock Exchange to list all 16,500,000 shares
of our common stock distributed or to be distributed in connection with the DRM
acquisition in the near future.
We are seeking the approval of our stockholders to satisfy the listing
requirements of the American Stock Exchange. The rules of the American Stock
Exchange require stockholder approval as a prerequisite to listing securities to
be issued in connection with certain transactions where the present or potential
issuance of common stock or securities exercisable for or convertible into
common stock could result in an increase in outstanding common stock of 20% or
more.
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PROPOSAL TWO
AMENDMENT TO CERTIFICATE
OF INCORPORATION OF THE COMPANY
Our certificate of incorporation presently authorizes us to issue
100,000,000 shares of our common stock, of which 38,526,172 were issued and
outstanding as of October 2, 2000. However, on a fully diluted basis, if all of
our convertible notes and shares of our preferred stock were converted into
shares of our common stock and all outstanding warrants and options to purchase
shares of our common stock were exercised, an aggregate of 90,654,570 shares of
our common stock would be issued and outstanding as of October 2, 2000. Our
Board of Directors proposes that our stockholders approve an amendment to our
certificate of incorporation authorizing us to amend the certificate of
incorporation of our company to increase the number of authorized shares of
common stock form 100,000,000 to 125,000,000 shares.
Our Board of Directors and management believe that the amendment is needed
to facilitate raising additional capital. In order for us to realize our
business objectives, and thereby best serve the interests of our current
stockholders, we may require funds for use in making acquisitions, including the
DRM acquisition, financing and covering working capital needs. The authorization
of an additional 25,000,000 shares of common stock would permit our company to
have additional shares of common stock available for issuance at the discretion
of the Board of Directors for future acquisitions, stock splits, stock
dividends, equity financing, employee benefit plans and other corporate
purposes. This will allow us to respond flexibly to our future financial and
capital requirements and to take advantage of favorable market conditions or
business opportunities, including acquisitions. Our Board of Directors has no
present intention to issue any additional shares of common stock, other than in
connection with the DRM acquisition, exercise of stock options, warrants or
other securities exercisable for, or convertible into, common stock from time to
time.
The amendment could also be beneficial for other reasons. Shares of our
common stock could be issued by us in order to broaden the public ownership of,
and enhance the market for, our common stock, should our Board of Directors
decide these are appropriate objectives in light of prevailing market
conditions.
Although the increase in the number of shares of authorized common stock
is not intended as a means of preventing or dissuading a future change in
control or takeover of our company, use of these shares for any such purpose is
possible. Shares of authorized but unissued or unreserved common stock, for
example, could be issued in an effort to dilute the stock ownership and voting
power of persons seeking to obtain control of our company, or could be issued to
purchasers who would support our Board of Directors in opposing a takeover
proposal.
The additional shares of common stock authorized pursuant to the proposed
amendment to our charter would be, subject to the laws of the State of Delaware,
our state of incorporation, issuable at the discretion of our Board of Directors
without, in most cases, the delays and expenses attendant with obtaining
stockholder approval. To the extent required by Delaware law, stockholder
approval would be solicited in the event shares of our common stock were to be
issued in connection with a merger. None of our stockholders will have any
pre-emptive rights to purchase or subscribe for any shares of our common stock
made available by the proposed amendment to our charter.
The issuance of any of the shares of our common stock made available
through the proposed amendment to our charter, otherwise than on a pro rata
basis to all of our stockholders, would reduce the proportionate interest in our
common stock that each of our current stockholders would otherwise have after
the DRM acquisition. At the present time, except for the issuance of shares of
common stock in connection with the DRM acquisition, we do not know the terms
under which the shares made available by the increase in the number of
authorized shares of our common stock would be issued.
Our Board of Directors unanimously recommends that the stockholders vote
"FOR" the approval and adoption of the amendment to our certificate of
incorporation to increase the number of authorized shares of our common stock
from 100,000,000 shares to 125,000,000 shares.
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STOCKHOLDER PROPOSALS
Our stockholders who wish to present proposals appropriate for
consideration at our annual meeting to be held in 2001 must submit the proposal
in proper form to the Secretary of our company at our address set forth on the
first page of this proxy statement not later than March 31, 2001, in order for
the proposal to be considered for inclusion in our proxy statement and form of
proxy relating to the annual meeting. It is suggested that the proposal be sent
by certified mail, return receipt requested.
OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING
Our Board of Directors is aware of no other matters, except for those
incident to the conduct of the special meeting, that are to be presented to our
stockholders for formal action at the special meeting. If, however, any other
matters properly come before the special 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.
WHERE YOU CAN FIND MORE INFORMATION
This document contains important business and financial information about
us and DRM derived from documents that are not being delivered to you. However,
this information is available to you without charge at your oral or written
request. You can obtain these documents (other than exhibits to those documents)
by requesting them in writing, or by telephone, as follows:
Commodore Applied Technologies, Inc. Dispute Resolution Management, Inc.
150 East 58th Street, Suite 3238 39 Exchange Place, Suite 30
New York, New York 10155 Salt Lake City, Utah 84111
(212) 308-5800 (801) 355-1444
www.commodore.com www.drmworld.com
If you would like to request documents, please do so before November 17,
2000 so you can receive them before the special meeting.
We have not authorized anyone to give you any information or to make any
representation about us, DRM or the DRM acquisition or the contemplated increase
in the number of authorized shares of our common stock that differs from or adds
to the information contained in this document or in the documents that we have
filed with the Securities and Exchange Commission. Therefore, if anyone gives
you any different or additional information, you should not rely on it.
You should rely only on the information contained in this proxy statement
to vote on the proposals submitted for vote. The information contained in this
document speaks only as of the date indicated on the cover page of this document
unless the information specifically indicates that another date applies. You
should not assume that the information contained in this proxy statement is
accurate as of any date other than the date indicated on the cover page of this
proxy statement.
The information in this document regarding us is supplied entirely by us
and the information in this document regarding DRM is supplied entirely by DRM.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can inspect and
copy such materials at the public reference facilities of the SEC located at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Securities and Exchange Commission regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. You may also obtain copies of such material from the
Securities and Exchange Commission at existing published rates by writing to the
Public Reference Section of the Securities and Exchange Commission at, 450 Fifth
Street, N.W., Washington D.C. 20549. When requesting such materials and
information from the Securities and Exchange Commission, in our case, please
reference our Securities and Exchange Commission File Number "1-11871."
50
<PAGE>
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
more information on the operation of its public reference rooms. You can also
find Securities and Exchange Commission filings relating to us at the Securities
and Exchange Commission website at "http://www.sec.gov."
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this proxy statement:
Page No.
--------
Financial Statements
Dispute Resolution Management, Inc. and Subsidiary
Report of Independent Certified Public Accountants ................ F-1
Consolidated Finacial Statements
Consolidated Balance Sheets as of December 31, 1999
and 1998 and as of June 30,000 (unauduted) ........................ F-2
Consolidated Statements of Earnings for the years ended
December 31, 1999, 1998 and 1997 and for the six months
ended June 30, 2000 and 1999 (unauduted) .......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 and for the
six months ended June 30, 2000 (unaudited) ........................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 and for the six months
ended June 30, 2000 and 1999 (unauduted) .......................... F-6
Notes to Consolidated Financial Statements......................... F-8
All other financial statement schedules for which
provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and,
therefore, have been omitted.
52
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Dispute Resolution Management Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Dispute
Resolution Management Inc. and Subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of earnings and stockholders' equity and
cash flows for the three years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dispute Resolution
Management and Subsidiary as of December 31, 1999 and 1998, and the results of
their operations and cash flows for the three years then ended, in conformity
with generally accepted accounting principles.
/s/ Foote, Passey, Griffin & Co., LC
Salt Lake City, Utah
January 20, 2000, except for Notes A and I which are dated August 10, 2000
F-1
<PAGE>
Dispute Resolution Management Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
June 30, ------------
2000 1999 1998
---------- ---------- ----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 238,277 $ 545,944 $ 809,381
Accounts receivable 2,291,332 464,797 175,411
Prepaid expenses 28,430 1,350 37,224
Notes and interest receivable
from stockholders -- 124,000 --
---------- ---------- ----------
Total current
assets 2,558,039 1,136,091 1,022,016
---------- ---------- ----------
FURNITURE AND EQUIPMENT,
at cost 179,780 140,882 94,814
Less accumulated
depreciation 59,788 44,593 22,717
---------- ---------- ----------
119,992 96,289 72,097
---------- ---------- ----------
OTHER ASSETS
Notes and interest receivable
from stockholders -- -- 116,000
Investment in joint venture 40,420 -- --
---------- ---------- ----------
40,420 -- 116,000
---------- ---------- ----------
$2,718,451 $1,232,380 $1,210,113
========== ========== ==========
(Continued)
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Dispute Resolution Management Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
June 30, ------------
2000 1999 1998
---------- ---------- ----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 110,446 $ 70,276 $ 55,930
Accrued liabilities 86,925 58,367 7,000
Notes and interest payable
to stockholders -- 120,280 --
---------- ---------- ----------
Total current liabilities 197,371 248,923 62,930
---------- ---------- ----------
LONG-TERM DEBT
Notes and interest payable
to stockholders -- -- 112,520
---------- ---------- ----------
MINORITY INTEREST -- 183,830 339,807
---------- ---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.10 par value
Authorized 50,000 shares;
issued and outstanding
30,000 shares 3,000 3,000 3,000
Retained earnings 2,518,080 796,627 691,856
---------- ---------- ----------
2,521,080 799,627 694,856
---------- ---------- ----------
$2,718,451 $1,232,380 $1,210,113
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Dispute Resolution Management Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Six months
ended June 30, Years ended December 31,
-------------------------- -----------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Consulting fees $ 3,689,277 $ 4,835,150 $ 6,438,322 $ 5,189,410 $ 1,074,083
----------- ----------- ----------- ----------- -----------
Operating expenses
Salaries, benefits and
payroll taxes 924,155 864,895 1,646,948 1,063,830 591,758
General and administrative 565,695 294,312 555,296 342,646 232,674
----------- ----------- ----------- ----------- -----------
1,489,850 1,159,207 2,202,244 1,406,476 824,432
----------- ----------- ----------- ----------- -----------
Operating income 2,199,427 3,675,943 4,236,078 3,782,934 249,651
----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest income 5,601 30,045 34,503 21,773 8,000
Other income 88,176 -- 24,954 -- --
Interest expense (530) (3,880) (7,760) (7,760) (7,760)
Other expense (21,605) (4,000) (17,050) (3,000) --
----------- ----------- ----------- ----------- -----------
71,642 22,165 34,647 11,013 240
----------- ----------- ----------- ----------- -----------
2,271,069 3,698,108 4,270,725 3,793,947 249,891
NET EARNINGS -
MINORITY INTEREST -- (969,577) 1,292,963 1,000,637 215,293
----------- ----------- ----------- ----------- -----------
NET EARNINGS $ 2,271,069 $ 2,728,531 $ 2,977,762 $ 2,793,310 $ 34,598
=========== =========== =========== =========== ===========
BASIC AND DILUTED NET
EARNINGS PER SHARE $ 75.70 $ 90.95 $ 99.26 $ 93.11 $ 1.16
=========== =========== =========== =========== ===========
(Unaudited) (Unaudited)
Unaudited pro forma information:
Pro forma earnings from
operations $ 2,271,069 $ 2,728,531 $ 2,977,762 $ 2,793,310 $ 34,598
Pro forma provision for
income taxes (885,717) (1,064,127) (1,161,327) (1,089,391) (13,493)
----------- ----------- ----------- ----------- -----------
Pro forma net earnings $ 1,385,352 $ 1,664,404 $ 1,816,435 $ 1,703,919 $ 21,105
=========== =========== =========== =========== ===========
Unaudited pro forma basic
and diluted earnings per
share $ 46.18 $ 55.48 $ 60.55 $ 56.80 $ .71
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Dispute Resolution Management Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998, and 1997
and for the six months ended June 30, 2000 (unaudited)
Common Retained
Stock Earnings Total
----------- ----------- -----------
Balance as of January 1, 1997 $ 3,000 $ (11,900) $ (8,900)
Net earnings for period -- 34,598 34,598
Distributions to stockholders -- (23,817) (23,817)
----------- ----------- -----------
Balance as of December 31, 1997 3,000 (1,119) 1,881
Net earnings for period -- 2,793,310 2,793,310
Distributions to stockholders -- (2,100,335) (2,100,335)
----------- ----------- -----------
Balance as of December 31, 1998 3,000 691,856 694,856
Net earnings for period -- 2,977,762 2,977,762
Distributions to stockholders -- (2,872,991) (2,872,991)
----------- ----------- -----------
Balance as of December 31, 1999 3,000 796,627 799,627
Net earnings for period
(unaudited) -- 2,271,069 2,271,069
Distributions to stockholders
(unaudited) -- (549,616) (549,616)
----------- ----------- -----------
Balance as of June 30, 2000
(unaudited) $ 3,000 $ 2,518,080 $ 2,521,080
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Dispute Resolution Management Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months
ended June 30, Years ended December 31,
-------------------------- -----------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash
and Cash Equivalents
Cash flows from operating
activities
Net earnings $ 2,271,069 $ 2,728,531 $ 2,977,762 $ 2,793,310 $ 34,598
Adjustments to reconcile
change in net assets to
net cash provided by
operating activities
Deemed note payment -- -- -- (200,000) --
Depreciation 15,195 9,526 21,876 12,680 9,499
Changes in assets and
liabilities
Accounts, notes and
interest receivable (1,802,535) (13,435) (297,386) (96,946) (50,927)
Prepaid expenses (27,080) 31,811 35,874 (29,902) 3,462
Accounts payable 40,170 15,418 14,346 24,462 18,842
Accrued liabilities,
notes and interest
payable 8,278 198,253 59,127 14,760 7,375
Minority interest (183,830) 159,147 (155,977) 238,920 88,987
----------- ----------- ----------- ----------- -----------
Net cash provided
by operating
activities 321,267 3,129,251 2,663,622 2,765,284 119,836
----------- ----------- ----------- ----------- -----------
Cash flows used in investing
activities
Purchase of equipment (38,898) (18,365) (46,068) (36,378) (22,285)
Investment in joint venture (40,420) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities (79,318) (18,365) (54,068) (44,378) (30,285)
----------- ----------- ----------- ----------- -----------
Cash flows used in financing
activities
Distributions to stockholders (549,616) (2,860,568) (2,872,991) (2,100,335) (23,817)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (307,667) 250,318 (263,437) 620,571 65,734
Cash and cash equivalents at
beginning of period 545,944 809,381 809,381 188,810 123,076
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period $ 238,277 $ 1,059,699 $ 545,944 $ 809,381 $ 188,810
=========== =========== =========== =========== ===========
</TABLE>
(Continued)
F-6
<PAGE>
Dispute Resolution Management Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six months
ended June 30, Years ended December 31,
-------------------------- -----------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of
cash flows:
Cash paid during the period for
Interest $ 530 $ -- $ -- $ -- $ --
State income taxes $ 14,546 $ 18,629 $ 13,000 $ 1,087 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Dispute Resolution Management Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
and for the six months ended June 30, 2000 and 1999 (unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements
follows.
1. Business
Dispute Resolution Management Inc., an S corporation (the Company)
and its 80% owned subsidiary, Dispute Resolution, Ltd., a
partnership, engage in management consulting specializing in
settlements of environmental and insurance related disputes. The
Company has operations in Utah, Colorado, Pennsylvania, Maryland,
New Jersey and Texas.
2. Principles of consolidation
The Company consolidates the accounts of its 80 percent owned
subsidiary, Dispute Resolution, Ltd. All intercompany trans-actions
have been eliminated. During the period ended June 30, 2000, the
Company dissolved its interest in its subsidiary (Note C).
3. Investment in joint venture
The Company accounts for a 50% interest in a joint venture under the
equity method and is included in other assets. The Company's share
of loss from the joint venture is included in other expense.
Condensed financial information is not presented as the amounts are
immaterial.
4. Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
5. Accounts receivable
All trade accounts are considered to be collectible and no allowance
for doubtful accounts is required.
(Continued)
F-8
<PAGE>
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. Revenue recognition
Revenue is recognized on retainers according to the terms of each
contract. Revenue is recognized on contingent success fees as each
dispute with each insurer is resolved and settlement proceeds have
been recovered by the client.
7. Furniture and equipment
Furniture and equipment are recorded at cost. Depreciation is
calculated using the straight-line method based on estimated useful
lives of three to seven years.
8. Income taxes
Tax returns are filed annually and income taxes on earnings are paid
by the shareholders and partners as specified in the Internal
Revenue Code for S Corporations and Partnerships. No provision has
been made for income taxes. The Company is subject to State
franchise tax in several of the states in which it operates.
The unaudited pro forma income tax information included in the
Statement of Earnings is presented in accordance with the Statement
of Financial Accounting Standards No. 109 Accounting for Income
Taxes, as if the Company had been subject to federal and state
income taxes for all periods presented.
There are differences between the financial carrying amounts and the
tax basis of existing assets and liabilities, primarily resulting
from the Company reporting taxable income on the cash basis. In
connection with the proposed merger discussed in Note I, the
Company's S Corporation election will terminate and the tax effect
of the net difference between the book and tax basis of net assets
at that date will be recorded in the combined Company's financial
statements.
9. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(Continued)
F-9
<PAGE>
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
10. Advertising
Advertising costs of $78,966, $29,583, and $60,464 for the years
ended December 31, 1999, 1998 and 1997, respectively, were expensed
as incurred.
11. Net earnings per share
Net earnings per share is based on weighted average shares
outstanding of 30,000 shares for the years ended December 31, 1999,
1998, and 1997, and six months ended June 30, 2000 and 1999. There
is no difference on earnings per share on a fully diluted basis
because average shares outstanding are the same for both the basic
and fully diluted shares outstanding.
12. Unaudited information
In the opinion of management, the accompanying unaudited financial
statements for the six month periods ended June 30, 2000 and 1999
contain all adjustments (consisting only of normal recurring items)
necessary to represent fairly the results of operations and cash
flows for the Company for the six month periods ended June 30, 2000
and 1999. The results of operations for the six months ended June
30, 2000 are not necessarily indicative of the results to be
expected for the entire year.
13. New accounting standards
In June 1998, the Financial Accounting Standard Board issued SFAS
133 Accounting for Derivative Instruments and Hedging Activities,
which is effective for fiscal years beginning after June 15, 1999.
SFAS 133 is not expected to have a material effect on the financial
position or results of operations of the Company.
NOTE B - NOTES AND INTEREST RECEIVABLE FROM STOCKHOLDERS
The Company has a note receivable of $50,000 from each of the two
stockholders. The notes have an interest rate of 8%. The notes have no
specific repayment terms and have been classified as long term.
1999 1998
-------- --------
Stockholder notes $100,000 $100,000
Accrued interest 24,000 16,000
-------- --------
$124,000 $116,000
======== ========
The notes and interest were paid during the period ended June 30, 2000.
F-10
<PAGE>
NOTE C - PARTNERSHIP AGREEMENT
Dispute Resolution Ltd. (DRLTD) was formed in 1996. As part of the
agreement, the limited partner, KPMG Peat Marwick LLP (KPMG), transferred
service contracts to DRLTD and made a cash advance of $200,000. DRLTD is
obligated to pay KPMG twenty percent of gross fees collected on these
contracts until the work is completed or until a total amount of
$5,000,000 has been paid to KPMG. Total disbursements under this agreement
for the years ended December 31, 1999, 1998 and 1997 were $1,448,000,
$761,717, and $126,306, respectively. The $200,000 advance was deemed paid
by KPMG and recognized as income by DRLTD in 1998. Effective as of
December 31, 1999, the Company has negotiated a termination of the DRLTD
partnership agreement with KPMG. The Company received approximately
$86,000 of other income as a result of the negotiated termination. In
addition, KPMG has a security interest equal to 20% of gross revenues
which may be collected from a certain client in the future. The amount has
not been determined or accrued at June 30, 2000.
NOTE D - CONCENTRATIONS
Cash balances
The Company maintains its cash balances in one financial institution
located in Salt Lake City, Utah. These balances are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured cash balances were
approximately $350,000 at December 31, 1999.
Customers
The Company's customer base consists primarily of business entities in the
United States. Substantially all revenues are from these customers.
The following clients accounted for 10% or more of total revenue:
Six months ended Years ended
June 30, December 31,
-------- ------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
Company A -- -- -- -- 12%
Company B -- -- -- -- 12%
Company C -- -- -- -- 21%
Company D -- -- -- 24% --
Company E -- 44% 40% 16% --
Company F -- 35% 29% 13% --
Company G 24% -- -- -- --
Company H 55% -- -- -- --
(Continued)
F-11
<PAGE>
NOTE D - CONCENTRATIONS - CONTINUED
The following individual clients accounts for 10% or more of accounts
receivable:
June 30, December 31,
--------------------- -------------------
2000 1999 1999 1998
-------- -------- -------- --------
Company A 72% -- -- 26%
Company B -- -- -- 20%
Company C -- -- -- 22%
Company D -- -- 24% --
Company E -- -- 57% --
Company F -- 91% -- --
NOTE E - NOTES AND INTEREST PAYABLE - STOCKHOLDERS
The Company has a note payable of $48,500 from each of two stockholders.
Interest has been accrued at the rate of 8% per annum. The notes are due
subsequent to January 1, 2000, and have been classified as long term.
1999 1998
-------- --------
Stockholder notes $ 97,000 $ 97,000
Accrued interest 23,280 15,520
-------- --------
$120,280 $112,520
======== ========
The notes and interest were offset and distributed during the period ended
June 30, 2000.
NOTE F - OPERATING LEASE
The Company leases office space for its Colorado, Maryland, New Jersey,
Pennsylvania, Texas and Utah operations on a month to month basis. Total
lease payments for the years ended December 31, 1999, 1998 and 1997 were
$81,887, $58,479, $10,037, respectively. Future operating lease commitments
are as follows:
2000 $ 47,342
2001 26,444
--------
$ 73,786
========
F-12
<PAGE>
NOTE G - RETIREMENT PLAN
The Company maintains a retirement plan qualified under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may elect to
contribute up to 15% of their salaries, and the Company may elect a
discretionary contribution. Both the employee and employer contributions
are limited to the maximum allowable amounts specified in the IRS
Regulations. No discretionary contributions have been made by the Company.
Employees are eligible to participate in the plan as soon as they are
employed by the Company.
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS
None of the Company's financial instruments are held for trading purposes.
The Company estimates that the fair value of all financial instruments at
1999 and 1998 does not differ materially from the aggregate carrying
values of its financial instruments recorded in the accompanying balance
sheet. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
NOTE I - SUBSEQUENT EVENT
Subsequent to December 31, 1999, the Company entered into a letter of
intent to merge with another entity. The closing of the transaction is
dependent upon certain provisions being met including financing and
shareholder approval.
F-13
<PAGE>
ANNEX I
Annex I Amended and Restated Stock Purchase Agreement and Exhibits
A-1
<PAGE>
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT ("Agreement"), is
entered into this 30th day of August 2000 by and among COMMODORE APPLIED
TECHNOLOGIES, INC., a Delaware corporation having offices at 150 East 58th
Street, New York, New York 10155 ("Commodore"); WILLIAM J. RUSSELL ("Russell"),
an individual residing at 16049 East Berry Drive, Aurora, Colorado 80015 and
TAMIE P. SPECIALE ("Speciale"), an individual residing at 55 Dorchester Drive,
Salt Lake City, Utah 84103; and DISPUTE RESOLUTION MANAGEMENT, INC., a Utah
corporation having offices at 39 Exchange Place, Suite 30, Salt Lake City, Utah
84111 (the "Company"). Russell and Speciale are individually hereinafter
sometimes referred to as a "Stockholder" and collectively as the "Stockholders".
W I T N E S S E T H:
WHEREAS, the Stockholders are the record and beneficial owners of all of
the issued and outstanding shares of the capital stock and business of the
Company, which is engaged primarily in the business of serving as an
international business consulting firm specializing in the settlement and
resolution of disputes involving complex, latent and long-tail insurance claims,
including environmental, asbestos, products liability, Year 2000 issues and
other matters, for corporate and governmental clients (the "Core Business"); and
WHEREAS, effective as of January 31, 2000, Commodore, the Company, the
Stockholders and Dispute Resolution Management, LLC, a Delaware limited
liability company (the "LLC") entered into an Asset Purchase Agreement (the
"Prior Asset Agreement"); pursuant to which Prior Asset Agreement, the Operating
Agreement forming the LLC and the other exhibits thereto (a) the LLC was to
acquire the assets and liabilities of the Core Business, and (b) Commodore was
to have provided, in addition to shares of Commodore common stock and warrants,
approximately $14.5 million in cash to the LLC for distribution to the
Stockholders and certain key employees of the Company; and
WHEREAS, Commodore has (a) advised the Stockholders and the Company that,
to date, Commodore has been unable to obtain from unaffiliated third parties on
commercially acceptable terms the financing required to provide $14.5 million of
cash consideration, plus approximately $1.5 million of additional working
capital, and (b) requested that the Stockholders agree to defer receipt and
finance the cash portion of the consideration in a manner which will provide
Commodore with time to obtain the necessary financing on commercially reasonable
terms; and
WHEREAS, the Stockholders are willing to provide Commodore with such
financial accommodations, all upon the terms and subject to the conditions set
forth below; and
WHEREAS, effective as of August 18, 2000, Commodore, the Company and the
Stockholders entered into an agreement and plan of merger (the "Merger
Agreement"); and
WHEREAS, the parties hereto desire, pursuant to this Agreement and the
exhibits hereto, to amend and restate in its entirety, all of the transactions
contemplated by the Prior Asset Agreement and the Merger Agreement
(collectively, the "Prior Agreements") and the exhibits thereto; and
A-2
<PAGE>
WHEREAS, each of (a) Commodore, (b) Commodore Environmental Services,
Inc., a Delaware corporation ("COES") and Paul E. Hannesson and members of his
family (the "Hannesson Group"), as the record owners of a majority of the issued
and outstanding shares of common stock of Commodore (collectively, with COES,
the "CXI Majority Stockholders"), and (c) the respective boards of directors of
each of Commodore, COES and the Company, have all authorized and approved the
Acquisition, and the consummation of the other transactions contemplated by this
Agreement, all on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereby covenant and agree
as follows:
8 THE ACQUISITON
8.1 The Acquisition. At the time of the Closing on the Closing Date
(as such terms are hereinafter defined), Commodore shall purchase from the
Stockholders, and the Stockholders shall sell to Commodore, an aggregate of
twenty-four thousand three hundred (24,300) shares of the common stock of the
Company, $.10 par value per share (the "Majority Company Stock"), against
receipt by the Stockholders of the "Acquisition Stock" (as that term is
hereinafter defined) and the other consideration payable by Commodore to the
Stockholders hereunder.
8.2 Certificates for the Majority Company Stock. On the Closing
Date, the Stockholders shall deliver to Commodore, against receipt of the
Acquisition Stock and other consideration payable by Commodore hereunder,
certificates representing all of the shares of the Majority Company Stock. The
Majority Company Stock, when so delivered to Commodore, shall represent not less
than and not more than eighty-one (81%) percent of the issued and outstanding
shares of capital stock of the Company as at the Closing Date. The certificates
evidencing the Majority Company Stock shall be duly endorsed for transfer,
accompanied by duly executed stock powers with the signature of each of the
record owners appropriately guaranteed by a bank or appropriately witnessed and
notarized in a manner reasonably acceptable to Commodore. The Stockholders are,
and as at the Closing Date shall be, the record and beneficial owners of all,
and not less than all, of the issued and outstanding shares of capital stock of
the Company. Annexed hereto as Exhibit A and made a part hereof is a list of the
issued and outstanding shares of capital stock of the Company and the record and
beneficial owners thereof (the "Company Stock Ownership List"). An aggregate of
five thousand seven hundred (5,700) shares of Common Stock of the Company, $.10
par value per share (the "Minority Company Stock") shall be retained by the
Stockholders following the Closing Date and represents not more than and not
less than nineteen (19%) percent of the issued and outstanding shares of capital
stock of the Company as at the Closing Date.
8.3 Stock Records and Minute Books. On the Closing Date, in addition
to the delivery and transfer of the Majority Company Stock to Commodore, the
Stockholderr shall deliver, and shall cause the Company to deliver, to Commodore
all of the stock records and minute books of the Company, all of which records
and books shall be complete, accurate and current.
A-3
<PAGE>
9. CONSIDERATION.
On the Effective Date and simultaneous with the consummation of the
Acquisition, the Stockholders, as the record owners of all of the outstanding
shares of Company Stock, shall be entitled to receive from Commodore, in
consideration for the Majority Company Stock, the following consideration (the
"Acquisition Consideration"); which Acquisition Consideration shall be payable
on the Closing Date to the Persons set forth in Sections 2.1, 2.2, 2.3 and 2.4
below.
9.1 The Acquisition Stock. An aggregate of (a) eight million eight
hundred and fifty nine thousand (8,859,000) shares of Commodore Common Stock
shall be issued to the Stockholders, in equal amounts as between them, and (b)
one million six hundred and forty-one thousand (1,641,000) shares of Commodore
Common Stock shall be issued to the Company, to be reserved for distribution or
payment in cash in the manner provided in Section 9.8 hereof. Such ten million
five hundred thousand (10,500,000) shares of Commodore Common Stock is
hereinafter collectively referred to as the "Acquisition Stock").
9.2 [Intentionally Omitted]
9.3 Commodore Warrants. Commodore shall issue to the Stockholders,
in equal amounts as between them, and certain other Persons five-year warrants
to purchase an aggregate of one million (1,000,000) shares of Commodore Common
Stock at an exercise price of $2.00 per share (the "Commodore Warrants"); which
Commodore Warrants shall be in substantially the form of Exhibit B annexed
hereto and made a part hereof.
9.4 Cash Flow Installment Payments. In addition to the Acquisition
Stock and the Commodore Warrants, for the period which shall commence on the
"Closing Date" (as that term is defined in Section 10) and shall end on December
31, 2005 (the "Cash Flow Payment Period"), the Stockholders shall be entitled to
receive from the Company an aggregate of thirty-five (35%) percent of all
Company Cash Flow which shall be produced by the Company and all Permitted
Investments (the "Company Cash Flow Payments"); provided, that no further
Company Cash Flow Payments shall be required to be paid to the Stockholders if
an aggregate of Thirty Seven Million One Hundred Thirty One Thousand Five
Hundred Seventy Eight ($37,131,578) Dollars in accumulated Company Cash Flow
Payments shall have been paid to the Stockholders prior to the expiration of the
Cash Flow Payment Period. During the Cash Flow Payment Period, thirty-five (35%)
percent of all Company Cash Flow produced by the Company and all Permitted
Investments in each of the four quarterly periods ending on March 31st, June
30th, September 30th, December 31st (each a "Quarter") shall be paid to the
Stockholders in installments, commencing with the Quarter ending September 30,
2000 and ending with the Quarter ending December 31, 2005. Such installment
Company Cash Flow Payments shall be paid to the Stockholders, as follows:
(a) except for the Quarter ending December 31st in each fiscal
year of Commodore and the Company ending on December 31st or such other
fiscal year end of the Company as may hereafter be established (each a
"Fiscal Year"), the Stockholders shall be entitled to receive within
thirty (30) days following the end of each Quarter through the Quarter
ending December 31, 2005, an amount which shall equal thirty-five (35%)
percent of the Company Cash Flow in such fiscal Quarter. In the event and
to the extent an amount in excess of thirty-five (35%) percent of Company
Cash Flow shall
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have been paid to the Stockholders in any one fiscal Quarter, the excess,
if any, shall be credited against thirty-five (35%) percent of the Company
Cash Flow Payments payable to the Stockholders in the next immediately
succeeding fiscal Quarter(s);
(b) with respect to the fourth Quarter in each Fiscal Year,
commencing with the Fiscal Year ending December 31, 2000, within 10 days
after receipt of the final Reviewed Financial Statements of the Company
and all Permitted Investments, but in no event later than one hundred and
five (105) days after the end of each such Fiscal Year, the Stockholders
shall be entitled to receive an amount which shall be equal to (i)
thirty-five (35%) percent of Company Cash Flow in such Fiscal Year, less
(ii) all payments made to the Stockholders in respect of Company Cash Flow
Payments during any or all of the immediately preceding three (3) Quarters
in such Fiscal Year (or in the case of the Fiscal Year ending December 31,
2000, the number of Quarters from the Closing Date to December 31, 2000);
(c) in the event and to the extent an amount in excess of
thirty-five (35%) percent of Company Cash Flow shall have been paid to the
Stockholders in any one Fiscal Year, the excess, if any, shall be credited
against thirty-five (35%) percent of Company Cash Flow Payments payable to
the Stockholders in the next immediately succeeding Fiscal Year(s), which
credit shall be applied in the order of the next maturing Company Cash
Flow Payments; provided, that if, following December 31, 2005, the
accumulated payments of Company Cash Flow actually received by the
Stockholders during the Cash Flow Payment Period shall have exceeded an
aggregate of $37,131,578, the excess, if any, shall be refunded by the
Stockholders to the Company by not later than June 30, 2006.
(d) On a date which shall be the earlier to occur of (i) a
Sale of Control or (ii) December 31, 2003, the Stockholders shall be
entitled to have received an aggregate of not less than Ten Million
($10,000,000) Dollars of accumulated Company Cash Flow Payments,
irrespective of the accumulated amount of Company Cash Flow actually
produced.
(e) each occasion that a Quarterly installment Company Cash
Flow Payment shall be due and payable to the Stockholders pursuant to this
Section 2.4, Commodore shall make such payment in cash by wire transfer of
immediately available funds to bank accounts specified by the Stockholders
or their designees.
9.5 Make Whole Agreement. In the event and to the extent that the
Stockholders shall not have received on a timely basis a minimum of Ten Million
($10,000,000) Dollars in accumulated Company Cash Flow Payments, Commodore shall
guaranty payment in full of any "short-fall" in payment of such minimum
cumulative amount pursuant to terms of the Make Whole Agreement annexed hereto
as Exhibit C and made a part hereof (the "Make Whole Agreement").
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2.6 Issuance of Acquisition Consideration and Commodore Option Stock.
(a) On the Effective Date and simultaneous with consummation
of the Acquisition, Commodore shall issue to the Stockholders and the Company,
stock certificates evidencing an aggregate of six million (6,000,000) shares of
Commodore Common Stock, as follows:
(i) an aggregate of four million and sixty thousand
(4,060,000) shares of Commodore Common Stock shall be issued to the Stockholders
(in equal amounts as between them), representing a portion of the 8,859,000
shares of Acquisition Stock reserved for issuance to the Stockholders; and
(ii) an aggregate of one million nine hundred and forty
thousand (1,940,000) shares of Commodore Common Stock shall be issued to the
Stockholders (in equal amounts as between them), representing a portion of the
5,000,000 shares of Commodore Option Stock.
(b) Not later than two (2) Business Days after receipt of
Final Commodore Stockholders Approval, Commodore shall issue to the
Stockholders, the Company and the other Persons listed on Schedule 9.8 hereto,
stock certificates evidencing an aggregate of nine million five hundred thousand
(9,500,000) shares of Commodore Common Stock and the Commodore Warrants, as
follows:
(i) an aggregate of four million seven hundred ninety
nine thousand (4,799,000) shares of Commodore Common Stock shall be issued to
the Stockholders (in equal amounts as between them), representing the balance of
the 8,859,000 shares of Acquisition Stock reserved for issuance to the
Stockholders;
(ii) an aggregate of one million six hundred forty-one
thousand (1,641,000) shares of Commodore Common Stock shall be issued to the
Company, to be reserved for distribution or payment in the manner provided in
Section 9.8 hereof, representing the 1,641,000 shares of Acquisition Stock
reserved for issuance to the Company;
(iii) an aggregate of three million and sixty thousand
(3,060,000) shares of Commodore Common Stock shall be issued to the Stockholders
(in equal amounts as between them), representing the balance of the 5,000,000
shares of Commodore Option Stock; and
(iv) the Commodore Warrants shall be issued to the
Stockholders and the other Persons entitled to receive them, as provided in
Exhibit B hereto.
10. CERTAIN DEFINITIONS. As used in this Agreement and in addition to the
other terms defined herein, the following capitalized terms shall have the
following meanings:
"Acquisition" means the acquisition by Commodore of the Majority
Company Stock from the Stockholders, pursuant to the terms and conditions set
forth in this Agreement.
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"Acquisition Stock" means the 10,500,000 shares of Commodore Common
Stock referred to in Section 2.1 of this Agreement.
"Adjusted Pre Tax Income of the Company" shall mean the combined net
income of the Company and Dispute Resolution Limited, a partnership ("DRL"), set
forth on the 1999 Audited Financial Statement, as adjusted to (a) give effect to
the deduction of all compensation and bonuses payable to all employees of the
Company for the fiscal year ended December 31, 1999, other than the bonuses and
other payments referred to in Section 9.8 hereof, and (b) before giving effect
to (i) any payments or distributions by DRL to KPMG LLP or their Affiliates
("KPMG") under the terms of the existing agreements between the Company, the
Stockholders and KPMG, or (ii) application or deduction of any federal income
taxes or any distributions to the Stockholders of aggregate amounts of cash in
excess of their current annual salaries rates.
"Affiliate" means with respect to any Person (the "Subject Person"),
any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Subject Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Subject Person (whether through
ownership of securities or partnership or other ownership interests, by contract
or otherwise). With respect to any Person who is an individual, "Affiliates"
shall also include, without limitation, any member of such individual's Family
Group.
"Agreement" means this Stock Purchase Agreement as the same may be
amended, modified, supplemented or restated from time to time.
"Board of Directors" shall mean the five (5) Person board of
directors of the Company which shall be in place for a period of not less than
five (5) years following the Closing Date, and which shall consist of (a) two
(2) Persons designated by Commodore, (b) the Stockholders or in the event of the
death or permanent disability of either or both of the Stockholders, two (2)
other Persons designated by the survivor of the Stockholders, and (c) one (1)
additional Person who shall be mutually acceptable to the Stockholders and
Commodore.
"Brownfields Real Estate Business" means the purchase, lease or
dealing in so-called "brownfields" or related environmentally impacted real
estate interests through the direct or indirect efforts of Commodore, the
Stockholders, the Company or any other employee of the Company or Commodore.
"Cash Flow" shall mean as applicable to any Person in question, the
individual, consolidated or combined Net Profit or Net Loss of such Person and
its consolidated Subsidiaries, if any, before (i) application of federal, state
and local income taxes of such Person and its consolidated Subsidiaries and
Permitted Investments, and (ii) all non-cash items of expenses and deductions
taken in respect of depreciation and/or amortization of good-will and other
intangible assets.
"Closing Date" means the date of consummation of the transactions
contemplated by this Agreement, which, in accordance with the provisions of
Section 10 of this Agreement, shall be deemed to have occurred as of August 29,
2000.
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"Commodore" has the meaning set forth the Preamble to this
Agreement.
"Commodore Common Stock" means the common stock of Commodore, $.001
par value per share.
"Commodore Financial Services Business Development Plan" means the
business development plan which has been previously developed by Commodore and
the Stockholders.
"Commodore Option Stock" means the five million (5,000,000) shares
of Commodore Stock issuable to the Stockholders on the Closing Date in
consideration for the Minority Company Stock Option.
"Commodore Proxy Statement" shall have the meaning set forth in
Section 7.12 hereof.
"Commodore Stockholders Meeting" shall mean a special meeting of the
stockholders of Commodore to be called for the purpose of ratifying this
Agreement, the Acquisition and all of the transactions contemplated hereby.
"Company" means Dispute Resolution Management, Inc., a Utah
corporation.
"Company Cash Flow" shall mean the consolidated or combined Cash
Flow of the Company and all Permitted Investments, all as set forth on the
Reviewed Financial Statements. In determining Company Cash Flow:
(a) the Reviewed Financial Statements shall be prepared in
accordance with generally accepted accounting principles;
(b) Company Cash Flow shall, at all times, be calculated
before giving effect to any deductions for compensation expense or other related
item of expense resulting from the issuance by Commodore of the 1,500,000 shares
of Acquisition Stock referred to in Section 9.8 hereof; and
(c) Company Cash Flow shall, at all times, be calculated
before giving effect to any item of expense or accrued obligation which shall
not have been approved in advance by the Stockholders or otherwise is made in
violation of the provisions contained in Section 14.4 or Section 14.5 of this
Agreement.
"Core Business" means the business of acting as consultants
specializing in the settlement and resolution of disputes involving complex,
latent and long-tail insurance claims, including environmental, asbestos,
products liability, Year 2000 issues and other matters, for corporate and
governmental clients.
"Effective Date" means the effective date of the acquisition of
Majority Company Stock by Commodore, pursuant to this Agreement.
"Employment Agreements" means the separate employment agreements to
be executed on the Closing Date between the Company and each of Russell and
Speciale, in the form of Exhibit E annexed hereto and made a part hereof.
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"Extension Electronic Investments" means the electronic databases
described below to be acquired and/or created by Commodore Advanced Sciences,
Inc., a Subsidiary of Commodore, or any other Affiliate of Commodore, to
supplement and service existing markets. Such electronic databases consist of:
(a) electronic contracting for government contracts, including
request for information ("RFI") and request for proposals ("RFP"), leading to
potential auction and related services;
(b) electronic inventory of hazardous, toxic, radioactive and legacy
waste, including locations, amounts, character and remedial cost estimates, for
both government and commercial clients;
(c) electronic information on technologies and processes, together
with cost ranges, available for treatment and processing of various waste
materials and categories, including by-product results, and storage and disposal
options.
"Final Commodore Stockholders Approval" shall mean the date on which
the holders of record on the record date fixed in the Commodore Proxy Statement
of a majority of the issued and outstanding shares of Commodore Common Stock
shall have approved, adopted and ratified this Agreement, the Acquisition and
all of the transactions contemplated hereby at the Commodore Stockholders
Meeting.
"GAAP " means generally accepted accounting principles in the United
States which shall be in effect from time to time for any particular Fiscal Year
in question.
"Investment" means the acquisition or investment by a Person,
whether in the form of debt or equity securities (or any combinations or
derivatives thereof), of or in another Person, or a group of assets purchased in
a single transaction or series of related transactions, or any other asset,
including short-term investments of cash and loans.
"Lock Up Agreement" shall have the meaning set forth in Section 7.16
hereof.
"Major Transactions" means any one or more of the contemplated
transactions, events or decisions set forth in Section 14.4 hereof.
"Minority Company Stock" means five thousand seven hundred (5,700)
shares of the Company common stock retained by the Stockholders following the
Closing Date and representing 19% of the issued and outstanding shares of
capital stock of the Company.
"Minority Company Stock Option" means the five year option,
commencing January 1, 2006 and ending December 31, 2010 pursuant to which the
Stockholders have granted to Commodore the option to purchase the Minority
Company Stock, pursuant to the Minority Company Stock Option Agreement.
"Minority Company Stock Option Agreement" means the option agreement
between the Stockholders and Commodore in the form of Exhibit H annexed hereto
and made a part hereof.
"National Securities Exchange" shall have the meaning set forth in
clause (iii)
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of Section 7.2(a) hereof.
"Net Profit" and "Net Loss" means the net income (including items of
income exempt from tax) and net loss (including expenditures that neither can be
capitalized nor deducted), respectively, of the Company or any other applicable
Person, all as determined in accordance with generally accepted accounting
principles.
"Obligations" shall have the meaning set forth in Section 7.2(d)
hereof.
"Option" shall have the meaning set forth in Section 7.2(a) hereof.
"Option Period" shall have the meaning set forth in clause (i) of
Section 7.2(a) hereof.
"Participating Offered Investment" shall mean any Investment,
whether by way of ownership of securities, assets or properties, lease, license
or other use by Commodore, the Company or any direct or indirect wholly-owned or
partially-owned Subsidiary, joint venture, partnership or other entity in which
Commodore, the Company or their Affiliates has an interest, which shall:
(a) provide services similar to or compatible with those
currently provided by the Company in connection with the operation of the
Core Business,
(b) provide financial services or engage in real estate
activities in connection with environmental matters , including, without
limitation (i) the Brownfields Real Estate Business, (ii) environmental
and other insurance brokerage or indemnity coverage, and (iii) such other
financial services which are described or contemplated by the Commodore
Financial Services Business Development Plan; and/or
(c) provide environmental informational services or systems,
including electronic commerce or e-commerce products or services
(including, without limitation, the Extension Electronic Investments),
software or other Internet facilities for private industry or governmental
agencies.
"Permitted Investments" means a Participating Offered Investment
which has been approved in writing in advance by both of the Stockholders.
"Person" means any individual, partnership, association, trust,
corporation, limited liability company or other entity, or government or any
political subdivision thereof.
"Repurchase Shares" means the individual and collective reference to
all or any portion of the nine million five hundred thousand (9,500,000) shares
of Acquisition Stock, for so long as such shares of Acquisition Stock shall be
subject to the Option and the Repurchase Obligation.
"Repurchase Balance" shall have the meaning defined in Section
7.2(b)(i) hereof.
"Repurchase Obligation" shall have the meaning defined in Section
7.2(b) hereof.
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"Repurchase Price" shall have the respective meanings as are defined
in Section 7.2(a)(iii) and in Section 7.2(b)(iii) hereof.
"SEC" means the United States Securities and Exchange Commission and
any successor United States federal public or governmental authority.
"Sale of Control" means the sale or transfer of all or a majority of
the assets or securities of the Company or Commodore (as the case may be) to any
Person, whether by way of asset sale, stock sale, merger, consolidation or like
combination.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
capital stock entitled (without regard to the occurrence of any contingency) to
vote generally in the election of directors thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, a majority of the
partnership or other similar equity or other ownership interests thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest in a
partnership, limited liability company, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, limited
liability company, association or other business entity gains or losses or shall
be or have the right to control (whether or not exercised) the managing
director, manager or a general partner of such partnership, limited liability
company, association or other business entity.
11 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
The Company and the Stockholders hereby jointly and severally represent
and warrant to Commodore as follows:
11.1 Title to the Company Stock. The Stockholders are the record and
beneficial owners of 100% of the issued and outstanding shares of capital stock
of the Company. The Stockholders have good, valid and marketable title to the
all of the issued and outstanding shares of capital stock of the Company, all of
which has been duly authorized and validly issued and is fully paid and
non-assessable, and is (and on the Closing Date will be) owned beneficially and
of record of the Stockholders, free and clear of all pledges, liens, claims,
charges, options, calls, encumbrances, restrictions and assessments whatsoever,
except for any restrictions which may be created by operation of state or
federal securities laws. No person other than the Stockholders have any claim or
interest in or to any of the Company Stock.
11.2 Valid and Binding Agreement. The Stockholders have full legal
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement and, when
executed and delivered by the Stockholders, the Employment Agreements, the
Non-Competition Agreements, the Pledge Agreement, the Make Whole Agreement, the
Minority Company Stock Option Agreement and the Registration Rights
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Agreement, constitutes and will constitute the legal, valid and binding
obligations of the Stockholders, enforceable against the Stockholders in
accordance with their respective terms, except to the extent limited by
bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights generally, and except that the remedy of specific performance or similar
equitable relief is available only at the discretion of the court before which
enforcement is sought.
11.3 Organization, Good Standing and Qualification. The Company: (a)
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Utah; (b) has all necessary corporate power and authority
to carry on its business and to own, lease and operate its properties; and (c)
is qualified to do business as a foreign corporation in each foreign
jurisdiction listed on Schedule 4.3; being the only jurisdictions where such
qualification is required by law and where the failure to be so qualified would
have a material adverse effect on the assets, business or financial condition of
the Company. True and complete copies of the Certificate of Incorporation and
By-Laws of the Company (including all amendments thereto), and a correct and
complete list of the officers and directors of the Company, are annexed hereto
as Schedule 4.3.
11.4 Capital Structure, Stock Ownership.
(a) The authorized capital stock of the Company is as set
forth in its Certificate of Incorporation contained in Schedule 4.4.
(b) There are no outstanding subscriptions, options, rights,
warrants, convertible securities or other agreements or calls, demands or
commitments obligating the Company to issue, transfer or purchase any shares of
its capital stock or any rights to any shares of capital stock, or obligating
the Stockholders to transfer any of the Company Stock. No shares of capital
stock of the Company are reserved for issuance pursuant to stock options,
warrants, agreements or other rights to purchase or acquire capital stock.
11.5 Subsidiaries and Investments. Except as set forth on Schedule
4.5, the Company does not (a) own, directly or indirectly, any stock or other
equity securities of any Person, or (b) have any direct or indirect Investment
or equity or ownership interest in any person, firm, partnership, corporation,
venture or business other than the Core Business conducted by the Company.
11.6 Financial Statements and Financial Information.
(a) Annexed hereto as Schedule 4.6(a) are true, correct and
complete copies of the balance sheets of the Company as of December 31, 1997,
December 31, 1998 and December 31, 1999, and the related statements of income,
stockholders' equity and cash flows of the Company for the three (3) years ended
December 31, 1999 (collectively, the "Historical Financial Statements").
(b) The Historical Financial Statements: (i) have been audited
by Foote, Pasey & Griffith (the "Company Accountants") in accordance with GAAP;
(ii) fairly present in all material respects the Company's financial condition
as at the dates thereof, and the results of its operations for the fiscal years
then ended; (iii) contain and reflect all necessary material adjustments and
accruals for a fair presentation of the financial condition and the results of
operations as of the dates of and for the fiscal years covered by such
Historical Financial
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Statements; and (iv) make full and adequate provision for the various assets and
liabilities of the Company, fixed or contingent, and the results of its
operations and transactions in its accounts, as of the dates and for the periods
referred to therein.
(c) Schedule 4.6(c) annexed hereto contains a true and
complete list of the outstanding principal balance of, approximate accrued
interest on, and all collateral security for all indebtedness for money borrowed
and capitalized leases (collectively, "Debt") of the Company as of December 31,
1999, including but not limited to any such Debt owed by the Company to the
Stockholders and/or any of the Stockholders' Affiliates.
(d) Schedule 4.6(d) annexed hereto contains: (i) true and
complete aging schedules of the accounts receivable and accounts payable of the
Company as of December 31, 1999; (ii) a true and complete list of all
obligations (other than obligations disclosed in Schedule 4.6(c)) of the Company
to the Stockholders and/or any of the Stockholders' Affiliates on the date
hereof, (iii) a true and complete list of all obligations of the Company
guaranteed by the Stockholders on the date hereof, and the terms of such
guaranties; and (iv) a true and complete list reflecting the nature and amount
of all obligations owed to the Company on the date hereof by the Stockholders
and/or any of the Stockholders' Affiliates.
11.7 No Material Changes.
(a) Since December 31, 1999, the Company has not made any
payments or distributions of cash or other property of any kind, other than (i)
normal operating expenses, (ii) its state taxes for current periods, (iii)
scheduled amortization payments on existing Debt, plus any additional
indebtedness or capital leases incurred to finance capital expenditures within
the Company's 1999 capital expenditure budget, and (iv) cash distributions which
have been paid or may hereafter be paid to the Stockholders in respect of the
earnings and profits of the Company for all periods from and after January 1,
1999.
(b) Since December 31, 1999, the Core Business of the Company
has continued to be operated only in the ordinary course, and there has not
been:
(i) Any material adverse change in the financial
condition, operations or business of the Company from that shown on the
Historical Financial Statements, or any material transaction or commitment
effected or entered into outside of the normal course of the Company's Core
Business;
(ii) Any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting the business, operations,
assets, properties, financial condition or prospects of the Company; or
(iii) Except for permitted distributions pursuant to
Section 7.5 below, any declaration, setting aside or payment of any dividend or
other distribution with respect to the Company Stock, any other payment of any
kind by the Company to the Stockholders or any of the Stockholders' Affiliates
outside of the ordinary course of business, any forgiveness of any debt or
obligation owed to the Company by the Stockholders or any of the Stockholders'
Affiliates, or any direct or indirect redemption, purchase or other acquisition
by the Company of any capital stock of the Company.
11.8 Tax Returns and Tax Audits.
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(a) Since inception in November 1996, the Company has elected
to be taxed as an electing small business (Subchapter S) corporation under the
provisions of Section 1371 et. seq., of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) All federal, state and local tax returns and tax reports
required to be filed by the Company on or before the date hereof have been
timely filed with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed; all federal, state and
local income, franchise, sales, use, property, excise, payroll and other taxes
(including interest and penalties and including estimated tax installments where
required to be filed and paid) due from or with respect to the Company as of the
date hereof have been fully paid, and appropriate accruals have been made on the
Company's books for taxes not yet due and payable; all taxes and other
assessments and levies which the Company is required by law to withhold or to
collect have been duly withheld and collected, and have been paid over to the
proper governmental authorities to the extent due and payable; and there are no
outstanding or pending claims, deficiencies or assessments for taxes, interest
or penalties with respect to any taxable period of the Company.
(c) Neither the Company nor the Stockholders have received
notice of any pending audits with respect to any federal, state or local tax
returns of the Company, and no waivers of statutes of limitations have been
given or requested with respect to any tax years or tax filings of the Company.
11.9 Personal Property; Liens. The Company has and owns good and
marketable title to all of its personal property, free and clear of all liens,
pledges, claims, security interests and encumbrances whatsoever. All material
items of machinery, equipment, vehicles and other fixed assets owned or leased
by the Company are listed in Schedule 4.9 annexed hereto (with specific
indication of those assets which are owned and those assets which are leased),
and, except as and to the extent disclosed in Schedule 4.9, all of such fixed
assets are in good operating condition and repair (reasonable wear and tear
excepted) and are adequate for their use in the Company's business as presently
conducted.
11.10 Real Property.
(a) The Company does not own or have any interest of any kind
(whether ownership, lease or otherwise) in any real property, except to the
extent of the Company's interest as lessee under the leases for the Company's
business premises located at (i) 8 Inverness Drive East, Suite 135, Englewood,
Colorado 80112, (ii) 39 Exchange Place, Suite 30, Salt Lake City, Utah 84111,
and (iii) such other locations as are listed on Schedule 4.10 hereto
(collectively, the "Company Facilities"). True and complete copies of the lease
agreements in respect of the Company Facilities (including all amendments
thereto) are annexed hereto as Schedule 4.10 (collectively, the "Leases").
(b) The Company (and, to the best of the Stockholders'
knowledge, the landlords thereunder) is presently in compliance with all of
their respective obligations under the Leases, and the Company Facilities are in
good condition (reasonable wear and tear excepted), and are adequate for the
operation of the Company's business as presently conducted. No consent of the
landlord under any Lease will be required in order for the Leases to remain in
effect in accordance with their current terms, after giving effect to the sale
and transfer of the Company Stock pursuant to this Agreement.
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(c) The Company's use of the Company Facilities in the normal
conduct of the Business does not violate any applicable building, zoning or
other law, ordinance or regulation affecting such real property, and no
covenants, easements, rights of way or other such conditions of record impair
the Company's use of the Company Facilities in the normal conduct of the
Business.
(d) All of the buildings, fixtures and other improvements
located on or at the Company Facilities are accessible by public roads, and
during the two (2) year period prior to the date hereof, the Company has not
experienced any material interruption in the delivery of adequate quantities of
any utilities or other public services required by the Company in the normal
operation of the Business.
11.11 Accounts Receivable.
(a) To the extent not already collected, all accounts
receivable shown on the Historical Financial Statements, and all accounts
receivable thereafter created or acquired by the Company prior to the Closing
Date (the "Accounts"), have arisen or will arise in the ordinary course of the
Company's business, and, to the extent not already collected, represent and will
represent amounts owed to the Company by unaffiliated third party account
debtors in respect of goods, products or services provided to such account
debtors by the Company, subject to customary adjustments which may be effected
with customers in the ordinary course of business (which adjustments are not and
will not be, in the aggregate, material to the financial condition and business
of the Company).
(b) The Stockholders have no knowledge of any asserted
counterclaims or set-offs in respect of any of such Accounts, or any state of
facts, events or occurrences which would impair the collection of such Accounts
in the ordinary course of business, subject to customary adjustments which may
be effected with customers in the ordinary course of business (which adjustments
are not and will not be, in the aggregate, material to the financial condition
and business of the Company).
11.12 Inventories. The Company does not maintain any inventory or
supplies held for resale.
11.13 Insurance Policies. Schedule 4.13 annexed hereto contains a
true and correct schedule of all insurance coverage held by the Company
concerning its business and properties, including the names of insurers, policy
limits and deductibles. Within the past three years none of such policies have
been cancelled by the insurers and to the best of the Stockholders' knowledge,
the types and levels of such insurance coverages are reasonable and customary
for businesses of comparable type, size and location.
11.14 Permits and Licenses. The Company possesses all required
permits, licenses and/or franchises, from whatever governmental authorities or
agencies (domestic and/or foreign) requiring the same and having jurisdiction
over the Company, necessary in order to operate its Business in the manner
presently conducted, except for such permits and licenses the failure to obtain
which would not have a material adverse affect on the business or financial
condition of the Company. All of the Company's permits, licenses and/or
franchises are valid, current and in full force and effect and none of such
permits, licenses or franchises will be voided, revoked or terminated, or
voidable, revocable or terminable, upon and by reason of the consummation of the
transactions contemplated by this Agreement.
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11.15 Contracts and Commitments.
(a) Schedule 4.15 annexed hereto lists all real property
leases, personal property leases, commitments, loan agreements, indentures,
employment, consulting and shareholder agreements, and all other contracts and
agreements to which the Company is a party and which are material to its
business (collectively, "Material Contracts"), except that Schedule 4.15 need
not list any such contract or agreement that is listed on any other Schedule
hereto, or was entered into in the ordinary course of the Core Business of the
Company and that, in any case: (i) is for the purchase of supplies or other
inventory items in the ordinary course of business; (ii) is related to the
purchase or lease of any capital asset involving aggregate payments of less than
$10,000 per annum; or (iii) may be terminated without penalty, premium or
liability by the Company on not more than thirty (30) days' prior written
notice.
(b) Except as set forth in Schedule 4.15: (i) all Material
Contracts are in full force and effect; (ii) the Company has not received any
notice that any Material Contract is in material breach or default or is now
subject to any condition or event which has occurred and which, after notice or
lapse of time or both, would constitute a material default by any party under
any such contract, lease, agreement or commitment; and (iii) none of the
Material Contracts will be voided, revoked or terminated, or voidable, revocable
or terminable, upon and by reason of the consummation of the transactions
contemplated by this Agreement.
(c) No purchase commitment by the Company is in excess of the
normal, ordinary and usual requirements of the business of the Company.
11.16 Clients. Schedule 4.16 annexed hereto sets forth a list of the
names and addresses of all clients of the Company since January 1, 1997. Except
as set forth on such Schedule 4.16, the Company has not received any notice that
any existing client intends to terminate relations with the Company.
11.17 Labor, Benefit and Employment Agreements.
(a) Except as set forth in Schedule 4.17 annexed hereto, the
Company is not a party to (i) any collective bargaining agreement or other
written agreement covering unionized employees, (ii) any bonus, deferred
compensation, stock option, stock purchase, consulting, retirement, severance,
welfare or incentive plan, pension plan, profit sharing plan, retirement, or
other such benefit plan constituting an "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended (collectively, an "Employee Plan"), or (iii) any written agreement
with respect to the employment or compensation of any non-hourly and/or
non-union employee(s) which is not terminable without penalty by the Company on
not more than thirty (30) days' prior written notice. Schedule 4.17 sets forth
the amount of all compensation or remuneration (including any discretionary
bonuses) paid or to be paid by the Company during the 1999 fiscal year to
employees or consultants who presently receive aggregate compensation or
remuneration at an annual rate in excess of $75,000.
(b) No union is now certified or has claimed in writing the
right to be certified as a collective bargaining agent to represent any
employees of the Company, and there are no organizational activities or labor
disputes existing or, to the best of the Stockholders' knowledge, threatened,
involving organizational activities, picketing, strikes, slowdowns, work
stoppages, job actions or lockouts of any employees of the Company.
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(c) Neither the Company nor the Stockholders have received
notice of any unfair labor practice charges or petitions for election filed,
pending or being litigated before the National Labor Relations Board or any
State labor relations board. The Company has not received any written notice of
any actual or alleged violation of any law, regulation, order or contract term
affecting the collective bargaining rights of employees, equal opportunity in
employment, or employee health, safety, welfare, or wages and hours. The Company
is not a party to any suits or administrative claims involving sexual harassment
or discrimination and the Stockholders have no actual knowledge that any such
claims are pending or threatened.
(d) The Company (i) is not a party to any "multiemployer
plan" (as defined in Section 3(37) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), and (ii) the Company has not, at any time on
or after April 29, 1980, suffered or caused any "complete withdrawal" or
"partial withdrawal" (as those terms are respectively defined in Sections 4203
and 4205 of ERISA) therefrom on its part.
(e) With respect to any and all Employee Plans which the
Company may previously have maintained or sponsored, such Employee Plans were
administered in compliance in all material respects with all applicable
statutes, rules and regulations.
(f) Except as listed in Schedule 4.17, the Company does not
maintain any medical, health, life or other employee benefit insurance programs
or any welfare plans (within the meaning of Section 3(l) of ERISA) for the
benefit of any current or former employees, and, except as required by statute
or governmental regulation, the Company does not have any liability, fixed or
contingent, for health or medical benefits to any former employee.
11.18 No Breach of Statute, Decree or Other Instrument. Except as
set forth on Schedule 4.18, neither the execution and delivery of this Agreement
by the Stockholders, nor the performance of or compliance with the terms and
provisions of this Agreement on the part of the Company and/or the Stockholders,
will violate or conflict with any term of the Articles of Incorporation or
By-Laws of the Company or constitute a material breach or violation of any
statute, law, rule or regulation of any governmental authority affecting the
Company, or will at the Closing Date conflict with, result in a breach of, or
constitute a default under, any of the terms, conditions or provisions of any
judgment, order, award, injunction, decree, contract, lease, agreement,
indenture or other instrument to which the Company or the Stockholders are a
party or by which the Company or the Stockholders are bound. No consent,
authorization or approval of or filing with any governmental authority or
agency, or any third party, will be required on the part of the Company or the
Stockholders in connection with the consummation of the transactions
contemplated hereby. To the best of the Stockholders' knowledge, the Company
will not be required, whether by law, regulation or administrative practice, to
reapply for or refile to obtain any of the material licenses, permits or other
authorizations presently held by the Company and required for the operation of
its business as conducted on the date hereof
11.19 Compliance with Laws. The representations and warranties
contained in this Section 4.19 relate to matters other than "Environmental
Laws," which are covered by Section 4.24 below.
(a) The Company is, and has been at all times during the
three (3) year period prior to the date hereof, in compliance, in all material
respects, with all domestic, foreign, federal, state, local and municipal laws
and ordinances and governmental rules and regulations, and all requirements of
insurance carriers, applicable to its business, affairs, properties or assets.
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(b) The Company has not received any notice of default or
violation, nor is the Company in default or violation, with respect to any
judgment, order, writ, injunction, decree, demand or assessment issued by any
court or any federal, state, local, municipal or other governmental agency,
board, commission, bureau, instrumentality or department, domestic or foreign,
relating to any aspect of the Company's business, affairs, properties or assets.
The Company has not received any written notice of or been charged with, and is
not, to the best of the Stockholders' knowledge, under investigation with
respect to, any violation of any provision of any federal, state, local,
municipal or other law or administrative rule or regulation, domestic or
foreign, relating to any aspect of the Company's business, affairs, properties
or assets, which violation would have a material adverse effect on the business,
financial condition or results of operations of the Company.
11.20 Litigation. Except as disclosed on Schedule 4.20 hereto, there
is no suit, action, arbitration, or legal, administrative or other proceeding,
or governmental investigation pending, or to the best knowledge of the
Stockholders threatened, by or against the Company or any of its assets or
properties. The Stockholders are not aware of any state of facts, events,
conditions or occurrences which would properly constitute grounds for or the
basis of any meritorious suit, action, arbitration, proceeding or investigation
against or with respect to the Company.
11.21 Patents, Licenses and Trademarks. Except as set forth on
Schedule 4.21, there are no (a) patents, patent applications, copyright
registrations and applications, registered trade names, and trademark
registrations and applications, both domestic and foreign, which are presently
owned, filed or held by the Company and/or the Stockholders or any of the
Company's directors, officers or employees and which in any way relate to or are
used in the business of the Company; (b) licenses, both domestic and foreign,
which are owned or controlled by the Company or the Stockholders and/or any of
the Company's directors, officers or employees and which in any way relate to or
are used in the business of the Company; or (c) franchises, licenses and/or
similar arrangements granted to the Company by others and/or to others by the
Company (collectively, "Intellectual Property"). The Stockholders do not own
personally or through any Affiliate of the Stockholders (other than the Company)
any such Intellectual Property.
11.22 Transactions with Affiliates. No material asset employed in
the business of the Company is owned by, leased from or leased to the
Stockholders, any of the Stockholders' Affiliates, any member of the
Stockholders' family or any partnership, corporation or trust for their benefit,
or any other officer or director of the Company or any Affiliate of the Company.
11.23 Bank Accounts. Annexed hereto as Schedule 4.23 is a correct
and complete list of all bank accounts and safe deposit boxes maintained by or
on behalf of the Company, with indication of all persons having signatory,
access or other authority with respect thereto.
11.24 Environmental Matters.
(a) As used in this Section 4.24: (i) the term "Environmental
Laws" means all federal, state and local laws, statutes, regulations, permits,
orders, ordinances, codes, rules and other governmental restrictions,
requirements and duties, including common law, relating to the treatment,
storage, disposal or release of air pollutants, water pollutants or processed
waste water or otherwise relating to human health, the environment or hazardous
substances, including but not limited to the Federal Solid Waste Disposal Act;
the Federal Clean
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Air Act (including, without limitation, the Clean Air Act Amendments of 1990);
the Federal Water Pollution Control Act; the Hazardous Materials Transportation
Act; the Federal Toxic Substances Control Act; the Federal Resource Conservation
and Recovery Act of 1976; the National Environmental Policy Act; the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and similar state laws, all amendments to any of the foregoing
statutes, and all regulations promulgated by any federal or state agencies,
including the Environmental Protection Agency, regulations of the Nuclear
Regulatory Agency, and regulations of any state department of natural resources
or state environmental protection agency now or at any time hereinafter in
effect; (ii) the terms "hazardous substances", "release", "respond", "response",
and all variations and derivatives thereof shall mean and include, without
limitation, all radioactive materials, asbestos and asbestos-containing
materials, PCB's, petroleum products and by-products, all solid, semi-solid,
liquid or gaseous substances which are toxic, ignitable, corrosive, carcinogenic
or otherwise dangerous to human, plant or animal health, and all substances
defined or listed as "hazardous substances", "toxic substances", "hazardous
waste", "toxic pollutants" in, or otherwise regulated under any Environmental
Law, including, without limitation, the meanings ascribed to them in CERCLA.
(b) The Company has not received notice of any pending or
threatened litigation or administrative proceeding which in any instance (i)
asserts or alleges any violation of applicable Environmental Laws on the part of
the Company, (ii) asserts or alleges that the Company is required to clean up,
remove or otherwise take remedial or other response action due to the disposal,
depositing, discharge, leaking or other release of any hazardous substances or
materials, or (iii) asserts or alleges that the Company is required to pay all
or any portion of the costs of any past, present or future cleanup, removal or
remedial or other response action which arises out of or is related to the
disposal, depositing, discharge, leaking or other release of any hazardous
substances or materials by the Company. The Company is not subject to any
judgment, decree, order or citation related to or arising out of any
Environmental Laws. To the best of the Stockholders' knowledge, the Company has
not been named or listed as a potentially responsible party by any governmental
body or agency in any matter arising under any Environmental Laws. The Company
is not a participant in, nor does the Stockholders have actual knowledge of, any
governmental investigation involving the Company Facility or any other real
estate now or heretofore owned or leased by the Company.
(c) Neither the Company nor, to the best of the Stockholders'
knowledge, any other person, firm, corporation or governmental entity has caused
or permitted any hazardous substances or other materials to be stored,
deposited, treated, recycled or disposed of on, under or at any real estate now
or heretofore leased by the Company, which materials, if known to be present,
may reasonably be expected owned or to require or authorize cleanup, removal or
other remedial action under any applicable Environmental Laws.
(d) To the best of the Stockholders' knowledge, there are not
now nor have there ever been, any tanks or other storage facilities on, under or
at any real estate now or heretofore owned or leased by the Company which
contain or contained hazardous substances or other materials which, if known to
be present in soils or ground water, may reasonably be expected to require or
authorize cleanup, removal or other remedial action under any Environmental
Laws.
(e) To the best of the Stockholders' knowledge, the Company
has in full force and effect all material permits, licenses and approvals
required to be maintained under
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any Environmental Laws applicable to the Company or the Company Facility.
(f) The Stockholders are not aware of any monitoring and
testing equipment and records which are legally required to assess environmental
compliance in accordance with Environmental Laws, and there are no conditions
presently existing at any real estate currently occupied by the Company which
would subject the Company to any damages, penalties, cleanup costs or other
liability under Environmental Laws, or which may reasonably be expected to
require cleanup, removal, remedial action or other response under any applicable
Environmental Laws.
11.25 Investment Decision. With respect to the receipt of Commodore
Common Stock, the Stockholders have obtained all such information as the
Stockholders have required in order to make an informed decision with respect to
the acceptance of an investment in such securities.
11.26 Schedules Incorporated by Reference. The making of any
recitation in any Schedule hereto shall be deemed to constitute a representation
and warranty that such recitation is an accurate statement and disclosure of the
information required by the corresponding Section(s) of this Agreement, as, to
the extent, and subject to the qualifications and limitations, set forth in such
corresponding Section(s).
11.27 Disclosure and Duty of Inquiry. Commodore is not and will not
be required to undertake any independent investigation to determine the truth,
accuracy and completeness of the representations and warranties made by the
Stockholders in this Agreement. The Stockholders representations and warranties
herein shall not be affected by any information which may come to the attention
of Commodore during the course of any investigation heretofore or hereafter
made.
12. REPRESENTATIONS AND WARRANTIES OF COMMODORE.
Commodore hereby represents and warrants to the Stockholders as
follows:
12.1 Organization, Good Standing and Qualification. Commodore is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder, and to consummate
the transactions contemplated hereby.
12.2 Valid and Binding Agreement. This Agreement and, when executed
and delivered by Commodore on the Closing Date, each of the "Transaction
Documents" (as hereinafter defined), constitute and will constitute the legal,
valid and binding obligations of Commodore, enforceable against Commodore in
accordance with their respective terms, except to the extent limited by
bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights generally, and except that the remedy of specific performance or similar
equitable relief is available only at the discretion of the court before which
enforcement is sought.
12.3 No Breach of Statute or Contract. Neither the execution and
delivery of this Agreement by Commodore, nor compliance with the terms and
provisions of this Agreement or the Transaction Documents on the part of
Commodore, will: (a) violate the Certificate of Incorporation or By-Laws of
Commodore, or any statute or regulation of any governmental authority, domestic
or foreign, which affects and is material to the business of Commodore; (b)
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require the issuance to Commodore of any authorization, license, consent or
approval of any federal or state governmental agency; or (c) conflict with or
result in a breach of any of the terms, conditions or provisions of any
judgment, order, injunction, decree, note, indenture, loan agreement or other
agreement or instrument to which Commodore is a party, or by which Commodore is
bound, or constitute a default thereunder.
12.4 Public Filings. Except as set forth on Schedule 5.6, since June
1996 Commodore has timely made all filings of all periodic reports with the SEC
required to be made under the Securities and Exchange Act of 1934, as amended,
including, without limitation, all Form 10-K, Form 10-Q and Form 8-K filings
(the "1934 Act Reports"). The information contained in all such 1934 Act Reports
and in Commodore's Form S-3 Registration Statement currently being reviewed by
the SEC are complete and accurate in all material respects and does not contain
any untrue statements of a material fact or omit to state therein any such
material fact or circumstance required to make the statements contained therein
not misleading in any material respect.
12.5 Disclosure and Duty of Inquiry. The Stockholders are not and
will not be required to undertake any independent investigation to determine the
truth, accuracy and completeness of the representations and warranties made by
Commodore in this Agreement. Commodore's representations and warranties herein
shall not be affected by any information which may come to the attention of the
Stockholders during the course of any investigation heretofore or hereafter
made.
12.6 Investment Decision. Prior to the Closing Date, Commodore and
its representatives shall have had an opportunity to conduct and shall have
conducted a full and complete due diligence investigation of the Assets, Assumed
Liabilities, business, financial condition and prospects of the Core Business of
the Company (the "Due Diligence Investigation"), and shall have obtained all
such information as Commodore has deemed appropriate in order to make an
informed decision with respect to the consummation of the transactions
contemplated by this Agreement and the Exhibits hereto.
12.7 No Material Adverse Change. Since the date of Commodore's
filing of its Form 10-K for its fiscal year ended December 31, 1999, there has
been no material adverse change in the business, financial condition, results of
operations or prospects of Commodore and its Subsidiaries, when taken as a
consolidated whole, except as otherwise expressly referred to or reflected in
the 1934 Act Reports referred to in Section 5.4 above.
13. THE STOCKHOLDERS' OBLIGATIONS BEFORE THE CLOSING DATE.
The Stockholders each covenant and agree that, from the date hereof
until the Closing Date:
13.1 Access to Information. In order to assist Commodore in the
conduct of its due diligence investigation, the Company and the Stockholders
shall permit Commodore and its counsel, accountants and other representatives,
upon reasonable advance notice to the Company, during normal business hours and
without undue disruption of the business of the Company, to have reasonable
access to all properties, books, accounts, records, contracts, documents and
information relating to the Company, including (without limitation) to permit
any accountants, attorneys or other professionals selected by Commodore to
perform a review (including access to accountants' work papers) of the
Historical Financial Statements. Commodore and its
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representatives shall also be permitted to freely consult with the Company's
counsel and accountants concerning the Business of the Company, and, following
delivery of Financing Commitments acceptable to the Stockholders, to conduct
interviews with employees, customers and suppliers of the Company. In addition,
the Stockholders will assist Commodore in connection with attending meetings,
making presentations to, and having consultations with prospective financing
sources; provided, that such assistance shall (a) not obligate the Stockholders
to attend meetings at times or places that would interfere with their operation
of the Business, and (b) not be construed in any manner to obligate the Company
or the Stockholders, or either of them, to incur any personal liability or
expense.
13.2 Conduct of Business in Normal Course. The Company shall carry
on its business activities in substantially the same manner as heretofore
conducted, and shall not make or institute any unusual or novel methods of
service, sale, purchase, lease, management, accounting or operation that will
vary materially from those methods used by the Company as of the date hereof,
without in each instance obtaining the prior written consent of Commodore.
Without limitation of the foregoing, the Company shall not make any payments in
violation of Section 4.7(a) above.
13.3 Preservation of Business and Relationships. The Company shall,
without making or incurring any unusual commitments or expenditures, use its
best efforts to preserve its business organization intact and to preserve its
present relationships with referral sources, clients, customers, suppliers and
others having business relationships with it.
13.4 Maintenance of Insurance. The Company shall continue to carry
its existing insurance, to the extent obtainable upon reasonable terms.
13.5 Corporate Matters. The Company shall not, without the prior
written consent of Commodore:
(a) amend its Articles of Incorporation or By-Laws;
(b) issue any shares of its capital stock;
(c) issue or create any warrants, obligations, subscriptions,
options, convertible securities or other commitments under which any additional
shares of its capital stock might be directly or indirectly issued;
(d) amend, cancel or modify in any material respect any
Material Contract or enter into or modify any material new agreement, commitment
or transaction, except in each case in the ordinary course of business;
(e) pay, grant or authorize any salary increases or bonuses
except in the ordinary course of business and consistent with past practice, or
enter into any employment agreement, consulting agreement, management agreement
or Employee Plan;
(f) make any change in its senior management personnel;
(g) except pursuant to commitments in effect on the date
hereof and/or within the Company's 1999 capital expenditure budget (to the
extent disclosed in Schedule 6.5 annexed hereto), make any capital
expenditure(s) or commitment(s), whether by means of
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purchase, lease or otherwise, or any operating lease commitment(s), in excess of
$20,000 in the aggregate;
(h) sell, assign or dispose of any capital asset(s) with a
net book value in excess of $10,000 as to any one item, or $50,000 in the
aggregate;
(i) materially change its method of collection of accounts or
notes receivable, accelerate or slow its payment of accounts payable, or prepay
any of its obligations or liabilities, other than prepayments to take advantage
of trade discounts not otherwise inconsistent with or in excess of historical
prepayment practices',
(j) incur any liability or indebtedness except, in each
instance, in the ordinary course of the Business;
(k) subject any of its assets or properties to any further
liens or encumbrances, other than Permitted Liens;
(l) forgive any liability or indebtedness owed to it by the
Stockholders or any of his Affiliates;
(m) enter into any material contracts with the Stockholders
or any key employees; or
(n) agree to do, or take any action in furtherance of, any of
the foregoing.
14. ADDITIONAL AGREEMENTS OF THE PARTIES.
14.1 Confidentiality. Notwithstanding anything to the contrary
contained in this Agreement, and subject only to any disclosure requirements
which may be imposed upon Commodore under applicable state or federal securities
or antitrust laws, it is expressly understood and agreed by Commodore, the
Company and the Stockholders that (a) this Agreement, the Schedules hereto, and
the conversations, negotiations and transactions relating hereto and/or
contemplated hereby, and (b) all financial information, business records and
other non-public information concerning the Company or Commodore which any of
Commodore, the Company and the Stockholders or their respective representatives
has received or may hereafter receive, shall be maintained in the strictest
confidence by Commodore, the Company and the Stockholders and their respective
representatives, and shall not be disclosed to any person that is not associated
or affiliated with any of Commodore, the Company and the Stockholders and
involved in the transactions contemplated hereby, without the prior written
approval of the Stockholders or Commodore, as applicable. Notwithstanding the
foregoing, Commodore may disclose confidential information to prospective
financing sources; provided, such financing sources execute and deliver to the
Company a separate confidentiality agreement in substantially the form of
Schedule 7.1 annexed hereto The provisions of this Section 7.1 shall not be
applicable to disclosures required to be made to third parties pursuant to
subpoenas or court orders. The parties hereto shall use their best efforts to
avoid disclosure of any of the foregoing or undue disruption of any of the
business operations or personnel of the Company or Commodore. In the event that
the transactions contemplated hereby shall not be consummated for any reason,
each of Commodore, the Company and the Stockholders covenant and agree that
neither they nor their respective representatives shall retain any documents,
lists or other writings
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which they may have received or obtained in connection herewith or any documents
incorporating any of the information contained in any of the same (all of which,
and all copies thereof in the possession or control of themselves or their
representatives, shall be returned to the original source of the material at
issue).
14.2 Commodore's Option and Repurchase Obligation.
Notwithstanding anything to the contrary, express or implied,
contained in this Agreement or in any exhibit hereto, with respect to up to an
aggregate of ten million five hundred thousand (10,500,000) shares of the
Acquisition Stock, the following provisions of this Section 7.2 shall apply:
(a) Option to Purchase. Commodore is hereby granted, upon the
terms and subject to the conditions hereinafter set forth, an option (the
"Option"), exercisable at any time or from time to time during the "Option
Period" (as hereinafter defined), to purchase any or all of the ten million five
hundred thousand (10,500,000) shares of Acquisition Stock at the "Repurchase
Price" (as hereinafter defined), all upon the terms and conditions set forth
below. Notwithstanding the foregoing, or any other provision of this Section
7.2, in addition to (and not in lieu of) their rights to terminate the entire
Option pursuant to the provisions of Section 7.2(a)(vii) below, the Stockholders
may at any time on or prior to Commodore's exercise of the entire Option and
payment of the full Repurchase Price for all shares of the Acquisition Stock,
elect to withhold from the Option and retain all or any part of up to one
million (1,000,000) of the shares of Commodore Common Stock included in the
Acquisition Stock (such 1,000,000 shares of Acquisition Stock subject to
retention by the Stockholders being referred to herein as the "Additional
Commodore Stock"). The shares of Acquisition Stock which are subject to the
Option are hereinafter sometimes referred to herein as the "Repurchase Shares."
(i) The aforesaid Option shall commence upon the
effective date of the Acquisition and, to the extent not exercised, shall
terminate one (1) year from the Closing Date (the "Anniversary Date"),
unless sooner terminated as provided in clause (vii) of this Section
7.2(a) (the "Option Period"). Commodore shall have the right to purchase
the Repurchase Shares on any one or more occasions during the Option
Period.
(ii) On each occasion that Commodore shall elect to
exercise the Option, whether in whole or in part, it shall deliver to the
record owners of the Repurchase Shares, not less than twenty-four (24)
hours and not more than thirty (30) days prior written notice of exercise
(the "Exercise Notice"); provided, that the final Exercise Notice shall be
given not later than thirty (30) days prior to the expiration of the
Option Period.
(iii) On each occasion that Commodore shall elect to
exercise its Option, it shall pay to the record owners of the Repurchase
Shares a purchase price, for each of the Repurchase Shares set forth in
the Exercise Notice, which shall be equal to the greater of (i) one and
50/100 dollars ($1.50) or (ii) sixty-five (65%) percent of the average of
the closing prices of Commodore Common Stock, as traded on the American
Stock Exchange, Inc., The Nasdaq Stock Market, Inc., the New York Stock
Exchange, Inc. (collectively a "National Securities Exchange"), as
reported in The Wall Street Journal, Eastern Edition, for the three (3)
trading days immediately prior to the date of
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each scheduled payment of such Repurchase Price (the "Repurchase Price").
(iv) Against receipt by it of stock certificates
evidencing such Repurchase Shares, duly endorsed for transfer, Commodore
shall pay in full, in cash to the appropriate record owners of the
Repurchase Shares, the Repurchase Price for all Repurchase Shares set
forth in each Exercise Notice on a date which shall be not later than
thirty (30) days following the date of such Exercise Notice. If, for any
reason (other than a record owner's failure to timely deliver to Commodore
stock certificates evidencing such Repurchase Shares, duly endorsed for
transfer), Commodore shall fail or refuse on any one occasion to make
timely payment in full of the Repurchase Price, the Option Period and the
Option shall immediately terminate.
(v) On each occasion that Commodore shall elect to
exercise the Option, it shall deliver the Exercise Notice to each record
owner of the Repurchase Shares and shall exercise the Option and pay the
Repurchase Price, on a pro-rata basis as among all such record owners of
Repurchase Shares, based upon the amount by which the number of Repurchase
Shares owned by each record owner bears the aggregate number of
outstanding Repurchase Shares.
(vi) The Stockholders shall, and shall cause the other
holders of the Repurchase Shares to fully cooperate with Commodore and its
designated assignees in connection with the timely delivery of
certificates evidencing the appropriate number of Repurchase Shares to be
repurchased pursuant to each Exercise Notice, duly endorsed by the holder
for transfer or accompanied by duly executed stock powers with signatures
appropriately notarized or guaranteed. In such connection, on the
Effective Date, the Stockholders and each other holder of Repurchase
Shares shall deliver to Greenberg Traurig, LLP, 200 Park Avenue, New York,
New York 10166, as custodian, certificates evidencing all Repurchase
Shares, and such custodian, as securities counsel to Commodore shall
delivery appropriate instructions to the Commodore transfer agent on each
occasion that Repurchase Shares are to be delivered upon each full or
exercise of the Option.
(vii) The Option Period set forth in clause (i) of this
Section 7.2(a) shall automatically terminate, without any further action
on the part of any Person, prior to the Anniversary Date and thereafter
the Option shall be null and void, if Commodore or the Company shall fail
to fully perform on a timely basis any of the "Obligations" (as that term
is defined in Section 7.2(d) below). In addition, and notwithstanding the
grant of the Option hereunder, the Stockholders may, upon three (3) days
prior written notice to Commodore terminate the Option as to all
Repurchase Shares at any time prior to the Anniversary Date; provided,
that if the Stockholders (acting on behalf of themselves and the other
holders of the Repurchase Shares) shall so elect to voluntarily terminate
the Option, the Repurchase Obligation described in Section 7.2(b) below
shall similarly terminate as of the date of such voluntary termination of
the Option by the Stockholders.
(b) Obligation to Repurchase the Repurchase Shares.
Notwithstanding anything to the contrary, express or implied, contained in this
Agreement, and as material consideration to induce the Stockholders to amend and
restate the Prior Asset Agreement, Commodore hereby irrevocably and
unconditionally covenants and agrees to purchase from the
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record owners of the Repurchase Shares, by a date which shall be not later than
the Anniversary Date, at the Repurchase Price set forth in this Section 7.2(b),
a sufficient number of the Repurchase Shares, so as to provide the record owners
of the Repurchase Shares by the Anniversary Date with cash payments which shall
aggregate not less than Fourteen Million Five Hundred Thousand ($14,500,000)
Dollars, inclusive of payments made upon the prior exercise(s) by Commodore of
the Option set forth in Section 7.2(a) above. The foregoing covenant and
agreement of Commodore is herein referred to as the "Repurchase Obligation." The
Repurchase Obligation of $14,500,000 shall be inclusive of stated interest
thereon at the rate of 6.37% per annum; which interest shall be payable on the
Anniversary Date, together with payment of the "Repurchase Balance" (as that
term is hereinafter defined). Such Repurchase Obligation shall be discharged by
Commodore, as follows:
(i) On the Anniversary Date, against delivery of the
appropriate number of Repurchase Shares duly endorsed for transfer,
Commodore shall make payment to the record owners of the Repurchase Shares
(on a pro-rata basis as among all such record owners of Repurchase Shares,
based upon the amount by which the number of Repurchase Shares owned by
each record owner bears the aggregate number of outstanding Repurchase
Shares) of an aggregate amount as shall equal (A) Fourteen Million Five
Hundred Thousand ($14,500,000) Dollars, less (B) the aggregate payments
previously made at the applicable Repurchase Prices to such record owners
or their predecessors upon exercise of the Option set forth in Section
7.2(a) above (the "Repurchase Balance").
(ii) The number of Repurchase Shares to be delivered to
Commodore, in exchange for its payment of the Repurchase Balance, shall be
determined by dividing the Repurchase Balance by the Repurchase Price set
forth below in clause (iii) of this Section 7.2(b).
(iii) For purposes of this Section 7.2(b), the
Repurchase Price for each of the Repurchase Shares shall be equal to the
greater of (i) one and 50/100 dollars ($1.50) or (ii) sixty-five (65%)
percent of the average of the closing prices of Commodore Common Stock, as
traded on a National Securities Exchange, as reported in the Wall Street
Journal, for the three trading days immediately prior to the Anniversary
Date.
(iv) If, for any reason (other than a record owner's
failure to timely deliver to Commodore stock certificates evidencing such
Repurchase Shares, duly endorsed for transfer), Commodore shall fail or
refuse to make payment in full of the Repurchase Balance with thirty (30)
days after the Anniversary Date, the Stockholders, may on behalf of
themselves and all other record owners of the Repurchase Shares, in
addition to and not in lieu of all of their remedies at law, exercise all
of their rights and remedies contemplated by Section 7.2(d) below and
Exhibit D annexed hereto.
(c) Acknowledgements and Additional Agreements of Commodore.
Commodore acknowledges that, but for the Repurchase Obligation set forth in
Section 7.2(b) above and its agreement to provide collateral security for the
payment and performance of such Repurchase Obligation, and without the
immediately following covenant by Commodore, the Stockholders would not have
entered into this Agreement and would have terminated all transactions and other
relationships with Commodore. Accordingly, Commodore does hereby
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agree that if, following the Closing Date, a petition is filed by or against
Commodore and/or any of its Subsidiaries (collectively, the "Commodore Group")
commencing a case under the United States Bankruptcy Code or if Commodore or any
of the other members of the Commodore Group shall become the subject of any
insolvency, bankruptcy, receivership, readjustment of debt, dissolution,
reorganization , liquidation or similar proceeding, under state or federal law,
the Stockholders and the other holders of Repurchase Shares will be immediately
and absolutely entitled to, and each member of the Commodore Group hereby
consents to, the relief specified in clauses (i), (ii) and (iii) below, singly,
alternatively or cumulatively, and each member of the Commodore Group agrees
that it will not object to, contest or oppose any motion, application, complaint
or other proceeding by the Stockholders (acting on behalf of themselves and any
other holders of the Repurchase Shares), to obtain such relief, and each member
of the Commodore Group will take all actions necessary to enable the
Stockholders and other holders of Repurchase Shares to obtain the following
relief:
(i) the Stockholders and the other holders of Repurchase
Shares shall be entitled to the immediate termination of the automatic
stay imposed by Section 362 of the Bankruptcy Code to enable any of them
to exercise all of their rights and remedies under this Agreement, the
Pledge Agreement annexed hereto as Exhibit D and applicable law;
(ii) the Stockholders and the other holders of the
Repurchase Shares shall be entitled to the immediate dismissal of such
case pursuant to Section 305(a)(1) of the Bankruptcy Code (with attorneys'
fees and other costs), and Commodore and each other member of the
Commodore Group agree that such dismissal will be in the interest of
creditors and themselves; and
(iii) the Stockholders and each other holder of
Repurchase Shares shall be entitled to the immediate dismissal of such
case under Section 1112(b) of the Bankruptcy Code for cause, and Commodore
and each other member of the Commodore Group agree that the filing of such
case by any of them shall per se be deemed to have been commenced in bad
faith and solely for the improper purpose of impeding the exercise of the
rights and remedies of the Stockholders and other holders of Repurchase
Shares with attendant unnecessary delay and needless cost.
In addition to (and not in lieu) of the foregoing, each of Commodore
and all other members of the Commodore Group do hereby irrevocably and
unconditionally covenant and agree:
(A) to waive any and all equitable defenses to the exercise of the
rights and remedies of the Stockholders and the other holders of Repurchase
Shares set forth in this Section 7.2 and in the Pledge Agreement annexed hereto
as Exhibit D, including, without limitation, the equitable defense of
forfeiture; and
(B) that the rights and remedies of the Stockholders and other
holders of Repurchase Shares which are set forth in this Section 7.2 and in the
Pledge Agreement annexed hereto as Exhibit D shall not be subject to pro ration
(d) Collateral to Secure Obligations. As collateral to secure
payment and performance by Commodore and/or the Company of (i) the obligation of
Commodore to hold the Commodore Stockholders Meeting and obtain Final Commodore
Stockholders
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Approval, as contemplated by Section 7.12 below, (ii) the full and timely
payment of the entire Repurchase Obligation with respect to the Repurchase
Shares, (iii) Commodore's obligations under the Make Whole Agreement, (iv) the
obligation of the Company to make full and timely payments of all quarterly
installments of Company Cash Flow Payments of Company Cash Flow, as defined and
provided in Section 2.5 hereof, up to and including the first Ten Million
($10,000,000) Dollars of such Company Cash Flow Payments which are due and
payable in quarterly installments through December 31, 2003, and (v) the
obligations of each of Commodore and the Company to duly perform all of its and
their respective covenants, agreements and undertakings which are set forth in
Section 14.4 and Section 14.5 of this Agreement (collectively, the
"Obligations"), on the Effective Date, and in addition to the Acquisition Stock
which shall serve as collateral for the Repurchase Obligations, Commodore shall
pledge to the Stockholders all, and not less than all, of the shares of Majority
Company Stock (the "Pledged Shares") pursuant to the terms of the Pledge and
Security Agreement annexed hereto as Exhibit D and made a part hereof (the
"Pledge Agreement").
14.3 Employment Agreements. On the Closing Date, the Company and
each of Russell and Speciale shall enter into a five-year employment agreement
in the form of Exhibit "E" annexed hereto (collectively, the "Employment
Agreements").
14.4 Non-Competition Agreement. On the Closing Date, Commodore, the
Company and each of the Stockholders shall enter into a five-year
non-competition and nondisclosure agreement in the form of Exhibit "F" annexed
hereto (the "Non-Competition Agreement").
14.5 Dividends and Distributions; Tax Accounting and Payments.
(a) It is expressly acknowledged, understood and agreed by
Commodore that the Stockholders shall have the absolute right to cause the
Company to distribute to the Stockholders in cash all of the earnings, profits
and income before application of federal income taxes, earned by the Company for
all periods from January 1, 1999 through and including the Closing Date (the
"Cash Distributions"). Notwithstanding the foregoing, following the date hereof
and through the Closing, the Stockholders (i) shall cause the Company to retain
sufficient cash to pay all of its obligations incurred in the ordinary course of
business, (ii) shall not accelerate the collection of accounts receivables or
delay the payment of accounts payables, and (iii) shall, in good faith, cause
the Company to retain sufficient cash reserves as at the Closing Date to pay
ordinary anticipated business expenses. Not less than ten (10) day prior to the
Closing, the Stockholders shall submit to Commodore a schedule of all Cash
Distributions paid and which shall be paid to the Stockholders prior to the
Closing Date.
(b) The parties hereby confirm and consent that the Company's
income in respect of the fiscal year in which the Closing Date occurs shall not
be prorated as between the Stockholders (on the one hand) and Commodore (on the
other hand), but shall be determined based on actual income for that portion of
the current fiscal year through the Closing Date and for that portion of the
current fiscal year subsequent to the Closing Date, with the Company having been
deemed to have closed its books for these purposes on and as of the Closing
Date. The amounts required to be paid by the Stockholders as taxes in respect of
the Stockholders' allocable share of the net income of the Company during the
period from (i) January 1, 1999 through December 31, 1999, and (ii) for the
period from January 1, 2000 through the Closing Date are collectively referred
to herein as the "Tax Obligations."
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(c) In the event that the aggregate Cash Distributions which
shall have been made to the Stockholders from the date of this Agreement through
the Closing Date Company shall, for any reason, not be sufficient to enable the
Stockholders to satisfy the Stockholders' Tax Obligations, then, in order to
enable the Stockholders to pay the balance, if any, of such Tax Obligations, not
later than ninety (90) days after the Closing Date, Commodore shall pay, arrange
to pay, or cause the Company to pay, to the Stockholders an amount equal to:
(i) that percentage of the net income of the Company
from January 1, 1999 through the Closing Date equal to the highest combined
marginal federal and state personal income tax rate, minus
(ii) the aggregate Cash Distributions, if any, which
have been previously distributed by the Company to the Stockholders between the
date of this Agreement and the Closing Date.
14.6 No Shopping. Prior to any valid termination of this Agreement
pursuant to Section 11 below, neither the Stockholders nor any of the
Stockholders' representatives (nor any officers, directors, affiliates or
representatives of the Company) will solicit or otherwise entertain any offers
or inquiries, or negotiate with or enter into any discussions, commitments,
agreements or understandings with any person, firm or entity (other than
Commodore) in respect of any sale or disposition in any manner of any capital
stock, assets or business (or any material portion thereof) of the Company or
any other transaction which, if consummated, would frustrate the intent of this
Agreement.
14.7 Non-Interference. None of the parties shall cause to occur any
act, event or condition which would cause any of their respective
representations and warranties made in this Agreement to be or become untrue or
incorrect in any material respect as of the Closing Date, or would interfere
with, frustrate or render unreasonably expensive the satisfaction by the other
party or parties of any of the conditions precedent set forth in Sections 8 and
9 below.
14.8 Key Employee Agreements. On or before the Closing, the Company
shall enter into long-term (not less than three years) employment and
non-competition agreements with those key employees of the Company listed on
Schedule 7.8 annexed hereto (the "Key Employees"); all upon such terms and
conditions as shall be mutually acceptable to Commodore and the Stockholders.
14.9 Commodore Stock Options. Prior to the Effective Date, each of
the Stockholders and Commodore shall establish a Commodore stock option program
for employees of the Company (including the Key Employees) who shall be
designated by the Stockholders, all upon such terms and conditions as shall be
mutually acceptable to the Stockholders and the board of directors and
compensation committee of Commodore.
14.10 Registration Rights Agreement. On the Closing Date, Commodore
and each of the Stockholders shall enter into a registration rights agreement in
the form of Exhibit "G" annexed hereto (the "Registration Rights Agreement").
14.11 Make Whole Agreement. On the Closing Date, Commodore shall
execute and deliver to and each of the Stockholders an agreement in the form of
Exhibit "C" annexed hereto (the "Make Whole Agreement").
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14.12 Commodore Stockholders Meeting. Immediately following the date
of execution of this Agreement, Commodore shall take all steps necessary to call
a the Commodore Stockholders Meeting. In such connection, Commodore shall
promptly prepare and file with the SEC a proxy statement under Section 14A of
the Securities Exchange Act of 1934, as amended, containing therein all
requisite disclosures concerning the Company, the Acquisition and the
transactions contemplated hereby (the "Commodore Proxy Statement"), and shall
use its best efforts to cause such Commodore Proxy Statement to be declared
effective by the SEC as soon as practicable following the date of this
Agreement. Commodore does hereby covenant and agree that (a) the Commodore
Stockholders Meeting shall take place in New York City as soon as practicable
following SEC approval of the Commodore Proxy Statement, and (b) Final Commodore
Stockholders Approval shall have been received on a date which shall be not
later than November 15, 2000.
14.13 Minority Company Stock Option Agreement. On the Closing Date,
the Stockholders and Commodore shall have executed and delivered the Minority
Company Stock Option Agreement in the form of Exhibit H annexed hereto, pursuant
to which Minority Company Stock Option Agreement (a) the Stockholders shall
grant to Commodore the Minority Company Stock Option, and (b) in consideration
for the grant of such Minority Company Stock Option, Commodore shall issue to
the Stockholders, in equal amounts, an aggregate of five million (5,000,000)
shares of the Commodore Option Stock.
7.14 Irrevocable Proxy from CXI Majority Stockholders. Simultaneous
with the execution and delivery of this Agreement, the CXI Majority Stockholders
shall have executed and delivered to the Stockholders, an irrevocable proxy
coupled with an interest, pursuant to which the CXI Majority Stockholders shall
grant to the Stockholders, acting jointly, an irrevocable proxy, coupled with an
interest, to vote all shares of Commodore Common Stock owned of record by the
CXI Majority Stockholders IN FAVOR of this Agreement, the Acquisition and the
transactions contemplated hereby, at the Commodore Stockholders Meeting or any
adjournment or adjournments thereof.
7.15 Authorization of Agreement. The execution, delivery and
performance by Commodore of this Agreement, the Certificate of Acquisition, the
Make Whole Agreement, the Pledge Agreement, the Non-Competition Agreement, the
Employment Agreements, the Registration Rights Agreement and the Minority
Company Stock Option Agreement and the other related Exhibits hereto and thereto
(collectively, the "Transaction Documents") and the consummation of the
Acquisition, delivery of stock certificates and instruments evidencing the
Acquisition Stock, the Commodore Option Stock and the Commodore Warrant, and the
all of other transactions contemplated by this Agreement (a) has been duly and
validly authorized and approved by the Board of Directors of Commodore in all
respects, and (b) shall be duly and validly authorized, approved and ratified by
the stockholders of Commodore at the Commodore Stockholders Meeting and Final
Commodore Stockholders Approval shall have been received by not later than
November 15, 2000.
7.16 Lock-Up Agreement. Each of the Stockholders and the Company do
hereby covenant agree (on behalf of themselves and all other holders of the
Commodore Securities described herein) that, without the prior written approval
of Commodore, they will not sell, transfer, pledge, hypothecate or assign
(collectively, "Transfer") any of the 16,500,000 shares of Commodore Common
Stock, comprising the Acquisition Stock, Commodore Option Stock or the shares of
Commodore Common Stock issuable upon exercise of the Commodore
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Warrants (collectively, the "Commodore Securities") for a period of thirteen
(13) months from the Closing Date; provided, that the covenants and agreements
of the Stockholders and the Company set forth in this Section 7.16 (the "Lock Up
Agreement") shall automatically terminate and thereafter be without further
force or effect in the event that the Option set forth in Section 7.2(a) shall
automatically terminate or be voluntarily terminated prior to the Anniversary
Date for any of the reasons set forth in Section 7.2(a)(vii) of this Agreement.
15. CONDITIONS PRECEDENT TO COMMODORE'S PERFORMANCE.
The obligations of Commodore to consummate the transactions
contemplated by this Agreement are further subject to the satisfaction, at or
before the Effective Date, of all the following conditions, any one or more of
which may be waived in writing by Commodore:
15.1 Accuracy of Representations and Warranties. All representations
and warranties made by the Stockholders in this Agreement, in any Schedule(s)
hereto, and/or in any written statement delivered to Commodore under this
Agreement shall be true and correct in all material respects on and as of the
Effective Date as though such representations and warranties were made on and as
of that date.
15.2 Performance. The Stockholders and the Company shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by them
on or before the Effective Date, including, without limitation, all covenants
and agreements described in Article 7 of this Agreement.
15.3 Certification. Commodore shall have received a certificate,
dated the Effective Date, signed by the Stockholders, certifying, in such detail
as Commodore and its counsel may reasonably request, that the conditions
specified in Sections 8.1 and 8.2 above have been fulfilled.
15.4 Good Standing Certificates. The Stockholders shall have
delivered to Commodore a certificate or telegram issued by the Secretary of
State of the State of Utah, evidencing the good standing of the Company in such
jurisdiction as of a date not more than fifteen (15) days prior to the Closing
Date.
15.5 Absence of Litigation. No action, suit or proceeding by or
before any court or any governmental body or authority, against the Company or
pertaining to the transactions contemplated by this Agreement or their
consummation, shall be pending or threatened on the Closing Date, which action,
suit or proceeding would, if determined adversely, have a material adverse
effect on the business, financial condition, operations or prospects of the
Company, or impair the ability of the Stockholders to transfer and deliver to
Commodore all of the Company Stock free and clear of all pledges, liens, claims,
charges, options, calls, encumbrances, restrictions and assessments whatsoever
(except any restrictions which may be created by operation of state or federal
securities laws).
15.6 Consents. All necessary disclosures to and agreements and
consents of (a) Commodore's lenders, (b) any parties to any contracts and/or any
licensing authorities which are material to the Company's business, and (c) any
governmental authorities or agencies to the extent required in connection with
the transactions contemplated by this Agreement, shall have been obtained and
true and complete copies thereof delivered to Commodore.
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15.7 Settlement of Affiliate Obligation. All debts, liabilities and
other monetary obligations owed to the Company on the Closing Date by the
Stockholders and/or any of the Stockholders' Affiliates shall have been fully
paid to the Company in immediately available funds, such that no such Affiliate
obligations shall be outstanding on and after the Closing Date.
15.8 Material Litigation. Between the date of this Agreement and the
Effective Date, no litigation, arbitration or other legal proceeding shall have
been brought by any third party seeking to enjoin the transfer of the Company
Stock and the other transactions contemplated by this Agreement.
15.9 No Material Adverse Change. There shall not have occurred any
event or condition which could materially and adversely affect the assets and
properties, business, financial condition, results of operations or business
prospects of the Company from those reflected in the Audited 1999 Financial
Statements, or disclosed in this Agreement or the Schedules hereto, except for
matters resulting from adverse changes in economic conditions affecting
businesses and economic conditions in the United States generally.
15.10 Execution and Delivery of Exhibits. On or before the Effective
Date, the Stockholders shall have executed and delivered to Commodore and the
Company (as applicable) the Transaction Documents constituting Exhibits hereto.
15.11 Client Relationships. Prior to the Closing Date, no material
client of the Company (accounting for 10% or more of budgeted revenues for
fiscal 2000) shall have notified the Company of its intention to terminate the
Company's services prior to the normal expiration of a contracted-for
assignment.
15.12 Minimum 1999 Adjusted Pre-Tax Income. The Adjusted Pre-Tax
Income of the Company for the fiscal year ending December 31, 1999 shall be not
less than Four Million ($4,000,000) Dollars.
15.13 CXI Majority Stockholders Consent. The CXI Majority
Stockholders, being the record holders of a majority of the currently
outstanding shares of Commodore Common Stock shall have approved and ratified
this Agreement, the Acquisition and the other transactions contemplated hereby.
15.14 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incidental thereto, shall be reasonably
satisfactory in form and substance to Commodore and its counsel. The
Stockholders shall have submitted to Commodore or its representatives for
examination the originals or true and correct copies of all records and
documents relating to the business and affairs of the Company which Commodore
may have requested in connection with said transactions.
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16. CONDITIONS PRECEDENT TO THE PERFORMANCE BY THE STOCKHOLDERS.
The obligations of the Stockholders to consummate the transactions
contemplated by this Agreement are further subject to the satisfaction, at or
before the Effective Date, of all of the following conditions, any one or more
of which may be waived in writing by the Stockholders.
16.1 Accuracy of Representations and Warranties. All representations
and warranties made by Commodore in this Agreement and/or in any written
statement delivered by Commodore under this Agreement shall be true and correct
in all material respects on and as of the Effective Date as though such
representations and warranties were made on and as of that date.
16.2 Performance. Commodore shall have performed, satisfied and
complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by Commodore on or before
the Effective Date, including without limitation, satisfaction of all of
Commodore's covenants and agreements contained in Section 7 of this Agreement.
16.3 Certification. The Stockholders shall have received a
certificate, dated the Effective Date, signed by Commodore certifying, in such
detail as the Stockholders and their counsel may reasonably request, that the
conditions specified in Sections 9.1 and 9.2 above have been fulfilled.
16.4 Resolutions. The Stockholders shall have received certified
resolutions of the Board of Directors of Commodore in form reasonably
satisfactory to counsel for the Stockholders , authorizing this Agreement and
Commodore's execution, delivery and performance of the Transaction Documents and
all other actions to be taken by Commodore hereunder.
16.5 Receipt of Working Capital Financing. On or before the
Effective Date, Commodore shall have arranged for not less than Five Hundred
Thousand ($500,000) Dollars of additional cash working capital for the Surviving
Corporation, and shall use its best efforts to obtain an additional One Million
($1,000,000) Dollars of cash working capital for the Surviving Corporation, as
soon as practicable following the Effective Date.
16.6 Payments and Delivery of Exhibits. In addition to the payments
and deliveries contemplated by this Agreement, on the dates specified in Section
2.6 hereof, the Stockholders and the Company shall have received duly executed
certificates evidencing (a) the 9,500,000 shares of Acquisition Stock, (b) the
Commodore Warrants, (c) the 1,000,000 shares of Additional Commodore Common
Stock, and (d) the 5,000,000 shares of Commodore Option Stock issuable under the
Minority Company Stock Option Agreement, and duly executed original copies of
the Make Whole Agreement, the Pledge Agreement, the Employment Agreements, the
Non-Competition Agreements, the Registration Rights Agreement and the Minority
Company Stock Option Agreement from Commodore and/or the Company, as relevant,
and evidence that the Certificate of Acquisition has been duly filed and
recorded with the Secretary of State of the State of Utah.
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16.7 Dissolution of Dispute Resolution Limited. Dispute Resolution
Limited, a Utah limited partnership of which KPMG owns 20% and the Company owns
80% shall have been terminated and dissolved.
16.8 Issuance of Acquisition Stock to the Company. On the dates set
forth in Section 2.6 hereof, Commodore shall have issued and delivered to the
Company an aggregate of One Million Five Hundred Thousand (1,500,000) shares of
the Acquisition Stock to be issued to or allocate for the Persons designated
below:
(a) an aggregate of 1,200,000 shares of Acquisition Stock
shall be retained by the Company to represent the basis for future
payments for certain employees listed on Schedule 9.8 annexed hereto in
the event of exercise by Commodore of the Option or pursuant to payment of
the Repurchase Obligation set forth in Section 7.2 hereof; and
(b) an aggregate of 300,000 shares of Acquisition Stock shall
be retained by the Company to represent the basis for future payments to
Arthur Berry & Company, Boise, Idaho, a business broker, and/or its
designees.
16.9 Tax Opinion. On or before the Effective Date, the Stockholders
shall have received from Greenberg Traurig, L.L.P., a favorable opinion in form
and substance reasonably acceptable to the Stockholders, with respect to the tax
implications of the Acquisition and the other transactions contemplated hereby
(the "Tax Opinion").
9.10 Proceedings and Instruments Satisfactory. All proceedings to be
taken in connection with the transactions contemplated by this Agreement, and
all documents incidental thereto, shall be reasonably satisfactory in form and
substance to the Stockholders and their counsel.
17. CLOSING.
17.1 Place and Date of Closing. Unless this Agreement shall be
terminated pursuant to Section 11 below, the Effective Date of the Acquisition
and consummation of the other related transactions contemplated by this
Agreement shall take place at the offices of Greenberg Traurig LLP, or such
other location as shall be agreed upon by the parties, at 10:00 A.M. local time,
on a date which shall be not later than August 31, 2000 or such later date as
may be requested by either Commodore or the Stockholders, but not later than
September 15, 2000, unless further extended by mutual written agreement of
Commodore and the Stockholders (the "Outside Effective Date"). Notwithstanding
the foregoing, for all purposes of this Agreement, provided that the Effective
Date of the Acquisition shall have occurred by the Outside Effective Date, the
parties hereto do hereby agree that the closing of the transactions contemplated
by this Agreement (the "Closing"), including the retention of all profits,
losses, assets and liabilities of the Company, shall be deemed to have occurred
at 5:00 p.m. New York City Time, on August 29, 2000 (such date being referred to
in this Agreement as the "Closing Date").
17.2 Actions at Closing. On the Effective Date, the parties shall
make all payments and deliveries stated in this Agreement to be made at, on or
prior to the Effective Date, as set forth herein.
18. TERMINATION OF AGREEMENT.
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18.1 General. Notwithstanding the provisions of Section 10 above,
this Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Effective Date:
(a) by the mutual written consent of Commodore and the
Stockholders;
(b) by Commodore, or by the Stockholders , if (i) a material
breach shall exist with respect to the written representations and warranties
made by the other party, (ii) the other party shall take any action prohibited
by this Agreement, if such actions shall or may have a material adverse effect
on the Company or on Commodore, and/or the transactions contemplated hereby, and
shall not fully remedy same within ten (10) days after written notice thereof to
such party, (iii) the other party shall not have furnished, upon reasonable
notice therefor, such certificates and documents required in connection with the
transactions contemplated hereby and matters incidental thereto as it or he
shall have agreed to furnish, and it is reasonably unlikely that the other party
will be able to furnish such item(s) prior to the Outside Effective Date, or
(iv) any consent of any third party to the transactions contemplated hereby
(whether or not the necessity of which is disclosed herein or in any Schedule
hereto) is reasonably necessary to prevent a default under any outstanding
material obligation of either party hereto and such consent is not obtainable
without material cost or penalty (unless the party not seeking to terminate this
Agreement agrees or agree to pay such cost or penalty);
(c) by either Commodore or the Stockholders , at any time on
or after the Outside Effective Date, if (i) the transactions contemplated hereby
shall not have been consummated prior thereto, or (ii) the Transaction
Financings shall not have been completed by such Outside Effective Date;
provided, that the party seeking to effect such termination of this Agreement
shall not then be in breach or default of any material representation, warranty,
covenant, agreement or obligation imposed upon such party by this Agreement; or
(d) by the Stockholders, at any time on or after September
15, 2000 if the Stockholders shall not have received a favorable Tax Opinion.
18.2 Effect of Termination. In the event of termination of this
Agreement pursuant to this Section 11, prompt written notice shall be given by
the terminating party to the other party, and, unless the party seeking to
terminate this Agreement shall have no right to do so, neither party to this
Agreement shall have any further liability to the other, except for the
Termination Payment contemplated by Section 11.3 below and that the
confidentiality provisions of this Agreement provided in Section 7.1 above shall
survive any termination or abandonment of this Agreement.
18.3 Termination Payment. In the event that for any reason, other
than a breach or violation by the Stockholders of the covenants and agreements
on their part to be performed pursuant to Section 11.1(b) above, the
transactions contemplated by this Agreement shall not be consummated by the
Outside Effective Date, the Stockholders shall receive from Commodore not later
than five (5) business days following the Outside Effective Date, as full
liquidated damages: (a) 250,000 shares of Commodore Common Stock; (b) 250,000
warrants (identical in all material respects to the Commodore Warrants) to
purchase shares of Commodore Common Stock; and (c) cash reimbursement of all
legal, accounting and other out-of-pocket costs and expenses which have been
incurred by the Stockholders or the Company through and including the Outside
Effective Date in connection with the transactions contemplated hereby.
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19. INDEMNIFICATION.
19.1 General.
(a) The Stockholders (jointly and severally) shall defend,
indemnify and hold harmless Commodore from, against and in respect of any and
all claims, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including costs of investigation, interest,
penalties and reasonable attorneys' fees, that Commodore may incur, sustain or
suffer (collectively, the "Commodore Losses") as a result of any breach of, or
failure by the Stockholders to perform, any of the representations, warranties,
covenants or agreements of the Stockholders contained in this Agreement or in
any Schedule(s) furnished by or on behalf of the Stockholders under this
Agreement.
(b) Commodore shall defend, indemnify and hold harmless the
Stockholders from, against and in respect of any and all claims, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including costs of investigation, interest, penalties and reasonable attorneys'
fees, that the Stockholders may incur, sustain or suffer (collectively, the
"Stockholders Losses") as a result of any breach of, or failure by Commodore to
perform, any of the representations, warranties, covenants or agreements of
Commodore contained in this Agreement.
(c) Commodore Losses or Stockholders Losses are hereinafter
referred to as "Losses", as they relate to the applicable party or parties in
Sections 12.3 and 12.4 above.
19.2 Limitations on Certain Indemnity, Right of Offset.
(a) Except with respect to any Commodore Losses involving
proven fraud by the Stockholders, the Stockholders shall not be liable to
Commodore with respect to Commodore Losses unless and until, and then only to
the extent that, the aggregate amount of all Commodore Losses shall exceed the
sum of $250,000 (the "Basket"). The Stockholders (jointly and severally) shall
thereafter be liable for all Commodore Losses in excess of the Basket, up to the
aggregate amount of the Closing Cash Payment portion of the Consideration set
forth in Section 2.1 hereof
(b) Duration of Indemnity for Breach of Warranty. Commodore
shall be entitled to indemnification by the Stockholders for Commodore Losses,
and the Stockholders shall be entitled to indemnification by Commodore for
Stockholders Losses, only in respect of claims for which notice of claim shall
have been given on or before September 30, 2001; provided that:
(i) with respect to Commodore Losses relating to a
breach of any warranties relating to tax matters covered by Section
4.8 above, the duration of such indemnity shall be with respect to
claims asserted prior to the expiration of the final statute of
limitations for those tax reports and tax returns covered by the
warranties under Section 4.8 above; and
(ii) neither Commodore nor the Stockholders shall be
entitled to indemnification in the event that the subject claim for
indemnification relates to a third-party claim and the prospective
indemnified party (as the case may be) delayed giving notice thereof
to such an extent as to cause material prejudice to
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the defense of such third-party claim.
(c) Rights of Offset. In the event that Commodore shall
suffer or incur any Commodore Losses which are established pursuant to a written
settlement agreement, arbitrators' decision or judicial determination, Commodore
shall have the right (in addition to any and all other rights and remedies, all
of which may be exercised separately or concurrently) to recover the amount of
such Commodore Losses by means of offset against any installments of Company
Cash Flow Payments then or thereafter payable to the Stockholders pursuant to
Section 2.5 of this Agreement. Notwithstanding the foregoing, until such time as
any such Commodore Losses shall have been finally established through a
settlement agreement a final judgment of a court of competent jurisdiction from
which no appeal can or shall be taken (a "Final Resolution"), all accumulated
periodic installments of Company Cash Flow Payments required to be made to the
Stockholders under Section 2.5 hereof, up to and including an accumulated amount
as shall equal the amount of Commodore Losses being claimed, shall be paid by
the Company into an interest bearing attorneys' escrow account to be maintained
by Greenberg Traurig LLP and to be disbursed pending such Final Resolution in
accordance with the terms of an escrow agreement satisfactory to such counsel
and the parties hereto. To the extent that such periodic installment payments of
Company Cash Flow required to be placed in escrow, as aforesaid, shall equal the
amount of the alleged Commodore Losses, the excess, if any, of all subsequent
periodic installment payments of Company Cash Flow which is required to be paid
to the Stockholders under Section 2.5 hereof shall be immediately remitted
directly to the Stockholders pending the Final Resolution and thereafter.
19.3 Resolution of Disputes, Binding Arbitration.
(a) Whenever a claim shall arise for which any party shall be
entitled to indemnification hereunder, the indemnified party shall notify the
indemnifying party in writing within thirty (30) days of the indemnified party's
first receipt of notice of, or the indemnified party's obtaining actual
knowledge of, such claim, and in any event within such shorter period as may be
necessary for the indemnifying party to take appropriate action to resist such
claim. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent reasonably
possible) the amount of potential liability arising therefrom. If the
indemnifying party shall be duly notified of such dispute, the parties shall
attempt to settle and compromise the same.
(b) In the event that any dispute relating to indemnification
hereunder or otherwise involving the interpretation or application of this
Agreement, any Schedule or Exhibit hereto or any other Transaction Document
cannot be settled or compromised, as aforesaid, within twenty (20) days of
receipt of the subject claim, either the indemnified party or the indemnifying
party shall promptly thereafter submit the dispute for final and binding
arbitration to JAMS or End-Dispute before a three-person panel of arbitrators
who shall be either (i) retired federal judges, or (ii) other persons
experienced in resolving commercial disputes and who are acceptable to both the
indemnifying party and the indemnified party (the "Arbitration"). Any such
Arbitration shall, if brought by the Stockholders, be held in New York, New York
and, if brought by Commodore shall be in Salt Lake City, Utah. The panel of
arbitrators shall be selected within twenty (20) days of submission of such
dispute to Arbitration. The parties shall use their collective best efforts to
promptly schedule and conduct the hearings before such arbitrators, with a view
toward concluding such arbitration proceedings not later than thirty (30) days
from the first submission of the dispute to arbitration. In addition to, and not
in lieu of,
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arbitration as a means of dispute resolution hereunder, any party hereto shall
have the right to seek specific enforcement of this Agreement or any Transaction
Document, or other injunctive or equitable relief or remedy before any court of
competent jurisdiction.
(c) In connection with any Arbitration pursuant to this
Section 12.3, the arbitrators shall, as part of their award, allocate the fee of
the Arbitration, including all fees of the arbitrators, the cost of any
transcripts, and the parties' reasonable attorneys' fees, based upon and taking
into account the arbitrators' determination of the merits and good faith of the
parties' claims and defenses in the subject proceeding.
(d) The decision and award of the arbitrators shall be final
and binding upon the parties hereto and shall be enforceable in any court of
competent jurisdiction, including any federal or state court in the States of
Utah, Delaware, New York or Colorado. Any process or other papers hereunder may
be served by registered or certified mail, return receipt requested, or by
personal service, provided that a reasonable time for appearance or response is
allowed.
(e) Any rights of indemnification established by reason of
such settlement, compromise, arbitration or litigation shall promptly thereafter
be satisfied by the indemnifying party in such amount as shall be necessary to
satisfy all applicable Losses determined in accordance with such settlement and
compromise, or by final nonappealable order or judgment of the applicable
judicial or arbitration panel.
19.4 Defense and Settlement. In connection with the defense of any
third party claims for which claims for indemnification have been made
hereunder, each party will provide reasonable access to its and the Company's
books and records as and to the extent required for the proper defense of such
third party claim. Neither party shall consent to any settlement or purport to
bind any other party to any settlement without the written consent of the other
party.
20. COSTS.
20.1 Finder's or Broker's Fees. Except as set forth in Section 9.8
hereof, each of Commodore (on the one hand) and the Stockholders (on the other
hand) represent and warrants that neither it, he, she nor any of their
respective Affiliates have dealt with any broker or finder in connection with
any of the transactions contemplated by this Agreement, and no broker or other
person is entitled to any commission or finder's fee in connection with any of
the transactions contemplated hereby.
20.2 Closing Expenses. Each of Commodore and the Stockholders shall
each pay all of their own respective professional fees and other costs and
expenses incurred or to be incurred by them, respectively, in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement; provided, that nothing herein contained shall be
deemed to prohibit the payment by the Company of professional fees and other
costs and expenses incurred or to be incurred by the Company in connection with
the transactions contemplated hereby and the continuing course of its Business.
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21. POST-CLOSING COVENANT AND AGREEMENTS OF THE PARTIES.
21.1 Income Taxes.
(a) Commodore shall not permit the Company, at any time on or
after Closing Date, to (i) amend any of the Company's tax reports or tax returns
with respect to periods prior the Closing Date, except to the extent required by
affirmative determination of the applicable taxing authority, or (ii) grant any
waiver of any applicable statute of limitations with respect to any tax report
or tax return of the Company for any period prior to the Closing Date, without
the prior written consent of the Stockholders.
(b) In the event of any investigation or audit with respect
to any tax report or tax return of the Company for any period prior to the
Closing Date, Commodore shall cause the Company to give prompt written notice
thereof to the Stockholders , and to permit the Stockholders and their
representatives to participate in and receive copies of all notices and
communications in connection with any such investigation or audit. Similarly, in
the event that the Stockholders shall be apprised of any such investigation or
audit prior to the Company being apprised thereof, the Stockholders shall give
prompt written notice thereof to the Company, and shall permit the Company and
its representatives to participate therein and receive copies of all notices and
communications in connection therewith. The Stockholders shall not, and
Commodore shall not permit the Company to, enter into any settlement of any such
investigation or audit unless (i) such settlement shall be approved in writing
by the Stockholders and the Company (such approval not to be unreasonably
withheld or delayed), or (ii) the Company shall have agreed to indemnify the
Stockholders in respect of any additional tax obligations which would be imposed
upon the Stockholders by reason of the subject settlement. In connection with
any such investigation or audit, each party shall be responsible for its own
costs and expenses, except to the extent otherwise agreed to in any written
agreement hereafter entered into and signed by the party to be charged
therewith.
21.2 Company Benefit and Compensation Matters. From and after the Closing
Date, Commodore will cause the Company to continue to maintain the bonus plans
and policies for key employees of the Company (other than the Stockholders), a
summary of which is annexed as Schedule 14.2 hereto. Neither the Company nor
Commodore shall revoke, change or modify any of such plans or policies prior to
December 31, 2005 without the prior written consent of the Stockholders, which
shall not be unreasonably withheld.
21.3 Further Assurances. From time to time from and after the Closing, the
parties shall execute and deliver, or cause to be executed and delivered, any
and all such further agreements, instruments, certificates and other documents,
and shall take or cause to be taken any and all such further action, as any of
the parties may reasonably deem necessary or desirable in order to carry out the
intent and purposes of this Agreement.
21.4 Major Transactions; Opt Out Rights.
(a) Notwithstanding anything to the contrary contained in this
Agreement (but subject at all times to the provisions of Section 14.4(b) below),
from the Closing Date through March 31, 2006 or thereafter and for so long as
any Company Cash Flow Payments contemplated by Section 2.5 of this Agreement
shall continue to be due and owing to the Stockholders, neither the Company nor
any Permitted Investment shall, nor shall Commodore, or any of its Affiliates
permit or cause the Company or any Permitted Investment to, engage in or
consummate any of
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the following (each a "Major Transaction"), without, in each instance, the prior
written affirmative vote, consent and approval of both of the Stockholders:
(i) merge, consolidate or sell all or substantially all
of the assets or securities;
(ii) issue additional shares of capital stock or other
equity of the Company or of any Permitted Investment,
(iii) make any Investments or other acquisitions of
material assets or businesses,
(iv) incur indebtedness for borrowed money or
capitalized lease obligations in any one or more transaction
aggregating in excess of $50,000 per annum,
(v) incur liens, mortgages or security interests in any
one or more transaction aggregating excess of $50,000 per annum,
(vi) exceed or deviate from mutually agreed upon
capital budgets,
(vii) modify or terminate the Core Business,
(viii) enter into or consummate any transfer or sale of
properties or provide funds or credit to any third parties (other
than sales of inventories in the ordinary course of business) in
amounts aggregating more than $50,000 per annum,
(ix) increase compensation to executive officers or
management above mutually agreed upon levels,
(x) except for liabilities of the Company which
Commodore shall be obligated to pay, if any, enter into any related
party transactions, including payment to Commodore or any of its
Affiliates of any overhead expenses, salaries, consulting fees,
bonuses or other compensation or remuneration to any officer,
director, employee or stockholder of Commodore;
(xi) amend or terminate any material agreements,
(xii) settle any material litigation which involves the
loss of any rights, or payment of any moneys or royalties,
(xiii) prepay or refinance indebtedness,
(xiv) make or accept any additional Investments,
whether in cash or other assets or Property, to or for the Company
or any Permitted Investment;
(xv) guaranty any obligations or incur any obligations
or indebtedness which would cause the Company Cash Flow Payments to
the Stockholders contemplated by Section 2.5 hereof to be
subordinated in any
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manner or respect to the rights of the holders of such obligations
or indebtedness;
(xvi) take any action which would adversely affect the
Company's ability to distribute the Acquisition Stock to the
applicable Persons referred to in Section 9.8 hereof; or
(xvii) enter into any other transactions not in the
ordinary course of business.
(b) DRM Stockholders' "Opt-Out" Right. The provisions of this
Section 14.4(b) shall be only applicable to contemplated activities or
transactions affecting one or more Permitted Investment which is engaged in the
Extension Electronics Business or the Brownsfield Real Estate Business. Subject
to the foregoing and notwithstanding the provisions of Section 14.4(a) above, in
the event and to the extent that the board of directors or management of
Commodore or any Permitted Investment which is engaged in the Extension
Electronics Business or the Brownsfield Real Estate Business shall propose to
engage in any activity or transaction which (i) is otherwise required to be
approved by the Stockholders pursuant to the provisions of Section 14.4(a)
above, and (ii) is not approved by the Stockholders (a "Non-Approved Activity"),
Commodore or such Permitted Investment may nonetheless pursue and consummate
such Non-Approved Activity if otherwise authorized in accordance with applicable
corporate law; provided, however, that the Stockholders (and only such Persons)
may, at any time within one hundred and eighty (180) days following consummation
of the Non-Approved Activity, elect, by written notice to Commodore (the
"Opt-Out Notice"), to have the revenues, Net Profits, Net Loss or Cash Flow of
such Permitted Investment for all periods from and after the date of the Opt-Out
Notice excluded from the calculation of Company Cash Flow (the "Opt-Out Right").
In the event that the Stockholders shall timely elect to exercise their Opt-Out
Right pursuant to the provisions of this Section 14.4(b) for all purposes of
this Agreement, the direct or indirect Subsidiary of Commodore engaged in such
Non-Approved Activity shall no longer be deemed a Permitted Investment and
neither Commodore nor such entity be required to comply with the provisions of
Section 14.4(a) above or the other affirmative covenants set forth in Section
14.5 of this Agreement. Once the Stockholders have elected their Opt Out Right,
they may not subsequently require that the Subsidiary or other entity engaged in
such Non-Approved Activity again be deemed a Permitted Investment and included
in the calculation of Company Cash Flow, unless otherwise approved in writing by
Commodore.
(c) Participating and Other Investments. In the event and to the
extent that Commodore shall elect to consummate any Participating Offered
Investment which shall not be approved in writing by the Stockholders and
thereby not be deemed a Permitted Investment hereunder, Commodore may consummate
such Participating Offered Investment in any Affiliate or Subsidiary of
Commodore (other than the Company, a direct or indirect subsidiary of the
Company or another Permitted Investment); provided, that neither the revenues,
Net Profits, Net Loss or Cash Flow of such Participating Offered Investment
shall be included in the calculation of Company Cash Flow. In addition, so long
as the same shall not constitute a Participating Offered Investment hereunder,
nothing herein contained shall be deemed to limit or restrict Commodore from
making any investments or acquisitions of assets, businesses, securities or
properties of any person, firm or corporation, nor shall Commodore be required
to comply with the provisions of Section 14.4(a) above or the other affirmative
covenants set forth in Section 14.5 of this Agreement with respect to any such
investment or acquisition.
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21.5 Certain Affirmative Covenants. Unless otherwise agreed to in writing
by the Stockholders, Commodore, the Company and each Permitted Investment shall:
(a) maintain and preserve their corporate existence, franchises,
intellectual property and assets,
(b) pay all taxes and other government charges,
(c) provide the Stockholders with prompt notices of any material
events, including changes in location of assets, claims or litigation, material
adverse changes or defaults under any loan or related credit agreements or to
any other creditor(s),
(d) furnish the Stockholders with monthly, quarterly and annual
financial statements and other financial reports of the Company and its
subsidiaries,
(e) comply with the Commodore Financial Services Business
Development Plan and any supplemental business plans with respect to the growth,
development and expansion of the business activities of the Company and
contemplated Permitted Investments;
(f) provide the Stockholders with timely and accurate information as
to business developments and activities of the Company and each Permitted
Investment, including the application of the net proceeds of the Transaction
Financing described below and all additional financings;
(g) pay all insurance premiums, including premiums on officers and
directors liability insurance;
(h) with respect to each Participating Offered Investment and
Permitted Investment (i) offer the Stockholders full access to all information,
facilities and personnel with respect to a potential Participating Offered
Investment at the same time other Affiliates of Commodore conduct their due
diligence investigation, (ii) offer the Stockholders an adequate opportunity to
review and approve or reject all potential Participating Offered Investments,
(iii) if any Participating Offered Investment shall be approved by the
Stockholders and acquired by Commodore or any direct or indirect Subsidiary or
Affiliate of Commodore, constitute the same as a Permitted Investment and
include the revenues and Cash Flow of such Permitted Investment in the
calculation of Company Cash Flow, and (iv) except for Permitted Investments
involving the Brownsfield Real Estate Business and the Extension Electronic
Investments, make all Permitted Investments direct or indirect Subsidiaries of
the Company;
(i) vote all shares of the Company Stock owned by Commodore or any
of its Affiliates to elect as the entire Board of Directors of the Company and
the board of directors of each Permitted Investment of the Company except
Brownsfield Real Estate Business and Extension Electronic Investments, to the
extent applicable, the following persons or their individual designees (A)
Bentley J. Blum, (B) Paul E. Hannesson, (C) Russell, (D) Speciale, and (E) one
other Person who shall be mutually acceptable to Commodore and to the
Stockholders.
(j) include all activities involving the Brownsfield Real Estate
Business and the Extension Electronic Investments in direct or indirect
Subsidiaries of Commodore, other than the Company and its direct or indirect
Subsidiaries; and
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(k) notify the Stockholders of all potential Participating Offered
Investments and offer to the Stockholders the right to include in the
calculation of Company Cash Flow, the Cash Flow of all Participating Offered
Investments.
21.6 Stockholders' Approval.
(a) For all purposes of this Agreement, all matters requiring the
approval or consent of the Stockholders shall require that such approval or
consent be given by both of the Stockholders.
(b) In the event that, for any reason or no reason (other than the
death or permanent disability (as defined in their Employment Agreement) of a
Stockholder), one of the Stockholders shall fail or refuse to provide his or her
consent or approval in connection with any matter or transaction, the same shall
be deemed as though both of the Stockholders shall have not approved such matter
or transaction.
(c) In the event of the death or permanent disability of a
Stockholder, the surviving or non-disabled Stockholder shall, for all purposes
of this Agreement, be the only person whose approval or consent shall thereafter
be required in connection with all matters requiring such approval or consent of
the Stockholders hereunder. Accordingly (i) neither the heirs, legal
representatives, executors or administrators of any deceased or permanently
disabled Stockholder, nor the successors or assigns of any Stockholder shall
have any right to vote in respect of providing any approval, consent or
disapproval in respect of any activity or transaction otherwise requiring the
approval of the Stockholders hereunder, and (ii) such heirs, legal
representatives, executors, administrators, successors or assigns may not block
or otherwise enjoin any such existing or proposed activity or transaction.
22. FORM OF AGREEMENT.
22.1 Effect of Heading. The Section headings used in this Agreement
and the titles of the Schedules hereto are included for purposes of convenience
only, and shall not affect the construction or interpretation of any of the
provisions hereof or of the information set forth in such Schedules.
22.2 Entire Agreement, Waivers. This Agreement (including the
Schedules and Exhibits hereto) and the other Transaction Documents constitute
the entire agreement between the parties pertaining to the subject matter hereof
and thereof, and supersede all prior agreements or understandings as to such
subject matter. No party hereto has made any representation or warranty or given
any covenant to the other except as set forth in this Agreement and the
Schedules and Exhibits hereto and the other Transaction Documents. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless executed in
writing by the party making the waiver.
22.3 Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
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23. PARTIES.
23.1 Parties in Interest. Nothing in this Agreement, whether
expressed or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective heirs, executors, administrators, personal representatives,
successors and permitted assigns, nor is anything in this Agreement intended to
relieve or discharge the obligations or liability of any third persons to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over or against any party to this Agreement.
23.2 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (a) on the date of service, if served personally on the
party to whom notice is to be given, (b) on the day after the date sent by
recognized overnight courier service with all charges prepaid or billed to the
account of the sender, (c) three (3) days after being deposited in the United
States mail if sent by first class mail, registered or certified, postage
prepaid, or (d) when sent by facsimile transmission, to the party being notified
at its address or facsimile number set forth below or such other address or
facsimile number as any party hereto shall subsequently notify all other parties
hereto in writing:
(i) If to Commodore: with a copy to:
Commodore Applied Technologies, Inc. Allen Perlstein, Esq.
150 East 58th Street Silverman Perlstein & Acampora LLP
New York, New York 10155 100 Jericho Quadrangle - Suite 300
Attention: President Jericho, New York 11753
fax no. (212) 753-0731 fax no. (516) 479-6301
(ii) If to the Stockholders: with a copy to:
William J. Russell Stephen A. Weiss, Esq.
16049 East Berry Drive Greenberg Traurig LLP
Aurora, Colorado 80015 200 Park Avenue
fax no. (303) 699-9025 New York, New York 10166
fax no. (212) 801-6400
-and-
Tamie P. Speciale
55 Dorchester Drive
Salt Lake City, Utah 84103
fax no. (801) 531-0628
or to such other address as either party shall have specified by notice in
writing given to the other party.
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24. MISCELLANEOUS.
24.1 Amendments and Modifications. No amendment or modification of
this Agreement or any Exhibit or Schedule hereto shall be valid unless made in
writing and signed by the party to be charged therewith.
24.2 Non-Assignability, Binding Effect. Other than an assignment by
Commodore of its indemnification rights and remedies to one or more of its
financing institutions, neither this Agreement, nor any of the rights or
obligations of the parties hereunder, shall be assignable by either party hereto
without the prior written consent of the other party. Otherwise, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, executors, administrators, personal representatives,
successors and permitted assigns. Notwithstanding the foregoing, Commodore shall
have the right on or before the Closing Date to assign this Agreement to any
newly formed wholly-owned acquisition subsidiary corporation of Commodore;
provided, that any such permitted assignment shall in no manner relieve, or be
deemed to relieve, Commodore from any obligations, covenants and agreements on
its part to be performed both prior and subsequent to the Closing Date. In
addition, Commodore may assign all or any portion of the Option described in
Section 7.2(a) to any unaffiliated third person, firm or corporation; provided,
that any such permitted assignment shall in no manner relieve, or be deemed to
relieve, Commodore from any obligations, covenants and agreements on its part to
be performed pursuant to said Section 7.2(a) or otherwise.
24.3 Entire Agreement. This Agreement, together with the Exhibits
hereto, represents the entire agreement between the parties with respect to the
subject matter hereof, and supersedes all other agreements, written or oral,
between the parties with respect to the subject matter hereof, including without
limitation, the terms of the Prior Asset Agreement, dated as of January 31,
2000, and the Acquisition Agreement, dated as of August 18, 2000.
24.4 Governing Law, Jurisdiction. This Agreement shall be construed
and interpreted and the rights granted herein governed in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
wholly within such State.
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IN WITNESS WHEREOF, the parties have executed this Agreement on and
as of the date first set forth above.
Commodore: COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ Paul E. Hannesson
-------------------------------------
Paul E. Hannesson, President
The Stockholders:
/s/ William J. Russell
-----------------------------------------
WILLIAM J. RUSSELL
/s/ Tamie P. Speciale
-----------------------------------------
TAMIE P. SPECIALE
The Company: DISPUTE RESOLUTION MANAGEMENT, INC.
By: /s/ William J. Russell
--------------------------------------
William J. Russell, President
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EXHIBIT A
ARTICLES OF MERGER
DRM ACQUISITION CORP.
into
DISPUTE RESOLUTION MANAGEMENT, INC.
Pursuant to the provisions of ss.16 - 10a - 105 of the Utah Business
Corporation Act, the undersigned domestic corporations adopt the following
Articles of Merger for the purpose of merging them into one of such
corporations;
FIRST: The names of the undersigned corporations and the states
under the laws of which they are respectively organized are:
Name of Corporation State of Incorporation
--------------------------------------------------------------
Dispute Resolution Management, Inc. Utah
DRM Acquisition Corp. Utah
SECOND: The laws of the State of Utah permit such merger.
THIRD: The name of the surviving corporation is Dispute Resolution
Management, Inc. (the "Surviving Corporation "), and it is to be governed by the
laws of the State of Utah.
FOURTH: The following Plan of Merger was approved by the
shareholders of the undersigned domestic corporations in the manner prescribed
by the Utah Business Corporation Act.
(a) Upon the effectiveness of the Merger: (i) the Surviving
Corporation shall own and possess all assets and property of every kind and
description, and every interest therein, wherever located, and all rights,
privileges, immunities, powers, franchises and authority of a public as well as
of a private nature, of each of Dispute Resolution Management, Inc. and DRM
Acquisition Corp. (the "Constituent Corporations"), and all obligations owed to,
belonging to or due to each of the Constituent Corporations, all of which shall
be vested in the Surviving Corporation pursuant to Utah Law without further act
or deed, and (ii) the Surviving Corporation shall be liable for all claims,
liabilities and obligations of the Constituent Corporations, all of which shall
become and remain the obligations of the Surviving Corporation pursuant to Utah
Law without further act or deed.
(b) Upon the effectiveness of the Merger, the Certificate of
Incorporation, By-Laws and directors of the Surviving Corporation shall be
identical to those of Dispute Resolution Management, Inc. as in effect
immediately prior to the effectiveness of the Merger.
(c) Upon the effectiveness of the Merger:
(i) Treasury Stock. Each share of capital stock of
Dispute Resolution Management, Inc., if any, held by Dispute Resolution
Management, Inc. as treasury stock immediately prior to the effectiveness of the
Merger shall be canceled and extinguished, and no payment or issuance of a
consideration shall be payable or shall be made in respect thereof;
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(ii) Options and Warrants. As of the effective date of
the Merger there are no options, warrants, rights, or other agreements to
acquire any securities of Dispute Resolution Management, Inc., or any securities
directly or indirectly convertible into or exchangeable for or exercisable to
acquire the same, and no agreements to issue or acquire or dispose of any of the
foregoing.
(iii) Treatment of DRM Acquisition Corp. Common Stock..
Each of the twenty four thousand three hundred (2 4,300) issued and outstanding
shares of common stock of DRM Acquisition Corp., $ .10 par value poi share (the
"DRM Acquisition Corp. Common Stock"), shall, upon the effectiveness of the
Merger, be converted into one (1) share of Common Stock , $.10 par value per
share, of Dispute Resolution Management, Inc., as the Surviving Corporation of
the Merger.
(iv) Treatment of Dispute Resolution Management, Inc.
Stock. Each of the 30,000 shares of Management, Inc., $.10 par value per share
(the "Company Stock") issued and outstanding immediately prior to the
effectiveness of the Merger shall b, treated as follows:
(A) an aggregate of five thousand seven: hundred
(5,700) shares of Company Stock owned of record and beneficially in equal
amounts by William J. Russell and Tamie P. Specials in Dispute Resolution
Management, Inc. shall be retained by William J. Russell and Tamie P. Speciale
and each of such shares of Company Stock shall, pursuant to the Merger, be
deemed to represent one (1) share of Common Stock, $.10 par value per share, of
the Surviving Corporation of the Merger, or an aggregate of five thousand seven
hundred (5,700) shares of such Company Stock; and
(B) an aggregate of twenty four thousand three
hundred (24,300) shares of Company Stock owned of record and beneficially in
equal amounts by William J. Russell and Tamie P. Specials shall be canceled and
extinguished and shall be converted into the right to receive the Merger
Consideration payable pursuant to Section 2 of the agreement and plan of merger,
dated as of August 1e, 2000, among Commodore Applied Technologies, Inc., ISM
Acquisition Corp., Dispute Resolution Management, Ire., William J. Russell and
Tamie P. Specials (the "Merger Agreement"). Such Merger Consideration shall be
paid and delivered upon surrender to the Surviving Corporation of the
certificates representing such 24,300 shares of outstanding Company Stock (all
of which shall be delivered free and clear of any and all pledges, Liens (as
such term is hereinafter defined), claims, charges options, calls, encumbrances,
restrictions and assessments whatsoever, except ay restrictions which may be
created by operation of state or federal securities laws).
(d) Books and Records. All of the stock books, records and
minute books of Dispute Resolution Management, Inc., all financial and
accounting books and records of Dispute Resolution Management, Inc, and all
referral, client, customer and sales records of Dispute Resolution Management,
Inc., shall be the property of the Surviving Corporation.
FIFTH: As to each of the undersigned corporations, the number of
shares outstanding, and the designation and number of outstanding shares of each
class entitle to vote as a class on such Plan, are as follows:
Number of Shares Number of Shares Entitled to
Name of Corporation Outstanding Vote as a Class
Dispute Resolution
Management, Inc. 30,000 Common Stock 30,000
DRM Acquisition Corp. 30,000 Common Stock 30,000
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SIXTH: As to each of the undersigned corporations, the total number
of shares voted for and against such Plan, respectively, and, as to each class
entitled to vote thereon as a class, the number of shares of such class voted
for and against such Plan, respectively, are as follows:
Number of Shares Entitled to Vote as a Class
Name of Corporation Class Voted For Voted Against
Dispute Resolution
Management, Inc. Common Stock 30,000 shares No shares
DRM Acquisition Corp. Common Stock 30,000 shares No shares
SEVENTH: The Surviving Corporation hereby: (a) agrees that it may be
served with process in the state of Utah in any proceeding for the enforcement
of any obligation of the undersigned domestic corporation and in any proceeding
for the enforcement of the rights of a dissenting shareholder against the
Surviving Corporation; (b) irrevocably appoints the secretary of state of Utah
its agent to accept service of process in any such proceeding; and (c) agrees
that it will promptly pay to the dissenting shareholders of such Surviving
Corporation the amount, if any, to which they shall be entitled under the
provisions of the Utah Business Corporation Act with respect to the rights of
dissenting shareholders.
Dated:_____________, 2000.
DISPUTE RESOLUTION MANAGEMENT, INC.
By: William J. Russell, Its President
By: Tamie P. Speciale, Its Secretary
DRM ACQUISITION CORP.
By: Paul E. Hannesson, Its President
By: ____________ Its Secretary
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<PAGE>
STATE OF UTAH )
) ss.:
COUNTY OF ___________)
I, __________________, a notary public, do hereby certify that on
this ___________ day of _______________, 2000, personally appeared before me
William J. Russell, who, being by me f fist duly sworn, declared that he is the
President of Dispute Resolution Management, Inc.; that he signed the foregoing
document as President of the corporation and that the statements therein
contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
_______________ day of _________________ __________________, A.D. 2000.
My Commission expires _________________.
____________________________________
Notary Public:
STATE OF YORK )
) ss.:
COUNTY OF NEW YORK)
I, __________________, a notary public, do hereby certify that on
this ___________ day of _______________, 2000, personally appeared before me
Paul E. Hannesson,, who, being by me f fist duly sworn, declared that he is the
President of DRM Acquisition Corp.; that he signed the foregoing document as
President of the corporation and that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
_______________ day of _________________ __________________, A.D. 2000.
My Commission expires _________________.
____________________________________
Notary Public:
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EXHIBIT B
WARRANT TO PURCHASE SHARES OF
COMMON STOCK OF COMMODORE APPLIED TECHNOLOGIES, INC.
W-1
_______ ___, 2000
New York, New York
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") AND SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M., NEW YORK TIME
ON _______ ___, 2005
THIS CERTIFIES THAT for value received, [William J Russell] [Tamie P.
Speciale] [Diane Archangeli] [Arthur Berry & Company, Inc.] or their registered
permitted assigns (hereinafter collectively referred to as the "Holder"), may
subscribe for and purchase, subject to the terms and conditions hereof, from
Commodore Applied Technologies, Inc., a Delaware corporation (the "Company"),
[340,000] [340,000] [300,000] [20,000] shares of Common Stock of the Company,
par value $0.001 per share (the "Common Stock"), at any time during the period
(the "Exercise Period") commencing at 9:00 a.m. New York Time on _________ ___,
2000 (the "Commencement Date") and ending at 5:00 p.m. New York Time, on
_________ ___, 2005, a date which is five (5) years from the Commencement Date
(the "Expiration Date"), at an exercise price per share (the "Exercise Price")
which shall be equal to two ($2.00) dollars be share. The number of shares of
Common Stock issuable upon exercise of this Warrant (the "Warrant Shares"), the
Exercise Price, and the kind of securities issuable upon exercise of this
Warrant, shall be subject to adjustment from time to time upon the occurrence of
certain events as set forth below.
In the event of a Sale of Control of the Company, the Holder of this
Warrant shall have the right (but not the obligation), immediately prior to or
simultaneous with such Sale of Control, to utilize the "cashless exercise"
rights contemplated by Section 1.1(b) below in connection with his or its
exercise of this Warrant.
Certain Definitions. As used herein:
(a) the term 'Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of this Warrant, as adjusted from time to time,
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(b) the term "Sale of Control" shall mean the sale of all or substantially
all of the outstanding shares of capital stock or assets of the Company,
whether by sale, merger, consolidation or like combination, to any
unaffiliated third person, firm or corporation.
(c) the term "Sale of Control Price" shall mean the price per share paid
by any unaffiliated third person, firm or corporation for each
fully-diluted share of Common Stock of the Company in connection with any
Sale of Control; which Sale of Control Price shall be determined by
dividing (i) the total consideration received or receivable by the Company
or its stockholders in connection with such Sale of Control by (ii) the
aggregate number of shares of Common Stock of the Company outstanding on a
fully-diluted basis (after giving effect to the exercise of all
outstanding Company options and warrants or the conversion into Common
Stock of all outstanding convertible securities of the Company )
immediately prior to consummation of such Sale of Control.
1. Exercise Price and Expiration.
(a) This Warrant may be exercised in whole or in part on any
Business Day (as such term is hereinafter defined) at any time during the
Exercise Period upon surrender to the Company, at its address for notices set
forth in Section 8 of this Warrant (or at such other office of the Company, if
any, or such other office of the Company's duly authorized agent for such
purpose, as may be maintained by the Company for such purpose and so designated
by the Company by written notice to the Holder prior to such exercise), together
with the following: (i) a duly completed and executed Notice of Warrant Exercise
in the form annexed hereto, and (ii) payment of the full Exercise Price for this
Warrant or the portion thereof then being exercised. This Warrant and all rights
and options hereunder shall expire on, and shall be immediately wholly null and
void to the extent the Warrant is not properly exercised prior to the Expiration
Date. As used in this Warrant the term "Business Day" shall mean the time period
between 9:00 a.m. New York, New York Time and 5:00 p.m. New York, New York Time
on any day other than any Saturday, Sunday, or other day on which commercial
banks in New York, New York are required or are authorized by law to close.
(b) Such Exercise Price shall be paid in lawful money of the United
States of America by bank cashier's check or by wire transfer of immediately
available funds to such account as shall have been designated in writing by the
Company to the Holder from time to time. In lieu of paying such Exercise Price
in cash, the Holder of this Warrant may elect to exercise certain "cashless"
exercise rights on each occasion the Holder elects to exercise this Warrant.
(c) Such "cashless" exercise shall be elected by the Holder
indicating on the Notice of Exercise to the Company of the Holder's intention to
exercise such cashless exercise rights. The number of shares of Common Stock
issuable to the Holder of this Warrant upon any such "cashless" exercise shall
be calculated as follows:
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<PAGE>
(i) The number of Warrant Shares issuable upon any full or
partial exercise of this Warrant (the "Subject Warrant Shares") shall be
multiplied by the Exercise Price then in effect. The product thereof shall be
deemed to be the "Exercise Cost."
(ii) The Subject Warrant Shares shall be multiplied by closing
price per share of the Company's Common Stock, as traded on the American Stock
Exchange, the New York Stock Exchange, the Nasdaq Stock Exchange, the OTC
Electronic-Bulletin Board or any other national securities exchange as at the
date of the Notice of Exercise (the "Per Share Market Price") and the product
thereof shall be deemed to be the "Exercise Value."
(iii) The Exercise Cost shall be subtracted from the Exercise
Value and the positive result thereof, if any, shall be deemed the "Profit."
(iv) The Company shall issue that number of Warrant Shares to
the Holder(s) as shall be determined by dividing the Profit by the Per Share
Market Price or Sale of Control Price, as the case may be.
(d) Upon the Holder's surrender of the Warrant and payment of the
Exercise Price or cashless exercise election, as set forth above, the Company
shall promptly issue and cause to be delivered to the Holder a certificate or
certificates for the total number of whole shares of Common Stock for which this
Warrant is then so exercised, as the case may be (adjusted to reflect the effect
of the anti-dilution provisions contained in Section 2 of this Warrant, if any)
in such denominations as are requested for delivery to the Holder, and the
Company shall thereupon deliver such certificates to the Holder. The Holder
shall be deemed to be the Holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder. For purposes
of Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Act"), it is intended, understood and acknowledged that the Warrant Shares
issued in a cashless exercise transaction pursuant to Section 1(b) above shall
be deemed to have been acquired by the Holder, and the holding period for the
Warrant Shares shall be deemed to have been commenced, on the issue date of the
Warrant. If, at the time this Warrant is exercised, a registration statement
under the Securities Act is not then in effect to register under said Securities
Act the Warrant Shares issuable upon exercise of this Warrant (together with any
applicable state securities law registrations), the Company may require the
Holder to make such representations, and may place such legends on certificates
representing the Warrant Shares, as may be reasonably required in the opinion of
counsel to the Company to permit the Warrant Shares to be issued without such
registration, unless the Company receives an opinion of counsel reasonably
satisfactory to counsel to the Company to the effect that said securities may be
freely traded without registration under the Securities Act.
(e) If the Holder shall exercise this Warrant with respect to less
than all of the Warrant Shares that may then be purchased under this Warrant,
having taken into account any prior exercise of the Warrant, the Company shall
promptly execute and deliver to the Holder a new warrant in the form of this
Warrant for the balance of such Warrant Shares.
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<PAGE>
2. Certain Anti-dilution Adjustments.
(a) In case the Company shall at any time after the date the
Warrants were first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price, and the number of Warrant Shares
issuable upon exercise of this Warrant, in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that the Holder after
such time shall be entitled to receive the aggregate number and kind of shares
which, if such Warrant had been exercised immediately prior to such time, it
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Exercise Price per share of Common Stock on such
record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
current Exercise Price and the denominator of which shall be the number of
shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock to be offered for subscription or purchase (or
into which the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable). Such adjustment shall become effective
at the close of business on such record date; provided, however, that, to the
extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the Exercise Price
shall be readjusted after the expiration of such rights, options, or warrants
(but only with respect to Warrants exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the stockholders of the Company
in connection with a
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consolidation or merger in which the Company is the continuing corporation)
evidences of its indebtedness or assets (other than cash dividends or
distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for shares of Common Stock (excluding those
with respect to the issuance of which an adjustment of the Exercise Price is
provided pursuant to Section 2(b) hereof), then, in each case, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to the record date for the determination of stockholders entitled to
receive such distribution by a fraction, the numerator of which shall be the
Exercise Price per share of Common Stock on such record date, less the fair
market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities,
applicable to one share, and the denominator of which shall be such current
Exercise Price per share of Common Stock. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the record date for
the determination of shareholders entitled to receive such distribution.
(d) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 2 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(e) In any case in which this Section 2 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment
(f) Upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 2(b) and 2(c) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price by (B) the
Exercise Price in effect after such adjustment of the Exercise Price.
3. Mergers; Consolidations and Reclassifications.
(a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving
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or continuing corporation), or in case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety, such successor, leasing, or
purchasing corporation, as the case may be, shall (i) execute with the Holder an
agreement providing that the Holder shall have the right thereafter to receive
upon exercise of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such consolidation, merger, sale, lease, or conveyance by a holder of the number
of shares of Common Stock for which this Warrant might have been exercised
immediately prior to such consolidation, merger, sale, lease, or conveyance and
(ii) make effective provision in its certificate of incorporation or otherwise,
if necessary, to effect such agreement. Such agreement shall provide for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 2.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of this Warrant solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 2.
(c) The above provisions of this Section 3 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
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4. Certain Representations of the Company.
Throughout the Exercise Period, the Company has and will continue to have
(i) all requisite power and authority to issue this Warrant and the Warrant
Shares, and (ii) sufficient authorized and unissued securities of Common Stock
to permit exercise of this Warrant.
5. Certain Covenants of the Company.
(a) The Company shall take such steps as are necessary to cause the
Company to continue to have sufficient authorized and unissued shares of Common
Stock reserved in order to permit the exercise of the unexercised and unexpired
portion of this Warrant, if any.
(b) The Company covenants and agrees that all Warrant Shares issued
upon the due exercise of this Warrant will, upon issuance in accordance with the
terms hereof, be duly authorized, validly issued, fully paid and non-assessable
and free and clear of all taxes, liens, charges, and security interests created
by the Company with respect to the issuance thereof.
(c) The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Warrant Shares upon the exercise of this
Warrant; provided, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue of this Warrant
or of any certificates for Warrant Shares in a name other than that of the
Holder upon the exercise of this Warrant, and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax, or shall have established to the satisfaction of the Company that such
tax has been paid.
(d) This Warrant and, when so issued, the shares of Common Stock
which may be issued upon exercise of the Warrants, will have been issued
pursuant to an available exemption from registration under the Securities Act.
(e) The Company covenants and agrees that if it fails (i) to file a
registration statement covering the Warrant Shares as provided in a Registration
Rights Agreement between the Holder and the Company, dated of even date
herewith, or (ii) to issue the shares of Common Stock upon the proper exercise
of the Warrant, then the Holder may, in addition to any remedies at law,
immediately commence an action for specific performance.
6. No Shareholder Rights. No Holder of this Warrant shall, as such, be
entitled to vote or be deemed the holder of Common Stock or any other kind of
securities of the Company, nor shall anything contained herein be construed to
confer upon the Holder the rights of a shareholder of the Company or the right
to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
shareholders (except as otherwise expressly provided herein), or to receive
dividends or subscription rights or otherwise, until the date of Holder's proper
exercise of this Warrant as described herein.
7. Notices. Any notice, demand, request, waiver or other communication
under this Agreement must be in writing and will be deemed to have been duly
given (i) on the date of
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delivery if delivered by hand to the address of the party specified below
(including delivery by courier), or (ii) on the fifth day after deposit in the
U.S. Mail if mailed to the party to whom notice is to be given to the address
specified below, by first class mail, certified or registered, return receipt
requested, First Class postage prepaid:
to the Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, New York 10155
Attn: Paul E. Hannesson, President
the Holder: _______________________
_______________________
_______________________
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change will
be deemed to have been given until it is actually received by the party sought
to be charged with its contents.
8. General.
(a) This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its conflict of laws
provisions.
(b) Section and subsection headings used herein are included herein
for convenience of reference only and shall not affect the construction of this
Warrant or constitute a part of this Warrant for any other purpose.
(c) This Warrant may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument when instruments
originally executed by each party shall have been received by the Company.
(d) This Warrant shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, heirs and assigns.
[the balance of this page intentionally left blank]
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IN WITNESS WHEREOF, the Company has duly executed this Warrant on and as
of the date first set forth above.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: ____________________________________
Paul E. Hannesson, President
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EXHIBIT C
MAKE WHOLE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as the 30th day of
August 2000 by and among William J. Russell ("Russell"), Tamie P. Speciale
("Speciale") and Commodore Applied Technologies, Inc., a Delaware corporation
("Commodore").
WHEREAS, Commodore, Dispute Resolution Management, Inc., a Utah
corporation (the "Company"), Russell and Speciale have entered into that certain
amended and restated stock purchase agreement, dated August 30, 2000 (the
"Purchase Agreement"); and
WHEREAS, Russell and Speciale (individually and collectively, together
with their respective heirs, executors, successors and assigns, referred to
herein as the "Selling Stockholders") are entitled to receive, pursuant to
Section 2.5 of the Purchase Agreement periodic installment "Company Cash Flow
Payments" of "Company Cash Flow", as those terms are defined in the Purchase
Agreement; and
WHEREAS, in order to induce Russell and Speciale to enter into the
Purchase Agreement and to consummate the transactions contemplated thereby,
Commodore has agreed to enter into this Agreement whereby Commodore will provide
to the Selling Stockholders or their designees, under certain circumstances
described herein, the right to receive certain cash payments and/or additional
share of common stock, $.001 par value per share (the "Commodore Common Stock"),
all upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto intending to be bound thereby, it is
mutually agreed as follows:
1. Definitions. Unless otherwise separately defined herein, all capitalized
terms, when used in this Agreement, shall have the same meaning as is defined in
the Operating Agreement.
2. Make Whole Payment. In the event and to the extent that by not later than
April 15, 2004 (the "Final Company Cash Flow Payment"), the Selling Stockholders
shall not have received in cash an aggregate amount of Company Cash Flow
Payment, as provided in Section 2.5 of the Purchase Agreement, which shall have
equaled Ten Million ($10,000,000) Dollars of such Company Cash Flow Payment (the
"Base Company Cash Flow Payment"), the difference, if any, between (a) the Base
Company Cash Flow Payment and (b) the actual accumulated amount of Company Cash
Flow Payment received in cash by the Selling Stockholders as at the Final
Company Cash Flow Payment Date, shall be defined herein as the "Make Whole
Payment."
3. Payment of Make Whole Payment.. On or before April 30, 2004 (the "Make Whole
Payment Date"), Commodore shall pay to the Selling Stockholders (in such
pro-rata amounts as between the Selling Stockholders as is provided in the
Purchase Agreement) the Make Whole Payment: (a) in cash by wire transfer of
immediately available funds (the "Cash Payment") and/or (b) by delivery to the
Selling Stockholders of such number of shares of Commodore Common Stock as shall
be calculated pursuant to Section 4 below. The form of payment of the Make Whole
Payment, whether a Cash Payment, in shares of Commodore Common Stock, or any
combination thereof, shall be determined solely by Commodore, except
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as provided in Section 5 below.
4. Calculation of Number of Shares of Commodore Common Stock.
(a) The number of shares of Commodore Common Stock to be issued by
Commodore to the Selling Stockholders on the Make Whole Payment Date shall be
determined by dividing (i) the aggregate amount of the Make Whole Payment which
Commodore elects to pay by delivery of shares of Commodore Common Stock, by (ii)
the average of the closing prices of Commodore Common Stock as such shares of
Commodore Common Stock are then traded on the American Stock Exchange, Inc.
("Amex"), the Nasdaq Stock Market, the New York Stock Exchange, Inc. or any
other national securities exchange, for the 30 consecutive trading days (the
"Average Closing Price") immediately prior to April 15, 2004.
(b) In the event that the aggregate number of shares of Commodore Common
Stock to be issued on the Make Whole Payment Date shall exceed an aggregate of
two million (2,000,000) shares of Commodore Common Stock, Commodore shall have
the right to issue to the Selling Stockholders on the Make Whole Payment Date an
aggregate of two million (2,000,000) shares of Commodore Common Stock, and defer
the payment of the balance of the Make Whole Payment for two (2) additional
years, as provided in Section 4(c) below.
(c) In the event that Commodore shall elect to defer the balance of the
Make Whole Payment beyond the Make Whole Payment Date, on a date which shall be
not later than April 15, 2006 (the "Deferred Make Whole Payment Date"),
Commodore shall pay the unpaid portion of the Make Whole Payment (the "Deferred
Make Whole Payment") either (i) by making an additional Cash Payment by wire
transfer of immediately available funds, and/or (ii) delivering additional
shares of Commodore Common Stock determined by dividing (A) the aggregate amount
of the Deferred Make Whole Payment which Commodore elects to pay by delivery of
shares of Commodore Common Stock, by (ii) the Average Closing Price immediately
prior to April 15, 2006. The form of payment of the Deferred Make Whole Payment,
whether a Cash Payment, in shares of Commodore Common Stock, or any combination
thereof, shall be determined solely by Commodore, except as provided in Section
5 below.
5. Right to Receive Make Whole Payment in Cash.
Notwithstanding anything to the contrary, express or implied, contained
herein, in the event that in the event that
(a) the Company shall fail to make any quarterly payment to the Selling
Stockholders required to be made under the terms of the Purchase Agreement or
under the terms of the separate employment agreements, dated of even date
herewith, between the Company and each of Russell and Speciale (the "Employment
Agreements") within ten (10) days after the date such payment shall become due
and payable, or
(b) the Company or Commodore shall breach or otherwise fail to perform
any other material covenant or agreement to be observed or performed by the
Company or Commodore under the Purchase Agreement or the Employment Agreements
and shall fail to cure or remedy the same within thirty (30) days after written
notice thereof to the Company,
(in either case, a "Default Event"), then and in such event (unless it shall be
found pursuant to the provisions of Section 6 hereof that such Default Event has
not, in fact, occurred), the Selling
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Stockholders, or any of them, may require by written notice to Commodore, that
any and all Make Whole Payments due hereunder shall be payable solely in cash by
wire transfer of immediately available funds, and not in shares of Commodore
Common Stock.
6 Resolution of Disputes, Binding Arbitration.
(a) Whenever a claim shall arise involving the interpretation or
application of this Agreement, the complaining party shall notify the other
party in writing within thirty (30) days of the complaining party's first
receipt of notice of, or the complaining party's obtaining actual knowledge of,
such claim, and in any event within such shorter period as may be necessary for
the other party to take appropriate action to resist such claim. Such notice
shall specify all facts known to the complaining party giving rise to such claim
or dispute and shall estimate (to the extent reasonably possible) the amount of
potential liability arising therefrom. If the other party shall be duly notified
of such dispute, the parties shall attempt to settle and compromise the same.
(b) In the event that any dispute involving the interpretation or
application of this Agreement or any Exhibit hereto cannot be settled or
compromised, as aforesaid, within twenty (20) days of receipt of the subject
claim, either the complaining party or the other party shall promptly thereafter
submit the dispute for final and binding arbitration to JAMS or End-Dispute
before a three-person panel of arbitrators who shall be either (i) retired
federal judges, or (ii) other persons experienced in resolving commercial
disputes and who are acceptable to both the complaining party and the other
party to such dispute (the "Arbitration"). Any such Arbitration shall, if
brought by the Selling Stockholders or any of them, be held in New York, New
York and, if brought by Commodore shall be in Salt Lake City, Utah. The panel of
arbitrators shall be selected within twenty (20) days of submission of such
dispute to Arbitration. The parties shall use their collective best efforts to
promptly schedule and conduct the hearings before such arbitrators, with a view
toward concluding such arbitration proceedings not later than thirty (30) days
from the first submission of the dispute to arbitration. In addition to, and not
in lieu of, arbitration as a means of dispute resolution hereunder, any party
hereto shall have the right to seek specific enforcement of this Agreement or
any Transaction Document, or other injunctive or equitable relief or remedy
before any court of competent jurisdiction.
(c) In connection with any Arbitration pursuant to this Section 6, the
arbitrators shall, as part of their award, allocate the fee of the Arbitration,
including all fees of the arbitrators, the cost of any transcripts, and the
parties' reasonable attorneys' fees, based upon and taking into account the
arbitrators' determination of the merits and good faith of the parties' claims
and defenses in the subject proceeding.
(d) The decision and award of the arbitrators shall be final and binding
upon the parties hereto and shall be enforceable in any court of competent
jurisdiction, including any federal or state court in the States of Utah,
Delaware, New York or Colorado. Any process or other papers hereunder may be
served by registered or certified mail, return receipt requested, or by personal
service, provided that a reasonable time for appearance or response is allowed.
(e) Any rights established by reason of such settlement, compromise,
arbitration or litigation shall promptly thereafter be satisfied by the losing
party in such amount as shall be necessary to satisfy all applicable losses or
damages sustained or incurred by the complaining party, as determined in
accordance with such settlement and compromise, or by final nonappealable order
or judgment of the applicable judicial or arbitration panel.
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(f) In connection with the defense of any third party claims for which
claims for indemnification have been made hereunder, each party will provide
reasonable access to its and the Company's books and records as and to the
extent required for the proper defense of such third party claim. Neither party
shall consent to any settlement or purport to bind any other party to any
settlement without the written consent of the other party.
(g) Notwithstanding anything to the contrary set forth above, in the event
and to the extent that the complaining party shall believe that such party shall
then have no adequate remedy at law, the complaining party shall have the right,
in addition to and not in lieu of the right to obtain compensatory or other
monetary relief, to seek and obtain injunctive relief, specific performance or
such other equitable remedies as any court of competent jurisdiction shall deem
appropriate in the circumstances.
7 Miscellaneous.
(d) Upon the occurrence and during the continuation of any Default Event,
the Selling Stockholders may enforce this Agreement without the need to resort
to any proceedings or obtain any judgment as against the Company.
(e) Commodore hereby acknowledges and agrees that the validity of this
Agreement and Commodore's obligations hereunder shall in no way be terminated,
modified, affected, impaired or diminished by reason of any of (i) the granting
by the Selling Stockholders of any consent, indulgence, extension, renewal,
waiver, compromise or release to Commodore, (ii) any failure by the Selling
Stockholders to insist in any one or more instances upon strict performance or
observance by Commodore or the Company of any of the terms, provisions or
conditions of the Purchase Agreement and/or any other agreement or instrument
executed and delivered by the Company in connection therewith (collectively, the
"Documents"), (iii) any assertion or non-assertion by the Selling Stockholders
against the Company of any of the rights or remedies reserved to the Selling
Stockholders in the Documents, (iv) any forbearance by the Selling Stockholders
from exercising any of its rights or remedies as aforesaid, (v) any bankruptcy,
insolvency, receivership, reorganization, liquidation or other similar
proceeding relating to the Company or any of its subsidiaries or affiliates,
other than Commodore, (vi) any relief of the Company and/or any such other
guarantor(s) from any of its obligations under the Documents, by operation of
law, in equity or otherwise, (vii) any amendment, modification, extension,
renewal, termination, compromise or waiver under or in respect of the Documents,
(viii) any sale, release or other disposition of any collateral security, if
effected in a commercially reasonable manner and in accordance with applicable
law, or (ix) any transfer, assignment or negotiation of any of the Documents
and/or any collateral security as aforesaid, including, without limitation, this
Agreement.
(f) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(g) This Agreement shall be binding upon Commodore and its
administrators, representatives, successors and assigns, and shall inure to the
benefit of the Selling Stockholders and his or her heirs, executors,
administrators, personal representatives, successors and assigns.
(h) Subject to applicable statutes of limitations, no delay on the part
of the Selling Stockholders in exercising any rights hereunder, or any failure
by the Selling Stockholders to
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exercise any such rights, shall operate as a waiver of any such rights for any
purposes, it being understood that, subject to applicable statutes of
limitations, the Selling Stockholders may exercise any and all of his rights
hereunder at any time and from time to time pursuant to the terms hereof.
(i) This Agreement may not be terminated, modified or amended except by a
writing duly executed by the Selling Stockholders and Commodore.
(j) This Agreement shall be governed by and construed in accordance with
the laws of the State of Utah, without giving effect to principles of conflicts
of laws.
(k) In the event that the Selling Stockholders shall, after default by
Commodore of any of its obligations hereunder, place this Agreement in the hands
of any attorney for enforcement and/or collection, pay to the Selling
Stockholders a reasonable attorneys' fee together with all other reasonable
costs and expenses of enforcement and collection.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, has executed this Agreement this day of ______________, 2000.
COMMODORE APPLIED TECHNOLOGIES, INC.
By:________________________________________
Paul E. Hannesson, President and Chief
Executive Officer
____________________________________________
William J. Russell
___________________________________________
Tamie P. Speciale
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EXHIBIT D
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of the
30th day of August 2000, by and between COMMODORE APPLIED TECHNOLOGIES, INC., a
Delaware corporation ("Commodore" or "Pledgor"), and WILLIAM J. RUSSELL
("Russell") and TAMIE P. SPECIALE ("Speciale"). Commodore is hereinafter
sometimes referred to as the "Pledgor", and Russell and Speciale are referred to
herein individually a "Pledgee" and collectively as the "Pledgees."
W I T N E S S E T H:
WHEREAS, pursuant to an amended and restated stock purchase agreement,
dated August 30, 2000 between Commodore, DISPUTE RESOLUTION MANAGEMENT, INC., a
Utah corporation (the "Company"), and the Pledgees, (the "Purchase Agreement"),
as of the date of this Agreement Commodore acquired 81% of the issued and
outstanding shares of capital stock of the Company, and
WHEREAS, pursuant to the provisions of Section 7.12 of the Purchase
Agreement, Commodore has covenanted and agreed that by not later than November
15, 2000, it shall have obtained Final Commodore Stockholders Approval of the
Acquisition and issued the balance of the Consideration and Commodore Option
Stock pursuant to Section 2.6(b) of the Purchase Agreement; and
WHEREAS, pursuant to the terms of Section 7.2(b) of the Purchase
Agreement, Commodore has covenanted and agreed with the Pledgees to fulfill its
"Repurchase Obligation" (as that term is defined in the Purchase Agreement),
pursuant to which Commodore will purchase all or a portion of the 10,500,000
"Repurchase Shares" at the "Repurchase Price" (as those terms are defined in the
Purchase Agreement), and pay or cause to be paid to the Pledgees and other
holders of an aggregate of $14,500,000 in connection with the repurchase and
redemption of such Repurchase Shares from and after the date hereof through and
including the Anniversary Date (as defined in the Purchase Agreement); and
WHEREAS, pursuant to the terms of Section 2.4 of the Purchase Agreement
the Company has agreed to make certain "Company Cash Flow Payments" of "Company
Cash Flow" (as those terms are defined in the Purchase Agreement); and
WHEREAS,. pursuant to the terms of a make whole agreement, dated of even
date, among Commodore and Pledgees (the "Make Whole Agreement"), Commodore has
agreed to provide the Pledgees with certain payments either in cash or shares of
Commodore Common Stock, all as provided therein; and
WHEREAS, in order to secure the rights of the Pledgees in the event that
the Company or Pledgor shall breach or shall otherwise fail to perform any of
the "Obligations" (as that term is hereinafter defined), pursuant to the terms
of the Purchase Agreement, Commodore has agreed to pledge to the Pledgees the
"Pledged Stock" (as that term is hereinafter defined); all of which Pledged
Stock is being pledged to the Pledgees pursuant to this Agreement;
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NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
Definitions.
Unless otherwise defined herein, all capitalized terms used in this
Agreement shall have the same meaning as is defined in the Asset Transfer
Agreement. In addition, the following terms shall have the following meanings
wherever used in this Agreement:
(a) "Obligations" shall mean the collective reference to:
(i) the covenant and agreement of Commodore that on or prior
to November 15, 2000 it shall have obtained Final Commodore Stockholders
Approval of the Acquisition and shall have issued to the Pledgees and other
recipients, stock certificates and instruments evidencing the balance of the
Acquisition Consideration and Commodore Option Stock and the Commodore Warrants,
all pursuant to the provisions of Section 7.12 and Section 2.6(b) of the
Purchase Agreement;
(ii) the full and timely payment of the entire Repurchase
Obligation, as set forth in Section 7.2(b) of the Purchase Agreement;
(iii) the obligation of the Company to make full and timely
payments of all quarterly installments of Company Cash Flow Payments of Company
Cash Flow, as defined and provided in Section 2.5 of the Purchase Agreement up
to and including the first Ten Million ($10,000,000) Dollars of such Company
Cash Flow Payments which are due and payable under the Purchase Agreement in
quarterly installments through December 31, 2003,
(iv) the covenants and agreements of Commodore to the Pledgees
under the terms of the Make Whole Agreement; and
(v) the covenants and agreements that each of Commodore and
the Company shall duly perform all of its and their respective covenants,
agreements and undertakings as set forth in Section 14.4 and Section 14.5 of the
Purchase Agreement.
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(b) "Pledged Stock" shall mean the collective reference to (i) the
Majority Company Stock, representing an aggregate of 24,300 shares of the common
stock of the Company, as Surviving Corporation of the Acquisition, owned of
record by Commodore as at the date hereof, representing one hundred (100%)
percent of the issued and outstanding shares of common stock of the Company
which is owned of record and beneficially by Commodore at the date hereof (the
"DRM Stock"); and (ii) the Acquisition Stock, representing an aggregate of
10,500,000 shares of Commodore Common Stock which is subject to repurchase by
Commodore or its assignee upon payment and performance of the Repurchase
Obligation (the "Commodore Stock"); provided, that (A) the Commodore Stock shall
no longer be deemed Pledged Stock hereunder nor shall any shares of Commodore
Stock be subject to this Agreement in the event that, and at such time as,
Commodore shall have fully paid and performed its Repurchase Obligation under
Section 7.2(b) of the Purchase Agreement, and (B) the number of shares of DRM
Stock, constituting the remaining Pledged Stock and the percentage of the issued
and outstanding shares of common stock of the Company which is owned of record
and beneficially by Commodore shall be reduced as provided in Section 8(b)
hereof.
(c) "Satisfaction Date" shall mean that date which shall be on or
before April 30, 2004 on which all of those Obligations referred to in clauses
(i) and (ii) of Section 1(a) above shall have been indefeasibly paid or
performed in full.
Pledge of the Pledged Stock.
As security for the due and timely payment and performance of all
of the Obligations, Commodore hereby pledges to the Pledgees, and grants to the
Pledgees a first priority lien and security interest in, all of the Pledged
Stock (as same are constituted from time to time) and all proceeds thereof,
until the Satisfaction Date.
In furtherance of the pledge hereunder, Commodore is,
concurrently herewith, delivering to the Pledgees the certificates representing
all of the currently outstanding Pledged Stock, each accompanied by appropriate
undated stock powers duly endorsed in blank by Commodore.
Retention of the Pledged Stock.
Except as otherwise provided herein, the Pledgees shall have no
obligation with respect to the Pledged Stock or any other property held or
received by the Pledgees hereunder, except to use reasonable care in the custody
and preservation thereof, to the extent required by law.
The Pledgees shall hold the Pledged Stock and any other property
held or received by the Pledgees hereunder in the form in which same are
delivered herewith, unless and until there shall occur an Event of Default.
Rights to Vote Pledged Stock.
Throughout the term of this Agreement, so long as no default in the
payment or performance of the Obligations has occurred, Commodore shall have the
sole right to vote the DRM Stock in all Company matters, except as to matters or
in a manner inconsistent with the terms of this Agreement. Throughout the term
of this Agreement and thereafter, irrespective of whether or not an Event of
Default hereunder shall have occurred, the Pledgees shall have the sole right to
vote all shares of Commodore Stock owned of record by them on all matters as to
which stockholders are entitled to vote under Delaware corporate law.
Event of Default; Power of Attorney.
In the event that there shall occur (i) any default in the full and
timely payment or performance of
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any of the Obligations, which remains uncured beyond any applicable notice and
cure period, or (ii) Commodore or any of its Subsidiaries (collectively, the
"Commodore Group") becoming insolvent, or (iii) the delisting of the shares of
Commodore Common Stock from trading on a National Securities Exchange; or (iv)
the commencement of any case under the United States Bankruptcy Code against
Commodore or any member of the Commodore Group, or (v) Commodore or any member
of the Commodore Group becoming the subject of any insolvency, bankruptcy,
receivership, readjustment of debt, dissolution, reorganization, liquidation or
similar proceeding under state or federal law, an "Event of Default" hereunder
shall be deemed to have occurred, and from and after the occurrence of any one
or more Event of Default, the Pledgees shall thereafter have the right (but not
the obligation) to (A) vote the DRM Stock in all Company matters, (B) apply any
funds or other property received in respect of the Pledged Stock to the
Obligations, and receive in its own name any and all further distributions which
may be paid in respect of the Pledged Stock, all of which shall, upon receipt by
the Pledgees, be applied to the Obligations, (C) transfer all or any portion of
the DRM Stock (as determined by the Pledgees in their discretion) on the books
of the Company to and in the name of the Pledgees or such other person or
persons as the Pledgees may designate, (D) effect any sale, transfer or
disposition of all or any portion of the Pledged Stock and in furtherance
thereof, take possession of and endorse any and all checks, drafts, bills of
exchange, money orders or other documents and instruments received on account of
the Pledged Stock, (E) collect, sue for and give acquittance for any money due
on account of any of the foregoing, and (F) take any and all other action
contemplated by this Agreement, or as otherwise permitted by law, or as the
Pledgees may reasonably deem necessary or appropriate, in order to accomplish
the purposes of this Agreement.
In furtherance of the foregoing powers of the Pledgees, the Pledgor
hereby authorizes and appoints the Pledgees, with full powers of substitution,
as the true and lawful attorney-in-fact of the Pledgor, in his name, place and
stead, to take any and all such action as the Pledgees, in their sole
discretion, may deem necessary or appropriate in furtherance of the exercise of
the aforesaid powers. Such power of attorney shall be coupled with an interest,
and shall be irrevocable until the Satisfaction Date. Without limitation of the
foregoing, such power of attorney shall not in any manner be affected or
impaired by reason of any act of the Pledgor or by operation of law. Nothing
herein contained, however, shall be deemed to require or impose any duty upon
the Pledgees to exercise any of the rights or powers granted herein.
(c) The foregoing rights and powers granted to the Pledgees, and the
foregoing power of attorney, shall be fully binding upon any person who may
acquire any beneficial interest in any of the Pledged Stock or any other
property held or received by the Pledgees hereunder.
Foreclosure; Sale or Retention of Pledged Stock.
(a) Without limitation of paragraph 5 above, if an Event of Default
hereunder shall occur, the Pledgees may elect (but shall not be obligated so to
do) to foreclose on the Pledged Stock and exercise any one or more of the
following rights and remedies set forth below.
(i) The Pledgees may offer and sell all or any portion of the
Pledged Stock in a public distribution (to the extent that any of such Pledged
Stock has been registered pursuant to an effective registration statement or may
be publicly sold pursuant to an exemption from such registration requirements)
or, if a public distribution is not legally available, by means of a private
placement restricting the offer or sale to a limited number of prospective
purchasers who meet such suitability standards as the Pledgees and their counsel
may deem appropriate, and who may be required to represent that they are
purchasing Pledged Stock for investment and not with a view to distribution.
(ii) If an Event of Default shall occur by reason of
Commodore's breach of or failure to timely perform its Obligations contemplated
by clause (i) of the definition of "Obligations" under this Agreement, the
Pledgees may purchase all or any portion of the DRM Stock for the Pledgees' own
account solely in exchange for cancellation of Commodore's obligation to deliver
the Commodore Warrants and the balance of the shares of Acquisition Stock,
Additional Commodore Stock and Commodore Option Stock contemplated by Section
2.6(b) of the Purchase Agreement, in which event the Pledgees and other
recipients of such
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Commodore Securities may retain for their own account all 6,000,000 shares of
Commodore Common Stock issued to them pursuant to Section 2.6(a) of the Purchase
Agreement; the parties hereto agreeing that such disposition represents the
Pledgees' sole and exclusive remedy for such Event of Default and fair and
equitable liquidated damages (in addition to the DRM Stock) to compensate the
Pledgees for the loss of the earnings and profits of the Company which they
would have been entitled to have received and retained but for the consummation
of the transactions contemplated by the Purchase Agreement.
(iii) If an Event of Default (other than as contemplated by
clause (i) of this Section 6(a) above) shall occur either prior to the payment
of the full $14,500,000 Repurchase Price contemplated by Section 7.2 of the
Purchase Agreement, or by reason of Commodore's breach of or failure to timely
perform its Obligations contemplated by clause (ii) of the definition of
"Obligations" under this Agreement, the Pledgees may elect to purchase all or
any portion of the DRM Stock for the Pledgees' own account and retain, in
addition to (an not in lieu of) such DRM Stock, that number of shares of
Commodore Stock as shall equal the sum of (A) 1,000,000 shares of Commodore
Stock, plus (B) fifty (50%) percent of the amount determined by subtracting from
the 9,500,000 shares of the Acquisition Stock originally issued to the Pledgees
and all other holders of Acquisition Stock pursuant to the Purchase Agreement,
any of such 9,500,000 shares of Acquisition Stock previously purchased by
Commodore or any third parties pursuant to Section 7.2 of the Purchase Agreement
prior to the occurrence of such Event of Default (the "Commodore Stock
Liquidated Damage Amount"). In the event that the Pledgees shall elect the
remedies provided for in this Section 6(a)(iii), they shall return to Commodore
all shares of the Acquisition Stock in excess of the Commodore Stock Liquidated
Damage Amount. It is expressly understood and agreed that such Commodore Stock
Liquidated Damage Amount , together with all or any portion of the DRM Stock
shall, for all purposes at law or in equity, be deemed to be a commercially
reasonable disposition of the subject Pledged Stock, and (B) the retention of
the Commodore Stock Liquidated Damage Amount by the Pledgees and the other
holders of such Repurchase Shares represents fair and equitable liquidated
damages (in addition to the DRM Stock) to compensate the Pledgees for the loss
of the earnings and profits of the Company which they would have been entitled
to have received and retained but for the consummation of the transactions
contemplated by the Purchase Agreement.
(iv) If an Event of Default shall occur after the payment of
the full $14,500,000 Repurchase Price contemplated by Section 7.2 of the
Purchase Agreement, the Pledgees may purchase all or any portion of the DRM
Stock for the Pledgees' own account at a price not less than the highest bona
fide offer received therefor, which if effected in a manner in compliance with
applicable law, shall be deemed to be a commercially reasonable disposition of
the subject DRM Stock;
(v) The Pledgees may at any time, irrespective of when such
Event of Default shall occur, sell any or all of the Pledged Stock upon credit
or for future delivery, without being in any way liable for failure of the
purchaser to pay for the subject Pledged Stock; and
(vi) The Pledgees may at any time, irrespective of when such
Event of Default shall occur, receive and collect the net proceeds of any sale
or other disposition of any Pledged Stock, and apply same in such order and to
such of the Obligations (including the costs and expenses of the sale or
disposition of the Pledged Stock) as the Pledgees may, in their absolute
discretion, deem appropriate.
(b) Upon any sale of any of the Pledged Stock in accordance with
this
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Agreement, the Pledgees shall have the right to assign, transfer and deliver the
subject Pledged Stock to the purchaser(s) thereof, and each such purchaser shall
be entitled to hold such Pledged Stock absolutely free from any right or claim
of the Pledgor and/or any other person claiming any beneficial interest in the
Pledged Stock, including any equity of redemption (which right and all other
such rights are hereby waived by the Pledgor to the fullest extent permitted by
law).
(c) Nothing herein contained shall be deemed to require the Pledgees
to effect any sale or disposition of any Pledged Stock at any time, or to
consummate any proposed public or private sale at the time and place at which
same was initially called. It is the intention of the parties hereto that the
Pledgees shall, subject to any further conditions imposed by this Agreement, at
all times following the occurrence of an Event of Default, have the right to
retain legal and beneficial ownership of the Pledged Stock, or use or deal with
the Pledged Stock as if the Pledgees were the outright owners thereof, and to
exercise any and all rights and remedies, as a secured party in possession of
collateral or otherwise, under any and all provisions of law.
(d) If an Event of Default of the nature contemplated by Section
6(a)(iii) hereof shall occur and the Pledgees shall elect to retain the DRM
Stock and the Commodore Stock Liquidated Damage Amount, as contemplated by the
provisions set forth in clause (iii) of Section 6(a) above, such election shall
be the sole and exclusive remedy of the Pledgees and the other holders of the
Repurchase Shares, in full satisfaction of all Obligations of Commodore
hereunder. Notwithstanding the foregoing, the return of any additional shares of
Acquisition Stock by the Pledgees shall not effect the legal or beneficial
ownership of the Pledgees or any subsequent holders in and to the shares of
Commodore Option Stock, Commodore Warrants or shares of Commodore Common Stock
issuable upon exercise of the Commodore Warrants; all of which Commodore
Securities shall continue to remain the sole and exclusive property of such
holders.
(e) The Pledgees acknowledge that the other holder(s) of the
Repurchase Shares shall have designated the Pledgees as their sole and exclusive
agents to deal with all 1,500,000 Repurchase Shares owned by such other holders
for purposes of this Agreement.
Covenants, Representations and Warranties.
In connection with the transactions contemplated by this Agreement, and
knowing that the Pledgees are and shall be relying hereon, Commodore hereby
covenants, represents and warrants that:
the DRM Stock has been and will be duly and validly issued, are and
will be fully paid and non-assessable, and are and will be owned by Commodore
free and clear of any and all restrictions, pledges, liens, encumbrances or
other security interests of any kind, save and except for the pledge to the
Pledgees pursuant to this Agreement;
there are and will be no options, warrants or other rights in
respect of the sale, transfer or other disposition of any of the DRM Stock, and
Commodore has the absolute right to pledge the Pledged Interests hereunder
without the necessity of any consent of any Person;
the DRM Stock constitutes one hundred (100%) percent of the issued
and outstanding ordinary shares and other securities of the Company which is
owned of record and beneficially by Commodore on the date hereof; and, on the
date hereof, there are no options, warrants or other rights to subscribe for or
acquire any capital stock or other securities of the Company, or any securities
or other rights exercisable for or convertible into any capital stock,
securities or rights to acquire securities of the Company;
neither the execution or delivery of this Agreement, nor the
consummation of the transactions
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contemplated hereby, nor the compliance with or performance of this Agreement by
the Pledgor, conflicts with or will result in the breach or violation of or a
default under the terms, conditions or provisions of (i) any mortgage, security
agreement, indenture, evidence of indebtedness, loan or financing agreement, or
other agreement or instrument to which the Pledgor is a party or by which the
Pledgor is bound, or (ii) any provision of law, any order of any court or
administrative agency, or any rule or regulation applicable to the Pledgor;
this Agreement has been duly executed and delivered by Commodore and
constitutes the legal, valid and binding obligation of each of Commodore,
enforceable against the Pledgor in accordance with its terms;
there are no actions, suits or proceedings pending or threatened
against or affecting the Pledgor that involve or relate to the Pledged Stock;
Pledgor shall not, at any time prior to the release of the lien on
the Pledged Interests in accordance with paragraph 8 below, (i) sell, transfer
or convey any interest in any of the Pledged Stock, or (ii) suffer or permit any
other pledge, lien or encumbrance to be created upon or granted with respect to
any of the Pledged Stock; and
from time to time hereafter, Commodore shall take any and all such
further action, and shall execute and deliver any and all such further documents
and/or instruments, as the Pledgees may request in order to accomplish the
purposes of this Agreement, in order to enable the Pledgees to exercise any of
their rights hereunder, and/or in order to secure more fully the Pledgee's
interest in the Pledged Stock.
(i) Commodore acknowledges that, but for the Repurchase Obligation
set forth in Section 7.2(b) of the Purchase Agreement and its willingness to
provide Pledgees collateral security for the payment and performance of such
Repurchase Obligation, pursuant to this Pledge Agreement, and without the
covenants by Commodore set forth in this Section 7(i) and in Section 7(j) below,
the Pledgees would not have entered into the Purchase Agreement and would have
terminated all transactions and other relationships with Commodore. Accordingly,
Commodore does hereby agree that if at any time following the date hereof a
petition is filed by or against Commodore and/or any member of the Commodore
Group commencing a case under the United States Bankruptcy Code or if Commodore
or any of the other members of the Commodore Group shall become the subject of
any insolvency, bankruptcy, receivership, readjustment of debt, dissolution,
reorganization , liquidation or similar proceeding, under state or federal law,
the Pledgees and the other holders of Repurchase Shares will be immediately and
absolutely entitled to, and each member of the Commodore Group hereby consents
to, the relief specified in clauses (A), (B) and (C) below, singly,
alternatively or cumulatively, and each member of the Commodore Group agrees
that it will not object to, contest or oppose any motion, application, complaint
or other proceeding by the Pledgees (acting on behalf of themselves and any
other holders of the Repurchase Shares), to obtain such relief, and each member
of the Commodore Group will take all actions necessary to enable the Pledgees
and other holders of Repurchase Shares to obtain the following relief:
(A) the Pledgees and the other holders of Repurchase
Shares shall be entitled to the immediate termination of the automatic
stay imposed by Section 362 of the Bankruptcy Code to enable any of them
to exercise all of their rights and remedies under this Agreement and
applicable law;
(B) the Pledgees and the other holders of the Repurchase
Shares shall be entitled to the immediate dismissal of such case pursuant
to Section 305(a)(1) of the Bankruptcy Code (with attorneys' fees and
other costs), and Commodore and each other member of the Commodore Group
agree that such dismissal will be in the interest of creditors and
themselves; and
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(C) the Pledgees and each other holder of Repurchase
Shares shall be entitled to the immediate dismissal of such case under
Section 1112(b) of the Bankruptcy Code for cause, and Commodore and each
other member of the Commodore Group agree that the filing of such case by
any of them shall per se be deemed to have been commenced in bad faith and
solely for the improper purpose of impeding the exercise of the rights and
remedies of the Pledgees and other holders of Repurchase Shares with
attendant unnecessary delay and needless cost.
(j) Commodore does hereby further irrevocably and unconditionally
covenant and agree, on behalf of itself and all other members of the Commodore
Group:
(A) to waive any and all equitable defenses to the exercise of
the rights and remedies of the Pledgees and the other holders of
Repurchase Shares set forth in Section 7.2 of the Purchase Agreement and
in this Agreement, including, without limitation, the equitable defense of
forfeiture; and
(B) that the rights and remedies of the Pledgees and other
holders of Repurchase Shares set forth in Section 7.2 of the Purchase
Agreement and in this Agreement shall not be subject to pro ration.
Return of the Pledged Stock.
(a) To the extent that the Pledgees shall not previously have taken,
acquired, sold, transferred, disposed of or otherwise realized value on the
Pledged Stock in accordance with this Agreement, the Pledgees shall release
their lien hereunder and return the Pledged Stock to and in the name of
Commodore at the Satisfaction Date. In the event that the Pledgees shall not,
within ten (10) business days of receipt of the final payments of the
Obligations, redeliver to Commodore all, and not less than all, of the
certificates evidencing the Pledged Stock, Commodore shall be entitled to apply
to any court of competent jurisdiction for such injunctive relief as shall be
reasonably required to effect compliance by the Pledgees (or either of them) of
the provisions of this Section 8 and (in addition to any such injunctive relief)
Pledgees shall pay all reasonable attorneys fees and other court courts incurred
by Commodore.
(b) Notwithstanding the provisions of Section 8(a) above, if and for
so long as no Event of Default hereunder shall have occurred and is continuing,
at such time as (i) the Pledgor shall have paid and satisfied in full, on a
timely basis, the entire Repurchase Obligation provided in Section 7.2(b) of the
Purchase Agreement, or (ii) the Pledgees shall have otherwise received, on a
timely basis, a total of $14,500,000 of cash payments upon exercise of the
Option contemplated by Section 7.2(a) of the Purchase Agreement, the number of
shares of Pledged Stock subject to this Agreement shall be reduced to 12,150
shares of the common stock of the Company, or such other number of shares of
common stock of the Company as shall represent fifty (50%) percent of the
original number of shares of DRM Stock held subject to this Agreement.
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Expenses of the Pledgees.
All expenses incurred by the Pledgees (including but not limited to
reasonable attorneys' fees) in connection with the receipt of Pledged Stock
hereunder from time to time after the date hereof, and any actual or attempted
sale or other disposition of Pledged Stock hereunder, shall be reimbursed to the
Pledgees by the Company on demand, or, at the Pledgees' option, such expenses
may be added to the Obligations.
Resolutions of Disputes, Binding Arbitration.
(a) Whenever a claim shall arise involving the interpretation or
application of this Agreement, the complaining party shall notify the other
party in writing within thirty (30) days of the complaining party's first
receipt of notice of, or the complaining party's obtaining actual knowledge of,
such claim, and in any event within such shorter period as may be necessary for
the other party to take appropriate action to resist such claim. Such notice
shall specify all facts known to the complaining party giving rise to such claim
or dispute and shall estimate (to the extent reasonably possible) the amount of
potential liability arising therefrom. If the other party shall be duly notified
of such dispute, the parties shall attempt to settle and compromise the same.
(b) In the event that any dispute involving the interpretation or
application of this Agreement or any Exhibit hereto cannot be settled or
compromised, as aforesaid, within twenty (20) days of receipt of the subject
claim, either the complaining party or the other party shall promptly thereafter
submit the dispute for final and binding arbitration to JAMS or End-Dispute
before a three-person panel of arbitrators who shall be either (i) retired
federal judges, or (ii) other persons experienced in resolving commercial
disputes and who are acceptable to both the complaining party and the other
party to such dispute (the "Arbitration"). Any such Arbitration shall, if
brought by any of the Pledgees, be held in New York, New York and, if brought by
Commodore shall be in Salt Lake City, Utah. The panel of arbitrators shall be
selected within twenty (20) days of submission of such dispute to Arbitration.
The parties shall use their collective best efforts to promptly schedule and
conduct the hearings before such arbitrators, with a view toward concluding such
arbitration proceedings not later than thirty (30) days from the first
submission of the dispute to arbitration. In addition to, and not in lieu of,
arbitration as a means of dispute resolution hereunder, any party hereto shall
have the right to seek specific enforcement of this Agreement or any Transaction
Document, or other injunctive or equitable relief or remedy before any court of
competent jurisdiction.
(c) In connection with any Arbitration pursuant to this Section 10,
the arbitrators shall, as part of their award, allocate the fee of the
Arbitration, including all fees of the arbitrators, the cost of any transcripts,
and the parties' reasonable attorneys' fees, based upon and taking into account
the arbitrators' determination of the merits and good faith of the parties'
claims and defenses in the subject proceeding.
(d) The decision and award of the arbitrators shall be final and
binding upon the parties hereto and shall be enforceable in any court of
competent jurisdiction, including any federal or state court in the States of
Utah, Delaware, New York or Colorado. Any process or other papers hereunder may
be served by registered or certified mail, return receipt requested, or by
personal service, provided that a reasonable time for appearance or response is
allowed.
(e) Any rights established by reason of such settlement, compromise,
arbitration or litigation shall promptly thereafter be satisfied by the losing
party in such amount
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as shall be necessary to satisfy all applicable losses or damages sustained or
incurred by the complaining party, as determined in accordance with such
settlement and compromise, or by final nonappealable order or judgment of the
applicable judicial or arbitration panel.
(f) In connection with the defense of any third party claims for
which claims for indemnification have been made hereunder, each party will
provide reasonable access to its and their books and records as and to the
extent required for the proper defense of such third party claim. Neither party
shall consent to any settlement or purport to bind any other party to any
settlement without the written consent of the other party.
(g) Notwithstanding anything to the contrary set forth above, in the
event and to the extent that the complaining party shall believe that such party
shall then have no adequate remedy at law, the complaining party shall have the
right, in addition to and not in lieu of the right to obtain compensatory or
other monetary relief, to seek and obtain injunctive relief, specific
performance or such other equitable remedies as any court of competent
jurisdiction shall deem appropriate in the circumstances.
11. Miscellaneous.
(a) Any notices or consents required or permitted under this
Agreement shall be in writing and shall be deemed given when personally
delivered, when sent by recognized overnight courier service with all charges
prepaid or billed to the account of the sender, or when mailed by certified
mail, return receipt requested, with all charges prepaid, in each instance
addressed to the party being notified at his or its address first set forth
above, either party may change its address for notices by means of written
notice given in accordance herewith, provided that same shall not be deemed to
have been given until actual receipt by the party being notified.
(b) The laws of the State of Delaware shall govern the construction
and enforcement of this Agreement and the rights and remedies of the parties
hereto.
(c) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns. The
Pledgor shall not, however, assign any of his rights or obligations hereunder
without the prior written consent of the Pledgees. Except as otherwise referred
to herein, this Agreement, and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties relating to the
specific subject matter hereof.
(d) Neither any course of dealing between the Pledgor and the
Pledgees nor any failure to exercise, or any delay in exercising, on the part of
the Pledgees, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege operate as a waiver of any other exercise of such right, power or
privilege or any other right, power or privilege.
(e) The Pledgees' rights and remedies, whether established hereby or
by any other agreements or by law or in equity, shall cumulative and may be
exercised singularly or concurrently.
(f) No change, amendment, modification, waiver, assignment of rights
or obligations, cancellation or discharge hereof, or of any part hereof, shall
be valid unless the Pledgees shall have consented thereto in writing.
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(g) The captions and paragraph headings in this Agreement are for
convenience of reference only, and shall not in any way define, limit or
describe the construction, terms or provisions of this Agreement.
(h) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
[the balance of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the date first set forth above.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: ___________________________________________
Paul E. Hannesson, President
_______________________________
WILLIAM J. RUSSELL
_______________________________
TAMIE P. SPECIALE
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STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this _____ day of ___________ 2000 before me, a Notary Public in and
for the jurisdiction aforesaid, personally appeared Paul E. Hannesson, known to
me to be the person who executed the foregoing Stock Pledge Agreement, and who
stated to me that he executed the said Stock Pledge Agreement in his capacity as
President of Commodore Applied Technologies, Inc., duly authorized so to do by
its board of directors.
________________________
Notary Public
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EXHIBIT E
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of the 30th
day of August 2000, by and between DISPUTE RESOLUTION MANAGEMENT, INC., a Utah
corporation (the "Company") having offices 8 Inverness Drive East, Suite 135,
Englewood, Colorado 80112 and 39 Exchange Place, Suite 30, Salt Lake City, Utah
84111, and [WILLIAM J. RUSSELL] [TAMIE P. SPECIALE], an individual residing at
_________________ _____________________ (the "Employee");
W I T N E S S E T H:
WHEREAS, the Employee has heretofore been one of the owners and senior
executive officer of the Company; and
WHEREAS, Commodore Applied Technologies, Inc., a Delaware corporation
("Commodore"), has acquired 81% of the shares of capital stock of the Company
pursuant to the terms of an amended and restated stock purchase agreement dated
August 30, 2000 (the "Purchase Agreement") among Commodore, the Company, and
William J. Russell and Tamie P. Speciale, the former stockholders of the
Company; and
WHEREAS, by reason of his [her] prior ownership of and employment with the
Company, the Employee is familiar with all aspects of the operations and
business of the Company; and
WHEREAS, to promote the ongoing business of the Company and to foster an
orderly transition of the ownership and management of the Company, the Company
desires to assure itself of the right to the Employee's services from and after
the date hereof, on the terms and conditions of this Agreement; and
WHEREAS, the Employee is willing and able (free of any other binding
contracts or commitments) to render his [her] services to the Company from and
after the date hereof, on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
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3. Nature of Employment.
(a) Subject to the terms and conditions of this Agreement, the
Company shall initially retain the Employee, and the Employee shall initially
render services to the Company, as the [Chief Executive Officer] [President] of
the Company. In such connection, the Employee shall be responsible for the
operation and management of the Company together with such other duties and
responsibilities as are customarily performed by a [Chief Executive Officer]
[President] of a corporation. Subject at all times to the terms and conditions
of Section 14.4(a) and Section 14.5 of the Purchase Agreement, the Employee
shall report to and shall be subject to the ultimate direction and guidance of
the Board of Directors of the Company.
Unless otherwise defined herein, all capitalized terms used in this
Agreement shall have the same meaning as is defined in the Operating Agreement.
(b) Throughout the period of his employment hereunder, the Employee:
(i) shall devote his [her] full business time, attention, knowledge and skills,
exclusively, faithfully, diligently and to the best of his [her] ability, to the
active performance of his duties and responsibilities hereunder on behalf of the
Company; (ii) shall not, without the express prior written approval of the Board
of Directors of the Company in each instance, directly or indirectly accept
employment or compensation from, or perform services of any nature for, any
person, firm, corporation or business enterprise other than the Company; (iii)
subject to the provisions of Section 14.4(a) and Section 14.5 of the Purchase
Agreement, shall observe and carry out such reasonable rules, regulations,
policies, directions and restrictions as may be established from time to time by
the Board of Directors of the Company, including but not limited to the standard
employee policies and procedures of the Company as in effect from time to time;
and (iv) shall do such traveling as may reasonably be required in connection
with the performance of such duties and responsibilities; provided, however,
that the Employee shall not be assigned to regular duties such as would
reasonably require him to relocate his [her] permanent residence from the
greater Denver, Colorado [Salt Lake City, Utah] area.
(c) Throughout the term of this Agreement, the Company shall cause
the Employee to be nominated for election to the Board of Directors of the
Company.
4. Term of Employment.
(a) Subject to prior termination in accordance with paragraph 2(b)
below, the Employee's full-time employment hereunder shall commence on the date
hereof and shall continue through and including December 31, 2005.
(b) This Agreement:
(i) may be terminated upon mutual written agreement of the
Company and the Employee;
(ii) may be terminated, at the option of the Employee, upon
thirty (30) days' prior written notice to the Company, in the event that (A) the
Company shall fail to make any payment to the Employee required to be made under
the terms of the Purchase Agreement, the Make Whole Agreement (as hereinafter
defined) or this Agreement within fifteen (15) days after the date such payment
became due and payable, or (B) the Company or Commodore shall fail to perform
any other material covenant or agreement to be performed by the Company or
Commodore under the Purchase Agreement or hereunder and shall fail to cure or
remedy same
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within thirty (30) days after written notice thereof to the Company;
(iii) may be terminated, at the option of the Board of the
Company (the Employee abstaining from any such vote), at any time "for cause"
(as hereinafter defined);
(iv) may be terminated, at the option of the Company, at any
time in the event of the "permanent disability" (as hereinafter defined) of the
Employee; or
(v) shall automatically terminate upon the death of the
Employee.
(c) As used herein, the term "for cause" shall mean and be limited
to: (i) any material breach of this Agreement or the Non-Competition Agreement
by the Employee which in any case is not fully corrected within thirty (30) days
after written notice of same from the Company to the Employee; (ii) gross
neglect by the Employee of any of his [her] duties and responsibilities
hereunder; (iii) any fraud, criminal misconduct, breach of fiduciary duty,
dishonesty, or gross and willful misconduct by the Employee in connection with
the performance of any of his duties and responsibilities hereunder; (iv) the
Employee being under the influence of alcohol or drugs during business hours, or
being habitually drunk or addicted to drugs; or (v) the commission by the
Employee of any crime of moral turpitude, or any other action by the Employee
which may materially impair or damage the reputation of the Company.
(d) As used herein, the term "permanent disability" shall mean, and
be limited to, any physical or mental illness, disability or impairment that
prevents, or is reasonably likely to prevent, the Employee from continuing the
performance of his normal duties and responsibilities hereunder for a period (i)
in excess of six (6) consecutive months, or (ii) of six (6) months or more
(whether or not consecutive) in any twelve (12) month period. For purposes of
determining whether a "permanent disability" has occurred under this Agreement,
the written determination thereof by two (2) qualified practicing physicians
selected and paid for by the Company (and reasonably acceptable to the Employee)
shall be conclusive.
(e) Except for a termination by the Employee under Section 2(b)(ii)
above, upon any termination of this Agreement as hereinabove provided, the
Employee (or his estate or legal representatives, as the case may be) shall be
entitled to receive any and all earned but unpaid Base Salary (as such terms are
hereinafter defined) appropriately prorated to and as of the effective date of
termination (based on the number of days elapsed prior to the date of
termination), and any other amounts then due and payable to the Employee
hereunder. All such payments shall be made on the next applicable payment date
therefor (as provided in paragraph 3 below) following the effective date of
termination. Such payments shall constitute all amounts to which the Employee
(or his estate or legal representative) shall be entitled upon termination of
this Agreement.
(f) Notwithstanding anything to the contrary contained in this
Agreement or in any other agreement dated of even date herewith referred to
herein, if it shall be established or mutually agreed that termination of this
Agreement by the Employee under the provisions of Section 2(b)(ii) above was
valid and for good reason, in addition to (and not in lieu of) any other
remedies then available to the Employee:
(i) the Employee shall be entitled to receive all unpaid Base
Salary through the remaining term of this Agreement, less any amounts
received from third parties in the
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nature of salary or other compensation. Employee covenants that Employee
shall use its reasonable efforts to mitigate its damages hereunder;
(ii) if and to the extent payable, the obligations of
Commodore to the Employee under the make-whole agreement, dated of even
date herewith (the "Make Whole Agreement") shall, at the option of the
Employee, be payable in cash rather than in shares of Commodore Common
Stock, and
(iii) all stock options and payments under Section 401(k)
plans for the benefit of the Employee shall become fully vested, to the
extent permitted under any then existing plans.
5. Compensation and Benefits.
(a) Base Salary. As compensation for his services to be rendered
hereunder, the Company shall pay to the Employee a base salary of $250,000 per
annum, payable at the rate of $20,833.33 per month (the "Base Salary"). Such
Base Salary shall be subject to (i) increase as provided in Section 3(b) hereof,
and (ii) payroll deductions and other withholdings as and to the extent required
by law from time to time. Such Base Salary shall be payable to the Employee in
accordance with the Company's payroll practices.
(b) Adjustments to Base Salary. Effective as of January 1, 2001 and
on each anniversary date thereafter the Employee's annual Base Salary shall be
increased to the amounts set forth below for each calendar year in question:
Calendar Year Base Salary
------------- -----------
2001 $262,500
2002 $275,000
2003 $290,000
2004 $305,000
2005 $320,000
Nothing contained in Sections 3(a) or (b) above shall be construed
to prohibit or limit the right of the Company to grant, from time to time,
discretionary increases in the Employee's Base Salary.
(c) Fringe Benefits. The Company shall also make available to the
Employee, throughout the period of his full-time employment hereunder, such
benefits and perquisites as are generally provided by the Company to its
executive employees, including but not limited to eligibility for participation
in any group life, health, dental, vision, disability or accident insurance,
pension plan, profit-sharing plan, retirement savings plan, 401(k) plan, or
other such benefit plan or policy which may presently be in effect or which may
hereafter be adopted by the Company for the benefit of its employees generally;
provided, however, that nothing herein contained shall be deemed to require the
Company to adopt or maintain any particular plan or policy, or to preclude the
Company from amending or terminating any plan or policy. The Employee
acknowledges that he will cease to be eligible for all or substantially all of
such benefits following the conclusion of his full-time employment, and the
Employee will not make any claim for any such benefits for which he is not then
eligible.
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(d) Expenses. Throughout the term of this Agreement, Company shall
also reimburse the Employee, upon presentment by the Employee to the Company of
appropriate receipts and vouchers therefor, for any and all actual and
reasonable out-of-pocket business expenses incurred by the Employee in
connection with the performance of his duties and responsibilities hereunder;
provided, however, that no reimbursement shall be required to be made for any
expense which is not properly deductible (in whole or in part) by the Company
for income tax purposes, or for any expense item which has not previously been
approved as and to the extent required in accordance with the Company's standard
policies and procedures in effect from time to time.
6. Vacation, etc.
(a) During the period of his full-time employment hereunder:
(i) The Employee shall be entitled to take, from time to
time, normal and reasonable vacations with pay, consistent with the Company's
standard policies and procedures in effect from time to time, at such times as
shall be mutually convenient to the Employee and the Company, and so as not to
interfere unduly with the conduct of the business of the Company. Such vacation
time may aggregate up to six (6) weeks per year.
(ii) The Employee shall further be entitled to paid holidays,
personal days and sick days in accordance with the Company's standard policies
and procedures in effect from time to time.
7. Company Property.
(a) The Employee hereby acknowledges and confirms that all ideas and
other developments or improvements conceived by the Employee, whether alone or
with others, during the term of this Agreement (whether or not during working
hours), that are within the scope of the business operations of the Company or
any of its subsidiaries or that relate to any business of any type conducted or
proposed to be conducted by the Company or any of its subsidiaries, constitute
the exclusive property of the Company or the subject subsidiary. The Employee
shall assist the Company or its subsidiaries (as applicable) as required in
order to establish, confirm and evidence the Company's or its subsidiary's
ownership of such ideas, developments and improvements, and shall execute and
deliver any and all such agreements, instruments and other documents as may be
necessary or appropriate in connection therewith.
(b) Upon termination of this Agreement under any circumstances, and
otherwise upon request of the Company or any of its subsidiaries, the Employee
shall immediately return all property of the Company and/or its subsidiaries
utilized by the Employee in rendering services hereunder, to the extent in the
Employee's possession or under his control.
8. Non-Assignability.
In light of the unique personal services to be performed by the
Employee hereunder, it is acknowledged and agreed that any purported or
attempted assignment or transfer by the Employee of this Agreement or any of his
duties, responsibilities or obligations hereunder shall be void.
9. Notices.
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Any notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or three (3) days after being mailed by
certified mail, return receipt requested, addressed to the party being notified
at the address of such party first set forth above, or at such other address as
such party may hereafter have designated by notice; provided, however, that any
notice of change of address shall not be effective until its receipt by the
party to be charged therewith.
10. General.
(a) Neither this Agreement nor any of the terms or conditions hereof
may be waived, amended or modified except by means of a written instrument duly
executed by the party to be charged therewith. Any waiver or amendment shall
only be applicable in the specific instance, and shall not constitute or be
construed as a waiver or amendment in any other or subsequent instance. No
failure or delay on the part of either party in respect of any enforcement of
obligations hereunder shall in any manner affect such party's right to seek or
effect enforcement at any other time or in respect of any other required
performance.
(b) Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the express prior written consent of the
other party; provided, however, that the Company or any successor or assign may,
at any time and from time to time, assign this Agreement as part of the sale of
all or any substantial portion of the business of the Company.
(c) The captions and paragraph headings used in this Agreement are
for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof
(d) This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed,
construed and controlled by and under the laws of the State of Delaware.
(e) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
(f) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original hereof, but all of which
together shall constitute one and the same instrument.
(g) This Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them as to such subject matter.
(h) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns, and no other person
or entity shall have any right to rely on this Agreement or to claim or derive
any benefit herefrom absent the express written consent of the party to be
charged with such reliance or benefit.
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(i) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
9. Resolution of Disputes, Binding Arbitration.
(a) Whenever a claim shall arise involving the interpretation or
application of this Agreement, the complaining party shall notify the
other party in writing within thirty (30) days of the complaining party's
first receipt of notice of, or the complaining party's obtaining actual
knowledge of, such claim, and in any event within such shorter period as
may be necessary for the other party to take appropriate action to resist
such claim. Such notice shall specify all facts known to the complaining
party giving rise to such claim or dispute and shall estimate (to the
extent reasonably possible) the amount of potential liability arising
therefrom. If the other party shall be duly notified of such dispute, the
parties shall attempt to settle and compromise the same.
(b) In the event that any dispute involving the interpretation or
application of this Agreement which cannot be settled or compromised, as
aforesaid, within twenty (20) days of receipt of the subject claim, either
the complaining party or the other party shall promptly thereafter submit
the dispute for final and binding arbitration to JAMS or End-Dispute
before a three-person panel of arbitrators who shall be either (i) retired
federal judges, or (ii) other persons experienced in resolving commercial
disputes and who are acceptable to both the complaining party and the
other party to such dispute (the "Arbitration"). Any such Arbitration
shall, if brought by the Employee, be held in New York, New York and, if
brought by the Company shall be in Salt Lake City, Utah. The panel of
arbitrators shall be selected within twenty (20) days of submission of
such dispute to Arbitration. The parties shall use their collective best
efforts to promptly schedule and conduct the hearings before such
arbitrators, with a view toward concluding such arbitration proceedings
not later than thirty (30) days from the first submission of the dispute
to arbitration. In addition to, and not in lieu of, arbitration as a means
of dispute resolution hereunder, any party hereto shall have the right to
seek specific enforcement of this Agreement or any Transaction Document,
or other injunctive or equitable relief or remedy before any court of
competent jurisdiction.
(c) In connection with any Arbitration pursuant to this Section 9,
the arbitrators shall, as part of their award, allocate the fee of the
Arbitration, including all fees of the arbitrators, the cost of any
transcripts, and the parties' reasonable attorneys' fees, based upon and
taking into account the arbitrators' determination of the merits and good
faith of the parties' claims and defenses in the subject proceeding.
(d) The decision and award of the arbitrators shall be final and
binding upon the parties hereto and shall be enforceable in any court of
competent jurisdiction, including any federal or state court in the States
of Utah, Delaware, New York or Colorado. Any process or other papers
hereunder may be served by registered or certified mail, return receipt
requested, or by personal service, provided that a reasonable time for
appearance or response is allowed.
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(e) Any rights established by reason of such settlement, compromise,
arbitration or litigation shall promptly thereafter be satisfied by the
losing party in such amount as shall be necessary to satisfy all
applicable losses or damages sustained or incurred by the complaining
party, as determined in accordance with such settlement and compromise, or
by final nonappealable order or judgment of the applicable judicial or
arbitration panel.
(f) In connection with the defense of any third party claims for
which claims for indemnification have been made hereunder, each party will
provide reasonable access to its and the Company's books and records as
and to the extent required for the proper defense of such third party
claim. Neither party shall consent to any settlement or purport to bind
any other party to any settlement without the written consent of the other
party.
(g) Notwithstanding anything to the contrary set forth above, in the
event and to the extent that the complaining party shall believe that such
party shall then have no adequate remedy at law, the complaining party
shall have the right, in addition to and not in lieu of the right to
obtain compensatory or other monetary relief, to seek and obtain
injunctive relief, specific performance or such other equitable remedies
as any court of competent jurisdiction shall deem appropriate in the
circumstances
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the date first set forth above.
DISPUTE RESOLUTION MANAGEMENT, INC.
By:
_________________________________________
____________________________________________
[William J. Russell] [Tamie P. Speciale]
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EXHIBIT F
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
AGREEMENT (this "Agreement"), made and entered into as of the 30th
day of August, 2000, by and between COMMODORE APPLIED TECHNOLOGIES, INC., a
Delaware corporation ("Commodore "), DISPUTE RESOLUTION MANAGEMENT INC., a Utah
corporation (the "Company"), and WILLIAM J. RUSSELL, an individual ("Russell")
and TAMIE P. SPECIALE, an individual ("Speciale");
W I T N E S S E T H :
WHEREAS, Commodore Applied Technologies, Inc., a Delaware
corporation ("Commodore"), has agreed to acquire 81% of the shares of capital
stock of the Company pursuant to the terms of an amended and restated stock
purchase agreement dated August 30, 2000 (the "Purchase Agreement") among
Commodore, the Company, and William J. Russell and Tamie P. Speciale, the former
stockholders of the Company; and
WHEREAS, by reason of their prior ownership of and employment in the
Company, each of Russell and Speciale has detailed knowledge and possesses
confidential information concerning the Company and the business and operations
thereof, and
WHEREAS, on the date hereof, the Company, Russell and Speciale are
entering into separate employment agreement (the "Employment Agreements")
pursuant to which Russell and Speciale will be employed by the Company and in
connection with which Russell and Speciale will continue to have access to
confidential and proprietary information relating to the business of the
Company; and
WHEREAS, in order to induce Commodore to consummate the transactions
contemplated by the Purchase Agreement, and to induce Commodore to cause the
Company to enter into the Employment Agreements, each of Russell and Speciale
has agreed, and Commodore has required Russell and Speciale, to enter into this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereby agree as follows:
11. Restrictive Covenants.
(a) Each of Russell and Speciale do hereby acknowledge and agree
that: (i) the business contacts, customers, suppliers, technology, know-how,
trade secrets, marketing techniques and other aspects of the Company have been
of substantial value to the Company, and will hereafter provide Commodore with
substantial competitive advantage, (ii) such elements and aspects of the
Business are not generally known to the public or available through any source
other than Russell and Speciale, and reasonable efforts have been made to
maintain the confidentiality thereof to the date hereof, (iii) they have
detailed knowledge of and possesses confidential information concerning the
Company, and (iv) by reason of their duties and responsibilities pursuant to the
Employment Agreements, they will become privy to confidential and proprietary
information of the Company.
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(b) Each of Russell and Speciale do hereby agree, for the benefit of
Commodore, the Company and their respective subsidiaries, successors and
assigns, that neither he nor she shall, directly or indirectly, for himself or
herself or through or on behalf of any other person or entity:
(i) at any time from and after the date hereof, divulge,
transmit or otherwise disclose or cause to be divulged, transmitted or otherwise
disclosed, any business contacts, client or customer lists, technology,
know-how, trade secrets, marketing techniques, contracts or other confidential
or proprietary information of or relating to the Company or its subsidiaries of
whatever nature (provided, however, that for purposes hereof, information shall
not be considered to be confidential or proprietary if (A) it is a matter of
common knowledge or public record, (B) it is generally known throughout the
industry, or (C) Russell or Speciale can demonstrate that such information was
already known to the recipient thereof other than by reason of any breach of any
obligation under this Agreement or any other confidentiality or nondisclosure
agreement); and/or
(ii) at any time from the date hereof through and including
December 31, 2005, invest, carry on, engage or become involved, either as an
owner, principal, agent, advisor, stockholder (excluding passive ownership of
not more than 1% of the outstanding shares of a publicly held corporation if
such ownership does not involve managerial or operational involvement or
activity), manager, partner, joint venturer, participant or consultant, in any
business enterprise (other than Commodore, the Company and their subsidiaries,
successors or assigns) which derives 15% or more of their consolidated revenues
from the business of serving as an international business consulting firm
specializing in the settlement of complex, latent and long-tail insurance
claims, including environmental, asbestos, products liability, Year 2000 and
other matters, for corporate and governmental clients (the "Business");
provided, however, that it shall not be a violation of this paragraph 1(b)(ii)
for either Russell or Speciale to passively invest their funds in any mutual
funds(s) which holds investments in any business(es) of the type described in
this paragraph l(b)(ii), regardless of the amount of Russell's or Speciale's
investment in such mutual fund(s) or the level of ownership of such mutual
fund(s) in such business(es).
(c) Notwithstanding anything to the contrary, express or
implied, contained in this Section 1, in the event that Russell, Speciale, or
either of them shall validly terminate their Employment Agreement with the
Company by reason of the occurrence and continuation of any of the events
specified in Section 2(b)(ii) of the Employment Agreement(s), this Agreement and
the restrictive covenants contained herein shall simultaneously terminate.
12. Remedies. The parties hereby acknowledge and agree that any breach by
either Russell or Speciale or any of their respective affiliates, directly or
indirectly, of any of the foregoing restrictive covenants will cause Commodore
and the Company irreparable injury for which there is no adequate remedy at law.
Accordingly, Russell and Speciale do hereby expressly agree that, in the event
that either Russell or Speciale or any of their respective affiliates shall
commit any such breach or any threatened breach hereunder, directly or
indirectly, Commodore and/or Bickerton shall be entitled, in addition to any and
all other remedies available at law, to seek and obtain, without requirement of
posting any bond or other security, injunctive and/or other equitable relief to
require specific performance of or prevent, restrain and/or enjoin the breaching
party or parties under the provisions of this Agreement.
13. Expenses. In the event of any dispute under or arising out of this
Agreement, the prevailing party in such dispute shall be entitled to recover
from the non-prevailing party, in
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addition to any damages and/or other relief that may be awarded, its reasonable
costs and expenses (including reasonable attorneys' fees) incurred in connection
with prosecuting or defending the subject dispute.
14. Benefits and Obligations. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by Commodore and/or the Company
and their respective affiliates, successors and assigns, and Russell and
Speciale and their respective affiliates, successors and assigns; provided,
however , that neither Russell's nor Speciale's obligations contained herein may
not be delegated or assigned.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, United States of America.
16. Arbitration of Certain Disputes. Except for any claim or proceeding
seeking to assert or obtain equitable remedies hereunder (including, without
limitation, injunctive relief and/or specific enforcement), which claim or
proceeding may be asserted or brought in any court of competent jurisdiction
sitting in Utah, Delaware or New York (as to which courts, the parties hereby
consent to the jurisdiction thereof), any dispute involving the interpretation
or application of this Agreement shall be resolved by final and binding
arbitration in accordance with the procedures specified in the Purchase
Agreement.
17. Severability. It is acknowledged, understood and agreed that the
restrictions contained in this Agreement (a) are made for good, valuable and
adequate consideration received and to be received each of Russell and Speciale,
(b) are reasonable and necessary, in terms of the time, geographic scope and
nature of the restrictions, for the protection of Commodore and/or the Company
and their respective affiliates and their good will, and (c) will not pose any
undue hardship on Russell or Speciale or materially impair his or her ability to
support himself. It is intended that said provisions be fully severable, and in
the event that any of the foregoing restrictions, or any portion of the
foregoing restrictions, shall be deemed contrary to law, invalid or
unenforceable in any respect by any court or other tribunal of competent
jurisdiction, then such restrictions shall be deemed to be amended, modified and
reduced in scope and effect, only to that extent necessary to render same valid
and enforceable, and all other restrictions shall be unaffected and shall remain
in full force and effect.
18. Waiver, Amendment or Modification. Neither this Agreement nor any of
the terms and conditions hereof may be waived, amended or modified except by
means of a written instrument duly executed by the party to be charged
therewith. No waiver of any provision, performance or default hereunder in any
instance shall be construed as a continuing waiver of such provision,
performance or default, or a waiver of any other provision, performance or
default, or of any future performance or default.
19. Notices. Any notice, request, demand or other communication required
or permitted under this Agreement shall be in writing and shall be given in the
manner provided in the Purchase Agreement.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as
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of the date first set forth above.
COMMODORE APPLIED TECHNOLOGIES, INC.
By:_______________________________________________
DISPUTE RESOLUTION MANAGEMENT, INC.
By:_______________________________________________
__________________________________________________
WILLIAM J. RUSSELL
__________________________________________________
TAMIE P. SPECIALE
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EXHIBIT G
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of the
30th day of August 2000, is made and entered into among William J. Russell
("Russell"), Tamie P. Speciale ("Speciale") and the other persons who are party
signatories to this Agreement (individually referred to as a "Holder" and
collectively referred to as the "Holders"), and COMMODORE APPLIED TECHNOLOGIES,
Inc., a corporation incorporated under the laws of the state of Delaware (the
"Company").
WHEREAS, in connection with the acquisition by the Company from
Russell and Speciale on the date hereof of 81% of the shares of capital stock of
Dispute Resolution Management Inc. ("DRM") pursuant to that amended and restated
stock purchase agreement, dated August 30, 2000 among the Company, DRM and
Russell and Speciale (the "Purchase Agreement"), the Company has issued to the
Holders an aggregate of
(a) an aggregate of Fifteen Million Five Hundred Thousand
(15,500,000) shares of common stock of the Company, $.001 par value per share
(the "Subject Common Stock"); and
(b) five year warrants (the "Warrants") to purchase an additional
1,000,000 shares of common stock of the Company, $.001 par value per share
("Company Common Stock") at an exercise price of $2.00 per share.
In addition to the above, pursuant to the terms of a make-whole
agreement between the Company, Russell and Speciale, dated of even date herewith
(the "Make Whole Agreement"), the Company has agreed under certain conditions to
issue to Russell and Speciale certain additional shares of Company Common Stock
(the "Contingent Shares").
The Subject Common Stock, the shares of Company Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") and the Contingent
Shares (if and when issued) are hereinafter collectively referred to as the
"Stock" or the "Securities." Such Securities have been issued or are issuable
upon exercise of the Warrants in the respective amounts as among the Holders set
forth on Schedule "A" annexed hereto; and
WHEREAS, all capitalized terms used herein which are not defined
herein shall have the same meaning as set forth in the Asset Transfer Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term "Registrable
Security" means the Stock; provided, however, that with respect to any
particular Registrable Security, such Stock shall cease to be a Registrable
Security when, as of the date of determination, (i) it has been effectively
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
disposed of pursuant thereto, (ii) registration under the 1933 Act is no longer
required for the immediate public distribution of all of such securities held by
any holder thereof without limitation as a result of the provisions of Rule 144
promulgated under the 1933 Act or (iii) it has ceased to be outstanding. The
term "Registrable Securities" means any and/or all of the Stock falling within
the foregoing definition of a "Registrable Security." In the event of any
merger,
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reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
diminution or enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge and understand
that, prior to the registration of the Securities as provided herein, the
Securities are "restricted securities" as defined in Rule 144 promulgated under
the 1933 Act. The Holders understand that no disposition or transfer of the
Securities may be made by the Holders in the absence of (i) an opinion of
counsel to the Holders that such transfer may be made without registration under
the 1933 Act or (ii) such registration.
Section 3. Registration Agreements.
(a) Registration Rights. Not later than ninety (90) days following the
date of this Agreement, the Company shall prepare and file with the Securities
and Exchange Commission ("Commission"), a registration statement (on Form S-1 or
Form S-3 (if available) and in compliance with Rule 415 promulgated under the
1933 Act) which shall cover the Stock under the 1933 Act (the "Resale
Registration Statement"), at the sole expense of the Company (except as provided
in Section 3(a)(ii) hereof), in respect of all holders of Registrable
Securities, so as to permit a resale of the Registrable Securities under the
1933 Act. Subject to the provisions of Section 3(a)(iii), the Company shall use
its best efforts to cause the Resale Registration Statement to become effective
within ninety (90) days from the date of filing of such Resale Registration
Statement.
(i) The Company will maintain the effectiveness the Resale
Registration Statement or any post-effective amendment thereto filed under
Section 3(a) hereof current under the 1933 Act until the earlier of (A) the date
that all of the Registrable Securities have been sold pursuant to the Resale
Registration Statement, (B) the date the holders thereof receive an opinion of
counsel that all of the Registrable Securities may be sold under the provisions
of Rule 144 (without limitation) or (C) three (3) years after the Effective
Date. Notwithstanding the foregoing, the Company shall have the right in
connection with (x) any contemplated mergers, acquisitions or other business
combinations, or (y) any additional public offerings of its securities, to
suspend the effectiveness of such Resale Registration Statement or
post-effective amendment thereto, or otherwise notify the Holders of Registrable
Securities that such Resale Registration Statement is no longer current and may
not be used or delivered in connection with distributions of the Registrable
Securities (in either event, a "Blackout"). The length of any Blackout period
will not count for purposes of the time period set forth in this Section
3(a)(i)(C).
(ii) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Resale Registration Statement and in complying with applicable securities and
Blue Sky laws (including, without limitation, all attorneys' fees, including the
reasonable fees and expenses of counsel to the Holder) shall be borne by the
Company. The Holder shall bear the cost of underwriting discounts and
commissions, if any, applicable to the Registrable Securities being registered.
The Company shall qualify any of the Securities for sale in such states as such
Holder reasonably designates and shall furnish indemnification in the manner
provided in Section 6 hereof. However, the Company shall not be required to
qualify any of the Securities for sale in any state which will require an escrow
or other restriction relating to the Company and/or the sellers. The Company at
its expense will supply the Holder with copies of the Resale Registration
Statement and the
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prospectus or offering circular included therein and other related documents in
such quantities as may be reasonably requested by such Holder.
(iii) The Company shall not be required by this Section 3 to include
a Holder's Registrable Securities in any Resale Registration Statement which is
to be filed if, in the opinion of counsel for the Company, the proposed offering
or other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all Investors
or transferees obtaining securities which are not "restricted securities", as
defined in Rule 144 under the 1933 Act.
(b) No provision contained herein shall preclude the Company from selling
securities pursuant to any Registration Statement in which it is required to
include Registrable Securities pursuant to Section 3(a).
(c) If at any time or from time to time after the effective date of the
Resale Registration Statement, the Company notifies the Holders in writing of
the existence of a Potential Material Event (as defined below), the Holders
shall not offer or sell any Registrable Securities or engage in any other
transaction involving or relating to Registrable Securities, from the time of
the giving of notice with respect to a Potential Material Event until such
Holder receives written notice from the Company that such Potential Material
Event either has been disclosed to the public or no longer constitutes a
Potential Material Event. A "Potential Material Event" means any of the
following: (A) the possession by the Company of material information not ripe
for disclosure in a registration statement; or (B) any material transaction,
engagement or activity by the Company which would be adversely affected by
disclosure in a registration statement at such time, that the Resale
Registration Statement would be materially misleading absent the inclusion of
such information. The Company will use its best efforts to disclose any such
Potential Material Event at the earliest possible time as determined by the
Company in good faith and with the advice of its counsel. The period of time
during which the Holders are precluded from selling any Securities as a result
of a Potential Material Event will not be counted for purposes of the time
period set forth in Section 3(a)(i)(C).
(d) The Company agrees that it shall declare the Resale Registration
Statement filed pursuant to this Section 3 effective within three Business Days
after being notified by the Commission that it may do so. The Company also
agrees that it shall promptly respond to any questions or comments from the SEC
relating to the Resale Registration Statement.
Section 4. Cooperation with Company. Holders will cooperate with the Company in
all respects in connection with this Agreement, including timely supplying all
information reasonably requested by the Company and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is required by
any of the provisions of this Agreement to effect the registration of any of the
Registrable Securities under the 1933 Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and supplements
to the Resale Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the time period specified in Section 3 hereof and to comply with the provisions
of the 1933 Act with respect to the sale or other
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disposition of all securities covered by such registration statement whenever
the Holder of such securities shall desire to sell or otherwise dispose of the
same (including prospectus supplements with respect to the sales of securities
from time to time in connection with a registration statement pursuant to Rule
415 promulgated under the Act);
(b) furnish to each Holder such numbers of copies of a summary prospectus
or other prospectus, including a preliminary prospectus or any amendment or
supplement to any prospectus, in conformity with the requirements of the Act,
and such other documents, as such Holder may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by such
Holder;
(c) register and qualify the securities covered by the Resale
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request and do any and all other
acts and things which may be necessary or advisable to enable each Holder to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) list such securities on the American Stock Exchange, Inc. ("Amex"),
Nasdaq National Market, NASDAQ Small Cap Stock Market, the New York Stock
Exchange, Inc., or other national securities exchange on which any securities of
the Company are then listed, if the listing of such securities is then permitted
under the rules of such exchange;
(e) notify each Holder of Registrable Securities covered by the Resale
Registration Statement, at any time when a prospectus relating thereto covered
by the Resale Registration Statement is required to be delivered under the 1933
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in the Resale Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Holders, and
each officer, director or person, if any, who controls each Holder within the
meaning of the 1933 Act ("Distributing Holder") against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Distributing Holder may
become subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Resale Registration Statement or
any related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company (i) will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, the Resale Registration
Statement, preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto in reliance upon, and in
conformity
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with, written information furnished to the Company by the Distributing Holder
specifically for use in the preparation thereof, or (ii) cannot pay any amounts
paid in settlement of any loss, claim, damage or liability if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld or delayed. This Section 6(a) shall not inure to the
benefit of any Distributing Holder with respect to any person asserting such
loss, claim, damage or liability who purchased the Registrable Securities which
are the subject thereof if the Distributing Holder failed to send or give (in
violation of the 1933 Act or the rules and regulations promulgated thereunder) a
copy of the prospectus contained in such Registration Statement or Resale
Registration Statement, as the case may be, to such person at or prior to the
written confirmation of such person of the sale of such Registrable Securities,
where the Distributing Holder was obligated to do so under the 1933 Act or the
rules and regulations promulgated thereunder. This indemnity provision will be
in addition to any liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director, or person, if any, who
controls the Company within the meaning of the 1933 Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the 1933 Act or otherwise, insofar
as such losses claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Resale
Registration Statement or any related preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, the Resale Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written information
furnished to the Company by such Distributing Holder specifically for use in the
preparation thereof. This indemnity provision will be in addition to any
liability which the Distributing Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section 6. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 6 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the
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defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Holder, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 7. Contribution. In order to provide for just and equitable contribution
under the 1933 Act in any case in which (i) the indemnified party makes a claim
for indemnification pursuant to Section 6 hereof but is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that the express provisions of Section 6 hereof provide for indemnification
in such case, or (ii) contribution under the 1933 Act may be required on the
part of any indemnified party, then the Company and the applicable Distributing
Holder shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable Distributing Holder on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Distributing Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
Section 8. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified,
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return receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other address as
such party shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a Business Day during normal business
hours where such notice is to be received), or the first Business Day following
such delivery (if delivered other than on a Business Day during normal business
hours where such notice is to be received) or (b) on the second Business Day
following the date of mailing by reputable courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, New York 10155
Telephone: (212) 935-5400
Facsimile: (212) 753-0731
Attention: President
If to the Holders at the addresses set forth on Schedule A attached
hereto.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9. Assignment. This Agreement is binding upon and inures to the benefit
of the parties hereto and their respective heirs, successors and permitted
assigns. The rights granted the Holders under this Agreement shall not be
assigned without the written consent of the Company, which consent shall not be
unreasonably withheld. In the event of a transfer of the rights granted under
this Agreement, the Holder agrees that the Company may require that the
transferee comply with reasonable conditions as determined in the discretion of
the Company.
Section 10. Counterparts; Facsimile; Amendments. This Agreement may be executed
in multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. Except as otherwise
stated herein, in lieu of the original documents, a facsimile transmission or
copy of the original documents shall be as effective and enforceable as the
original. This Agreement may be amended only by a writing executed by all
parties.
Section 11. Termination of Registration Rights. The rights granted pursuant to
this Agreement shall terminate as to each Holder (and permitted transferees or
assignees) upon the occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement have been registered
and disposed of;
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(b) all of such Holder's Securities subject to this Agreement may be sold
without such registration (or limitation) pursuant to Rule 144 promulgated by
the SEC pursuant to the Securities Act;
(c) all of such Holder's Securities subject to this Agreement can be sold
pursuant to Rule 144(k).
Section 12. Headings. The headings in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
Section 13. Governing Law: Venue; Jurisdiction. This Agreement will be construed
and enforced in accordance with and governed by the laws of the State of
Delaware, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the exclusive
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or the United States District Court sitting in Salt Lake City,
Utah in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment.
Section 14. Resolution of Disputes; Arbitration.
(a) Whenever a claim shall arise involving the interpretation or
application of this Agreement, the complaining party shall notify the other
party in writing within thirty (30) days of the complaining party's first
receipt of notice of, or the complaining party's obtaining actual knowledge of,
such claim, and in any event within such shorter period as may be necessary for
the other party to take appropriate action to resist such claim. Such notice
shall specify all facts known to the complaining party giving rise to such claim
or dispute and shall estimate (to the extent reasonably possible) the amount of
potential liability arising therefrom. If the other party shall be duly notified
of such dispute, the parties shall attempt to settle and compromise the same.
(b) In the event that any dispute involving the interpretation or
application of this Agreement which cannot be settled or compromised, as
aforesaid, within twenty (20) days of receipt of the subject claim, either the
complaining party or the other party shall promptly thereafter submit the
dispute for final and binding arbitration to JAMS or End-Dispute before a
three-person panel of arbitrators who shall be either (i) retired federal
judges, or (ii) other persons experienced in resolving commercial disputes and
who are acceptable to both the complaining party and the other party to such
dispute (the "Arbitration"). Any such Arbitration shall, if brought by the
Employee, be held in New York, New York and, if brought by the Company shall be
in Salt Lake City, Utah. The panel of arbitrators shall be selected within
twenty (20) days of submission of such dispute to Arbitration. The parties shall
use their collective best efforts to promptly schedule and conduct the hearings
before such arbitrators, with a view toward concluding such arbitration
proceedings not later than thirty (30) days from the first submission of the
dispute to arbitration. In addition to, and not in lieu of, arbitration as a
means of dispute resolution hereunder, any party hereto shall have the right to
seek specific enforcement of this
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Agreement, or other injunctive or equitable relief or remedy before any court of
competent jurisdiction.
(c) In connection with any Arbitration pursuant to this Section 14,
the arbitrators shall, as part of their award, allocate the fee of the
Arbitration, including all fees of the arbitrators, the cost of any transcripts,
and the parties' reasonable attorneys' fees, based upon and taking into account
the arbitrators' determination of the merits and good faith of the parties'
claims and defenses in the subject proceeding.
(d) The decision and award of the arbitrators shall be final and
binding upon the parties hereto and shall be enforceable in any court of
competent jurisdiction, including any federal or state court in the States of
Utah, Delaware, New York or Colorado. Any process or other papers hereunder may
be served by registered or certified mail, return receipt requested, or by
personal service, provided that a reasonable time for appearance or response is
allowed.
(e) Any rights established by reason of such settlement, compromise,
arbitration or litigation shall promptly thereafter be satisfied by the losing
party in such amount as shall be necessary to satisfy all applicable losses or
damages sustained or incurred by the complaining party, as determined in
accordance with such settlement and compromise, or by final nonappealable order
or judgment of the applicable judicial or arbitration panel.
(f) In connection with the defense of any third party claims for
which claims for indemnification have been made hereunder, each party will
provide reasonable access to its and the Company's books and records as and to
the extent required for the proper defense of such third party claim. Neither
party shall consent to any settlement or purport to bind any other party to any
settlement without the written consent of the other party.
(g) Notwithstanding anything to the contrary set forth above, in the
event and to the extent that the complaining party shall believe that such party
shall then have no adequate remedy at law, the complaining party shall have the
right, in addition to and not in lieu of the right to obtain compensatory or
other monetary relief, to seek and obtain injunctive relief, specific
performance or such other equitable remedies as any court of competent
jurisdiction shall deem appropriate in the circumstances
Section 15. Severability. If any provision of this Agreement shall for any
reason be held invalid or unenforceable, such invalidity or unenforceablity
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
Section 16. Capitalized Terms. All capitalized terms not otherwise defined
herein shall have the meaning assigned to them in the Purchase Agreement.
Section 17. Entire Agreement. This Agreement, together with all documents
referenced herein, embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement of
any kind not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
COMMODORE APPLIED TECHNOLOGIES, INC.
By:_____________________________________________
Paul E. Hannesson, President
Holders:________________________________________
________________________________________________
Name: William J. Russell
________________________________________________
Name: Tamie P. Speciale
________________________________________________
Name:
________________________________________________
________________________________________________
Name:
________________________________________________
________________________________________________
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<PAGE>
EXHIBIT H
OPTION AGREEMENT
THIS OPTION AGREEMENT ("Agreement") is made and entered into as of the
30th day of August 2000, among COMMODORE APPLIED TECHNOLOGIES, INC., a Delaware
corporation ("Commodore"); WILLIAM J. RUSSELL ("Russell"), an individual having
an address at 16049 East Berry Drive, Aurora, Colorado 80015; and TAMIE P.
SPECIALE ("Speciale"), an individual having an address at 55 Dorchester Drive,
Salt Lake City, Utah 84103.
W I T N E S S E T H:
WHEREAS, Commodore, Russell, Speciale and DISPUTE RESOLUTION
MANAGEMENT, INC., a Utah corporation (the "Company") entered into an amended and
restated stock purchase agreement, dated August 30, 2000 (the "Purchase
Agreement"); and
WHEREAS, as at the date of this Agreement, the transactions
contemplated by the Purchase Agreement were consummated, as a result of which
Mergerco was merged with and into the Company and Commodore acquired 81% of the
issued and outstanding shares of capital stock of the Company, as the surviving
corporation of such merger; and
WHEREAS, Russell and Speciale (collectively, the "Stockholders")
currently own, in equal amounts, five thousand seven hundred shares of common
stock of the Company (the "Option Stock"); which Option Stock represents 19% of
the issued and outstanding shares of capital stock of the Company;
WHEREAS, Commodore desires to purchase an option to acquire from
the Stockholders all, and not less than all, of their shares of Option Stock and
the Stockholders are willing to grant to Commodore such option, all upon the
terms and subject to the conditions hereinafter set forth, and
WHEREAS, by the execution and delivery hereof, each of Commodore and
the Stockholders represent that they have all requisite right, authority and
legal capacity to execute and deliver this Agreement and are not acting on
behalf of any undisclosed or partially disclosed principal;
NOW, THEREFORE, in consideration of the foregoing premises, the
parties hereto, Intending to be legally bound, hereby agree as follows:
1. Definitions Unless otherwise expressly defined herein, all
capitalized terms as used in this Agreement shall have the same
meaning as is defined in the Purchase Agreement.
2. Grant of Option.
Subject to the terms and conditions set forth in this
Agreement, the Stockholders hereby jointly and severally grant unto
Commodore, an unconditional and irrevocable right and option (the
"Option") to purchase from
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the Stockholders all, and not less than all, of the issued and
outstanding shares of Option Stock.
3. Term of Option.
The Option shall only be exercisable by Commodore or any other
Person after January 1, 2006, or earlier if the Stockholders shall
have received a total of $37,131,578 in aggregate cash and other
distributions from the Company under the Purchase Agreement and from
Commodore under the Make Whole Agreement, and shall terminate on
December 31, 2010 (the "Option Exercise Period"); provided, that the
Option shall terminate immediately upon the occurrence of: (a) an
"Event of Default" as that term is defined in the Pledge Agreement;
(b) a Sale of Control, or (c) an Initial Public Offering of the
Company. Unless sooner terminated, the Option may be exercised by
Commodore at any time during the Option Exercise Period upon not
less than ninety (90) days prior written notice to the Stockholders
and in accordance with the provisions set forth below.
4. Consideration for Option.
In consideration of its grant of the Option, on the Closing
Date, simultaneous with the execution and delivery of this
Agreement, Commodore hereby agrees to issue to the Stockholders in
equal amounts the aggregate sum of Five Million (5,000,000) shares
of Commodore Common Stock (the "Option Consideration"). Consummation
of the transactions contemplated by the Purchase Agreement shall be
subject to and conditioned upon payment in full of the Option
Consideration, in addition to the other conditions specified
therein.
5. Purchase Consideration for the Option Stock.
The purchase consideration for the Option Stock upon timely
exercise of the Option shall be paid solely in shares of Commodore
Common Stock, as provided below. Such purchase consideration shall
be based upon the "Equivalent Value" of such Option Stock, as
calculated in accordance with the following procedures:
(a) The fair market value of 100% of the Company and all Permitted
Investments as a going concern (collectively, the "Company FMV") shall be
determined by an appraisal rendered by an independent investment banking firm
which has not provided services to Commodore within the prior three years and
which is mutually acceptable to the Board of Directors of Commodore and the
Stockholders; provided, however, that solely for purposes of calculating the
Company FMV for purposes of this Agreement, the fair market value of the
Extension Electronic Investments shall not be included within the definition of
the Company FMV.
(b) The fair market value of 100% of Commodore and its consolidated
Subsidiaries (including 100% of the Company and all Permitted Investments,
inclusive of the Extension Electronic Investments) as a going concern (the
"Commodore FMV") shall be determined by an appraisal rendered by an independent
investment banking firm which has not provided services to Parent within the
prior three years and which is mutually acceptable to the Board of Directors of
Commodore and the Stockholders.
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(c) The Company FMV shall be multiplied by a fraction (i) the numerator of
which shall be the Interests in the Company then owned by the Stockholders or
the Stockholders, and (ii) the denominator of which shall bear to the Interests
then owned by all Members in the Company (including Commodore) and which may be
acquired by any Member of other Person upon exercise of any options, warrants or
other outstanding rights to purchase Interests in the Company.
(d) the product of the calculation in Section 5(c) above shall be divided
by the Commodore FMV. The result thereof (whether less or greater than 1.00)
shall be multiplied by the aggregate number of shares of Commodore Common Stock
then issued and outstanding.
(e) the result of the calculation set forth in Section 5(d) above shall be
deemed the Equivalent Value of the Option Stock and shall be payable in the
appropriate number of shares of Commodore Common Stock.
6. Additional Agreements
(a) Appraisal. The Commodore FMV and the Company FMV shall be appraised as
soon as practicable following Commodore's delivery of the notice of exercise of
the Option. Commodore shall pay all costs of obtaining the Commodore FMV and
Company FMV appraisals.
(b) Amendments. No amendment or modification to this Agreement shall be
valid unless made in writing and signed by the party to be charged therewith.
(c) Non-Assignability, Binding Effect. Neither this Agreement, nor any of
the rights or obligations of the parties hereunder, shall be assignable by
either party hereto without the prior written consent of the other party.
Otherwise, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns. Notwithstanding the
foregoing, Commodore shall have the right to any newly formed wholly-owned
acquisition subsidiary corporation of Commodore; provided, that any such
permitted assignment shall in no manner relieve, or be deemed to relieve,
Commodore
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from any obligations, covenants and agreements on its part to be performed both
prior and subsequent to the date hereof.
(d) Legend. Until such time as the Option shall be exercised, expire or
terminate, all certificates and other instruments evidencing the Option Stock
shall contain a legend to the effect that such Option Stock is subject to the
terms and conditions of this Agreement, including the provisions of Section 6(d)
above.
(d) Entire Agreement. This Agreement represents the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all other agreements, written or oral, between the parties with respect thereto.
(e) Governing Law, Jurisdiction. This Agreement shall be construed and
interpreted and the rights granted herein governed in accordance with the laws
of the State of Delaware applicable to contracts made and to be performed wholly
within such State.
IN WITNESS WHEREOF, the parties have executed this Agreement on and
as of the date first set forth above.
Commodore: COMMODORE APPLIED TECHNOLOGIES, INC.
By:____________________________________
Paul E. Hannesson, President
The Company: DISPUTE RESOLUTION MANAGEMENT, INC.
By:____________________________________
William J. Russell, President
The Stockholders:
_______________________________________
WILLIAM J. RUSSELL
_______________________________________
TAMIE P. SPECIALE
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<PAGE>
FORM OF PROXY
<PAGE>
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 hereby appoints Paul E. Hannesson and James M. DeAngelis,
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 October 2, 2000 at the Special Meeting
of Stockholders of the company to be held on Friday, November 17, 2000, 10:30
A.M., local time, at American Stock Exchange, 86 Trinity Place, New York, New
York 10006, and at any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THE SHARES WILL BE VOTED
FOR PROPOSAL 1 AND FOR PROPOSAL 2 SET FORTH BELOW.
1. To approve the acquisition by our company of 81% of the capital stock of
Dispute Resolution Management, Inc. and the issuance of up to 16,500,000
shares of our common stock in connection with the DRM acquisition.
( ) FOR ( ) AGAINST ( ) ABSTAIN
2. To authorize an amendment to our company's certificate of incorporation
increasing the number authorized shares of common stock, par value $0.001
per share, that our Board of Directors is authorized to issue from
100,000,000 shares to 125,000,000 shares.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. Upon such other matters as may properly come before such Special 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 Special 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 Special
Meeting of Stockholders, and (2) the Proxy Statement.
Dated: ______________, 2000 _________________________________
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 YOU.
