<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996
REGISTRATION NO. 333-11813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------
COMMODORE SEPARATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 3559 11-3299195
<C> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
150 East 58th Street, Suite 3400
New York, New York 10155
telephone: (212) 308-5800; facsimile: (212) 753-0731
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALAN R. BURKART
President and Chief Executive Officer
Commodore Separation Technologies, Inc.
150 East 58th Street, Suite 3400
New York, New York 10155
telephone: (212) 308-5800; facsimile: (212) 753-0731
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
STEPHEN A. WEISS, ESQ. LAWRENCE B. FISHER, ESQ.
SPENCER G. FELDMAN, ESQ. Orrick, Herrington & Sutcliffe LLP
Greenberg, Traurig, Hoffman, 666 Fifth Avenue
Lipoff, Rosen & Quentel New York, New York 10103
153 East 53rd Street telephone: (212) 506-5000
New York, New York 10022 facsimile: (212) 506-5151
telephone: (212) 801-9200
facsimile: (212) 223-7161
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
maximum Proposed
offering price maximum
Title of each class of Amount to be per aggregate Amount of
securities to be registered registered(1) security(2) offering price registration fee
----------------------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Units, each consisting of one
share of Common Stock and
one Warrant ................ 5,750,000 $8.10 $46,575,000 --(9)
Common Stock, $.001 par value 5,750,000(3) $8.00 $46,000,000 $15,862.07
Redeemable Common Stock
Purchase Warrants .......... 5,750,000(4) $.10 $575,000 $198.28
Common Stock, $.001 par
value, issuable upon
exercise of Redeemable
Common Stock Purchase
Warrants ................... 5,750,000(5) $11.20 $64,400,000 $22,206.90
Representative's Warrants to
purchase Common Stock and
Redeemable Common Stock
Purchase Warrants .......... 500,000 $.0001 $50 $.02
Common Stock, $.001 par
value, issuable upon
exercise of Representative's
Warrants ................... 500,000(6) $9.60 $4,800,000 $1,655.17
Redeemable Common Stock
Purchase Warrants issuable
upon exercise of
Representative's Warrants .. 500,000(7) $.12 $60,000 $20.69
Common Stock, $.001 par
value, issuable upon
exercise of Redeemable
Common Stock Purchase
Warrants issuable upon
exercise of Representative's
Warrants ................... 500,000(8) $11.20 $5,600,000 $1,931.03
Total ................................................. $121,435,050 $41,874.16(10)
</TABLE>
- -----------------------------------------------------------------------------
(1) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Warrants and the Representative's Warrants.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(3) Includes 750,000 shares of Common Stock which may be purchased by the
Underwriters from the existing stockholder of the Registrant to cover
over-allotments, if any.
(4) Includes 750,000 Redeemable Common Stock Purchase Warrants which may be
purchased by the Underwriters from the Registrant to cover
over-allotments, if any.
(5) Includes 750,000 shares of Common Stock underlying 750,000 Redeemable
Common Stock Purchase Warrants which may be purchased by the
Underwriters from the Registrant to cover over-allotments, if any.
(6) Consists of shares of Common Stock issuable upon exercise of
Representative's Warrants issued to the Representative of the several
Underwriters (the "Representative").
(7) Consists of Redeemable Common Stock Purchase Warrants issuable upon
exercise of Representative's Warrants issued to the Representative.
(8) Consists of shares of Common Stock underlying the Redeemable Common
Stock Purchase Warrants issuable upon exercise of the Representative's
Warrants issued to the Representative.
(9) No additional filing fee is required.
(10) Previously paid.
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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<CAPTION>
Item
Number Item Caption in Form S-1 Location in Prospectus
---------- -------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page of Prospectus; Additional
Prospectus Information; Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be Registered Prospectus Summary; Capitalization; Description of
Securities
10. Interests of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant Outside Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; Use of Proceeds;
Capitalization; Dividend Policy; Dilution; Selected
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Executive
Compensation; Principal Stockholders; Certain
Relationships and Related Transactions; Description
of Securities; Shares Eligible for Future Sale;
Financial Statements; Outside Back Cover Page of
Prospectus
12. Disclosure of Commission Position on Not applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1996
PROSPECTUS
5,000,000 SHARES OF COMMON STOCK AND
5,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(AS UNITS, EACH CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE WARRANT)
COMMODORE SEPARATION TECHNOLOGIES, INC.
------
Commodore Separation Technologies, Inc., a Delaware corporation (the
"Company"), hereby offers (the "Offering") 5,000,000 shares of common stock,
par value $.001 per share (the "Common Stock"), and 5,000,000 Redeemable
Common Stock Purchase Warrants (the "Warrants") initially as units, each
consisting of one share of Common Stock and one Warrant. The shares of Common
Stock and the Warrants are sometimes hereinafter together referred to as the
"Securities." Until the completion of this Offering, the shares of Common
Stock and the Warrants offered hereby may only be purchased together on the
basis of one share of Common Stock and one Warrant, but will trade separately
immediately after the Offering. Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at an initial exercise price of
$ per share [140% of the initial public offering price per share of Common
Stock], subject to adjustment, at any time commencing one year after the date
of this Prospectus until five years after the date of this Prospectus.
Commencing 18 months after the date of this Prospectus, the Warrants are
subject to redemption by the Company, in whole but not in part, at $.10 per
Warrant on 30 days' prior written notice provided that the average closing
sale price of the Common Stock as reported on the American Stock Exchange
(the "AMEX") equals or exceeds $ per share [300% of the initial public
offering price of the Common Stock] (subject to adjustment under certain
circumstances) for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice
of redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the Securities
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained.
After completion of this Offering, there will be no public market for the
Securities as units. It is currently anticipated that the initial public
offering prices of the Common Stock and the Warrants will be between $6.00
and $8.00 per share and $.10 per Warrant, respectively. For information
regarding the factors considered in determining the initial public offering
prices of the Securities and the terms of the Warrants, see "Risk Factors"
and "Underwriting." Application has been made to include the Common Stock and
the Warrants on the AMEX under the symbols "CXO" and "CXO.WS," respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================
Price to Public Underwriting Discount (1) Proceeds to Company (2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Per Unit ........ $ $ $
Per Share ..... $ $ $
- ------------------------------------------------------------------------------------------
Per Warrant ... $ $ $
- ------------------------------------------------------------------------------------------
Total (3) ...... $ $ $
==========================================================================================
(see footnotes on following page)
</TABLE>
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the Securities will be made against payment
at the offices of National Securities Corporation, Seattle, Washington, on or
about , 1996.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1996
<PAGE>
- ------
(1) Does not include additional compensation payable to National Securities
Corporation, the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other
compensation payable to the Representative.
(2) Before deducting estimated expenses of $375,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company's sole stockholder has granted to the Underwriters an option
exercisable within 45 days after the date of this Prospectus to purchase
up to 750,000 additional shares of Common Stock from such stockholder,
and the Company has granted to the Underwriters an option exercisable
within 45 days after the date of this Prospectus to purchase up to
750,000 additional Warrants, all upon the same terms and conditions as
set forth above, solely to cover over-allotments, if any (the
"Over-allotment Option"). The Over-allotment Option may be exercised to
purchase units, each consisting of one share of Common Stock and one
Warrant, solely shares of Common Stock or Warrants, or any combination
thereof. If such Over-allotment Option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively, and the total proceeds to the
Company's sole stockholder will be $ . The Company's sole stockholder
is controlled by a director of the Company. See "Principal Stockholders."
The Company will not receive any of the proceeds from the sale of up to
750,000 shares of Common Stock by its sole stockholder. See
"Underwriting."
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and make
available such other periodic reports as the Company may deem to be
appropriate or as may be required by law.
CST is the name used by the Company to describe its proprietary separation
and recovery technology.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and must be read in conjunction
with, the more detailed information and financial statements and notes
thereto appearing elsewhere in this Prospectus. Unless otherwise indicated,
all share and per share information in this Prospectus reflects a
150,000-for-one stock split effected on September 5, 1996, and does not give
effect to (i) any exercise of the Underwriters' Over- allotment Option, (ii)
the issuance of up to 5,000,000 shares of Common Stock upon exercise of the
Warrants, (iii) the issuance of up to 500,000 shares of Common Stock and
500,000 Warrants upon exercise of the Representative's Warrants, (iv) the
issuance of up to 500,000 shares of Common Stock upon exercise of Warrants
underlying the Representative's Warrants, (v) the issuance of up to 1,235,000
shares of Common Stock upon exercise of stock options outstanding as of the
date of this Prospectus, and (vi) the issuance of up to 765,000 additional
shares of Common Stock reserved for issuance upon exercise of additional
stock options that may be granted under the Company's 1996 Stock Option Plan.
As used herein, the term "Company" refers to Commodore Separation
Technologies, Inc. See "Executive Compensation -- Stock Options" and
"Underwriting."
This Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." The
Company is a development stage company which has had no commercial operations
to date.
THE COMPANY
Commodore Separation Technologies, Inc. (the "Company") is a process
technology company which has developed and intends to commercialize its
separation technology and recovery system, known as CST. Based on the results
of more than 100 laboratory tests, one significant field test and one
commercial scale installation at a metal plating company to date, the Company
believes that CST is capable of effectively separating and extracting various
solubilized materials, including metals, organic chemicals, biochemicals,
radionuclides and other targeted substances, from liquid and gaseous process
streams.
Industrial companies create liquid and gaseous mixed process streams in
the course of their manufacturing and product development activities which
frequently require costly treatment and disposal to comply with regulatory
requirements. These process streams often contain valuable materials which
can be reused if they can be extracted in a sufficient concentration and
degree of purity. The Company believes that application of CST in these
industries can substantially reduce disposal costs for certain of these
manufacturing process streams, and can enable the recovery and reuse of
metals and other valuable materials. The Company also believes that CST can
be utilized for environmental remediation and restoration in the clean-up of
harbors and groundwater, and in the decontamination of nuclear sites.
CST is an advanced form of membrane separation technology, in which a
contaminated liquid or gaseous feedstream is injected into a Company-designed
fibrous membrane unit or module. This module is continuously fed with a
recycled stream of proprietary chemical solution whose composition will vary
depending on the types and concentrations of compounds in the feedstream. As
the feedstream enters the membrane unit, the metal or other substance to be
extracted reacts with the proprietary chemical solution in the membrane, and
the metallic or other ions are extracted through the membrane into a strip
solution which is concentrated and gathered in a separate storage container.
The balance of the feedstream is either recycled or simply discharged as
normal effluent. In some instances, additional treatment may be required
prior to disposal, or disposal may need to be made in a regulated manner. The
Company believes that CST can be utilized for the separation and recovery of
chrome, chromium, cadmium, silver, mercury, platinum, lead, zinc, nickel,
trichlorethylene, polychlorinated biphenyls, methylene chloride, amino acids,
antibiotics, radionuclides, and other organic and inorganic substances.
3
<PAGE>
CST possesses operational characteristics distinguishable from other
existing forms of membrane filtration technology in that it:
o requires low initial capital costs, as well as low operating costs;
o is environmentally safe, in most instances producing no sludges or
other harmful by-products which would require additional post-treatment
prior to ultimate disposal;
o can selectively extract specific target substances, while extracting
substantially fewer unwanted substances;
o can typically operate in less than 40 square feet of space for the
entire system;
o has the capability of treating a wide variety of elements and compounds
in a wide variety of industrial settings, and doing so at great speed
and with a high degree of effectiveness regardless of particle size,
volume requirements and other variables;
o can extract metals, organic chemicals and other elements and compounds
in a sufficient concentration and degree of purity to permit their
ready reuse; and
o has the capability, in a single process application, of selectively
extracting multiple elements or compounds from a mixed process stream.
The Company has conducted more than 100 tests of CST in the laboratory,
one significant test in the field and one commercial scale installation at a
metal plating company. In laboratory testing, CST has been shown to
substantially reduce contamination levels in a variety of process streams,
including process streams containing nickel, chromium, phenols,
phenylalanine, cesium and nitrates, in most instances yielding a reacted
process stream capable of disposal with little or no further treatment
required, and reusable materials of sufficient quantity and purity as to
economically permit their reuse. Other than with respect to the Company's
tests involving the separation and recovery of zinc, nickel and chromium, as
discussed below, no other tests have been independently verified.
In August 1996, the Company completed an on-site demonstration of CST for
the decontamination of chromium-contaminated groundwater in the Port of
Baltimore, Maryland. During this demonstration, a single CST unit, in a
single pass-through of feedstream, reduced the contamination level from more
than 400 parts per million (ppm) to less than one ppm. The results of this
test were verified by Artesian Laboratories, Inc., an independent testing
laboratory. The Company believes that, based on management studies and
discussions with metals industry executives, CST is the only technology
capable of on-site chromium removal and recovery that enables effluent
discharge without post-treatment.
In September 1996, the Company installed a commercial scale CST unit
on-line at a Columbus, Ohio metal plating company. DLZ Laboratories, Inc., an
independent testing laboratory, verified that the CST unit processed the
initial batch of process effluent stream and reduced nickel and zinc
contamination from 900 ppm to 2 ppm in one hour. The Company has continued to
operate this CST unit to process nickel and zinc effluent streams containing
concentrations of 200 to 400 ppm, and the unit has consistently reduced the
contaminant levels to 1 to 5 ppm. The decontaminated process effluent stream
is being recycled into the plating line rinse tanks, saving the plating
company its normal consumption of make-up water at a rate of five gallons per
minute. The recovered nickel and zinc solution is currently being analyzed by
the plating company for reuse in its plating operations.
The Company will market CST directly to a variety of domestic and
international industries, particularly those engaged in metallurgical
processing and metal plating, which generate a substantial volume of mixed
metal process streams, and to gas separation, organic chemicals and
biochemical companies, which produce or utilize substantial volumes of liquid
or gaseous mixed process streams. Federal, state and local government
entities are also a potential market for the Company, with penetration into
this area having already begun with test projects for the Port of Baltimore
and on Cape Cod, Massachusetts.
The Company may also develop collaborative joint working and marketing
arrangements with companies that have a significant presence in
well-established industries or markets. Such arrangements, for example, may
be expected to focus on obtaining environmental remediation projects,
including clean-up
4
<PAGE>
of harbors, groundwater and nuclear sites. Although the Company has entered
into memorandums of understanding for potential working arrangements with
Teledyne Brown Engineering, Inc., a subsidiary of Allegheny Teledyne Inc.
("Teledyne Brown"), and Sverdrup Environmental, Inc. ("Sverdrup"), and is
bidding on certain projects, there can be no assurance that any of these
activities will result in definitive collaborative agreements or project
awards. Even if contracts are awarded to the Company, CST has never been
utilized on a large-scale basis, and there is no assurance that this
technology will perform successfully on a large-scale commercial basis, or
that it will be profitable to the Company. There can also be no assurance
that this technology will not be superseded by other competing technologies.
The Company was incorporated in the State of Delaware in November 1995,
and is a wholly-owned subsidiary of Commodore Environmental Services, Inc.
("Commodore"). To date, Commodore has financed the development efforts of the
Company's technologies through direct equity investments and loans to the
Company. The principal executive offices of the Company are located at 150
East 58th Street, Suite 3400, New York, New York 10155, and its telephone
number is (212) 308-5800.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities offered ................... 5,000,000 shares of Common Stock and 5,000,000 Warrants initially as units,
each consisting of one share of Common Stock and one Warrant.
Terms of Warrants .................... Each Warrant entitles the holder thereof to purchase, at any time commencing
one year after the date of this Prospectus until five years after the date
of this Prospectus, one share of Common Stock at a price of $ per share
[140% of the initial public offering price per share of Common Stock], subject
to adjustment. Commencing 18 months after the date of this Prospectus, the
Warrants are subject to redemption by the Company, in whole but not in part,
at $.10 per Warrant on 30 days' prior written notice provided that the average
closing sale price of the Common Stock as reported on the AMEX equals or
exceeds $ per share [300% of the initial public offering price of the
Common Stock], subject to adjustment, for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the
date of the notice of redemption. See "Description of Securities."
Common Stock outstanding prior to the
Offering ............................ 15,000,000 shares of Common Stock.
Securities to be outstanding after the
Offering ............................ 20,000,000 shares of Common Stock and 5,000,000 Warrants.
Use of Proceeds ...................... The Company intends to apply the net proceeds of this Offering to purchase
its initial CST inventory; conduct ongoing development; acquire manufacturing
equipment; establish its Atlanta facility; fund proposed collaborative
arrangements; and for working capital and general corporate purposes. See
"Use of Proceeds."
Proposed AMEX Symbols:(1)
Common Stock ....................... CXO
Warrants ........................... CXO.WS
Risk Factors ......................... An investment in the Securities offered hereby involves a high degree of
risk and immediate and substantial dilution, and should be made only by investors
who can afford the loss of their entire investment. See "Risk Factors" and
"Dilution."
</TABLE>
- ------
(1) There can be no assurance that the Securities will be accepted for
listing on the AMEX.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data included in the following table as of June 30,
1996 and for the period from November 15, 1995 (date of inception) to June
30, 1996 are derived from the audited Financial Statements appearing
elsewhere herein. The summary financial data as of September 30, 1996, for
the three months then ended and for the period from November 15, 1995 (date
of inception) to September 30, 1996 are unaudited and, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such data. Financial data
for the periods through September 30, 1996 are not necessarily indicative of
the results of operations to be expected for the Company's fiscal year ending
December 31, 1996. The summary financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and notes thereto appearing
elsewhere herein.
<TABLE>
<CAPTION>
November 15, 1995
(date of Three Months November 15, 1995
Statement of Operations inception) Ended (date of inception)
Data(1) to June 30, 1996 September 30, 1996 to September 30, 1996
----------------- ------------------ ---------------------
<S> <C> <C> <C>
Revenue ...................... $ 0 $ 7,758 $ 7,758
----------------- ------------------ ---------------------
Costs and expenses:
Research and development 50,080 165,280 215,360
General and
administrative ........ 9,720 128,307 138,027
Amortization ............ 101 266 367
----------------- ------------------ ---------------------
Loss before interest and taxes (59,901) (286,095) (345,996)
Interest expense ............. 1,035 4,600 5,635
----------------- ------------------ ---------------------
Net loss ..................... (60,936) (290,695) (351,631)
================= ================== =====================
--
Net loss per share(2) ........ (3) (.02) (.02)
================= ================== =====================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1996
--------------- ---------------------------------------------
Pro Forma,
Balance Sheet Data: Actual Pro Forma(4) as Adjusted(5)
------------ ------------ --------------
<S> <C> <C> <C> <C>
Working capital (deficit) ..... $(81,630) $(524,765) $(116,765) $31,103,235
Total assets .................. 23,327 329,193 329,193 31,549,193
Total current liabilities ..... 84,163 665,824 257,824 257,824
Deficit accumulated during
development stage ............ (60,936) (351,631) (351,631) (351,631)
Stockholders' equity (deficit) (60,836) (336,631) 71,369 31,291,369
</TABLE>
- ------
(1) The Company is in the development stage, and has had no commercial
operations to date. See Note 1 of Notes to Financial Statements.
(2) Net loss per share is calculated on the basis of 15,000,000 shares of
Common Stock being outstanding for the period presented. See Note 1 of
Notes to Financial Statements.
(3) Less than $.01 per share of Common Stock.
(4) Gives effect on a pro forma basis to the contribution by Commodore to the
equity of the Company of a total of $423,000, representing $15,000 in
cash and the conversion of short-term debt of $408,000 to equity prior to
the completion of this Offering (the "Commodore Contribution"). See
"Capitalization."
(5) Gives effect on a pro forma, as adjusted basis to (i) the Commodore
Contribution and (ii) the sale by the Company of the Securities offered
hereby at an assumed initial public offering price of $7.00 per share and
$.10 per Warrant and the initial application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Certain Relationships and
Related Transactions."
6
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk and should be made only by investors who can afford the loss of their
entire investment. Prospective investors should carefully review and consider
the risk factors described below and the other information in this Prospectus
before purchasing the Securities.
NO OPERATING HISTORY; ACCUMULATED AND WORKING CAPITAL DEFICITS; INITIAL
COMMERCIALIZATION STAGE; GOING CONCERN DISCLOSURE IN INDEPENDENT AUDITORS'
REPORT
The Company was organized in November 1995 and has had no commercial
operations to date. Since its inception, the Company has been engaged
principally in organizational activities, including developing a strategic
operating plan, entering into contracts, hiring personnel, developing test
modules and installing and operating modules on a limited basis for
demonstration or test purposes. The Company is considered a development stage
company for accounting purposes because it has not generated any material
revenues to date. Accordingly, the Company has no relevant operating history
upon which an evaluation of its performance and prospects can be made. The
Company is subject to all of the business risks associated with a new
enterprise, including, but not limited to, risks of unforeseen capital
requirements, failure of market acceptance, failure to establish business
relationships, and competitive disadvantages as against larger and more
established companies. The report of the independent auditors with respect to
the Company's financial statements included in this Prospectus includes a
"going concern" qualification, indicating that the Company's significant
operating losses and deficits in working capital and stockholders' equity
raise substantial doubt about its ability to continue as a going concern.
The Company has generated nominal revenues to date, and will not generate
any material revenues until after the Company successfully completes the
installation of modules in a significant number of industrial companies, of
which no assurance can be given. As of September 30, 1996 and June 30, 1996,
the Company had working capital deficits of $(524,765) and $(81,630),
respectively, and stockholders' deficits of $(336,631) and $(60,836),
respectively. During the period from November 15, 1995 (date of inception) to
September 30, 1996, the Company has incurred operating losses of $(351,631),
and anticipates that it may continue to incur significant operating losses
for the foreseeable future. There can be no assurance as to whether or when
the Company will generate material revenues or achieve profitable operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business" and Financial Statements.
UNPROVEN ON LARGE-SCALE COMMERCIAL BASIS
CST has never been utilized on a large-scale commercial basis. All of the
tests conducted to date by the Company with respect to CST have been
performed on limited quantities of process streams, and there can be no
assurance that the same or similar results would or could be obtained on a
large-scale commercial basis or on any specific project. The Company has
never utilized CST under the conditions and in the volumes that will be
required to be profitable and cannot predict all of the difficulties that may
arise. In addition, the results of more than 100 laboratory tests conducted
by the Company have not been verified by an independent testing laboratory.
Thus, it is possible that the Company's CST unit may require further
research, development, design and testing, as well as regulatory clearances,
prior to larger-scale commercialization. Additionally, the Company's ability
to operate its business successfully will depend on a variety of factors,
many of which are outside the Company's control, including competition, cost
and availability of strategic components, changes in governmental initiatives
and requirements, changes in regulatory requirements, and the costs
associated with equipment repair and maintenance. See "Business."
DEPENDENCE ON STRATEGIC COMPONENTS
The Company currently has a limited number of outside sources of supply
for some strategic components used in CST, including chemicals, fibers and
membrane casings. Business disruptions or financial difficulties of such
suppliers, or raw material shortages or other causes beyond the Company's
control, could adversely affect the Company by increasing the cost of goods
sold or reducing the availability of such components. In its development
stage to date, the Company has been able to obtain adequate supplies of these
strategic components. However, as it commences commercial activities, the
Company expects to experience a rapid and substantial
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increase in its requirements for these components. If the Company were unable
to obtain a sufficient supply of required components, the Company could
experience significant delays in the manufacture of CST equipment, which
could result in the loss of orders and customers, and could have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company plans to use a portion of the net proceeds
of this Offering to build its own manufacturing plant for these strategic
components, there can be no assurance as to whether or when such plant will
be completed, that it will be able to manufacture components more
inexpensively than the cost of current sources of supply or that, prior to
the completion of such plant, the Company will not require alternative
sources of such components or experience delays in obtaining adequate
supplies thereof. The occurrence of any of such events would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if the cost of raw materials or finished components
were to increase, there can be no assurance that the Company would be able to
pass through any of such increases to its customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Dependence on Suppliers" and "Business -- Proposed Manufacturing Operations."
UNCERTAINTY OF MARKET ACCEPTANCE
Many prospective users of CST have already committed substantial resources
to other forms of process stream treatments or technologies. The Company's
growth and future financial performance will depend on its ability to
demonstrate to prospective users the technical and economic advantages of CST
over these alternatives. There can be no assurance that the Company will be
successful in this effort. Furthermore, it is possible that competing
alternatives may be perceived to have, or may actually have, certain
advantages over CST for certain industries or applications. See "Business."
RISK OF INTERNATIONAL OPERATIONS
The Company intends to market CST in international markets, including both
industrialized and developing countries. International operations entail
various risks, including political instability, economic instability and
recessions, exposure to currency fluctuations, difficulties of administering
foreign operations generally, and obligations to comply with a wide variety
of foreign import and United States export laws, tariffs and other regulatory
requirements. The Company's competitiveness in overseas markets may be
negatively impacted when there is a significant increase in the value of the
dollar against the currencies of the other countries in which the Company
does business. In addition, the laws of certain foreign countries may not
protect the Company's proprietary rights to the same extent as the laws of
the United States. See "Business -- Environmental Matters," "-- Intellectual
Property" and "-- Competition."
UNPREDICTABILITY OF PATENT PROTECTION AND PROPRIETARY TECHNOLOGY
The Company currently has one United States utility patent application
pending and one United States provisional patent application pending and may
in the future file foreign patent applications. The Company's success
depends, in part, on its ability to obtain patents, maintain trade secrecy,
and operate without infringing on the proprietary rights of third parties.
There can be no assurance that the patents of others will not have an adverse
effect on the Company's ability to conduct its business, that any of the
Company's pending patent applications will be approved, that the Company will
develop additional proprietary technology which is patentable or that any
patents issued to the Company will provide the Company with competitive
advantages or will not be challenged by third parties. Furthermore, there can
be no assurance that others will not independently develop similar or
superior technologies, duplicate elements of CST, or design around CST. The
Company's liquid membrane technology patent applications are based on the
selective combination of different known solvents, supports, diluents,
carriers and other components to separate a variety of metals, chemicals and
other targeted substances. While the Company believes that its technology
covers all separation applications, third parties may have developed, or may
subsequently assert claims to, certain of these solvents, supports, diluents,
carriers or other components for one or more specific applications. In such
event, the Company may need to acquire licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. There can
be no assurance that any license acquired under such patents would be made
available to the Company on acceptable terms, if at all, or that the Company
would prevail in any such contest. In addition, the Company could incur
substantial costs in defending itself in suits brought against the Company
for alleged infringement of another party's patents or in defending the
validity or enforceability of the Company's patents, or in bringing patent
infringement suits against other parties based on the Company's patents.
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In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which it seeks to protect, in
part, by confidentiality agreements with its prospective working partners and
collaborators, employees and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets and proprietary
know-how will not otherwise become known or be independently discovered by
others. See "Business -- Intellectual Property."
ROYALTY OBLIGATION
Pursuant to an assignment of technology agreement between the Company and
Srinivas Kilambi, Ph.D., the Company's Vice President-Technology, the Company
agreed to pay Dr. Kilambi a royalty through December 3, 2002 equal to 2% of
the Company's revenues actually received and attributed to the commercial
application of the technology acquired from Dr. Kilambi. Payment of such
royalty to Dr. Kilambi is based on Company revenues and is not related to or
contingent upon the Company attaining profitability or positive cash flow. As
a result, such payment will adversely affect operating results and divert
cash resources from use in the Company's business, and possibly at times when
the Company's liquidity and access to funding may be limited. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Intellectual
Property" and "Certain Relationships and Related Transactions -- Organization
and Capitalization of the Company."
RISK OF ENVIRONMENTAL LIABILITY
The Company's operations, as well as the use of the specialized technical
equipment by its customers, are subject to numerous federal, state and local
regulations relating to the storage, handling and transportation of certain
regulated materials. Although the Company's role is generally limited to the
leasing of its specialized technical equipment for use by its customers,
there is always the risk of the mishandling of such materials or
technological or equipment failures, which could result in significant claims
against the Company. Any such claims against the Company could have a
material adverse effect.
As CST is commercialized, the Company may be required to obtain
environmental liability insurance in the future in amounts greater than it
currently maintains. There can be no assurance that such insurance will
provide coverage against all claims, and claims may be made against the
Company (even if covered by the Company's insurance policy) for amounts
substantially in excess of applicable policy limits. Any such event could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Environmental Matters."
POTENTIAL NEED FOR ADDITIONAL FINANCING
Prior to this Offering, financing for all of the Company's activities has
been provided in the form of direct equity investments and loans by
Commodore, and the Company has been entirely dependent on Commodore for such
funding. Although the Company anticipates that the net proceeds of this
Offering will be sufficient to sustain its operations for approximately 18
months following the date of this Prospectus, the Company's future capital
requirements could vary significantly and will depend on certain factors,
many of which are not within the Company's control. These include the ongoing
development and testing of CST as a remediation and industrial waste
management technology; the nature and timing of remediation and clean-up
projects and permits required; and the availability of financing. In the
environmental remediation market, the Company may not be able to enter into
favorable business collaborations and might thus be required to bid upon
projects for its own account. If such bids were successful, the Company would
be required to make significant expenditures on personnel and capital
equipment which would require significant financing in amounts substantially
in excess of the net proceeds of this Offering. In addition, the Company's
lack of operational experience and limited capital resources could make it
difficult, if not highly unlikely, to successfully bid on major reclamation
or clean-up projects. In such event, the Company's business development could
be limited to remediation of smaller commercial and industrial sites with
significantly lower potential for profit.
In addition, the expansion of the Company's business will require the
commitment of significant capital resources toward the hiring of technical
and operational support personnel, the development of a manufacturing
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<PAGE>
and testing facility for CST equipment, and the building of equipment to be
used both for on-site test demonstrations and the remediation of contaminated
elements. In the event the Company is presented with one or more significant
reclamation or clean-up projects, individually or in conjunction with
collaborative working partners, it may require additional capital to take
advantage of such opportunities. There can be no assurance that such
financing will be available or, if available, that it will be on favorable
terms. If adequate financing is not available, the Company may be required to
delay, scale back or eliminate certain of its development programs, to
relinquish rights to certain of its technologies, or to license third parties
to commercialize technologies that the Company would otherwise seek to
develop itself. To the extent the Company raises additional capital by
issuing equity securities, investors in this Offering will be diluted. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
COMPETITION AND TECHNOLOGICAL ALTERNATIVES
The Company anticipates that CST's primary market will be for industrial
by-products treatment and disposal. The Company has had limited experience in
marketing CST and has not previously had any employees or personnel whose
primary responsibilities for the Company consisted of sales or marketing
functions. Other participants in both the private and public sectors include
several large domestic and international companies and numerous small
companies, many of whom have substantially greater financial and other
resources and more manufacturing, marketing and sales experience than the
Company. In addition, as membrane separation technology evolves, there exists
the possibility that CST may be rendered obsolete by one or more competing
technologies. Any one or more of the Company's competitors, or one or more
other enterprises not presently known to the Company, may develop
technologies which are superior to CST or other technologies utilized by the
Company. To the extent that the Company's competitors are able to offer more
cost-effective separation technology alternatives, the Company's ability to
compete could be materially and adversely affected. See "Business."
NO ASSURANCE OF COLLABORATIVE AGREEMENTS OR PROJECT AWARDS
In addition to its direct marketing efforts, the Company proposes to
pursue opportunities in the environmental remediation market through
collaborative joint working arrangements with companies that have a
significant presence in well-established industries or markets, and that can
introduce CST as an enabling technology to industry participants. However,
neither the Company nor any of its prospective collaborative joint working
partners have been awarded any project contracts. There can be no assurance
that the Company will enter into any definitive joint project arrangements
with its prospective working partners or others, or that any such definitive
arrangements will be on terms and conditions that will enable the Company to
generate profits. Furthermore, even if the Company is successful in obtaining
one or more project awards, such projects may be curtailed or eliminated, or
other problems may arise, which could materially adversely affect the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY MANAGEMENT AND OTHER PERSONNEL
The Company is dependent on the efforts of its senior management and
scientific staff, including Alan R. Burkart, President and Chief Executive
Officer, Carl O. Magnell, Executive Vice President, James M. DeAngelis,
Senior Vice President, Srinivas Kilambi, Ph.D., Vice President-Technology,
and Michael D. Kiehnau, Chief Financial Officer. The proceeds of key man life
insurance policies on the lives of such individuals may not be adequate to
compensate the Company for the loss of any of such individuals. The loss of
the services of any one or more of such persons may have a material adverse
effect on the Company. See "Executive Compensation -- Employment Agreements."
The Company's future success will depend in large part upon its ability to
attract and retain skilled scientific, management, operational and marketing
personnel. Prior to this Offering, the Company has not had any employees or
personnel whose responsibilities for the Company were focused primarily on
sales or marketing. The Company faces competition for hiring such personnel
from other companies, government entities and other organizations. There can
be no assurance that the Company will continue to be successful in attracting
and retaining such personnel. See "Use of Proceeds," "Management" and
"Executive Compensation."
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GOVERNMENT REGULATION
The Company and its customers may be required to comply with a number of
federal, state and local laws and regulations in the areas of safety, health
and environmental controls, including without limitation, the Resource
Conservation and Recovery Act, as amended ("RCRA"), and the Occupational
Safety and Health Act of 1970 ("OSHA"), which may require the Company, its
prospective working partners or its customers to obtain permits or approvals
to utilize CST and related equipment on certain job sites. In addition, if,
as and when the Company begins to market CST internationally, the Company may
be required to comply with laws and regulations and obtain permits or
approvals in those other countries. There is no assurance that such required
permits and approvals will be obtained. Furthermore, particularly in the
environmental remediation market, the Company may be required to conduct
performance and operating studies to assure government agencies that CST and
its by-products do not pose environmental risks. There is no assurance that
such studies, if successful, will not be more costly or time-consuming than
anticipated. Further, if new environmental legislation or regulations are
enacted or existing legislation or regulations are amended, or are
interpreted or enforced differently, the Company, its prospective working
partners and/or its customers may be required to meet stricter standards of
operation and/or obtain additional operating permits or approvals. There can
be no assurance that the Company will meet all of the applicable regulatory
requirements. Failure to obtain such permits, or otherwise to comply with
such regulatory requirements, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
CONTROL BY PRINCIPAL STOCKHOLDER
Commodore is currently the sole stockholder of the Company and, after
completion of this Offering, will own 75% of the outstanding Common Stock of
the Company (71.3% if the Underwriters' Over-allotment Option is exercised in
full). In addition, a significant asset of Commodore is its 69.3% common
stock ownership of Commodore Applied Technologies, Inc. ("Applied"), which is
traded on the AMEX. Accordingly, events or circumstances having an adverse
effect on Commodore or Applied could have an adverse effect on the market
prices of the Securities.
Bentley J. Blum, a Director of the Company, beneficially owns, directly
and through entities controlled by him, approximately 52.2% of the
outstanding common stock of Commodore. Paul E. Hannesson, the Chairman of the
Board of the Company, beneficially owns approximately 9.1% of the outstanding
Commodore common stock. Accordingly, through his beneficial ownership of a
controlling stock interest in Commodore, Mr. Blum will be able to control the
voting of Commodore's shares at all meetings of stockholders of the Company
and, because the Common Stock does not have cumulative voting rights, will be
able to determine the outcome of the election of all of the Company's
directors and determine corporate and stockholder action on other matters.
See "Management," "Principal Stockholders" and "Certain Relationships and
Related Transactions."
RISK OF PRODUCT LIABILITY
The Company proposes initially to distribute CST equipment and, upon
completion of its proposed Atlanta facility, to manufacture all or a
substantial portion of that equipment. The equipment will be utilized in a
variety of industrial and other settings, and will be used to handle
materials through pressurized and chemical processes. Accordingly, the
equipment will be subject to risks of breakdowns and malfunctions, and there
exists the possibility of claims for personal injury and business losses
arising out of such breakdowns and malfunctions. There can be no assurance
that the Company's product liability insurance will provide coverage against
all claims, and claims may be made against the Company (even if covered by
the Company's insurance policy) for amounts substantially in excess of
applicable policy limits. Any such event could have a material adverse effect
on the Company's business, financial condition and results of operations.
BROAD DISCRETION IN APPLICATION OF PROCEEDS
Approximately 32.8% of the net proceeds of this Offering has been
allocated for working capital and general corporate purposes. In addition,
approximately 4.8% of the net proceeds of this Offering has been allocated
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for proposed collaborative ventures for which the Company has no binding
agreements as of the date of this Prospectus. Accordingly, the Company will
have broad discretion as to the application of a significant portion of the
net proceeds of this Offering. See "Use of Proceeds."
BENEFIT TO RELATED PARTIES
In the event that the Over-allotment Option is exercised (in whole or in
part) with respect to shares of Common Stock, such additional shares will be
sold to the Underwriters by Commodore, which will be entitled to retain all
net proceeds from any such sale. Accordingly, the Company's existing
stockholder may directly benefit from the sale of the Securities offered
hereby. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions."
DILUTION
Purchasers of shares of Common Stock in this Offering will experience an
immediate and substantial dilution of $5.44 per share (based on an assumed
initial public offering price of $7.00 per share in this Offering), or
approximately 77.7%, in the net tangible book value of the shares of Common
Stock purchased by them in this Offering. Additional dilution to future net
tangible book value per share may occur upon exercise of outstanding stock
options and warrants (including the Warrants and the Representative's
Warrants) and may occur, in addition, if the Company issues additional equity
securities in the future. Commodore acquired its shares of Common Stock for
cash consideration which was substantially less than the initial public
offering price of the shares of Common Stock offered hereby. As a result, new
investors will bear substantially all of the risks inherent in an investment
in the Company. See "Dilution" and "Certain Relationships and Related
Transactions."
NO DIVIDENDS
The Company has never paid any dividends on its Common Stock, and has no
plans to pay dividends on its Common Stock in the foreseeable future. See
"Dividend Policy."
POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF SECURITIES FROM FUTURE SALES OF
COMMON STOCK
Future sales of Common Stock by Commodore or other stockholders (including
option holders) under Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"), or through the exercise of the Warrants or outstanding
registration rights granted to the holders of the Representative's Warrants,
could have an adverse effect on the market prices of the Securities. The
Company and Commodore, as well as all holders of outstanding securities
exercisable for or convertible into Common Stock, have agreed not to,
directly or indirectly, issue, agree or offer to sell, sell, transfer,
assign, distribute, grant an option for purchase or sale of, pledge,
hypothecate or otherwise encumber or dispose of any beneficial interest in
such securities for a period of 13 months following the date of this
Prospectus without the prior written consent of the Representative. Sales of
substantial amounts of Common Stock or the perception that such sales could
occur could adversely affect prevailing market prices for the Common Stock
and/or the Warrants. See "Shares Eligible For Future Sale."
POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF SECURITIES AS A RESULT OF
COMMODORE COMMON STOCK PRICE
As of the date of this Prospectus, there are an aggregate of approximately
57,924,000 shares of common stock of Commodore issued and outstanding, of
which approximately 16,000,000 shares are publicly held. Commodore's common
stock trades in the over-the-counter market and is quoted on the OTC Bulletin
Board of the National Association of Securities Dealers, Inc. On November 1,
1996, the closing bid price of Commodore common stock was $1.15 per share.
The prevailing per share trading price of Commodore common stock may have a
direct impact on the future trading price of the Common Stock, especially
since the approximately $66,612,600 market capitalization of Commodore at
November 1, 1996 is less than the approximately $105,000,000 market
capitalization of Commodore's interest in the Company (based on an assumed
initial public offering price of $7.00 per share in this Offering). In
addition, potential negative developments affecting Commodore, which may be
unrelated to the Company's business, may adversely affect the market value of
the Securities.
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NO ASSURANCE OF PUBLIC TRADING MARKET; ARBITRARY DETERMINATION OF PUBLIC
OFFERING PRICE; POSSIBLE VOLATILITY OF COMMON STOCK AND WARRANT PRICES
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that an active trading
market for any of the Securities will develop or, if developed, be sustained
after the Offering. The initial public offering prices of the Securities
offered hereby and the terms of the Warrants have been arbitrarily determined
by negotiations between the Company and the Representative, and do not
necessarily bear any relationship to the Company's assets, book value,
results of operations or any other generally accepted criteria of value. See
"Underwriting."
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performances of
specific companies. Announcements of new technologies and changing policies
and regulations of the federal government and state governments and other
external factors, as well as potential fluctuations in the Company's
financial results, may have a significant impact on the prices of the
Securities.
CERTAIN ANTI-TAKEOVER PROVISIONS AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
OF SECURITIES FROM ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation and By-laws contain certain
provisions that could have the effect of delaying or preventing a change of
control of the Company, which could limit the ability of security holders to
dispose of their Common Stock and/or Warrants in such transactions. The
Certificate of Incorporation authorizes the Board of Directors to issue one
or more series of preferred stock without stockholder approval. Such
preferred stock could have voting and conversion rights that adversely affect
the voting power of the holders of Common Stock, or could result in one or
more classes of outstanding securities that would have dividend, liquidation
or other rights superior to those of the Common Stock. Issuance of such
preferred stock may have an adverse effect on the then prevailing market
price of the Common Stock and Warrants. Additionally, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. Section 203 could have the effect of delaying or preventing a change
of control of the Company. See "Description of Securities -- Preferred Stock"
and "-- Section 203 of the Delaware Law."
SPECULATIVE NATURE OF THE WARRANTS; POSSIBLE REDEMPTION OF WARRANTS
The Warrants do not confer any rights of Common Stock ownership on their
holders, such as voting rights or the right to receive dividends, but merely
represent the right to acquire shares of Common Stock at a fixed price for a
limited period of time. Specifically, commencing one year after the date of
this Prospectus, holders of the Warrants may exercise their right to acquire
Common Stock and pay an exercise price of $ per share [140% of the initial
offering price per share of Common Stock], subject to adjustment upon the
occurrence of certain dilutive events, until five years after the date of
this Prospectus, after which date any unexercised Warrants will expire and
have no further value. Moreover, following the completion of this Offering,
the market value of the Warrants is uncertain and there can be no assurance
that the market value of the Warrants will equal or exceed their initial
public offering price. There can be no assurance that the market price of the
Common Stock will ever equal or exceed the exercise price of the Warrants,
and consequently, whether it will ever be profitable for holders of the
Warrants to exercise the Warrants.
Commencing 18 months after the date of this Prospectus, the Warrants are
subject to redemption at $.10 per Warrant on 30 days' prior written notice
provided that the average closing sale price of the Common Stock as reported
on the AMEX equals or exceeds $ per share [300% of the initial public
offering price of the Common Stock] for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the
date of the notice of redemption. If the Warrants are redeemed, holders of
the Warrants will lose their right to exercise the Warrants after the
expiration of the 30-day notice period. Upon receipt of a notice of
redemption, holders would be required to: (i) exercise the Warrants and pay
the exercise price at a time when it may be disadvantageous for them to do
so, (ii) sell the Warrants at the then-prevailing market price, if any,
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when they might otherwise wish to hold the Warrants, or (iii) accept the
redemption price which is likely to be substantially less than the market
value of the Warrants at the time of redemption. In the event that holders of
the Warrants elect not to exercise their Warrants upon notice of redemption,
the unexercised Warrants will be redeemed prior to exercise, and the holders
thereof will lose the benefit of the appreciated market price of the
Warrants, if any, and/or the difference between the market price of the
underlying Common Stock as of such date and the exercise price of such
Warrants, as well as any possible future price appreciation in the Common
Stock. See "Description of Securities -- Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities or "blue sky" laws of the state
of residence of the exercising holder of the Warrants. There can be no
assurance that the Company will be able to have all of the shares of Common
Stock issuable upon exercise of the Warrants registered or qualified on or
before the exercise date and to maintain a current prospectus relating
thereto until the expiration of the Warrants. The value of the Warrants may
be greatly reduced if a current prospectus covering the Common Stock issuable
upon the exercise of the Warrants is not kept effective or if such Common
Stock is not qualified or exempt from qualification in the states in which
the holders of the Warrants reside. Until completion of this Offering, the
Common Stock and the Warrants may only be purchased together on the basis of
one share of Common Stock and one Warrant, but the Warrants will be
separately tradeable immediately after this Offering. In the event investors
purchase the Warrants in the secondary market or move to a jurisdiction in
which the shares underlying the Warrants are not registered or qualified
during the period that the Warrants are exercisable, the Company will be
unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in
such jurisdictions, and holders of the Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible
or allow them to expire unexercised. See "Description of Securities --
Warrants."
LIMITED UNDERWRITING HISTORY
The Representative has participated in only ten public offerings as an
underwriter in the last five years. In evaluating an investment in the
Company, prospective investors in the Securities offered hereby should
consider the Representative's limited experience. See "Underwriting."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby (assuming an initial public offering price of $7.00 per share and $.10
per Warrant), after deduction of underwriting discounts and other estimated
offering expenses, are estimated to be approximately $31,220,000
(approximately $31,286,750 if the Over-allotment Option is exercised in
full). The Company intends to utilize such net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Dollar Amount Net Proceeds
--------------- ---------------
<S> <C> <C>
Purchase of initial CST inventory (1) ............ $ 6,000,000 19.2%
Ongoing development costs (2) .................... 5,500,000 17.6
Acquisition of manufacturing equipment (3) ....... 5,000,000 16.0
Establishment of Atlanta facility (4) ............ 3,000,000 9.6
Funding of proposed collaborative arrangements (5) 1,500,000 4.8
Working capital and general corporate purposes (6) 10,220,000 32.8
--------------- ---------------
Total ......................................... $31,220,000 100.0%
=============== ===============
</TABLE>
- ------
(1) Consists of costs anticipated to be incurred in connection with
purchasing up to 100 initial CST modules to be available for installation
at customer sites.
(2) Includes the hiring of additional personnel (including marketing
personnel) and the costs associated with conducting ongoing tests,
demonstrations and enhancements of CST. See "Business -- Research and
Development."
(3) Consists of costs anticipated to be incurred in connection with
purchasing the equipment necessary to manufacture the modules and produce
the proprietary chemicals used in CST.
(4) Consists of costs anticipated to be incurred in connection with locating,
leasing and equipping a new facility of approximately 35,000 square feet
in or around Atlanta, Georgia, which would comprise the Company's
executive and administrative offices, research and testing laboratories,
and CST manufacturing plant. The Company is currently in the process of
selecting a suitable site for such facility. See "Business -- Proposed
Manufacturing Operations" and "-- Properties."
(5) Expenditures in respect of collaborative arrangements will include
salaries and benefits of personnel, equipment design and procurement
costs, costs of leasing or otherwise obtaining additional operating
facilities, analytical and other testing costs, professional fees,
insurance and other administrative expenses. In each arrangement,
personnel expenses may be expected to account for at least 50% of the
costs of each collaborative arrangement, and equipment costs are likely
to constitute the next largest component of expenditures. As of the date
of this Prospectus, the Company has not determined the amount of net
proceeds of this Offering to be applied to any one particular proposed
collaborative arrangement because the Company is currently in
negotiations with a number of companies involving, among other issues,
the level of its proposed funding commitment. The estimated allocation of
the net proceeds for funding of proposed collaborative arrangements is on
an aggregate basis. In addition, in the event a definitive agreement is
not entered into by the Company and Teledyne Brown or Sverdrup,
respectively, on or before February 28, 1997, such memorandum of
understanding may be terminated by either company upon written notice.
See "Risk Factors -- No Assurance of Collaborative Agreements or Project
Awards" and "Business -- Collaborative Working Arrangements."
(6) Working capital and general corporate purposes include amounts required
to pay officers' salaries, professional fees, ongoing public reporting
costs, office-related expenses and other corporate expenses, including
interest and overhead. Any additional net proceeds received from the
exercise of the Over-allotment Option with respect to the Warrants, if
any, will be used for working capital and general corporate purposes. Any
additional net proceeds received from the exercise of the Over-allotment
Option with respect to shares of Common Stock sold by Commodore, if any,
will be retained by Commodore.
15
<PAGE>
The Company believes that the net proceeds of this Offering will be
sufficient to meet its cash, operational and liquidity requirements for a
minimum of 18 months after the date of this Prospectus. While the initial
allocation of the net proceeds of this Offering represents the Company's best
estimates of their use, the amounts actually expended for these purposes may
vary significantly from the specific allocation of the net proceeds set forth
above, depending on numerous factors, including changes in the general
economic and/or regulatory climate, and the progress and market acceptance of
the Company's technology. See "Risk Factors -- Broad Discretion in
Application of Proceeds." However, there can be no assurance that the net
proceeds of the Offering will satisfy the Company's requirements for any
particular period of time. The Company anticipates that, after 18 months from
the receipt of the net proceeds of this Offering, additional funding may be
needed. No assurance can be given that such additional financing will be
available on terms acceptable to the Company, if at all. See "Risk Factors --
Potential Need for Additional Financing." Pending specific allocation of the
net proceeds of this Offering, the net proceeds will be invested in
short-term, investment grade, interest-bearing obligations.
CAPITALIZATION
The following table sets forth the capitalization of the Company (a) as of
September 30, 1996, (b) pro forma giving effect to the Commodore
Contribution, and (c) pro forma, as adjusted giving effect to the Commodore
Contribution and the sale by the Company of the Securities offered hereby (at
an assumed initial public offering price of $7.00 per share and $.10 per
Warrant) and the initial application of the estimated net proceeds therefrom.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of Securities." This table should be read in conjunction with
the Company's Financial Statements and the notes thereto which are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------
Pro Forma,
Actual Pro Forma as Adjusted
------------ ----------- -------------
<S> <C> <C> <C>
Short-term debt to principal stockholder ..... $ 408,000 $ 0 $ 0
============ =========== =============
Stockholders' equity:
Preferred Stock, $.001 per value;
authorized 5,000,000 shares; no shares
issued and outstanding; no shares
issued and outstanding, as adjusted ... -- -- --
Common Stock, $.001 par value; authorized
50,000,000 shares; 15,000,000 shares
issued and outstanding; 20,000,000
shares issued and outstanding, as
adjusted .............................. $ 15,000 $ 15,000 $ 20,000
Subscription receivable ................. -- -- --
Additional paid-in capital .............. 0 408,000 31,623,000
Accumulated deficit ..................... (351,631) (351,631) (351,631)
------------ ----------- -------------
Total stockholders' equity (deficit) ......... $(336,631) $ 71,369 $31,291,369
------------ ----------- -------------
Total capitalization ..................... $(336,631) $ 71,369 $31,291,369
============ =========== =============
</TABLE>
16
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends, and does not intend
to pay any dividends in the foreseeable future on its shares of Common Stock.
Earnings of the Company, if any, are expected to be retained for use in
expanding the Company's business. The payment of dividends is within the
discretion of the Board of Directors of the Company and will depend upon the
Company's earnings, if any, capital requirements, financial condition and
such other factors as are considered to be relevant by the Board of Directors
from time to time.
DILUTION
At September 30, 1996, the Company's negative net tangible book value was
$(428,635), or $(.03) per share of Common Stock. The net tangible book value
of the Company is the tangible assets less total liabilities. After giving
effect to the contribution by Commodore to the equity of the Company of a
total of $408,000 (representing the conversion of short-term debt payable to
Commodore by the Company) prior to the completion of this Offering, the sale
by the Company of the Securities offered hereby (assuming an initial public
offering price of $7.00 per share and $.10 per Warrant) and the initial
application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of September 30, 1996 would have been
approximately $31,199,395, or $1.56 per share. This represents an increase in
net tangible book value per share of $1.59 to the Company's existing
stockholders and an immediate dilution of $5.44 per share to new stockholders
purchasing Common Stock in this Offering. The following table illustrates
this dilution on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share .............. $7.00
Negative net tangible book value per share before the
Offering .............................................. $(0.03)
Increase per share attributable to payments by new
stockholders .......................................... $ 1.59
---------
Pro forma net tangible book value per share after the Offering $1.56
-------
Dilution per share to new stockholders ....................... $5.44
=======
</TABLE>
In the event the Over-allotment Option is exercised in full, the net
tangible book value at September 30, 1996 would have been approximately
$31,266,115 and the dilution of net tangible book value per share to new
stockholders would have remained approximately $5.44. In the event the
Over-allotment Option is exercised in full, (i) 750,000 additional shares of
Common Stock will be sold to the Underwriters by Commodore, which will be
entitled to retain the entire net proceeds from any such sale, thus having no
effect on dilution, and (ii) 750,000 additional Warrants will be sold to the
Underwriters by the Company, which will have the effect of increasing the
Company's net tangible book value by $66,750.
The following table sets forth on a pro forma basis the number of shares
of Common Stock purchased from the Company by its existing stockholder, the
number of shares of Common Stock to be purchased by investors in this
Offering at an assumed initial public offering price of $7.00 per share, the
total consideration paid and to be paid to the Company, and the average price
paid per share.
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration per Share
------------------------- --------------------------- ---------------
Number Percent Amount Percent
------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
New investors ...... 5,000,000 25.0% $35,000,000(1) 98.8% $7.00
Existing stockholder 15,000,000 75.0% 423,000(2) 1.2% $ .03
------------ --------- -------------- ---------
Total ........... 20,000,000 100.0% $ 35,423,000 100.0%
============ ========= ============== =========
</TABLE>
- ------
(1) Attributes no value to the Warrants.
(2) See "Certain Relationships and Related Transactions -- Organization and
Capitalization of the Company" and Note 1 of Notes to Financial
Statements. For these purposes, no value is attributed to the shares of
common stock of Commodore issued by Commodore to enable the Company to
acquire certain intellectual property rights relating to CST from
Srinivas Kilambi, Ph.D., the Company's Vice President - Technology. See
"Business -- Intellectual Property."
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data included in the following table as of June 30,
1996 and for the period from November 15, 1995 (date of inception) to June
30, 1996 are derived from the audited Financial Statements appearing
elsewhere herein. The selected financial data as of September 30, 1996, for
the three months then ended and for the period from November 15, 1995 (date
of inception) to September 30, 1996 are unaudited and, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such data. Financial data
for the periods through September 30, 1996 are not necessarily indicative of
the results of operations to be expected for the Company's fiscal year ending
December 31, 1996. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and notes thereto appearing
elsewhere herein.
<TABLE>
<CAPTION>
November 15, 1995 Three Months November 15, 1995
(date of inception) Ended (date of inception)
Statement of Operations Data:(1) to June 30, 1996 September 30, 1996 to September 30, 1996
----------------- ------------------ ---------------------
<S> <C> <C> <C>
Revenue ...................... $ 0 $ 7,758 $ 7,758
----------------- ------------------ ----------------
Costs and expenses:
Research and development ... 50,080 165,280 215,360
General and administrative . 9,720 128,307 138,027
Amortization. .............. 101 266 367
----------------- ------------------ ----------------
Loss before interest and taxes (59,901) (286,095) (345,996)
Interest expense ............. 1,035 4,600 5,635
----------------- ------------------ ----------------
Net loss ..................... (60,936) (290,695) (351,631)
================= ================== ================
Net loss per share(2) ........ -- (3) (.02) (.02)
================= ================== ================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1996
--------------- ---------------------------------------------
Pro Forma,
Balance Sheet Data: Actual Pro Forma(4) as Adjusted(5)
------------ ------------ --------------
<S> <C> <C> <C> <C>
Working capital (deficit) .................. $(81,630) $(524,765) $(116,765) $31,103,235
Total assets ............................... 23,327 329,193 329,193 31,549,193
Total current liabilities .................. 84,163 665,824 257,824 257,824
Deficit accumulated during development stage (60,936) (351,631) (351,631) (351,631)
Stockholders' equity (deficit) ............. (60,836) (336,631) 71,369 31,291,369
</TABLE>
- ------
(1) The Company is in the development stage, and has had no commercial
operations to date. See Note 1 of Notes to Financial Statements.
(2) Net loss per share is calculated on the basis of 15,000,000 shares of
Common Stock being outstanding for the period presented. See Note 1 of
Notes to Financial Statements.
(3) Less than $.01 per share of Common Stock.
(4) Gives effect on a pro forma basis to the Commodore Contribution. See
"Capitalization."
(5) Gives effect on a pro forma, as adjusted basis to (i) the Commodore
Contribution and (ii) the sale by the Company of the Securities offered
hereby at an assumed initial public offering price of $7.00 per share and
$.10 per Warrant and the initial application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Certain Relationships and
Related Transactions."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
below.
GENERAL
The Company was organized in November 1995 and has had no commercial
operations to date. Since its inception, the Company has been engaged
principally in organizational activities, including developing a strategic
operating plan, entering into contracts, hiring personnel, developing test
modules and installing and operating modules on a limited basis for
demonstration or test purposes. Accordingly, the Company has no relevant
operating history upon which an evaluation of its performance and prospects
can be made. The Company is subject to all of the business risks associated
with a new enterprise, including, but not limited to, risks of unforeseen
capital requirements, failure of market acceptance, failure to establish
business relationships, and competitive disadvantages as against larger and
more established companies. The report of the independent auditors with
respect to the Company's financial statements included in this Prospectus
includes a "going concern" qualification, indicating that the Company's
significant losses and deficits in working capital and stockholders' equity
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company has generated nominal revenues to date, and will not generate
any material revenues until after the Company successfully completes the
installation of modules in a significant number of industrial companies, of
which no assurance can be given. During the period from November 15, 1995
(date of inception) to June 30, 1996, the Company incurred a net loss of
$(60,936). From July 1, 1996 to September 30, 1996, the Company incurred
additional operating losses of $(290,695), and anticipates that it may
continue to incur significant operating losses for the foreseeable future.
There can be no assurance as to whether or when the Company will generate
material revenues or achieve profitable operations. See "Business" and
Financial Statements.
DEPENDENCE ON SUPPLIERS
The Company has not to date conducted any manufacturing operations, but
has relied on unaffiliated suppliers to provide chemicals, fibers, membrane
casings and other materials and components utilized in CST. The Company has
not previously experienced any delays or difficulties in obtaining any of
these items, although there can be no assurance that such difficulties may
not be encountered in the future. The Company has allocated a portion of the
net proceeds of this Offering to the establishment of a facility in Atlanta,
part of which will be dedicated to operations related to the manufacturing of
chemicals, fibers, membrance casings and other materials and components
utilized in CST. See "Risk Factors -- Dependence on Strategic Components" and
"Use of Proceeds."
LIQUIDITY AND CAPITAL RESOURCES
The Company has to date financed its development efforts through direct
equity investments and loans from Commodore. From November 15, 1995 (date of
inception) to September 30, 1996, the Company has purchased or constructed
equipment totalling $171,982 and has incurred patent filing and maintenance
costs of $18,078. As of September 30, 1996, the Company's aggregate
indebtedness to Commodore was $408,000. As of October 16, 1996, $200,000 in
additional funds have been advanced by Commodore to the Company. Commodore
has agreed to contribute the entire amount of such intercompany debt to the
Company's equity. In the event that the Over-allotment Option is exercised
(in whole or in part) with respect to shares of Common Stock, such additional
shares will be sold to the Underwriters by Commodore, which will be entitled
to retain the entire net proceeds from any such sale. See "Underwriting."
19
<PAGE>
The Company has sustained losses of $(290,695) and $(60,936) for the three
month period ended September 30, 1996 and for the period from November 15,
1995 (date of inception) to June 30, 1996, respectively. The Company had no
revenues during the period from November 15, 1995 (date of inception) to June
30, 1996 and had revenues of $7,758 for the three-month period ended
September 30, 1996 as a result of billings from the Port of Baltimore field
test of the CST process. Substantially all of the Company's losses are
attributable to the expenses detailed above. At September 30, 1996 and June
30, 1996, the Company had working capital deficits of $(524,765) and
$(81,630), respectively, and stockholders' deficits of $(336,631) and
$(60,836), respectively. The Company has received significant advances in
working capital from Commodore which has allowed it to continue its
operations. There can be no assurance that it will continue to receive such
financial assistance.
The Company believes that the net proceeds of the Offering will be
sufficient to meet its cash, operational and liquidity requirements for a
minimum of 18 months after the date of this Prospectus.
The Company has allocated $1,500,000 of the net proceeds of this Offering
for the funding of proposed collaborative arrangements. These costs include,
but are not limited to, salaries and benefits of personnel, equipment design
and procurement costs, cost of leasing or otherwise obtaining additional
operating facilities, analytical and other testing costs, professional fees,
insurance and other administrative expenses. As of the date of this
Prospectus, the Company has not determined the amount of net proceeds of this
Offering to be applied to any one particular proposed collaborative
arrangement because the Company is currently in negotiations with a number of
companies involving, among other issues, the level of its proposed funding
commitment. The estimated allocation of the net proceeds for funding of
proposed collaborative arrangements is on an aggregate basis. In addition, in
the event a definitive agreement is not entered into by the Company and
Teledyne Brown or Sverdrup, respectively, on or before February 28, 1997,
such memorandum of understanding may be terminated by either company upon
written notice. See "Risk Factors -- No Assurance of Collaborative Agreements
or Project Awards," "Use of Proceeds" and "Business -- Collaborative Working
Arrangements."
After this Offering, the Company intends to lease a new facility of
approximately 35,000 square feet in or around Atlanta, Georgia, which would
comprise the Company's executive and administrative offices, research and
testing laboratories and CST manufacturing plant. The Company is currently in
the process of selecting a suitable site for such facility. It is anticipated
that $3,000,000 of the net proceeds of this Offering will be required with
respect to leasing such facility and related leasehold improvements.
Additionally, it is anticipated that $5,000,000 of the net proceeds of this
Offering will be required to purchase the equipment necessary to manufacture
the modules and produce the proprietary chemicals used in CST. Prior to the
Company's facility becoming operational for manufacturing, the Company
anticipates spending approximately $6,000,000 of the net proceeds of this
Offering to purchase CST inventory (or assembled components therefor) for use
in connection with initial demonstrations and/or installations of CST at
customer sites. The Company is continuing to further the development of CST
through additional testing, demonstrations and enhancements which will
require the hiring of additional personnel and additional research and
development costs. See "Use of Proceeds" and "Business -- Proposed
Manufacturing Operations" and "Properties."
Pursuant to an assignment of technology agreement between the Company and
Srinivas Kilambi, Ph.D., the Company's Vice President-Technology, the Company
agreed to pay Dr. Kilambi a royalty through December 3, 2002 equal to 2% of
the Company's revenues actually received and attributed to the commercial
application of the technology acquired from Dr. Kilambi. Payment of such
royalty to Dr. Kilambi is based on Company revenues and is not related to or
contingent upon the Company attaining profitability or positive cash flow. As
a result, such payment will adversely affect operating results and divert
cash resources from use in the Company's business, and possibly at times when
the Company's liquidity and access to funding may be limited. See "Business
- -- Intellectual Property" and "Certain Relationships and Related Transactions
- -- Organization and Capitalization of the Company."
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standard Statement No. 121, "Accounting for Long Lived
Assets" and No. 123 "Accounting and Disclosure of Stock-Based Compensation."
Statement No. 121 is effective for years beginning after December 15, 1995.
The effect of
20
<PAGE>
adoption of Statement No. 121 will not have a material effect on the
Company's financial statements. Statement No 123 is effective for years
beginning after December 15, 1995. The effect of adoption of Statement No.
123 is not expected to have a material effect on the Company's financial
statements as the Company has adopted only the disclosure requirements of
Statement No. 123.
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards of approximately
$119,000, which expire in the year 2011. The amount of net operating loss
carryforward that can be used in any one year will be limited by the
applicable tax laws which are in effect at the time such carryforward can be
utilized. A valuation allowance of $119,000 has been established to offset
any benefit from the net operating loss carryforward as it cannot be
determined when or if the Company will be able to utilize the net operating
losses.
BUSINESS
GENERAL
The Company is a process technology company which has developed and
intends to commercialize its separation technology and recovery system, known
as CST. Based on the results of more than 100 laboratory tests, one
significant field test and one commercial scale installation at a metal
plating company to date, the Company believes that CST is capable of
effectively separating and extracting various solubilized materials,
including metals, organic chemicals, biochemicals, radionuclides and other
targeted substances, from liquid and gaseous process streams.
Industrial companies create liquid and gaseous mixed process streams in
the course of their manufacturing and product development activities which
frequently require costly treatment and disposal to comply with regulatory
requirements. These process streams often contain valuable materials which
can be reused if they can be extracted in a sufficient concentration and
degree of purity. The Company believes that application of CST in these
industries can substantially reduce disposal costs for certain of these
manufacturing process streams, and can enable the recovery and reuse of
metals and other valuable materials. The Company also believes that CST can
be utilized for environmental remediation and restoration in the clean-up of
harbors and groundwater, and in the decontamination of nuclear sites.
CST is an advanced form of membrane separation technology, in which a
contaminated liquid or gaseous feedstream is injected into a Company-designed
fibrous membrane unit or module. This module is continuously fed with a
recycled stream of proprietary chemical solution whose composition will vary
depending on the types and concentrations of compounds in the feedstream. As
the feedstream enters the membrane unit, the metal or other substance to be
extracted reacts with the proprietary chemical solution in the membrane, and
the metallic or other ions are extracted through the membrane into a strip
solution which is concentrated and gathered in a separate storage container.
The balance of the feedstream is either recycled or simply discharged as
normal effluent. In some instances, additional treatment may be required
prior to disposal, or disposal may need to be made in a regulated manner. The
Company believes that CST can be utilized for the separation and recovery of
chrome, chromium, cadmium, silver, mercury, platinum, lead, zinc, nickel,
trichlorethylene, polychlorinated biphenyls, methylene chloride, amino acids,
antibiotics, radionuclides, and other organic and inorganic substances.
CST possesses operational characteristics distinguishable from other
existing forms of membrane filtration technology in that it:
o requires low initial capital costs, as well as low operating costs;
o is environmentally safe, in most instances producing no sludges or
other harmful by-products which would require additional post-treatment
prior to ultimate disposal;
o can selectively extract specific target substances, while extracting
substantially fewer unwanted substances;
o can typically operate in less than 40 square feet of space for the
entire system;
o has the capability of treating a wide variety of elements and compounds
in a wide variety of industrial settings, and doing so at great speed
and with a high degree of effectiveness regardless of particle size,
volume requirements and other variables;
21
<PAGE>
o can extract metals, organic chemicals and other elements and compounds
in a sufficient concentration and degree of purity to permit their
ready reuse; and
o has the capability, in a single process application, of selectively
extracting multiple elements or compounds from a mixed process stream.
The Company has conducted more than 100 tests of CST in the laboratory,
one significant test in the field and one commercial scale installation at a
metal plating company. In laboratory testing, CST has been shown to
substantially reduce contamination levels in a variety of process streams,
including process streams containing nickel, chromium, phenols,
phenylalanine, cesium and nitrates, in most instances yielding a reacted
process stream capable of disposal with little or no further treatment
required, and reusable materials of sufficient quantity and purity as to
economically permit their reuse. Other than with respect to the Company's
tests involving the separation and recovery of zinc, nickel and chromium, as
discussed below, no other tests have been independently verified.
In August 1996, the Company completed an on-site demonstration of CST for
the decontamination of chromium-contaminated groundwater in the Port of
Baltimore, Maryland. During this demonstration, a single CST unit, in a
single pass-through of feedstream, reduced the contamination level from more
than 400 parts per million (ppm) to less than one ppm. The results of this
test were verified by Artesian Laboratories, Inc., an independent testing
laboratory. The Company believes that, based on management studies and
discussions with metals industry executives, CST is the only technology
capable of on-site chromium removal and recovery that enables effluent
discharge without post-treatment.
In September 1996, the Company installed a commercial scale CST unit
on-line at a Columbus, Ohio metal plating company. DLZ Laboratories, Inc., an
independent testing laboratory, verified that the CST unit processed the
initial batch of process effluent stream and reduced nickel and zinc
contamination from 900 ppm to 2 ppm in one hour. The Company has continued to
operate this CST unit to process nickel and zinc effluent streams containing
concentrations of 200 to 400 ppm, and the unit has consistently reduced the
contaminant levels to 1 to 5 ppm. The decontaminated process effluent stream
is being recycled into the plating line rinse tanks, saving the plating
company its normal consumption of make-up water at a rate of five gallons per
minute. The recovered nickel and zinc solution is currently being analyzed by
the plating company for reuse in its plating operations.
The Company will market CST directly to a variety of domestic and
international industries, particularly those engaged in metallurgical
processing and metal plating, which generate a substantial volume of mixed
metal process streams, and to gas separation, organic chemicals and
biochemical companies, which produce or utilize substantial volumes of liquid
or gaseous mixed process streams. Federal, state and local government
entities are also a potential market for the Company, with penetration into
this area having already begun with test projects for the Port of Baltimore
and on Cape Cod, Massachusetts.
The Company may also develop collaborative joint working and marketing
arrangements with companies that have a significant presence in
well-established industries or markets. Such arrangements, for example, may
be expected to focus on obtaining environmental remediation projects,
including clean-up of harbors, groundwater and nuclear sites. Although the
Company has entered into memorandums of understanding for potential working
arrangements with Teledyne Brown and Sverdrup, and is bidding on certain
projects, there can be no assurance that any of these activities will result
in definitive collaborative agreements or project awards. Even if contracts
are awarded to the Company, CST has never been utilized on a large-scale
basis, and there is no assurance that this technology will perform
successfully on a large-scale commercial basis, or that it will be profitable
to the Company. There can also be no assurance that this technology will not
be superseded by other competing technologies.
MARKET OVERVIEW
Based on market data compiled by the Company, the Company estimates that,
as of August 1, 1996, there were approximately 7,500 companies operating
metal plating and metal finishing facilities in the United States, and an
additional 1,500 such facilities in Canada. Based on estimated sales by these
facilities, the Company believes that on average each of these facilities
could utilize four to ten CST membrane units. The Company
22
<PAGE>
estimates that, as of such date, there were approximately 50 companies in the
United States involved in industrial gas separation, and based on these
companies' estimated sales, the Company believes that on average each of
these companies could utilize two to four membrane units operating at
significant volumes. Further, as of August 1, 1996, based on market data
compiled by the Company, the potential market from organic chemical companies
is in excess of 10,000 companies in the United States. Based on these
companies' estimated sales, the Company believes that on average each of
these companies could utilize two to four membrane units operating at
significant volumes. Additionally, as of such date, there were more than
5,000 biochemical, bulk drug manufacturing and pharmaceutical companies
operating in the United States and Canada, and based on these companies'
estimated sales, the Company believes that on average the typical such
company could utilize two to four membrane units operating at substantial
volumes. The Company believes that the potential international market for
each of the above applications could be twice the size of the North American
market. Federal, state and local government entities are also a potential
market for the Company, particularly in the area of environmental remediation
and clean-up.
As with any new technology or process, or a significant advancement of an
existing technology or process, there may be initial resistance to the use of
CST on a large scale, and certain prospective projects for the Company may
have already been committed to other forms of technology. In each case, the
Company expects to introduce its process on a test basis through the
introduction of sample membrane units to demonstrate the efficacy of the
technology, with the aim of full installation and/or project awards based on
the performance of the sample units.
ALTERNATIVE SEPARATION TECHNOLOGIES
Membrane separation and extraction technologies have been utilized
commercially for several decades. Prior to the development of CST, membrane
separation and extraction capabilities were broken into four subranges,
consisting of microfiltration, ultrafiltration, nanofiltration and reverse
osmosis (hyperfiltration), each distinguished and defined by the relative
particle size which the particular process was capable of separating from the
feedstream, and by whether the compounds were suspended or dissolved in the
feedstream. Existing technologies currently in use for the treatment of
solubilized feedstreams (in which the containment is dissolved, rather than
suspended, in the feedstream) include: (i) ion exchange (wherein electrically
charged ions that are electrochemically held by ion exchange resin beads are
exchanged for ions of similar charge in a solution in which the beads are
immersed), (ii) reverse osmosis (wherein solutions are desalted or
concentrated by driving them through membranes using relatively high
hydraulic pressure, resulting in contaminants being excluded or rejected by
the membranes), (iii) precipitation (wherein chemicals are used to
precipitate out the contaminants for eventual off-site disposal), (iv)
ultrafiltration (wherein moderate hydraulic pressure is used to transfer
water and low molecular weight species through a membrane while blocking
relatively large-sized contaminants such as suspended solids, colloids and
large organic molecules) and (v) chromatography (wherein mixtures are
separated into their constituents by preferential adsorption on solids).
CST
Although CST uses the same basic principles as other membrane separation
technologies, the Company believes that CST represents a significant advance
in membrane separation technology in the treatment of solubilized
feedstreams. In contrast to the five alternative separation technologies
described above, CST acts by separating and extracting the targeted
material(s) from the feedstream, rather than extracting the feedstream from
the targeted material(s). As a result, for the first time, a single process
is capable of treating a wide variety of elements and compounds in a wide
variety of industrial settings, and doing so at great speed and with a high
degree of effectiveness regardless of particle size, volume requirements and
other variables. The Company also believes that CST is the first membrane
separation technology which is capable, in a single process application, of
selectively extracting multiple elements or compounds from a mixed process
stream. The CST membrane modules can also be configured in various sizes and
numbers and for varying capacities, and operate on the manufacturing site at
ambient temperatures and pressures.
CST involves injecting a contaminated liquid or gaseous feedstream into
the Company-designed fibrous membrane unit or module. This module is
continuously fed with a recycled stream of proprietary chemical solu-
23
<PAGE>
tion whose composition will vary depending on the types of compounds in the
feedstream. As the feedstream enters the membrane unit, the metal or other
substance to be extracted reacts with the proprietary chemical solution in
the fibrous membrane, and the metallic or other ions are extracted through
the membrane into a strip solution which is concentrated and gathered in a
separate storage container. The balance of the feedstream is either recycled
or simply discharged as normal effluent. In some instances, additional
treatment may be required prior to disposal, or disposal may need to be made
in a regulated manner. The Company believes that CST can be utilized for the
separation and recovery of chrome, chromium, cadmium, silver, mercury,
platinum, lead, zinc, nickel, trichlorethylene, polychlorinated biphenyls,
methylene chloride, amino acids, antibiotics, radionuclides, and other
organic and inorganic substances.
The typical CST module is cylindrical in shape and can be situated on a
surface or in an area the size of a desktop. The module casing is constructed
of either steel or plastic (depending on the required durability for the
particular process application), and contains the microporous fiber membrane
through which the target element or compound is separated from the
contaminated feedstream. At one end of the module, there is attached a set of
pumps and tubing that feeds the contaminated feedstock from its point of
origin (such as a metal plating tank or bath) into the module. Additional
pumps and tubing are attached to feed and recycle the chemical solution which
is the active element in the membrane, and discharge tubing or piping is
attached at the other end of the module, to carry away the separated
concentrated metal solution or other compound, and the wastewater and other
non-reusable by-product. The Company plans to produce a range of modules that
will precisely conform to the customer's requirements for volume and
capacity, and thus accommodate the available space in the customer's
facility. The Company also formulates the active chemical compound for the
process in each customer application, and performs the initial installation
of the equipment at the customer site. The customer will operate the
equipment and, by computer hook-up, the Company will monitor the equipment
and process while in operation.
The following diagram illustrates how the CST module works:
INSERT CHART
------
1. Feedstream containing varied materials (e.g., metals, organics,
biochemicals and gases) to
be separated and extracted.
2. Direction of feedstream flow through module.
3. Continuous strip solution into which selected materials are extracted
and separated.
4. Original feedstream without separated materials.
24
<PAGE>
LABORATORY AND OTHER TEST RESULTS
In more than 100 laboratory tests on a small-scale basis, one field test
and one commercial scale installation at a metal plating company to date, CST
has demonstrated the ability to successfully separate a variety of metals and
other substances from liquid and gaseous process streams. In each instance,
the process stream was reduced to levels approaching federal guidelines under
the Federal Clean Water Act for the disposal of the reacted process stream as
normal wastewater effluent, and the recovered materials were of sufficient
quantity and purity as to economically permit the reuse thereof in most
commercial applications.
Test results included the following:
<TABLE>
<CAPTION>
Applicable
Material Before Treatment After Treatment Federal Guideline
------------------ -------------------- ---------------------------------------- ---------------------
<S> <C> <C> <C>
Metals:
Zinc 1,000 ppm Less than 2 ppm (after 30 minutes) Less than 2 ppm
Nickel 3,200 ppm Less than 1.6 ppm (after 30 minutes) Less than 2 ppm
Chromium 430 ppm 0.49 ppm (field test) 5 ppm
Aluminum 195 ppm 100 ppm (after 15 minutes) 30 ppm
Organics:
Phenol 10,000 ppm Less than 10 ppm Less than 30 ppm
Nitrophenol 10,000 ppm Less than 10 ppm Less than 30 ppm
Biochemicals:
Phenylalanine 5,000 ppm Less than 10 ppm Less than 30 ppm
Radionuclides:
Cesium 10 ppm Less than 5 parts per billion (ppb) Less than 10 ppb
Rhenium 5 ppm Less than 5 ppb Less than 10 ppb
Anions:
Nitrates 62,000 ppm Less than 100 ppm Less than 10 ppm
</TABLE>
All of these tests were performed on limited quantities of process
streams, and there can be no assurance that the same or similar results would
or could be obtained on a large-scale commercial basis or on any specific
project. Other than with respect to the Company's tests involving the
separation and recovery of zinc, nickel and chromium, no other tests have
been independently verified. See "Risk Factors -- Unproven on Large-Scale
Commercial Basis."
25
<PAGE>
COMPETITIVE AND OPERATIONAL ASPECTS OF CST
The following chart highlights certain of the salient differences which
the Company believes, based on the limited quantities of process streams
tested and despite the fact that only certain of the tests have been
independently verified, distinguishes CST from other membrane separation
technologies. As shown below, the Company believes that CST has substantially
broader applications than most of the other technologies, and is generally
capable of superior results in less time.
<TABLE>
<CAPTION>
CST ION EXCHANGE
--------------------------- ------------------------
<S> <C> <C>
Process Description Reaction-diffusion Ionic exchange
membrane transport
- ---------------------------------------------------------------------------------
Process Temperatures Ambient-80|SDC Ambient-80|SDC
- ---------------------------------------------------------------------------------
Process Pressure 15-20 pounds per 20-30 psi
square inch (psi)
- ---------------------------------------------------------------------------------
Target Compounds Metals, Organics, Metals, Anions
Volatile organic
compounds, Gases,
Biochemicals,
Radionuclides, Anions
- ---------------------------------------------------------------------------------
Target Metals Electroplating, Metal Electroplating,
Finishing, Petroleum, Metal Finishing
Petrochemical, Paper,
Organics, Food
Process, Biotechnology,
Textile
- ---------------------------------------------------------------------------------
Reaction Time Instantaneous 1-2 seconds
- ---------------------------------------------------------------------------------
Process Selectivity Greater than 1,000:1 Less than 70:1
(Desired:
Undesired)
- ---------------------------------------------------------------------------------
Product Recovery Greater than 99.9% Greater than 99.9%
----------------------- --------------------------- ------------------------
Loading Limitations None Operates only at
low feed velocities
- ---------------------------------------------------------------------------------
Process Speed Very high Low to medium
- ---------------------------------------------------------------------------------
Post-Treatment No Yes
Required
- ---------------------------------------------------------------------------------
Comments; Readily integrated into Readily integrated
Limitations other processes; may into other processes
need prefiltration to
remove suspened or
heavier particles
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
REVERSE
OSMOSIS/
ULTRA-
PRECIPITATION CHROMATOGRAPHY FILTRATION
----------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Process Description Precipitation as Adsorption High pressure
metal hydroxides transport of
water across a
membrane
- -----------------------------------------------------------------------------------------------------
Process Temperatures Ambient Ambient Ambient-80|SDC
- -----------------------------------------------------------------------------------------------------
Process Pressure 15-25 psi 25 psi 100-1,000 psi
- -----------------------------------------------------------------------------------------------------
Target Compounds Heavy Metals Biochemicals Water
- -----------------------------------------------------------------------------------------------------
Target Metals Electrochemicals, Biotechnology Electroplating,
Metal Finishing Metal Finishing,
Petroleum,
Petrochemical,
Paper, Organics,
Food Process,
Biotechnology,
Textile
- -----------------------------------------------------------------------------------------------------
Reaction Time 2-10 seconds Several minutes Not applicable
- -----------------------------------------------------------------------------------------------------
Process Selectivity 0:1 2-5:1 0:1
(Desired:
Undesired)
- -----------------------------------------------------------------------------------------------------
Product Recovery None Greater than 90% Greater than 90%
- -----------------------------------------------------------------------------------------------------
Loading Limitations None Operates only at Cannot produce
very low flow rates large throughput
without clogging
- -----------------------------------------------------------------------------------------------------
Process Speed High Very low Medium
- -----------------------------------------------------------------------------------------------------
Post-Treatment Yes Yes Yes
Required
- -----------------------------------------------------------------------------------------------------
Comments; Non-selective; most Limited to low feed Energy intensive;
Limitations labor intensive; no concentration; non- non-selective;
product recovery selective; slow needs
process prefiltration
relatively
expensive
</TABLE>
COMMERCIALIZATION AND MARKETING STRATEGY
During the initial commercialization phase, the Company expects to lease
the CST modules to customers, with the lease payments being due and payable
after installation and successful start-up of the equipment. When replacement
modules are required, the Company expects to supply these modules at a
reasonable mark-up over
26
<PAGE>
their cost. As new patents are filed and issued, the Company may, for certain
applications, determine to make a direct sale of the equipment with
additional long-term royalty payment provisions. The Company also expects to
obtain revenues through servicing the CST equipment, including periodic
replacement of the membrane component. In addition to leasing and selling its
equipment, the Company intends to charge its customers based on a percentage
of the customer's actual cost savings derived from reduced disposal costs and
recovered reusable materials. In applications in which reusable materials are
not recovered, the Company's ongoing charges may be based on the volume of
materials processed. Although the Company plans to focus its initial
marketing efforts on domestic businesses, the Company will also be prepared
to pursue international opportunities, which may arise from successful
presentations to multinational corporations or from overseas referrals by
domestic entities.
In specific industries and for specific applications, the Company intends
to emphasize and exploit the following attributes of CST.
Metals Separation and Recovery
The Company's initial marketing efforts will be in the industrial sector,
in which the separation and recovery of metal-bearing liquid solutions
present a substantial market. Primary among the potential customers in this
area are metal plating and metal finishing operations, which generate
substantial volumes of mixed metals process streams for which no previous
technology was available to effect proper separation.
In September 1996, the Company installed a commercial scale CST unit
on-line at Plating Technology Inc., a Columbus, Ohio metal plating company
("PTI"). The unit is currently operating on a continuous mode and, based on
operating data results to date, is successfully separating and recovering
nickel and zinc effluent streams with concentrations varying from 100 to
1,000 ppm. DLZ Laboratories, Inc., an independent testing laboratory, verified
that the CST unit processed the initial batch of process effluent stream and
reduced nickel and zinc contamination from 900 ppm to 2 ppm in one hour. The
Company's own data indicate that, in ongoing use on effluent streams
containing nickel and zinc concentrations of 200 to 400 ppm, this CST unit
has consistently reduced the level of contaminants to 1 to 5 ppm. The
decontaminated process effluent stream is being recycled into PTI's plating
line rinse tanks, saving PTI its normal consumption of make-up water at a
rate of five gallons per minute. The recovered nickel and zinc solution is
currently being analyzed by PTI for reuse in its plating operations.
Based on management studies and discussions with metals industry
executives, the Company believes that the major competitive technology in
this area is precipitation, which generates a metallic sludge by-product
requiring further treatment prior to landfill disposal. By contrast, CST does
not generate harmful metallic sludges, and instead enables close to 100%
process water recycling, while also enabling recovery of valuable raw
materials. As costs of environmental compliance continue to mount, the
Company expects CST to become a preferred alternative to existing metals
separation methods.
Gas Separation
The CST equipment and technology can also be utilized to separate and
recover valuable gases (such as nitrogen) from mixed gaseous and liquid
compounds. For example, nitrogen is used for a wide variety of process
applications, including oil recovery, food processing, metal heat treatment,
and pharmaceutical testing and development.
Nitrogen is typically obtained by separating it from oxygen, using
processes such as cryogenic distillation, adsorption, catalytic removal, and
permselective polymeric membrane separation. However, each of these processes
has drawbacks, which can include high energy usage, high pressure and
temperature requirements, and/or relatively low purity of the recovered gas.
The CST process overcomes these drawbacks by yielding relatively pure
nitrogen in a low-energy, low capital cost process conducted at ambient
temperature and pressure. The Company has prepared a proposal for a prototype
unit for the production of high-purity nitrogen for use in food processing,
but has not otherwise developed a strategy or targeted a market for
commercialization of the gas separation application.
Organics Separation and Recovery
As of August 1, 1996, based on market data compiled by the Company, there
were more than 10,000 organic chemical industry companies operating in the
United States. These companies generate significant volumes of waste process
streams, including mixed organic/non-organic streams. CST has been
demonstrated to
27
<PAGE>
have significant capabilities in the separation and recovery of a variety of
contaminants, including phenol and nitrophenol (a phenolic derivative), and
the Company believes that such capabilities, although untested, extend to
other organic chemicals such as volatile organic compounds, petrochemicals,
other phenolic derivatives, olefin alkanes and acid gases.
Currently, the primary technology utilized in this area is activated
carbon treatment. Like the other slow biological treatment processes utilized
in this area, the by-products are often more toxic than the original
compound. The Company intends to demonstrate to chemical manufacturers that
CST is effective in dealing with the wide variety of contaminants generated
by these businesses, and that use of CST will substantially reduce the
environmental risks and costs associated with traditional separation methods.
Biochemicals Separation and Recovery
CST has also been demonstrated to have significant capabilities in the
separation and recovery of biochemicals, including phenylalanine (an amino
acid), and the Company believes that such capabilities, although untested,
extend to other biochemicals such as proteins, other amino acids,
antibiotics, glycerides, fatty acids, drug delivery vehicles and other
pharmaceuticals. Mixed wastes containing these materials are generated in
both research and development functions and in manufacturing functions. These
materials have substantial value, and the Company intends to emphasize both
the value of the recovered materials and the enhanced and speedier
environmental compliance attributes of CST.
Currently, the primary competing technology in this area is
chromatography, which requires substantially greater time to treat
significant volumes of material, and is substantially less selective in the
types of materials that can be separated from the liquid feedstream.
Environmental Remediation and Restoration
The Company believes that CST has significant potential for application to
environmental remediation and restoration. The Company is currently involved
in pilot projects for the decontamination of water in the Port of Baltimore,
and for clean-up of trichlorethylene-contaminated groundwater on Cape Cod,
Massachusetts. In the case of a project such as the Port of Baltimore
project, it is expected that the remediating technology will be applied
continuously over a period of many years, until the subject contamination (in
the case of Baltimore, chromium leaching from underlying soil into the
aquifer) has been demonstrated to have been abated for a significant period
of time.
In contrast to other remediation technologies, the Company believes that
CST has the attributes of low initial capital costs, low operating costs and
the ability to recover heavy metals, organic chemicals and varied volatile
organic compounds for reuse.
In August 1996, the Company completed an on-site demonstration of CST for
the decontamination of water in the Port of Baltimore. During seven hours of
operation, a single CST unit, in a single pass-through of feedstream,
processed 90 gallons of water containing more than 400 ppm of chromium, and
reduced the contamination level to 0.49 ppm. This reduced level of
contamination was below the federal guideline (5 ppm) for the unregulated
discharge of water. The results of this test were verified by Artesian
Laboratories, Inc., an independent testing laboratory. The Company believes
that compliance with such guideline can be achieved either by refinement of
chemical formulation or process procedure, by dilution of the processed water
with a small amount of uncontaminated water, or by passing the processed
water through a larger or supplemental CST unit. The Company believes that
the same process is capable of achieving comparable results in the same time
period on substantially greater volumes of contaminated water, either by
increasing the flow of feedstream into the membrane, by configuring and
utilizing a larger module, or by installing and operating additional modules.
As indicated above, this demonstration was performed on limited quantities of
process streams, and there can be no assurance that the same or similar
results would or could be obtained on a larger scale.
To speed its entry in this market, the Company intends to enter into
collaborative joint working and marketing arrangements with established
engineering and environmental service organizations which are expected to
provide technical and professional expertise, market presence and
credibility. Although the Company has entered into memorandums of
understanding with several such companies, the Company has not to date
entered into any definitive agreements or received any firm contract awards.
See "-- Collaborative Working Arrangements."
28
<PAGE>
Radionuclide/Mixed Waste Separation
In the United States, there are numerous sites operated or maintained by
the Department of Energy and/or the Department of Defense at which there are
present "mixed wastes" containing radionuclides intermingled with other
hazardous wastes. These sites are also contaminated with other compounds
associated with nuclear weapons, testing and energy. CST has been
demonstrated to have significant capabilities in the separation of
radionuclides such as cesium and rhenium, and the Company believes that such
capabilities, although untested, extend to most of the other compounds found
at such sites, such as technicium. The United States government estimates
that potential government expenditures in this market could exceed $250
billion over the next 40 years.
This element of the market is a significant subcategory of the general
environmental remediation that can be undertaken with CST. In addition to low
initial capital costs and low operational costs, CST has the advantage of
cost-effectively separating both dissolved mixed waste and radionuclides, and
allowing separate handling and disposal of both hazardous waste types. The
Company anticipates pursuing this market area in collaboration with
established engineering and environmental service organizations, who can
provide technical and professional expertise, market presence and
credibility. Neither the Company nor any of its collaborative partners have
been awarded any contracts to use CST, and there can be no assurance as to
whether or when any such contracts may be obtained.
PROPOSED MANUFACTURING OPERATIONS
The Company currently has a limited number of outside sources of supply
for some strategic components used in CST, including chemicals, fibers and
membrane casings. Business disruptions or financial difficulties of such
suppliers, or raw material shortages or other causes beyond the Company's
control, could adversely affect the Company by increasing their cost of goods
sold or reducing the availability of such components. The use of outside
suppliers also entails risks of quality control and disclosure of proprietary
information.
The Company intends to utilize a portion of the net proceeds of this
Offering to establish a manufacturing facility in which the Company will be
able to manufacture CST chemicals and equipment, including the microporous
fiber membranes which constitute the key component of all configurations of
CST equipment. The Company expects that such plant will be operational
approximately six months following the completion of this Offering, although
the Company may encounter unforeseen delays in locating, modifying and/or
equipping the plant location. Once the plant is fully operational, the
Company expects to benefit from greater quality control, increased assurance
of product availability, and greater protection of proprietary information
and technology. See "Risk Factors -- Dependence on Strategic Components" and
"-- Unpredictability of Patent Protection and Proprietary Technology" and
"Use of Proceeds."
COLLABORATIVE WORKING ARRANGEMENTS
As of the date of this Prospectus, the Company has entered into
memorandums of understanding with Teledyne Brown and Sverdrup for various
uses and applications of CST, principally in connection with large-scale
clean-ups of governmental facilities.
Pursuant to separate memorandums of understanding with each of Teledyne
Brown and Sverdrup, the Company and each of Teledyne Brown and Sverdrup,
respectively, have agreed to negotiate, on a non-exclusive basis, the
formation of one or more mutually agreeable business arrangements concerning
the marketing, application and commercialization of CST. In addition to
conducting due diligence with respect to each company's technology in
accordance with the confidentiality provisions contained in the memorandums
of understanding, the Company and each of Teledyne Brown and Sverdrup,
respectively, are currently negotiating the scope, covered applications and
geographical territory encompassed by the proposed joint marketing and
commercialization activities. It is expected that the Company's relationship
with Teledyne Brown will focus on Department of Energy sites such as Hanford,
Washington and Mound, Ohio, and that the Company's initial opportunities with
Sverdrup will focus on Department of Defense sites such as Cape Cod,
Massachusetts. In the event a definitive agreement is not entered into by the
Company and Teledyne Brown or Sverdrup, respectively, on or before February
28, 1997, such memorandum of understanding may be terminated by either
company upon written notice and, except for the survival of the
confidentiality provisions, without any further liability to the other
company.
29
<PAGE>
As of the date of the Prospectus, the Company has not determined the amount
of net proceeds of this Offering to be applied to these or any other
particular proposed collaborative working arrangement. See "Use of Proceeds."
Although the Company believes that it will enter into definitive joint
working agreements with Teledyne Brown, Sverdrup and other potential
collaborative partners, there can be no assurance that these memorandums of
understanding or other future discussions will result in any definitive joint
ventures or related agreements, or, even if such agreements are executed,
that the Company and its prospective collaborators will be awarded any
projects that will ultimately result in revenues and earnings for the
Company.
CFC SERVICES AGREEMENT
Upon completion of this Offering, the Company will enter into a services
agreement (the "Services Agreement") with Commodore CFC Technologies, Inc., a
wholly-owned subsidiary of Commodore ("CFC Technologies"), which has
developed and patented a process which, based on test applications of limited
quantities of chlorofluorocarbons ("CFCs"), may be able to separate mixtures
of refrigerants so that they can be returned to productive use at purity
levels meeting industry standards. Pursuant to the Services Agreement, the
Company will provide advice, assistance and guidance, and, where necessary,
personnel to implement the same, in connection with, among others,
administrative, financial and related matters, product design, development
and promotion, and marketing, sales and related operations to CFC
Technologies in connection with its business and operations in exchange for
which the Company will be paid an annual fee equal to 75% of the net income
of CFC Technologies, if any, and reimbursement of expenses incurred in
furnishing such services. The Services Agreement may be terminated by either
party at any time upon not less than 90 days' prior notice.
GOVERNMENT REGULATION
The Company and its customers may be required to comply with a number of
federal, state and local laws and regulations in the areas of safety, health
and environmental controls including, without limitation, RCRA and OSHA,
which may require the Company, its prospective working partners or its
customers to obtain permits or approvals to utilize CST and related equipment
on certain job sites. In addition, if, as and when the Company begins to
market CST internationally, the Company may be required to comply with laws
and regulations and obtain permits or approvals in those other countries.
There is no assurance that such required permits and approvals will be
obtained. Furthermore, particularly in the environmental remediation market,
the Company may be required to conduct performance and operating studies to
assure government agencies that CST and its by-products do not pose
environmental risks. There is no assurance that such studies, if successful,
will not be more costly or time-consuming than anticipated. Further, if new
environmental legislation or regulations are enacted or existing legislation
or regulations are amended, or are interpreted or enforced differently, the
Company, its prospective working partners and/or its customers may be
required to meet stricter standards of operation and/or obtain additional
operating permits or approvals.
ENVIRONMENTAL MATTERS
The Company's operations, as well as the use of specialized technical
equipment by its customers, are subject to numerous federal, state and local
regulations relating to the storage, handling and transportation of certain
regulated materials. Although the Company's role is generally limited to the
leasing of its specialized technical equipment for use by its customers,
there is always the risk of the mishandling of such materials or
technological or equipment failures, which could result in significant claims
against the Company. Any such claims against the Company could have a
material adverse effect.
The Company maintains environmental liability insurance with limits of
$1,000,000 per occurrence and $1,000,000 in the aggregate. The Company may be
required to obtain environmental liability insurance in greater amounts in
the future as CST is commercialized. There can be no assurance that such
insurance will provide coverage against all claims, and claims may be made
against the Company (even if covered by the Company's insurance policy) for
amounts substantially in excess of applicable policy limits. Any such event
could have a material adverse effect on the Company's business, financial
condition and results of operations.
INTELLECTUAL PROPERTY
The basic principles underlying the CST technology were developed by
Srinivas Kilambi, Ph.D., the Company's Vice President - Technology. Effective
February 29, 1996, pursuant to an assignment of technology
30
<PAGE>
agreement between the Company and Dr. Kilambi, the Company acquired rights to
the CST technology from Dr. Kilambi, together with associated patent rights,
confidential know-how and other property rights created or obtained by Dr.
Kilambi, whether then existing or thereafter created, relating to the
construction, design, development and exploitation of the processes,
equipment and technology related to CST and any other product or development
resulting from the acquired patent rights. Such assignment excluded
applications involving the separation of technicium, a radionuclide. The
Company is currently negotiating a technology license with Oak Ridge National
Laboratory, a Department of Energy national laboratory, relating to the
separation of technicium.
In consideration for his assignment of the CST technology, the Company
transferred to Dr. Kilambi 200,000 shares of common stock of Commodore, which
had been contributed to the Company by Commodore to effect the transaction,
and the Company agreed to pay Dr. Kilambi a royalty through December 3, 2002
equal to 2% of its revenues actually received and attributed to the
commercial application of the acquired technology. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Certain Relationships and Related
Transactions -- Organization and Capitalization of the Company."
The Company has filed one United States utility patent application and one
United States provisional patent application covering the principal features
of its CST technology. The Company may also pursue foreign patent protection
where it deems appropriate.
The Company's liquid membrane technology patent applications are based on
the selective combination of different known solvents, supports, diluents,
carriers and other components to separate a variety of metals, chemicals and
other targeted substances. While the Company believes that its technology
covers all separation applications, third parties may have developed, or may
subsequently assert claims to, certain of these solvents, supports, diluents,
carriers or other components for one or more specific applications. In such
event, the Company may need to acquire licenses to, or to contest the
validity of, issued or pending patents or claims of third parties.
To protect its trade secrets and the unpatented proprietary information in
its development activities, the Company requires its employees, consultants
and contractors to enter into agreements providing for the confidentiality
and the Company's ownership of such trade secrets and other unpatented
proprietary information originated by such persons while in the employ of the
Company. The Company also requires potential collaborative partners to enter
into confidentiality and non-disclosure agreements.
There can be no assurance that any patents which may hereafter be
obtained, or any of the Company's confidentiality and non-disclosure
agreements, will provide meaningful protection of the Company's confidential
or proprietary information in the case of unauthorized use or disclosure. In
addition, there can be no assurance that the Company will not incur
significant costs and expenses, including the costs of any future litigation,
to defend its rights in respect of any such intellectual property.
COMPETITION
The most common alternative methods for metals separation from solubilized
process streams presently include ion exchange, reverse osmosis,
precipitation, ultrafiltration and chromatography. The Company believes that
most of these methods have certain drawbacks, including lack of selectivity
in the separation process, inability to handle certain metals in the process
streams, and the creation of sludges and other harmful by-products which
require further post-treatment prior to disposal. For example, reverse
osmosis and ultrafiltration are incapable of separating chrome and chromium
materials from wastewater streams, and precipitation results in the
production of sludge which requires dewatering, drying and disposal in a
landfill. Certain of these other technologies also entail long process times,
and are relatively expensive.
By contrast, CST is capable of handling a broad range of compounds in a
faster and relatively inexpensive manner. Furthermore, the by-products of the
CST process consist primarily of wastewater, which can be discharged as
normal wastewater effluent, and to a substantially lesser extent and in only
rare circumstances, materials requiring landfill disposal.
Separation technologies are currently utilized by a wide variety of
domestic and international companies, including several large companies
having substantially greater financial and other resources than the Company.
31
<PAGE>
Although the Company believes that CST has substantial advantages over all
other known separation technologies, any one or more of the Company's
competitors, or other enterprises not presently known, may develop
technologies which are superior to CST. To the extent the Company's
competitors are able to offer comparable services at lower prices or of
higher quality, or more cost-effective alternatives, the Company's ability to
compete effectively could be materially adversely affected. The Company
believes that its ability to compete in both the commercial and governmental
sectors is dependent upon CST being a superior, more cost-effective method to
achieve separation and/or recovery of a variety of materials in varying
amounts and configurations. In the event that the Company is unable to
demonstrate that CST is a technical and cost-effective alternative to other
separation technologies on a commercial scale, the Company may not be able to
successfully compete.
RESEARCH AND DEVELOPMENT
The Company continues to perform research and development activities with
respect to CST, utilizing its internal technical staff as well as independent
consultants. Such activities have to date been entirely Company- sponsored.
Research and development expenditures were $165,280 and $215,360 for the
three month period ended September 30, 1996 and the period from November 15,
1995 (date of inception) to September 30, 1996, respectively.
The Company intends to expand its research and development efforts
following this Offering. In addition to conducting ongoing tests,
demonstrations and enhancements of CST, the Company's efforts are expected to
focus on the optimization of performance and design for module manufacturing,
development of new carriers and diluents, and investigation of additional
process applications. The Company will use a portion of the net proceeds of
this Offering for such ongoing development costs, which will include the
hiring of additional personnel. See "Use of Proceeds."
EMPLOYEES
As of September 30, 1996, the Company had seven full-time employees,
including four with advanced scientific degrees. The Company believes that it
has been successful in attracting experienced and capable personnel. All of
the Company's employees have entered into agreements with the Company
requiring them not to disclose the Company's proprietary information,
assigning to the Company all rights to inventions made during their
employment, and prohibiting them from competing with the Company. The
Company's employees are not represented by any labor union. The Company
believes that relations with its employees are satisfactory.
PROPERTIES
The Company leases approximately 7,000 square feet of space in Columbus,
Ohio from an unaffiliated third party under a lease expiring on November 30,
1996, which the Company uses as its laboratory and administrative offices.
The Company shares such space with Commodore and certain of its other
subsidiaries. As of July 1, 1996, the Company pays an allocable share of the
rent equal to $750 per month for such space.
The Company's principal executive offices are located in approximately
2,000 square feet of office space in New York, New York, which also serves as
the principal executive offices of Commodore, certain of its affiliates, and
Bentley J. Blum and Paul E. Hannesson, directors of each of the Company and
Commodore. The Company does not pay any rent with respect to such offices.
See "Certain Relationships and Related Transactions -- Offices."
After this Offering, the Company intends to lease a new facility of
approximately 35,000 square feet in or around Atlanta, Georgia, which would
comprise the Company's executive and administrative offices, research and
testing laboratories and CST manufacturing plant. The Company is currently in
the process of selecting a suitable site for such facility. See "Use of
Proceeds." Upon commencement of its occupancy at such facility, the Company,
together with Commodore, may elect to terminate the existing lease in
Columbus, Ohio.
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company or
its properties is subject.
32
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The names and ages of the executive officers, key employees and directors
of the Company, and their positions with the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------------- ----- ----------------------------------------------
<S> <C> <C>
Alan R. Burkart ......... 66 President, Chief Executive Officer and Director
Carl O. Magnell, P.E. ... 55 Executive Vice President
James M. DeAngelis ...... 36 Senior Vice President
Srinivas Kilambi, Ph.D. . 32 Vice President -- Technology
Michael D. Kiehnau, P.E. 35 Chief Financial Officer
Paul E. Hannesson ....... 56 Chairman of the Board of Directors
Bentley J. Blum ......... 55 Director
John A. Cenerazzo ....... 72 Director (1)
Jon Lee Prather ......... 57 Director (1)
</TABLE>
- ------
(1) Positions will be assumed upon completion of this Offering.
Alan R. Burkart was appointed President and Chief Executive Officer, and
elected a Director, of the Company effective August 1, 1996. From March 1986
through September 1995, Mr. Burkart served as President and Chief Operating
Officer of Columbian Chemicals Company, the second largest producer of
industrial and rubber carbon blacks in the world, which is wholly owned by
Phelps Dodge Corporation ("Columbian Chemicals"). Mr. Burkart had been
retired from September 1995 until his appointment with the Company. Mr.
Burkart is a member of the American Institute of Mechanical Engineers and the
American Society of Testing and Materials. Mr. Burkart holds a B.S. degree in
Metallurgical Engineering from Case Institute of Technology.
Carl O. Magnell, P.E. was appointed Executive Vice President of the
Company effective September 1, 1996. He served prior to such time as
Executive Vice President, Governmental Operations of Commodore Applied
Technologies, Inc., a 72%-owned, publicly-traded subsidiary of Commodore
engaged in the environmental technology business ("Applied"), since July
1996. From September 1995 to July 1996, Mr. Magnell served as Vice President
for Business Development of Commodore. From 1992 to August 1995, Mr. Magnell
served as Director of Research for Civil Engineering Research Foundation (an
industry-sponsored engineering research group), and from 1964 to 1992, Mr.
Magnell served in various engineering capacities with the U.S. Army Corps of
Engineers, including brigade commander in Europe and as Engineer for U.S.
Forces in Korea, retiring as a colonel. Mr. Magnell holds a B.S. degree from
the United States Military Academy, and M.S. degrees in Civil Engineering and
Political Science from the Massachusetts Institute of Technology. He is a
licensed professional engineer.
James M. DeAngelis was appointed Senior Vice President of the Company
effective September 1, 1996. He served prior to such time as Vice President
- -- Marketing of Commodore and President of CFC Technologies since January
1993. Prior to January 1993, Mr. DeAngelis was a full-time student, and
completed M.B.A. and Masters in International Management degrees from the
American Graduate School of International Management. Mr. DeAngelis holds
B.S. degrees in Biology and Physiology from the University of Connecticut.
Srinivas Kilambi, Ph.D. has served as Vice President -- Technology of the
Company since February 1996, and was a part-time consultant to the Company
from December 1995 to the time he became an officer of the Company. Prior to
joining the Company, Dr. Kilambi was a graduate student at the University of
Tennessee, where he received a Ph.D. in Chemical Engineering in January 1996.
During the course of his graduate studies, Dr. Kilambi also performed
research at Clarkson University, Potsdam, New York (from August 1991 to June
1993) and Oak Ridge National Laboratories, Oak Ridge, Tennessee (from
September 1993 to June 1996), and briefly served as an environmental
consultant to Jacobs Engineering Group, Inc. from December 1993 to May 1994.
Prior to his graduate studies in the United States, Dr. Kilambi served as the
President and Managing Director of Chemopol Complex India, Pvt. Ltd., a
developer of chemical and biochemical products, from 1987 to August 1991.
33
<PAGE>
Michael D. Kiehnau, P.E. joined the Company as Chief Financial Officer in
September 1996. From 1992 to August 1996, Mr. Kiehnau served as a manager for
Brown & Root, Inc. (an engineering and construction firm), and from 1983 to
1990, Mr. Kiehnau served in various engineering capacities with the U.S. Army
Corps of Engineers in the United States, Europe and Central America. From
1990 to 1992, Mr. Kiehnau was a full-time student. Mr. Kiehnau holds a B.S.
degree from the United States Military Academy, an M.A. in International
Relations from Boston University, and an M.B.A. from the Harvard Graduate
School of Business Administration. He is a licensed professional engineer.
Paul E. Hannesson has been the Chairman of the Board of the Company since
its inception. Mr. Hannesson has also been a Director of Commodore since
February 1993, and served until July 1996 as its President and Chief
Executive Officer. In July 1996, Mr. Hannesson became the President and Chief
Executive Officer of Applied. Mr. Hannesson was a private investor and
business consultant from 1990 to 1993. He currently serves as Chairman of the
Board of Lanxide Corporation, a research and development company developing
metal and ceramic materials ("Lanxide"), where he also serves on its
Compensation Committee. Mr. Hannesson is the brother-in-law of Bentley J.
Blum, a Director of the Company.
Bentley J. Blum has been a Director of the Company since August 1996. Mr.
Blum has been Chairman of the Board of Directors of Commodore since 1984. Mr.
Blum has also served as the Chairman of the Board of Applied since July 1996.
For more than 15 years, Mr. Blum has been actively engaged in real estate
acquisitions and currently is the sole stockholder and director of a number
of corporations which hold real estate interests, oil drilling interests and
other corporate interests. Mr. Blum is a director of Lanxide; Federal
Resources Corporation, a company formerly engaged in manufacturing, retail
distribution and natural resources development; Specialty Retail Services,
Inc., a former distributor of professional beauty products; and North Valley
Development Corp., an inactive real estate development company. Mr. Blum is
the controlling stockholder of Commodore, and is the brother-in-law of Paul
E. Hannesson, the Chairman of the Board of the Company.
John A. Cenerazzo has agreed to join the Board of Directors of the Company
upon the completion of this Offering. Mr. Cenerazzo currently serves as the
Chairman of the Board of Infocore, Inc., a voice and data communications
company, and as a director of U.S. Axle Inc., a manufacturer of industrial
axles and shafts, and Igene Biotechnology, Inc., a development stage
biotechnology company. For more than 30 years prior to his retirement in
1986, Mr. Cenerazzo, a chemical engineer, directed the operations, most
recently as its Executive Vice President, of Kawecki Berylco Industries,
Inc., a division of Cabot Corp. which produces chemicals and rare metals. Mr.
Cenerazzo had also served as a director of National Penn Bank, a national
bank located in Boyertown, Pennsylvania, from 1961 to April 1996, and was
recently appointed director emeritus of such company.
Jon Lee Prather has agreed to join the Board of Directors of the Company
upon the completion of this Offering. Since January 1996, Mr. Prather has
been a Senior Vice President of American Central Gas Companies, Inc., a
privately-held company that gathers, treats and processes natural gas, and
also serves on its advisory board. From 1979 through 1995, Mr. Prather held
several executive positions with Columbian Chemicals, the most recent of
which being Senior Vice President-Administration and General Counsel. Mr.
Prather has been a licensed attorney for more than 30 years.
BOARD COMMITTEES
The Company's Board of Directors has an Audit Committee, a Compensation
Committee and a Stock Option Committee. The responsibilities of the Audit
Committee (which, upon completion of this Offering, will consist of Messrs.
Cenerazzo (Chairman) and Prather) include recommending to the Board of
Directors the firm of independent accountants to be retained by the Company,
reviewing with the Company's independent accountants the scope and results of
their audits, and reviewing with the independent accountants and management
the Company's accounting and reporting principles, policies and practices, as
well as the Company's accounting, financial and operating controls and staff.
The Compensation Committee (which, upon completion of this Offering, will
consist of Messrs. Prather (Chairman) and Blum) has responsibility for
establishing and reviewing employee compensation. The Stock Option Committee
(which, upon completion of this Offering, will consist of Messrs. Hannesson
(Chairman) and Burkart) has responsibility for administering and interpreting
the Company's 1996 Stock Option Plan (the "Plan"), and determining the
recipients, amounts, and other terms (subject to the requirements of the
Plan) of options which may be granted under the Plan from time to time.
34
<PAGE>
COMPENSATION OF DIRECTORS
Non-management directors of the Company will receive directors' fees of
$500 per meeting for attendance at Board of Directors meetings, and are
reimbursed for actual expenses incurred in respect of such attendance. The
Company does not intend to separately compensate employees for serving as
directors.
EXECUTIVE COMPENSATION
The Company was organized in November 1995. No salaries were paid by the
Company at any time through June 30, 1996, except for approximately $33,000
paid to Dr. Kilambi in the six months ended June 30, 1996 pursuant to his
employment agreement. The Company has entered into employment agreements with
its executive officers, as more fully described below. Except for Dr.
Kilambi, whose employment agreement commenced on February 29, 1996, the
employment agreements for the other executive officers commenced on August 1,
1996. To date, the salaries of the Company's executive officers have been
paid from the proceeds of advances made to the Company by Commodore. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
EMPLOYMENT AGREEMENTS
Each of Alan R. Burkart, Carl O. Magnell, James M. DeAngelis, Srinivas
Kilambi, Ph.D. and Michael D. Kiehnau has entered into an employment
agreement with the Company for a term expiring on December 31, 1999. Pursuant
to these employment agreements, Messrs. Burkart, Magnell, DeAngelis, Kilambi
and Kiehnau have agreed to devote substantially all of their business and
professional time and efforts to the business of the Company as its President
and Chief Executive Officer, Executive Vice President, Senior Vice President,
Vice President -- Technology and Chief Financial Officer, respectively. The
employment agreements provide that Messrs. Burkart, Magnell, DeAngelis,
Kilambi and Kiehnau shall receive a fixed base salary at an annual rate of
$200,000, $180,000, $145,000, $110,000 and $88,000, respectively, for
services rendered in such positions, and each may be entitled to receive, at
the sole discretion of the Board of Directors of the Company or a committee
thereof, bonuses and/or stock options based on the achievement (in whole or
in part) by the Company of its business plan and by the employee of fixed
personal performance objectives. Each of Messrs. Burkart, Magnell, DeAngelis,
Kilambi and Kiehnau are entitled to participate in the Company's Stock Option
Plan and Executive Bonus Plan. See "-- Stock Options" and "-- Executive Bonus
Plan" below. In addition, Mr. Burkart will receive a signing bonus of up to a
maximum of approximately $117,500.
The employment agreements also provide for termination by the Company upon
death or disability (defined as three aggregate months of incapacity during
any 365-consecutive day period) or upon conviction of a felony crime of moral
turpitude or a material breach of their obligations to the Company. In the
event any of the employment agreements are terminated by the Company without
cause, such executive will be entitled to compensation for the balance of the
term. The Company has obtained commitments for $1,000,000 key-man life
insurance policies in respect of each of Messrs. Burkart, Magnell, DeAngelis
and Kilambi.
The employment agreements also contain covenants (a) restricting the
executive from engaging in any activities competitive with the business of
the Company during the terms of such employment agreements and one year
thereafter, (b) prohibiting the executive from disclosure of confidential
information regarding the Company at any time, and (c) confirming that all
intellectual property developed by the executive and relating to the business
of the Company constitutes the sole and exclusive property of the Company.
Pursuant to an assignment of technology agreement between the Company and
Dr. Kilambi, effective February 29, 1996, the Company agreed to pay to Dr.
Kilambi a royalty through December 3, 2002 equal to 2% of the Company's
revenues actually received and attributed to the commercial application of
the acquired technology. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Business -- Intellectual Property" and "Certain Relationships
and Related Transactions -- Organization and Capitalization of the Company."
STOCK OPTIONS
On September 5, 1996, Commodore (as sole stockholder of the Company)
approved the Company's 1996 Stock Option Plan, as previously adopted by the
Company's Board of Directors (the "Plan"), pursuant to which
35
<PAGE>
officers, directors, and/or key employees and/or consultants of the Company
can receive incentive stock options and non-qualified stock options to
purchase up to an aggregate of 2,000,000 shares of the Company's Common Stock
(of which no more than 1,500,000 shares may be issued pursuant to
non-qualified stock options). On September 5, 1996, the Company's Board of
Directors awarded, effective upon completion of this Offering, non- qualified
stock options under the Plan to certain key executive officers entitling them
to purchase an aggregate of 1,100,000 shares of Common Stock, all of which
provide for an exercise price equal to the initial public offering price of
the Common Stock, are exercisable at the rate of 20% of the number of options
granted in each of calendar 1996 through 2000, inclusive, beginning on the
closing date of this Offering and, unless exercised, expire on December 31,
2001 (subject to prior termination in accordance with the applicable stock
option agreements). In addition, non-qualified options to purchase an
aggregate of 135,000 shares of Common Stock were awarded, effective upon
completion of this Offering, to members of the Board of Directors who are not
employed or otherwise affiliated with the Company, all of which are
exercisable at an exercise price equal to the initial public offering price
of the Common Stock, are exercisable at the rate of 33 1/3 % of the number of
options granted in each of calendar 1996 through 1998, inclusive, beginning
on the closing date of this Offering, and, unless exercised, expire on
December 31, 2001 (subject to prior termination in accordance with the
applicable stock option agreements). The exercise price applicable to all
outstanding stock options represents not less than 100% of the fair market
value of the underlying Common Stock as of the date that such options were
granted, as determined by the Board of Directors of the Company on the date
that such options were granted.
With respect to incentive stock options, the Plan provides that the
exercise price of each such option must be at least equal to 100% of the fair
market value of the Common Stock on the date that such option is granted (and
110% of fair market value in the case of stockholders who, at the time the
option is granted, own more than 10% of the total outstanding Common Stock),
and requires that all such options have an expiration date not later than
that date which is one day before the tenth anniversary of the date of the
grant of such options (or the fifth anniversary of the date of grant in the
case of 10% stockholders). However, with certain limited exceptions, in the
event that the option holder ceases to be associated with the Company, or
engages in or is involved with any business similar to that of the Company,
such option holder's incentive options immediately terminate. Pursuant to the
provisions of the Plan, the aggregate fair market value, determined as of the
date(s) of grant, for which incentive stock options are first exercisable by
an option holder during any one calendar year cannot exceed $100,000.
With respect to non-qualified stock options, the Plan requires that the
exercise price of all such options be at least equal to 100% of the fair
market value of the Common Stock on the date such option is granted, provided
that non-qualified options may be issued at a lower exercise price (but in no
event less than 85% of fair market value) if the net pre-tax income of the
Company in the full fiscal year immediately preceding the date of the grant
of such option (the "Prior Year") exceeded 125% of the mean annual average
net pre-tax income of the Company for the three fiscal years immediately
preceding such Prior Year. Non-qualified options must have an expiration date
not later than that date which is the day before the eighth anniversary of
the date of the grant of the subject option. However, with certain limited
exceptions, in the event that the option holder ceases to be associated with
the Company, or engages in or becomes involved with any business similar to
that of the Company, such option holder's non-qualified options immediately
terminate.
The following table lists information on stock options granted to each of
the Company's executive officers and directors and to all executive officers
and directors as a group. All of such stock options were granted on September
5, 1996, and (i) with respect to all stock options other than those in favor
of Messrs. Cenerazzo and Prather, are exercisable at the rate of 20% per
calendar year in each of 1996 through 2000, inclusive (subject to prior
termination under the terms of the applicable option agreements), or (ii)
with respect to the stock options granted to Messrs. Cenerazzo and Prather,
are exercisable at the rate of 33 1/3 % per calendar year in each of 1996
through 1998, inclusive (subject to prior termination under the terms of the
applicable option agreements), and, to the extent not exercised, expire on
December 31, 2001. As of the date of this Prospectus, none of such options
have been exercised.
36
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Shares Total
Underlying Type of Options Exercise
Name of Options Option Granted Price per
Officer or Director Granted Granted Under Plan Share
- ------------------------------------ ------------ --------------- --------------- -----------
<S> <C> <C> <C> <C>
Alan R. Burkart .................... 400,000 Non-Qualified 32.3% *
Carl O. Magnell .................... 175,000 Non-Qualified 14.2% *
James M. DeAngelis ................. 150,000 Non-Qualified 12.1% *
Srinivas Kilambi, Ph.D. ............ 100,000 Non-Qualified 8.1% *
Michael D. Kiehnau ................. 75,000 Non-Qualified 6.1% *
Paul E. Hannesson .................. 200,000 Non-Qualified 16.2% *
John A. Cenerazzo .................. 67,500 Non-Qualified 5.5% *
Jon Lee Prather .................... 67,500 Non-Qualified 5.5% *
------------ ---------------
All executive officers and directors
as a group (nine persons) ......... 1,235,000 100.0%
============ ===============
</TABLE>
- ------
* To be equal to the initial public offering price per share of the Common
Stock in this Offering.
EXECUTIVE BONUS PLAN
On September 5, 1996, the Company's Board of Directors established a
five-year Executive Bonus Plan (the "Bonus Plan") to reward executive
officers and other key employees based upon the Company achieving certain
performance levels. Under the Bonus Plan, commencing with the Company's 1997
fiscal year and for each of the four fiscal years thereafter, the Company
will have discretion to award bonuses in an aggregate amount in each fiscal
year equal to 1% of the Company's consolidated net sales revenues for such
fiscal year, provided and on condition that the Company achieves a
consolidated net profit before taxes of not less than 5% of consolidated net
sales in each year, and provided that the aggregate bonuses in each year (out
of the maximum amount of 1% of annual net sales) shall not be in excess of
the proportion by which the Company's consolidated net profit before taxes is
greater than 5% of consolidated net sales but less than 15% of consolidated
net sales. The Compensation Committee of the Board of Directors of the
Company will determine the allocable amounts or percentages of the bonus pool
which may be paid annually to participants; provided that for fiscal 1997,
the following persons shall (subject to their continued full-time employment
with the Company) be entitled to receive the following percentages of the
bonus payments, if any, payable in respect of fiscal 1997:
<TABLE>
<CAPTION>
Percentage of
Name of Participant Available Bonus Pool
---------------------------- ------------------------
<S> <C>
Alan R. Burkart ............ 15%
Carl O. Magnell ............ 15%
James M. DeAngelis ......... 15%
Srinivas Kilambi, Ph.D. .... 15%
Michael D. Kiehnau ......... 15%
Other employees ............ 25%
</TABLE>
Bonuses under the Bonus Plan are not exclusive of other bonuses that may
be awarded by the Board of Directors or the Compensation Committee from time
to time.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company has included in its Certificate of Incorporation and By-laws
provisions to (i) eliminate the personal liability of its directors and
officers for monetary damages resulting from breaches of their fiduciary duty
(provided that such provisions do not eliminate liability for breaches of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under
Section 174 of the Delaware General Corporation Law (the "Delaware Law"), or
for any transaction from which the director and/or officer derived an
improper personal benefit), and (ii) indemnify its directors and officers to
the fullest extent permitted by the Delaware Law, including circumstances in
which indemnification is otherwise discretionary. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus with respect to (i) the beneficial ownership of the Common Stock
of the Company by each beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company, each director, each executive officer
and all executive officers and directors of the Company as a group, and (ii)
the number of shares of Common Stock owned by each such person and group.
Unless otherwise indicated, the owners have sole voting and investment power
with respect to their respective shares.
<TABLE>
<CAPTION>
Percentage of Outstanding
Number of Shares Common Stock
of Common Stock Beneficially Owned
Name and Address of Beneficially ---------------------------------
Beneficial Owner(1) Owned(2) Before Offering After Offering
----------------------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Commodore Environmental
Services, Inc. ......................... 15,000,000 100.0% 75.0%(3)
Bentley J. Blum(4) ...................... 15,000,000 100.0% 75.0%
Paul E. Hannesson(5) .................... 1,412,479 9.4% 7.1%
Alan R. Burkart(6) ...................... 82,609 * *
Carl O. Magnell(7) ...................... 61,074 * *
James M. DeAngelis(8) ................... 181,071 1.2% *
Srinivas Kilambi, Ph.D.(9) .............. 72,184 * *
Michael D. Kiehnau(10) .................. 15,000 * *
John A. Cenerazzo(11) ................... 22,500 * *
Jon Lee Prather(12) ..................... 22,500 * *
All executive officers and directors as a
group (nine persons) ................... 15,000,000 100.0% 75.0%
</TABLE>
- ------
*Percentage ownership is less than 1%.
(1) The addresses of each of Commodore Environmental Services, Inc., Bentley
J. Blum, Paul E. Hannesson, Carl O. Magnell, James M. DeAngelis and Dr.
Srinivas Kilambi is 150 East 58th Street, Suite 3400, New York, New York
10155. The address of Alan R. Burkart is 430 Cherry Hill Drive,
Marietta, Georgia 30067. The address of Michael D. Kiehnau is 215
Prairie Street, Concord, Massachusetts 01742. The address of John A.
Cenerazzo is P.O. Box 4067, Reading, Pennsylvania 19606. The address of
Jon Lee Prather is 3414 South Zunis Place, Tulsa, Oklahoma 74105.
Bentley J. Blum and Paul E. Hannesson are brothers-in-law.
(2) As used herein, the term beneficial ownership with respect to a security
is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the
power to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose or direct the disposition of) with
respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire
such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting and investment
rights.
(3) In the event the Over-allotment Option is exercised in full, Commodore
will sell 750,000 shares of Common Stock and will own 14,250,000 shares
of Common Stock (71.3% of such outstanding shares) following the
Offering. See "Certain Relationships and Related Transactions" and
"Underwriting."
(4) Represents all of the shares of Common Stock held by Commodore, based
upon Mr. Blum's beneficial ownership of 28,224,050 shares and his
spouse's ownership of 2,000,000 shares of common stock of Commodore,
representing together 52.2% of the outstanding shares of Commodore
common stock. As of September 30, 1996, there were 57,924,368
outstanding shares of Commodore common stock. Does not include 440,000
shares of Commodore common stock owned by Simone Blum, the mother of Mr.
Blum, and 395,000 shares of Commodore common stock owned by Samuel Blum,
the father of Mr. Blum. Mr. Blum disclaims any beneficial interest in
the shares of Commodore common stock owned by his spouse, mother and
father.
(5) Consists of (a) 40,000 shares of Common Stock, representing 20% of the
200,000 stock options granted to Mr. Hannesson under the Plan, which are
currently exercisable, and (b) Mr. Hannesson's indirect benefi-
38
<PAGE>
cial interest in the shares of Common Stock, based upon an aggregate of
2,650,000 shares of Commodore common stock owned by Suzanne Hannesson,
the spouse of Mr. Hannesson, and 2,650,000 shares of Commodore common
stock owned by the Hannesson Family Trust (Suzanne Hannesson and John D.
Hannesson, trustees) for the benefit of Mr. Hannesson's spouse,
representing together 9.1% of the outstanding shares of Commodore common
stock. Does not include 1,000,000 shares of Commodore common stock owned
by each of Jon Paul and Krista Hannesson, the adult children of Mr.
Hannesson. Mr. Hannesson disclaims any beneficial interest in the shares
of Commodore common stock owned by or for the benefit of his spouse and
children.
(6) Consists of (a) Mr. Burkart's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 10,000 shares of Commodore
common stock, and (b) 80,000 shares of Common Stock, representing 20% of
the 400,000 stock options granted to Mr Burkart under the Plan, which
are currently exercisable. Does not include 10,000 shares of Common
Stock and 10,000 Warrants, which Mr. Burkart intends to purchase in the
Offering. See "Underwriting."
(7) Consists of (a) Mr. Magnell's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 60,000 shares of Commodore
common stock, and currently exercisable options to purchase 40,000
shares of Commodore common stock at $.50 per share, and (b) 35,000
shares of Common Stock, representing 20% of the 175,000 stock options
granted to Mr. Magnell under the Plan, which are currently exercisable.
(8) Consists of (a) Mr. DeAngelis' indirect beneficial interest in the
shares of Common Stock, based upon his ownership of 480,000 shares of
Commodore common stock, and currently exercisable options to purchase
100,000 shares of Commodore common stock at $.03 per share, and (b)
30,000 shares of Common Stock, representing 20% of the 150,000 stock
options granted to Mr. DeAngelis under the Plan, which are currently
exercisable.
(9) Consists of (a) Dr. Kilambi's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 200,000 shares of Commodore
common stock, and (b) 20,000 shares of Common Stock, representing 20% of
the 100,000 stock options granted to Dr. Kilambi under the Plan, which
are currently exercisable.
(10) Consists of 15,000 shares of Common Stock, representing 20% of the
75,000 stock options granted to Mr. Kiehnau under the Plan, which are
currently exercisable.
(11) Consists of 22,500 shares of Common Stock, representing 33 1/3 % of the
67,500 stock options granted to Mr. Cenerazzo under the Plan, which are
currently exercisable.
(12) Consists of 22,500 shares of Common Stock, representing 33 1/3 % of the
67,500 stock options granted to Mr. Prather under the Plan, which are
currently exercisable.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION AND CAPITALIZATION OF THE COMPANY
The Company was organized in November 1995 as a wholly-owned subsidiary of
Commodore. Effective February 29, 1996, pursuant to an assignment of
technology agreement between the Company and Srinivas Kilambi, Ph.D., the
Company's Vice President--Technology, the Company acquired rights to the CST
technology from Dr. Kilambi. In consideration for such technology, the
Company transferred to Dr. Kilambi 200,000 shares of common stock of
Commodore, which had been contributed to the Company by Commodore to effect
the transaction, and the Company agreed to pay Dr. Kilambi a royalty through
December 3, 2002 equal to 2% of the Company's revenues actually received and
attributed to the commercial application of the acquired technology. In
exchange for Commodore's issuance of such shares to the Company, as well as
Commodore's funding and support of the Company, the Company issued to
Commodore 15,000,000 shares of Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Intellectual Property."
Since the Company's inception, Commodore has financed the research and
development activities of the Company through direct equity investments and
loans to the Company. As of September 30, 1996, the Company's aggregate
indebtedness to Commodore was approximately $408,000. As of October 16, 1996,
$200,000 in additional funds have been advanced by Commodore to the Company.
Commodore has agreed to contribute the entire amount of such intercompany
debt to the Company's equity, without requirement of the issuance of any
additional shares of capital stock.
In the event that the Over-allotment Option is exercised (in whole or in
part) with respect to shares of Common Stock, such additional shares will be
sold to the Underwriters by Commodore, which will be entitled to retain the
entire net proceeds from any such sale. See "Underwriting."
OFFICES
The Company's principal executive offices are located in approximately
2,000 square feet of office space in New York, New York, which also serves as
the principal executive offices of Commodore, certain of its affiliates, and
Messrs. Bentley J. Blum and Paul E. Hannesson, directors of each of the
Company and Commodore. The Company does not pay any rent with respect to such
offices. In addition, the Company currently shares facilities in Columbus,
Ohio with Commodore and certain of its other subsidiaries. The Company pays
an allocable share of rent equal to $750 per month for such space. See
"Business - Properties."
After this Offering, the Company intends to lease a new facility of
approximately 35,000 square feet in or around Atlanta, Georgia, which would
comprise the Company's executive and administrative offices, research and
testing laboratories and CST manufacturing plant. The Company is currently in
the process of selecting a suitable site for such facility. See "Use of
Proceeds." Upon commencement of its occupancy at such facility, the Company,
together with Commodore, may elect to terminate the existing lease in
Columbus, Ohio.
FUTURE TRANSACTIONS
In connection with the Offering, the Company's Board of Directors has
adopted a policy whereby any future transactions between the Company and any
of its subsidiaries, affiliates, officers, directors, principal stockholders
or any affiliates of the foregoing will be on terms no less favorable to the
Company than could reasonably be obtained in "arm's length" transactions with
independent third parties, and any such transactions will also be approved by
a majority of the Company's disinterested outside directors.
40
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 50,000,000 shares of Common Stock, par value $.001 per share,
and 5,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"), which Preferred Stock may be issued with such rights,
designations and privileges (including redemption and voting rights) as the
Board of Directors may, from time to time, determine.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share and,
subject to the rights of the holders of the Preferred Stock (discussed
below), to receive dividends when and as declared by the Board of Directors,
and to share ratably in the assets of the Company legally available for
distribution in the event of the liquidation, dissolution or winding up of
the Company. Holders of the Common Stock do not have subscription, redemption
or conversion rights, nor do they have any preemptive rights. In the event
the Company were to elect to sell additional shares of its Common Stock
following this Offering, investors in this Offering would have no right to
purchase such additional shares. As a result, their percentage equity
interest in the Company would be diluted. The shares of Common Stock offered
hereby will be, when issued and paid for, fully-paid and not liable for
further call or assessment. Holders of the Common Stock do not have
cumulative voting rights, which means that the holders of more than half of
the outstanding shares of Common Stock (subject to the rights of the holders
of the Preferred Stock) can elect all of the Company's directors, if they
choose to do so. In such event, the holders of the remaining shares would not
be able to elect any directors. The Board is empowered to fill any vacancies
on the Board. Except as otherwise required by the Delaware Law, all
stockholder action is taken by vote of a majority of the outstanding shares
of Common Stock voting as a single class present at a meeting of stockholders
at which a quorum (consisting of a majority of the outstanding shares of the
Company's Common Stock) is present in person or by proxy.
PREFERRED STOCK
The Company is authorized by its Certificate of Incorporation to issue a
maximum of 5,000,000 shares of Preferred Stock, in one or more series and
containing such rights, privileges and limitations, including voting rights,
conversion privileges and/or redemption rights, as may, from time to time, be
determined by the Board of Directors of the Company. Preferred Stock may be
issued in the future in connection with acquisitions, financings or such
other matters as the Board of Directors deems to be appropriate. In the event
that any such shares of Preferred Stock shall be issued, a Certificate of
Designation, setting forth the series of such Preferred Stock and the
relative rights, privileges and limitations with respect thereto, shall be
filed with the Secretary of State of the State of Delaware. The effect of
such Preferred Stock is that the Company's Board of Directors alone, within
the bounds and subject to the federal securities laws and the Delaware Law,
may be able to authorize the issuance of Preferred Stock which could have the
effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect
the voting and other rights of holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may also adversely affect
the voting power of the holders of Common Stock, including the loss of voting
control to others.
WARRANTS
The following is a brief summary of certain provisions of the Warrants.
Reference is made to the actual text of the Warrant Agreement between the
Company, the Representative and The Bank of New York (the "Warrant Agent"), a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, for a more complete description of the
Warrants. See "Additional Information."
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time during the four year period commencing one
year after the date of this Prospectus, one share of Common Stock at a price
of $ per share [140% of the initial public offering price per share of
Common Stock], subject to adjustment in accordance with the anti-dilution and
other provisions referred to below. The holder of any
41
<PAGE>
Warrant may exercise such Warrant by surrendering the certificate
representing the Warrant to the Warrant Agent, with the subscription form
thereon properly completed and executed, together with payment of the
exercise price. No fractional shares will be issued upon the exercise of the
Warrants.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon
the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock, or sale by the Company
of shares of its Common Stock or other securities convertible into Common
Stock (exclusive of options and shares under the Plan, and other limited
exceptions) at a price below the then-applicable exercise price of the
Warrants. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable
warrantholders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Common Stock that might have been purchased upon the exercise of
the Warrant.
Redemption Provisions. Commencing 18 months after the date of this
Prospectus, the Warrants are subject to redemption at $.10 per Warrant on 30
days' prior written notice provided that the average closing sale price of
the Common Stock as reported on the AMEX equals or exceeds $ per share
[300% of the initial public offering price of the Common Stock] (subject to
adjustment for stock dividends, stock splits, combinations or
reclassifications of the Common Stock), for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day prior
to the date of the notice of redemption. In the event the Company exercises
the right to redeem the Warrants, such Warrants will be exercisable until the
close of business on the business day immediately preceding the date for
redemption fixed in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder will
be entitled only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at
any time on or prior to their expiration date five years from the date of
this Prospectus, at which time the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the
Warrants instead of exercising them. There can be no assurance, however, that
a market for the Warrants will develop or continue.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do
not adversely affect the interests of the warrantholders. The Company may, in
its sole discretion, lower the exercise price of the Warrants for a period of
not less than 30 days on not less than thirty (30) days' prior written notice
to the warrantholders and the Representative. Modification of the number of
securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Warrants, without the consent of two-thirds of the warrantholders.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered,
qualified or deemed to be exempt under the securities laws of the state of
residence of the exercising holder of the Warrants. Although the Company will
use its best efforts to have all of the shares of Common Stock issuable upon
exercise of the Warrants registered or qualified on or before the exercise
date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there can be no assurance that it will be able to
do so.
The Warrants are separately transferable immediately upon issuance.
Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise
qualified for sale, purchasers may buy Warrants in the aftermarket or may
move to jurisdictions in which the shares underlying the Warrants are not so
registered or qualified during the period that the Warrants are exercisable.
In this event, the Company would be unable to issue shares to those persons
desiring to exercise their Warrants, and holders of Warrants would have no
choice but to attempt to sell the Warrants in a jurisdiction where such sale
is permissible or allow them to expire unexercised.
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SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the
date of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock, or
(iii) on or after such date, the business combination is approved by the
board of directors and by the affirmative vote of at least 66 2/3 % of the
outstanding voting stock that is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns
(or within three years, did own) 15% or more of the corporation's voting
stock.
TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT
The Transfer Agent and Registrar for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York, 101 Barclay Street, New York,
New York 10286.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 20,000,000 shares
of Common Stock outstanding, of which only the 5,000,000 shares offered
hereby (and the 5,000,000 Warrants) will be transferable without restriction
under the Securities Act. The other 15,000,000 outstanding shares of Common
Stock, all of which are owned by Commodore, are "restricted securities" (as
that term is defined in Rule 144 promulgated under the Securities Act) which
may be publicly sold only if registered under the Securities Act or if sold
in accordance with an applicable exemption from registration, such as Rule
144. In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted securities for at least
two years, is entitled to sell (together with any person with whom such
individual is required to aggregate sales), within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number
of outstanding shares of the same class, or, if the Common Stock is quoted on
the AMEX or another national securities exchange, the average weekly trading
volume during the four calendar weeks preceding the sale. Sales under Rule
144 are also subject to certain manner of sale provisions, notice
requirements, and the availability of current public information regarding
the Company. A person who has not been an affiliate of the Company for at
least three months, and who has beneficially owned restricted securities for
at least three years, is entitled to sell such restricted shares under Rule
144 without regard to any of the limitations described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus
pursuant to written compensatory benefit plans such as the Plan and written
contracts such as option agreements. Rule 701 is also available for sales of
shares acquired by persons pursuant to the exercise of options granted prior
to the effective date of this Prospectus, regardless of whether the option
exercise occurs before or after the effective date of this Prospectus.
Securities issued in reliance on Rule 701 are "restricted securities" within
the meaning of Rule 144 and, beginning 90 days after the date of this
Prospectus, may be sold by persons other than affiliates of the Company
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its two-year minimum holding period
requirement.
Options granted under the Plan to purchase a total of 1,235,000 shares of
Common Stock are currently outstanding, and options to purchase an additional
765,000 shares of Common Stock are reserved for future issuance under the
Plan. Of the options granted under the Plan, 265,000 of such options are
currently exercisable, with the remaining outstanding options to become
exercisable at the rate of 265,000 options in each of December 1997 and 1998,
and 220,000 options in each of December 1999 and 2000. Shares of Common Stock
issued upon the exercise of outstanding options will be "restricted
securities" and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. Potential
exemptions include those available under Rule 144 and Rule 701.
No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will
have on the market prices of the Common Stock and the Warrants prevailing
from time to time. The Company and Commodore, as well as all officers and
directors of the Company and all holders of outstanding securities
exercisable for or convertible into Common Stock (other than the
Representative's Warrants), have agreed not to, directly or indirectly,
issue, agree or offer to sell, sell, transfer, assign, distribute, grant an
option for purchase or sale of, pledge, hypothecate or otherwise encumber or
dispose of any beneficial interest in such securities for a period of 13
months following the date of this Prospectus without the prior written
consent of the Representative. The sale or issuance, or the potential for
sale or issuance, of Common Stock after such 13-month period could have an
adverse impact on the market prices of the Common Stock and/or the Warrants.
Sales of substantial amounts of Common Stock or the perception that such
sales could occur could adversely affect prevailing market prices for the
Common Stock and/or the Warrants. See "Underwriting."
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement (the "Underwriting Agreement"), to purchase
from the Company and the Company has agreed to sell to the Underwriters on a
firm commitment basis, the respective number of shares of Common Stock and
Warrants set forth opposite their names:
Number of Number of
Underwriters Shares Warrants
----------------------------------- ------------- -------------
National Securities Corporation .........
---------- ----------
Total. ....................... 5,000,000 5,000,000
========== ==========
The Underwriters are committed to purchase all the shares of Common Stock
and Warrants offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the several
Underwriters are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per share of
Common Stock and $ per Warrant. Such dealers may reallow a concession not
in excess of $ per share of Common Stock and $ per Warrant to certain
other dealers. After the commencement of the Offering, the public offering
price, concession and reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representative a non-accountable expense allowance
equal to 3% of the gross proceeds derived from the sale of the Securities
underwritten, of which $50,000 has been paid to date.
Commodore and the Company have granted to the Underwriters an
over-allotment option, exercisable during the 45-day period from the date of
this Prospectus, to purchase from Commodore up to an additional 750,000
shares of Common Stock and/or to purchase from the Company up to an
additional 750,000 Warrants at the initial public offering prices per share
and per Warrant, respectively, offered hereby, less underwriting discounts
and the non-accountable expense allowance. Such option may be exercised only
for the purpose of covering over- allotments, if any, incurred in the sale of
the Securities offered hereby. To the extent such option is exercised in
whole or in part, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the number of the additional Securities
proportionate to its initial commitment. The Company will not receive any of
the proceeds from the sale of shares of Common Stock by Commodore.
All officers, directors and stockholders of the Company and all holders of
any options, warrants or other securities convertible, exercisable or
exchangeable for Common Stock have agreed not to, directly or indirectly,
offer, agree or offer to sell, sell, transfer, assign, encumber, grant an
option for the purchase or sale of, pledge or otherwise dispose of any
beneficial interest in such securities for a period of 13 months following
the date of this Prospectus without the prior written consent of the
Representative. An appropriate legend shall be marked on the face of
certificates representing all such securities.
The Company has agreed not to, without the prior written consent of the
Representative, issue, sell, agree or offer to sell, grant an option for the
purchase or sale of, or otherwise transfer or dispose of any of its
securities for a period of 13 months following the effective date of the
Registration Statement of which this Prospectus is a part, except pursuant to
the Warrants and those options existing on the date of this Prospectus.
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<PAGE>
In connection with this Offering, the Company has agreed to sell to the
Representative, for $.0001 per warrant, warrants to purchase from the Company
up to 500,000 shares of Common Stock and/or up to 500,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ per share [120% of the initial public offering
price per share of Common Stock] and $ per Warrant [120% of the initial
public offering price per Warrant] for a period of four years, commencing one
year after the date of this Prospectus and are restricted from sale,
transfer, assignment or hypothecation for a period of 12 months from the date
of this Prospectus, except to officers of the Representative. The
Representative's Warrants provide for adjustment in the number of securities
issuable upon the exercise thereof as a result of certain subdivisions and
combinations of the Common Stock. The Representative's Warrants grant to the
holders thereof certain rights of registration for the securities issuable
upon exercise thereof.
Alan R. Burkart, the Company's President and Chief Executive Officer,
intends to purchase 10,000 shares of Common Stock and 10,000 Warrants offered
hereby at their respective initial public offering prices.
Although the Representative has been in business for over 40 years, the
Representative has participated in only ten public offerings as an
underwriter during the last five years. In evaluating an investment in the
Company, prospective purchasers of the Securities offered hereby should
consider the Representative's limited experience.
Prior to this Offering, there has been no public market for the
Securities. Consequently, the initial public offering prices of the
Securities and the terms of the Warrants have been determined by negotiation
between the Company and the Representative and do not necessarily bear any
relationship to the Company's asset value, net worth, or other established
criteria of value. The factors considered in such negotiations (without one
factor being materially more important than another) were prevailing market
conditions, the history of and prospects for the industry in which the
Company competes, an assessment of the Company's management and technology,
the prospects of the Company, its capital structure, Commodore's ownership
interest in the Company, the market for initial public offerings and market
prices of similar securities of comparable publicly-traded companies.
Upon the exercise of any Warrants more than one year after the date of
this Prospectus, which exercise was solicited by the Representative, and to
the extent not inconsistent with the guidelines of the National Association
of Securities Dealers, Inc. and the Rules and Regulations of the Securities
and Exchange Commission (the "Commission"), the Company has agreed to pay the
Representative a commission of 5% of the aggregate exercise price of such
Warrants. However, no compensation will be paid to the Representative in
connection with the exercise of the Warrants if (a) the market price of the
Common Stock is lower than the exercise price, (b) the Warrants are held in a
discretionary account, or (c) the Warrants are exercised in an unsolicited
transaction where the holder of the Warrant has not stated in writing that
the transaction was solicited and has not designated in writing the
Representative as soliciting agent. Unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Representative and any
soliciting broker-dealers will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities for the periods prescribed by exemption (xi) to Rule
10b-6 before the solicitation activity or the termination (by waiver or
otherwise) of any right that the Representative and any soliciting
broker-dealers may have to receive a fee for the exercise of the Warrants
following such solicitation. As a result, the Representative and any
soliciting broker-dealers may be unable to continue to provide a market for
the Common Stock or Warrants during certain periods while the Warrants are
exercisable. If the Representative has engaged in any of the activities
prohibited by Rule 10b-6 during the periods described above, the
Representative has undertaken to waive unconditionally its rights to receive
a commission on the exercise of such Warrants.
The foregoing is a summary of the principal terms of the agreements
described above. Reference is made to a copy of each such agreement which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part for a more complete description thereof. See "Additional Information."
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LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by the law firm of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, New York, New York, as counsel to the Company in
connection with this Offering. Orrick, Herrington & Sutcliffe LLP, New York,
New York, has acted as counsel to the Underwriters in connection with this
Offering. A shareholder of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel is the holder of stock options to purchase an aggregate of 400,000
shares of Commodore common stock, representing less than 1% of Commodore's
outstanding common stock.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement of which this Prospectus is a part have been audited
by Tanner + Co., independent certified public accountants, to the extent and
for the period set forth in the report of such firm contained herein and in
the Registration Statement of which this Prospectus is a part. All such
financial statements have been included in reliance upon such report given
upon the authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington D.C., a
Registration Statement under the Securities Act with respect to the
Securities offered hereby. This Prospectus, filed as a part of the
Registration Statement, does not contain certain information set forth in or
annexed as exhibits to the Registration Statement. For further information
regarding the Company and the Securities offered hereby, reference is made to
the Registration Statement and to the exhibits filed as a part thereof, which
may be inspected at the office of the Commission without charge or copies of
which may be obtained therefrom upon request to the Commission and payment of
the prescribed fee. With respect to each contract, agreement or other
document referred to in this Prospectus and filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved.
The Registration Statement and such exhibits and schedules may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048, and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Registration Statement may
also be accessed on the World Wide Web through the Commission's Internet
address at "http://www.sec.gov."
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COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report ................................................................... F-2
Balance Sheet as of June 30, 1996 and September 30, 1996 (unaudited) .......................... F-3
Statements of Operations for the period from November 15, 1995 (date of inception) to
June 30, 1996, the three months ended September 30, 1996 (unaudited) and November 15, 1995
(date of inception) to September 30, 1996 (unaudited) ........................................ F-4
Statement of Stockholders' Deficit for the period from November 15, 1995 (date of inception)
through September 30, 1996 (unaudited) ....................................................... F-5
Statement of Cash Flows for the period from November 15, 1995 (date of inception) to
June 30, 1996, the three months ended September 30, 1996 (unaudited) and November 15, 1995
(date of inception) to September 30, 1996 (unaudited) ........................................ F-6
Notes to Financial Statements. ................................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Commodore Separation Technologies, Inc.
We have audited the accompanying balance sheet of Commodore Separation
Technologies, Inc. (a development stage company) as of June 30, 1996, and the
related statements of operations, stockholders' deficit, and cash flows for
the period from November 15, 1995 (date of inception) to June 30, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commodore Separation
Technologies, Inc. (a development stage company) as of June 30, 1996, and the
results of its operations and its cash flows for the period from November 15,
1995 (date of inception) to June 30, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 4, the
Company's significant operating losses and deficits in working capital and
stockholders' equity raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in note 4. The accompanying financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
TANNER + CO.
Salt Lake City, Utah
August 1, 1996 except notes 1, 2, 3 and 7,
which are dated October 14, 1996
F-2
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 1996 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1996 1996
---------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash ............................................................................ $ 2,533 $ 59,008
Accounts receivable ............................................................. -- 7,758
Deferred offering costs ......................................................... -- 74,293
---------- ---------------
Total current assets ....................................................... 2,533 141,059
---------- ---------------
Property and equipment:
Technical equipment ............................................................. 7,498 171,982
Office equipment ................................................................ 3,142 4,879
---------- ---------------
10,640 176,861
Less accumulated depreciation ................................................ 52 6,438
---------- ---------------
Net property and equipment ................................................... 10,588 170,423
---------- ---------------
Intangible assets, net of accumulated amortization of $101 and $367 ............... 10,206 17,711
---------- ---------------
$ 23,327 $ 329,193
========== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ................................................................ $ 18,254 $ 142,104
Accrued liabilities ............................................................. 12,276 114,253
Due to related party ............................................................ 1,033 1,467
Note payable to stockholder ..................................................... 52,600 408,000
---------- ---------------
Total current liabilities .................................................. 84,163 665,824
---------- ---------------
Commitments and contingencies: .................................................... -- --
Stockholders' deficit;
Preferred stock, $.001 par value, 5,000,000 shares authorized, and no shares
issued ....................................................................... -- --
Common stock, $.001 par value, 50,000,000 shares authorized, 15,000,000 shares
issued and outstanding ....................................................... 15,000 15,000
Subscription receivable ......................................................... (14,900) --
Deficit accumulated during the development stage ................................ (60,936) (351,631)
---------- ---------------
Total stockholders' deficit ................................................ (60,836) (336,631)
---------- ---------------
$ 23,327 $ 329,193
========== ===============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
PERIOD FROM NOVEMBER 15, 1995 (DATE OF INCEPTION) TO JUNE 30, 1996, THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND NOVEMBER 15, 1995 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
Cumulative
Period from Amounts Since
November 15, November 15,
1995 Three 1995
(Date of Months (Date of
inception) to Ended Inception) to
June 30, September 30, September 30,
1996 1996 1996
-------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue ..................... $ -- $ 7,758 $ 7,758
-------------- --------------- ---------------
Costs and expenses:
Research and development .. 50,080 165,280 215,380
Amortization .............. 101 266 367
General and administrative 9,720 128,307 138,027
-------------- --------------- ---------------
Total costs and expenses 59,901 293,853 353,754
-------------- --------------- ---------------
Loss from operations ........ (59,901) (286,095) (345,996)
Interest expense ............ (1,035) (4,600) (5,635)
-------------- --------------- ---------------
Net loss before income
taxes ................ (60,936) (290,695) (351,631)
Provision for income taxes .. -- -- --
-------------- --------------- ---------------
Net loss ............... $(60,936) $(290,695) $(351,631)
============== =============== ===============
Loss per share ......... $ (.00) $ (.02) $ (.02)
============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM NOVEMBER 15, 1995 (DATE OF
INCEPTION) THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Total
Common Stock Subscription Development Stockholders'
------------------------- -------------- ------------- ---------------
Shares Amount Receivable Stage Deficit
------------ --------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, November 15, 1995 ....... -- $ -- $ -- $ -- $ --
Common stock issued for cash on
November 15, 1995 at $1 per share 100 100 -- -- 100
Forward stock split of 150,000
shares for one share on September
5, 1996 ......................... 14,999,900 14,900 (14,900) -- --
Net loss ......................... -- -- -- (60,936) (60,936)
------------ --------- -------------- ------------- ---------------
Balance, June 30, 1996 ........... 15,000,000 $15,000 $(14,900) $ (60,936) $ (60,836)
============ ========= ============== ============= ===============
Payment of subscription receivable
(unaudited) ..................... -- -- 14,900 -- 14,900
Net loss (unaudited) ............. -- -- -- (290,695) (290,695)
------------ --------- -------------- ------------- ---------------
Balance, September 30, 1996
(unaudited) ..................... 15,000,000 $15,000 $ -- $(351,631) $(336,631)
============ ========= ============== ============= ===============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM NOVEMBER 15, 1995 (DATE OF INCEPTION)
TO JUNE 30, 1996, THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND NOVEMBER 15,
1995 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Period from Period from
November 15, November 15,
1995 Three 1995
(Date of Months (Date of
Inception) to Ended Inception) to
June 30, September 30, September 30,
1996 1996 1996
-------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $(60,936) $(290,695) $(351,631)
Adjustments to reconcile net loss to net cash (used
in) operating activities:
Depreciation and amortization ................... 153 6,652 6,805
(Increase) decrease in:
Accounts receivable ........................... -- (7,758) (7,758)
Increase (decrease) in:
Accounts payable .............................. 18,254 123,850 142,104
Accrued liabilities ........................... 12,276 101,977 114,253
Due to related party .......................... 1,033 434 1,467
-------------- --------------- ---------------
Net cash used in operating activities ...... (29,220) (65,540) (94,760)
-------------- --------------- ---------------
Cash flows from investing activities:
Acquisition of intangible assets ................... (10,307) (7,771) (18,078)
Purchase of property and equipment ................. (3,142) (1,737) (4,879)
Construction technical equipment ................... (7,498) (164,484) (171,982)
-------------- --------------- ---------------
Net cash used in investing activities ...... (20,947) (173,992) (194,939)
-------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sale of common stock ................. 100 14,900 15,000
Note payable to stockholder ........................ 52,600 355,400 408,000
Increase in deferred offering costs ................ -- (74,293) (74,293)
-------------- --------------- ---------------
Net cash provided by financing activities .. 52,700 296,007 398,707
-------------- --------------- ---------------
Increase in cash ........................... 2,533 56,475 59,008
Cash, beginning of period ............................ -- 2,533 --
-------------- --------------- ---------------
Cash, end of period .................................. $ 2,533 $ 59,008 $ 59,008
============== =============== ===============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ........................................ $ -- $ -- $ --
============== =============== ===============
Income taxes .................................... $ -- $ -- $ --
============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
JUNE 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Development Stage Company
Commodore Separation Technologies, Inc. (a development stage company) (the
"Company") was incorporated on November 15, 1995, under the laws of the state
of Delaware. As part of the capitalization of the Company, Commodore
Environmental Services, Inc. ("Commodore") contributed to the Company
Commodore's rights to the separation technology and assigned to the Company a
royalty payable to Srinivas Kilambi, Ph.D., an officer of the Company, equal
to 2% of future technology revenue that the Company may realize. See Note 5.
The Company is a process technology company which has developed and
intends to commercialize its separation technology and recovery system, known
as CST. Based on the results of more than 100 laboratory tests and one
significant field test to date, the Company believes that CST is capable of
effectively separating and extracting various solubilized materials,
including metals, organic chemicals, biochemicals, radionuclides and other
targeted substances, from liquid and gaseous process streams. The Company has
not commenced planned principal operations. As such, the Company is
considered a development stage company as defined in SFAS No.7.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. Financial
instruments subject to possible material market variations from the recorded
book value are a note payable to a stockholder and a note due to a related
party. There are no material differences in instruments from the recorded
book value as of June 30, 1996.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LOSS PER SHARE
Loss per share is computed based on the average number of shares
outstanding of 15,000,000 shares for the period November 15, 1995 (date of
inception) to June 30, 1996, the three months ended September 30, 1996
(unaudited) and cumulative amounts since November 15, 1995 through September
30, 1996 (unaudited).
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and
improvements are capitalized while minor replacements, maintenance and
repairs which do not increase the useful lives of the assets are expensed as
incurred. Depreciation and amortization have been provided using a
straight-line method over estimated useful lives of the assets, which vary
from three to seven years. Research equipment has been constructed by the
Company and management anticipates it will be placed in service in 1996. In
connection with the construction, the Company has not capitalized interest as
part of the asset cost as it is not material.
F-7
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements - (Continued)
(1) Summary of Significant Accounting Policies - (Continued)
INTANGIBLE ASSETS
The Company has incurred costs associated with applying for certain
patents. These costs are amortized over 17 years. Accumulated amortization
was $101 and $367 at June 30, 1996 and September 30, 1996 (unaudited),
respectively.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are charged to operations as
incurred except for those costs relating to the design or construction of an
asset having an economic useful life which are then capitalized and
depreciated over the estimated life.
INCOME TAXES
Deferred income taxes are provided, when material, in amounts sufficient
to give effect to timing differences between financial and tax reporting.
DEFERRED OFFERING COSTS
The Company is currently in the process of drafting and preparing a
Securities and Exchange Commission registration statement for a public
offering. Costs related to the public offering including legal, accounting,
printing, travel and other related costs are capitalized. Upon completion of
the offering these costs will be netted against the offering proceeds. Should
the offering be aborted or terminated those costs will be charged to
operations.
UNAUDITED FINANCIAL INFORMATION
The unaudited financial statements include the accounts of the Company and
include all adjustments (consisting of normal recurring items) which are, in
the opinion of management, necessary to present fairly the financial position
as of September 30, 1996 and the results of operations and cash flows for the
three months ended September 30, 1996 and the period November 15, 1995 (date
of inception) to September 30, 1996. The results of operations for the three
months ended September 30, 1996 are not necessarily indicative of the results
to be expected for the entire year.
(2) RELATED PARTY TRANSACTIONS
The Company owes unsecured advances of $52,600 and $408,000 as of June 30,
1996 and September 30, 1996, respectively, to its sole stockholder,
Commodore. The Company owes interest on the advances at the rate of 8 percent
per annum. Accrued interest payable at June 30, 1996 and September 30, 1996
is $1,035 and $5,635, respectively.
The Company has unsecured non-interest bearing advances from a related
entity that has the same principal stockholder as the Company. The amount
owed to the related party at June 30, 1996 and September 30, 1996 is $1,033
and $1,467, respectively.
Through June 30, 1996, the Company had an unwritten agreement in which its
sole stockholder provided space for the Company's New York offices at no
cost, and another company under common control provided the Ohio facility
space to the Company at no cost. Subsequent to June 30, 1996, the Company is
paying a monthly rent of $750 for the Ohio space. Rent expense for the three
month period ended September 30, 1996 was $2,250.
F-8
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements - (Continued)
(3) INCOME TAXES
The difference between the income tax benefit at statutory rates for the
periods ended June 30, 1996 and September 30, 1996, respectively, and the
amount presented in the financial statements are as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
----------- ---------------
(unaudited)
<S> <C> <C>
Tax benefit at statutory rates $(21,000) $ (98,000)
Valuation allowance 21,000 98,000
------------ -------------
$ -- $ --
============ =============
Deferred tax asset at June 30, 1996 and September
30, 1996 are as follows:
Net operating loss carryforward $(21,000) $(119,000)
Valuation allowance 21,000 119,000
------------ -------------
Net deferred tax asset $ -- $ --
============ =============
</TABLE>
At June 30, 1996 and September 30, 1996, the Company had tax loss
carryforwards of approximately $21,000 and $119,000, respectively. The amount
of and ultimate realization of benefit from the net operating loss for income
tax purposes is dependent, in part, upon the tax laws in effect, future
earnings of the Company, and other future events, the effects of which cannot
be determined. A change in ownership of the Company may reduce the amount of
loss allowable. These net operating carryforwards begin to expire in 2011.
A valuation allowance has been established to reduce any potential tax
benefit as it is not known when or if the Company will realize the benefit of
net operating losses.
(4) GOING CONCERN
The Company has sustained significant operating losses. In addition, the
Company has significant deficits in working capital and stockholders' equity.
These factors create an uncertainty about the Company's ability to continue
as a going concern. The Company has received advances in working capital from
its parent company to fund operations to date. There can be no assurance that
it will continue to receive such assistance.
The Company has commenced drafting and preparing a Securities and Exchange
Commission registration statement for a public offering of five million
shares of its common stock and five million warrants. If the proposed public
offering is consummated it will provide funds for continuing operations.
There is no assurance that the Company will be successful in raising the
needed working capital and equity through the proposed public offering. The
ability of the Company to continue as a going concern is dependent on the
Company obtaining external funding and attaining future profitable
operations. The financial statements do not include any adjustment that might
be necessary if the Company is unable to continue as a going concern.
(5) ROYALTY AGREEMENT
The Company has an agreement with an officer of the Company whereby the
officer is to receive a royalty of 2% of collected revenues from the
Company's membrane separation technology through December 3, 2002.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standard Statement No. 121, "Accounting for Long Lived
Assets" and No. 123 "Accounting and Disclosure of Stock-Based Compensation."
Statement No. 121 is effective for years beginning after December 15, 1995.
The effect of
F-9
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements - (Continued)
(6) Recent Accounting Pronouncements - (Continued)
adoption of Statement No. 121 will not have a material effect on the
Company's financial statements. Statement No. 123 is effective for awards
granted after December 31, 1994, and has required financial presentation for
years beginning after December 15, 1995. The effect of adoption of Statement
123 is not expected to have a material effect on the Company's financial
statements.
(7) SUBSEQUENT EVENTS
Public Stock Offering
Subsequent to June 30, 1996, the Company commenced drafting and preparing
a Securities and Exchange Commission registration statement for a public
offering of five million shares of common stock and five million warrants.
EMPLOYMENT AGREEMENTS
On August 1 and September 1, 1996, the Company entered into employment
agreements with certain officers of the Company. Commitments under the
employment agreements are as follows:
Annual
Year Compensation
------ --------------
1997 $ 619,000
1998 723,000
1999 723,000
2000 361,000
--------------
$2,426,000
==============
Stock Option Plan
In September 1996, Commodore (as sole stockholder of the Company) approved
the Company's 1996 Stock Option Plan, as previously adopted by the company's
Board of Directors (the Plan), pursuant to which officers, directors, key
employees and/or consultants of the Company can receive incentive stock
options and non-qualified stock options to purchase up to an aggregate of
2,000,000 shares of the Company's Common Stock (of which no more than
1,500,000 shares may be issued pursuant to non-qualified stock options). In
September 1996, the Company's Board of Directors awarded, under the Plan,
based upon completion of the public offering, non-qualified stock options to
certain key executive officers and directors entitling them to purchase an
aggregate of 1,100,000 shares of Common Stock, all of which provide for an
exercise price equal to the initial public offering price of the Common
Stock, are exercisable at the rate of 20% of the number of options granted in
each of calendar years 1996 through 2000, inclusive, beginning on the
consummation of the Offering and, unless exercised, expire on December 31,
2001 (subject to prior termination in accordance with the applicable stock
option agreements). In addition, non-qualified options to purchase an
aggregate of 135,000 shares of Common Stock were awarded, based upon
completion of the public offering, to members of the Board of Directors who
are not employed or otherwise affiliated with the Company, all of which are
exercisable at an exercise price equal to the initial public offering price
of the Common Stock, are exercisable at the rate of 33 1/3% of the number of
options granted in each of calendar years 1996 through 1998, inclusive,
beginning on the consummation of the Offering, and, unless exercised, expire
on December 31, 2001 (subject to prior termination in accordance with the
applicable stock option agreements). The exercise price applicable to all
outstanding stock options represent no less than 100% of the fair market
value of the underlying Common Stock as of the date that such options were
granted, as determined by the Board of Directors of the Company on the date
that such options were granted.
F-10
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements - (Continued)
(7) Subsequent Events - (Continued)
BASIS OF PRESENTATION
On September 5, 1996, the Company amended its Certificate of Incorporation
which changed the preferred and common stock to the following:
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, $.001 par value.
Common Stock
The Company is authorized to issue up to 50,000,000 shares of common
stock, $.001 par value.
The Company also effected a forward stock split of 150,000 shares for one
share. This increased the total number of shares of Common Stock issued and
outstanding to 15,000,000 shares, which are all held by Commodore.
The financial statements have been prepared as though the above changes in
stockholders' equity had occurred at November 15, 1995.
CAPITAL CONTRIBUTION
As of September 30, 1996, the Company had received $408,000 of additional
advances from Commodore, which have been reflected in the financial
statements as a note payable to stockholder. Upon completion of the public
offering, $408,000 of the note payable and any additional advances will be
converted to equity.
F-11
<PAGE>
=============================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any
Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any date subsequent to
the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby by anyone in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so
or to any person to whom it is unlawful to make such offer or solicitation.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary ............................... 3
Risk Factors ..................................... 7
Use of Proceeds .................................. 15
Capitalization ................................... 16
Dividend Policy .................................. 17
Dilution ......................................... 17
Selected Financial Data .......................... 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 19
Business ......................................... 21
Management ....................................... 33
Executive Compensation ........................... 35
Principal Stockholders ........................... 38
Certain Relationships and Related Transactions ... 40
Description of Securities ........................ 41
Shares Eligible for Future Sale .................. 44
Underwriting ..................................... 45
Legal Matters .................................... 47
Experts .......................................... 47
Additional Information ........................... 47
Index to Financial Statements .................... F-1
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
=============================================================================
COMMODORE SEPARATION
TECHNOLOGIES, INC.
5,000,000 SHARES OF
COMMON STOCK
AND
5,000,000 REDEEMABLE
COMMON STOCK PURCHASE
WARRANTS
(AS UNITS, EACH CONSISTING OF
ONE SHARE OF COMMON STOCK
AND ONE WARRANT)
------
PROSPECTUS
------
NATIONAL SECURITIES
CORPORATION
, 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Securities being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the AMEX listing
fee.
SEC registration fee ............... $ 41,874
NASD filing fee .................... 12,644
AMEX listing fee ................... 50,000
Registrar and Transfer Agent's fees 10,000
Printing and engraving expenses .... 50,000
Blue Sky fees and expenses ......... 25,000
Legal fees and expenses ............ 150,000
Accountant's fees and expenses ..... 25,000
Miscellaneous. ..................... 10,482
----------
Total ............................ $375,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and By-laws of the registrant provide
that the Company shall indemnify officers and directors to the fullest extent
allowed by the Delaware General Corporation Law, as it now exists and as may
be amended.
The Underwriting Agreement between the Company and National Securities
Corporation, as representative of the several Underwriters (the
"Representative"), provides for indemnification of the officers and directors
of the registrant under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) In November 1995, the registrant issued 100 shares of its Common Stock
to its corporate parent, Commodore Environmental Services, Inc. On September
5, 1996, the Company effected a 150,000-for-one stock split, and issued a new
stock certificate to its corporate parent representing 15,000,000 shares of
the registrant's Common Stock.
In September 1996, the registrant issued to officers and directors,
effective upon completion of this Offering, pursuant to the registrant's 1996
Stock Option Plan, options to purchase an aggregate of 1,235,000 shares of
the registrant's Common Stock.
(b) There were no underwriters, brokers or finders employed in connection
with any of the transactions set forth in Item 15(a).
(c) The issuances described in Item 15(a) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public
offering. In addition, certain of the issuances described in Item 15(a) were
deemed exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated under the Securities Act. The recipients of securities
in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access, through their relationships with the registrant, to
information about the registrant.
The registrant has not otherwise issued any securities exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
--------------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement between the Company and the Representative.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Specimen Common Stock Certificate.
4.2 Form of Warrant Agreement between the Company, the Representative and The Bank of New York.
4.3 Specimen Warrant Certificate.
4.4 Form of Representative's Warrant Agreement between the Company and the Representative, including
form of Representative's Warrant therein.
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel as to the legality of the Securities
being offered.
10.1 Employment Agreement, dated as of August 1, 1996, between the Company and Alan R. Burkart.
10.2 Employment Agreement, dated as of September 1, 1996, between the Company and Carl O. Magnell.
10.3 Employment Agreement, dated as of September 1, 1996, between the Company and James M. DeAngelis.
10.4 Employment Agreement, dated as of September 1, 1996, between the Company and Srinivas Kilambi,
Ph.D.
10.5 Employment Agreement, dated as of September 1, 1996, between the Company and Michael D. Kiehnau.
10.6 1996 Stock Option Plan of the Company.
10.7 Executive Bonus Plan of the Company.
10.8 Memorandum of Understanding, dated August 30, 1996, between the Company and Teledyne Brown Engineering,
a Division of Teledyne Industries, Inc.
10.9 Memorandum of Understanding, dated August 29, 1996, between the Company and Sverdrup Environmental,
Inc.
10.10 Services Agreement, dated August 31, 1996, between the Company and Commodore CFC Technologies,
Inc.
10.11 Assignment of Technology Agreement, dated as of December 4, 1995, by and between the Company (formerly
Commodore Membrane Technologies, Inc.) and Srinivas Kilambi, Ph.D.
22.1 Subsidiaries of the Company.
*23.1 Consent of Tanner + Co.
23.2 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (included in the opinion filed
as Exhibit 5.1).
23.3 Consent of John A. Cenerazzo.
23.4 Consent of Jon Lee Prather.
*23.5 Consent of DLZ Laboratories Inc.
*23.6 Consent of Artesian Laboratories, Inc.
25.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------
Unless otherwise indicated, exhibits were previously filed.
* Filed herewith.
(b) Financial Statement Schedules.
None required.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment(s) to this Registration Statement:
II-2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities
Act if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change in such information in the
Registration Statement.
(b) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(d) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(e) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(f) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York on November 4, 1996.
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: /s/ Alan R. Burkart
----------------------------------------
Alan R. Burkart, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ Paul E. Hannesson Chairman of the Board November 4, 1996
- ----------------------------
Paul E. Hannesson
/s/ Alan R. Burkart President, Chief Executive November 4, 1996
- ---------------------------- Officer and Director (principal
Alan R. Burkart executive officer)
/s/ Michael D. Kiehnau* Chief Financial Officer November 4, 1996
- ---------------------------- (principal financial and
Michael D. Kiehnau accounting officer)
/s/ Bentley J. Blum* Director November 4, 1996
--------------------------
Bentley J. Blum
</TABLE>
By:
- --------------------------
/s/ Paul E. Hannesson
Paul E. Hannesson
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ------------------------------------------------------------------------------------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement between the Company and the Representative.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Specimen Common Stock Certificate.
4.2 Form of Warrant Agreement between the Company, the Representative and The Bank of New York.
4.3 Specimen Warrant Certificate.
4.4 Form of Representative's Warrant Agreement between the Company and the Representative,
including form of Representative's Warrant therein.
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel as to the legality of the
Securities being offered.
10.1 Employment Agreement, dated as of August 1, 1996, between the Company and Alan R. Burkart.
10.2 Employment Agreement, dated as of September 1, 1996, between the Company and Carl O. Magnell.
10.3 Employment Agreement, dated as of September 1, 1996, between the Company and James M. DeAngelis.
10.4 Employment Agreement, dated as of September 1, 1996, between the Company and Srinivas Kilambi,
Ph.D.
10.5 Employment Agreement, dated as of September 1, 1996, between the Company and Michael D.
Kiehnau.
10.6 1996 Stock Option Plan of the Company.
10.7 Executive Bonus Plan of the Company.
10.8 Memorandum of Understanding, dated August 30, 1996, between the Company and Teledyne Brown
Engineering, a Division of Teledyne Industries, Inc.
10.9 Memorandum of Understanding, dated August 29, 1996, between the Company and Sverdrup
Environmental, Inc.
10.10 Services Agreement, dated August 31, 1996, between the Company and Commodore CFC Technologies,
Inc.
10.11 Assignment of Technology Agreement, dated as of December 4, 1995, by and between the Company
(formerly Commodore Membrane Technologies, Inc.) and Srinivas Kilambi, Ph.D.
22.1 Subsidiaries of the Company.
*23.1 Consent of Tanner + Co.
23.2 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (included in the opinion
filed as Exhibit 5.1).
23.3 Consent of John A. Cenerazzo.
23.4 Consent of Jon Lee Prather.
*23.5 Consent of DLZ Laboratories Inc.
*23.6 Consent of Artesian Laboratories, Inc.
25.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------
* Filed herewith.
<PAGE>
LOGO
----------------------------
Tanner + Co.
CERTIFIED PUBLIC ACCOUNTANTS
675 East 500 South, Suite 640
Salt Lake City, Utah 84102
Telephone (801) 532-74444
Fax (801) 532-4911
CONSENT AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement of our report
dated August 1, 1996, except for notes 1, 2, 3, and 7, which are dated
October 14, 1996 relating to the financial statements of Commodore Separation
Technologies, Inc. (a development stage company), and to the reference to our
Firm under the caption "Experts" in the prospectus.
TANNER + CO.
Salt Lake City, Utah
November 4, 1996
<PAGE>
EXHIBIT 23.5
DLZ LABORATORIES, INC.
November 5, 1996
To: U.S. Securities and Exchange Commission
Re: Commodore Separation Technologies, Inc.
Dear Sirs:
We hereby consent to the reference to our name in the Prospectus Summary
and in the Business sections of the Registration Statement on Form S-1 (No.
333-11813) of Commodore Separation Technologies, Inc.
Very truly yours,
DLZ LABORATORIES, INC.
By: /s/ Michael Pannell
-------------------
Michael Pannel
Director
6121 Huntley Road * Columbus, Ohio 43229-1003
Telephone (614) 848-4333 Fax (614) 841-0818
<PAGE>
EXHIBIT 23.6
ARTESIAN LABORATORIES, INC.
630 Churchmans Road
Newark, Delaware 19702
(302) 453-6920 * 453-6986 (Fax)
November 5, 1996
To: U.S. Securities and Exchange Commission
Re: Commodore Separation Technologies, Inc.
Dear Sirs:
We hereby consent to the reference to our name in the Prospectus Summary
and in the Business sections of the Registration Statement on Form S-1 (No.
333-11813) of Commodore Separation Technologies, Inc.
Very truly yours,
ARTESIAN LABORATORIES, INC.
By: /s/ Keith Hausknecht
----------------------
Keith Hausknecht
President
