<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-11813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 1
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>
<S> <C> <C>
Delaware 3559 11-3299195
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of 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. / /
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>
COMMODORE SEPARATION TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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Item
Number Item Caption in Form S-1 Location in Prospectus
---------- -------------------------------------------------- ---------------------------------------------------
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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 OCTOBER 18, 1996
PROSPECTUS
5,000,000 SHARES OF COMMON STOCK AND
5,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
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"). 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. 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.
==============================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Share....... $ $ $
- ------------------------------------------------------------------------------
Per Warrant ... $ $ $
- ------------------------------------------------------------------------------
Total (3) ..... $ $ $
==============================================================================
(see footnotes on following page)
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the Securities will be made against payment
at the offices of National Securities Corporation, Seattle, Washington, on or
about , 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"). 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.
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 600 parts per million (ppm) to less than one ppm. In September 1996, the
Company installed a commercial scale CST unit on-line at a Columbus, Ohio
metal plating company. 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 believes that CST is the only technology capable of
on-site chromium removal and recovery that enables effluent discharge without
post-treatment.
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 Engineering, Inc., a subsidiary of
4
<PAGE>
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
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<S> <C>
Securities offered ................... 5,000,000 shares of Common Stock and 5,000,000 Warrants.
Terms of Warrants .................... Each Warrant entitles the holder thereof to purchase, at any time commencing
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>
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(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 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 Compa-
7
<PAGE>
ny'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.
8
<PAGE>
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which it seeks to protect, in
part, by confidentiality agreements with its prospective working partners and
collaborators, employees and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets and proprietary
know-how will not otherwise become known or be independently discovered by
others. See "Business -- Intellectual Property."
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
9
<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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<PAGE>
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
11
<PAGE>
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 October 10,
1996, the closing bid price of Commodore common stock was $1.81 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 $105,000,000 market capitalization of Commodore at
October 10, 1996 is substantially equivalent to 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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
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<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.
<PAGE>
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."
20
<PAGE>
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 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.
21
<PAGE>
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;
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.
22
<PAGE>
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.
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 600 parts per million (ppm) to less than one ppm. In September 1996, the
Company installed a commercial scale CST unit on-line at a Columbus, Ohio
metal plating company. 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 believes that CST is the only technology capable of
on-site chromium removal and recovery that enables effluent discharge without
post-treatment.
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 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.
23
<PAGE>
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 solution
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
24
<PAGE>
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.
25
<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 637 ppm 0.074 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. See "Risk Factors -- Unproven on Large-Scale Commercial Basis."
26
<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, 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>
REVERSE
OSMOSIS/
ULTRA-
CST ION EXCHANGE PRECIPITATION CHROMATOGRAPHY FILTRATION
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Process Description Reaction-diffusion Ionic exchange Precipitation as Adsorption High pressure
membrane transport metal hydroxides transport of
water across a
membrane
- --------------------------------------------------------------------------------------------------------------------------------
Process Temperatures Ambient-80|SDC Ambient-80|SDC Ambient Ambient Ambient-80|SDC
- --------------------------------------------------------------------------------------------------------------------------------
Process Pressure 15-20 pounds per 20-30 psi 15-25 psi 25 psi 100-1,000 psi
square inch (psi)
- --------------------------------------------------------------------------------------------------------------------------------
Target Compounds Metals, Organics, Metals, Anions Heavy Metals Biochemicals Water
Volatile organic
compounds, Gases,
Biochemicals,
Radionuclides,
Anions
- --------------------------------------------------------------------------------------------------------------------------------
Target Metals Electroplating, Electroplating, Electrochemicals, Biotechnology Electroplating,
Metal Metal Finishing Metal Finishing Metal Finishing,
Finishing, Petroleum,
Petroleum, Petrochemical,
Petrochemical, Paper, Organics,
Paper, Food Process,
Organics, Food Biotechnology,
Process, Textile
Biotechnology,
Textile
- --------------------------------------------------------------------------------------------------------------------------------
Reaction Time Instantaneous 1-2 seconds 2-10 seconds Several minutes Not applicable
- --------------------------------------------------------------------------------------------------------------------------------
Process Selectivity Greater than 1,000:1 Less than 70:1 0:1 2-5:1 0:1
(Desired:
Undesired)
- --------------------------------------------------------------------------------------------------------------------------------
Product Recovery Greater than 99.9% Greater than 99.9% None Greater than 90% Greater than 90%
- --------------------------------------------------------------------------------------------------------------------------------
Loading Limitations None Operates only at None Operates only at Cannot produce
low feed velocities very low flow rates large throughput
without clogging
- --------------------------------------------------------------------------------------------------------------------------------
Process Speed Very high Low to medium High Very low Medium
- --------------------------------------------------------------------------------------------------------------------------------
Post-Treatment No Yes Yes Yes Yes
Required
- --------------------------------------------------------------------------------------------------------------------------------
Comments; Readily integrated Readily integrated Non-selective; most Limited to low feed Energy intensive;
Limitations into other into other processes labor intensive; no concentration; non- non-selective;
processes; may product recovery selective; slow needs
need prefiltration process prefiltration
to remove suspened relatively
or heavier particles 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
27
<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 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.
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 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.
28
<PAGE>
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 600 ppm of chromium, and
reduced the contamination level to 0.074 ppm. This reduced level of
contamination was below the federal guideline (5 ppm) for the unregulated
discharge of water. The results of this test are consistent with trials
verified by DLZ 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."
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
29
<PAGE>
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. 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
30
<PAGE>
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 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
31
<PAGE>
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.
Although the Company believes that CST has substantial advantages over all
other known separation technolo
32
<PAGE>
gies, 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.
33
<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.
34
<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.
35
<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
36
<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.
37
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Shares Total
Name of Underlying Type of Options Exercise
Officer or Options Option Granted Price per
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>
Name of Percentage 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.
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<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-
39
<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.
40
<PAGE>
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.
41
<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
42
<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.
43
<PAGE>
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.
44
<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."
45
<PAGE>
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.
46
<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 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, 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."
47
<PAGE>
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."
48
<PAGE>
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>
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
<TABLE>
<CAPTION>
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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
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
</TABLE>
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.
=============================================================================
<PAGE>
=============================================================================
COMMODORE SEPARATION
TECHNOLOGIES, INC.
5,000,000 SHARES OF
COMMON STOCK
AND
5,000,000 REDEEMABLE
COMMON STOCK PURCHASE
WARRANTS
------
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.
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. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York on October 18, 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. 1 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 October 18, 1996
-------------------------
Paul E. Hannesson
/s/ Alan R. Burkart President, Chief Executive October 18, 1996
------------------------- Officer and Director (principal
Alan R. Burkart executive officer)
/s/ Michael D. Kiehnau* Chief Financial Officer October 18, 1996
------------------------- (principal financial and
Michael D. Kiehnau accounting officer)
/s/ Bentley J. Blum* Director October 18, 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.
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.
<PAGE>
Exhibit 1.1
[Form of Underwriting Agreement - Subject to Additional Review]
5,000,000 Shares of Common Stock
and 5,000,000 Redeemable Warrants
COMMODORE SEPARATION TECHNOLOGIES, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1996
NATIONAL SECURITIES CORPORATION
As Representative of the
Several Underwriters listed on Schedule A hereto
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Commodore Separation Technologies, Inc., a Delaware corporation (the
"Company"), confirms its agreement with National Securities Corporation
("National") and each of the underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 11), for whom National is acting
as representative (in such capacity, National shall hereinafter be referred to
as "you" or the "Representative"), with respect to the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly, of the
respective number of shares ("Shares") of the Company's common stock, $.001 par
value per share ("Common Stock"), and redeemable common stock purchase warrants
(the "Redeemable Warrants"), each to purchase one share of Common Stock, set
forth in Schedule A hereto. The aggregate 5,000,000 Shares and 5,000,000
<PAGE>
Redeemable Warrants will be separately tradeable upon issuance and are
hereinafter referred to as the "Firm Securities." Each Redeemable Warrant is
exercisable commencing on ____________, 1997 [12 months from the date of this
Agreement] until ____________, 2001 [60 months from the date of this Agreement],
unless previously redeemed by the Company, at an initial exercise price of
$_______ [140% of the initial public offering price per Share] per share of
Common Stock. The Redeemable Warrants may be redeemed by the Company at a
redemption price of $.10 per Redeemable Warrant at any time after _____________,
1998 [18 months from the date of this Agreement] on thirty (30) days' prior
written notice, provided that the closing bid price of the Common Stock equals
or exceeds 300% of the initial public offering price per Share, for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
on the fifth trading day prior to the date of the notice of redemption, all in
accordance with the terms and conditions of the Warrant Agreement (as
hereinafter defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 750,000 Redeemable Warrants (the "Option Warrants")
for the purpose of covering over-allotments, if any. Upon your request, as
provided in Section 2(b) of this Agreement, Commodore Environmental Services,
Inc., a ___________ corporation (the "Selling Stockholder"), shall sell to the
Underwriters, acting severally and not jointly, up to an additional 750,000
shares of Common Stock (the "Option Shares") for the purpose of covering
over-allotments, if any. Such Option Shares and Option Warrants are hereinafter
collectively referred to as the "Option Securities." The Company also proposes
to issue and sell to you warrants (the "Representative's Warrants") pursuant to
the Representative's Warrant Agreement (the "Representative's Warrant
Agreement") for the purchase of an additional 500,000 shares of Common Stock
and/or 500,000 Redeemable Warrants. The shares of Common Stock and Redeemable
Warrants issuable upon exercise of the Representative's Warrants are hereinafter
referred to as the "Representative's Securities." The Firm Securities, the
Option Securities, the Representative's Warrants and the Representative's
Securities (collectively, hereinafter referred to as the "Securities") are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with, each
of the Underwriters as of the date hereof, and as of the Closing Date (as
hereinafter defined) and each Option Closing Date (as hereinafter defined), if
any, as follows:
(i) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-_________),
including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Firm Securities, the Option
Securities, the Representative's Warrants and the Representative's
Securities under the Securities Act of 1933, as amended (the "Act"),
which registration statement and amendment or amendments have been
prepared by the Company in
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<PAGE>
conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The
Company will promptly file a further amendment to said registration
statement in the form heretofore delivered to the Underwriters and will
not file any other amendment thereto to which the Underwriters shall
have objected in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed
as a part thereof or incorporated therein (including, but not limited
to those documents or information incorporated by reference therein)
and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430(A) of the Regulations), is
hereinafter called the "Registration Statement", and the form of
prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(ii) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or Prospectus or any
part of any thereof and no proceedings for a stop order suspending the
effectiveness of the Registration Statement or any of the Company's
securities have been instituted or are pending or threatened. Each of
the Preliminary Prospectus, the Registration Statement and Prospectus
at the time of filing thereof conformed with the requirements of the
Act and the Rules and Regulations, and none of the Preliminary
Prospectus, the Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this
representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(iii) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date (as defined herein)
and each Option Closing Date (as defined herein), if any, and during
such longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules
and Regulations, and will conform to the requirements of the Act and
the Rules and Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the
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<PAGE>
circumstances under which they were made, not misleading, provided,
however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in strict
conformity with information furnished to the Company in writing by or
on behalf of any Underwriter expressly for use in the Preliminary
Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
(iv) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the state
of its incorporation. Except as set forth in the Prospectus, the
Company does not own an interest in any corporation, partnership,
trust, joint venture or other business entity. The Company is duly
qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any properties
or the character of its operations requires such qualification or
licensing. The Company has all requisite power and authority (corporate
and other), and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of
and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and
has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and
all applicable federal, state, local and foreign laws, rules and
regulations; and the Company has not received any notice of proceedings
relating to the revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the
Company. The disclosures in the Registration Statement concerning the
effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as
contemplated are correct in all material respects and do not omit to
state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading in light of the
circumstances under which they were made.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization"
and "Description of Securities" and will have the adjusted
capitalization set forth therein on the Closing Date and each Option
Closing Date, if any, based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement, the
Warrant Agreement, the Representative's Warrant Agreement and as
described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform or, when issued and paid for,
will conform, in all respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued
and outstanding securities of the Company have been duly
- 4 -
<PAGE>
authorized and validly issued and are fully paid and non-assessable and
the holders thereof have no rights of rescission with respect thereto,
and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company. The Firm Securities,
the Option Warrants, the Representative's Warrants and the
Representative's Securities are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable
and will conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Firm Securities, the Option
Warrants, the Representative's Warrants and the Representative's
Securities has been duly and validly taken; and the certificates
representing the Firm Securities, the Option Warrants, the
Representative's Warrants and the Representative's Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the
terms hereof of the Firm Securities, the Option Warrants, the
Representative's Warrants and the Representative's Securities to be
sold by the Company hereunder, the Underwriters or the Representative,
as the case may be, will acquire good and marketable title to such Firm
Securities, Option Warrants, Representative's Warrants and
Representative's Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever.
(vi) The financial statements of the Company, together with
the related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly
present the financial position, income, changes in cash flow, changes
in stockholders' equity and the results of operations of the Company at
the respective dates and for the respective periods to which they apply
and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by Tanner & Co., who are
independent certified public accountants within the meaning of the Act
and the Rules and Regulations, as indicated in their reports filed
therewith. There has been no adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or
in the earnings, position, prospects, value, operation, properties,
business, or results of operations of the Company, whether or not
arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and
intangible, and the business of the Company conform in all material
respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information (including, without
limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Data", "Selected
Financial Data," "Capitalization," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," fairly
present, on the basis
- 5 -
<PAGE>
stated in the Prospectus, the information set forth therein, and have
been derived from or compiled on a basis consistent with that of the
audited financial statements included in the Prospectus; and, in the
case of pro forma financial information, if any, the assumptions used
in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for
current and deferred income and other taxes in such financial
statements are sufficient for the payment of all accrued and unpaid
federal, state, local and foreign income taxes, interest, penalties,
assessments or deficiencies applicable to the Company, whether disputed
or not, for the applicable period then ended and periods prior thereto;
adequate allowance for doubtful accounts has been provided for
unindemnified losses due to the operations of the Company; and the
statements of income do not contain any items of special or
nonrecurring income not earned in the ordinary course of business,
except as specified in the notes thereto.
(vii) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of
the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to
the Code, (ii) has established adequate reserves for such taxes which
are not due and payable, and (iii) does not have any tax deficiency or
claims outstanding, proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the
issuance by the Company of the Firm Securities, the Option Warrants,
the Representative's Warrants or the Representative's Securities, (ii)
the purchase by the Underwriters of the Firm Securities and the Option
Warrants from the Company and the purchase by the Representative of the
Representative's Warrants from the Company, (iii) the consummation by
the Company of any of its obligations under this Agreement, or (iv)
resales of the Firm Securities and the Option Warrants in connection
with the distribution contemplated hereby.
(ix) The Company maintains insurance policies, including, but
not limited to, general and product liability, environmental and
property insurance, which insures the Company and its employees against
such losses and risks generally insured against by comparable
businesses. The Company (A) has not failed to give notice or present
any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (B) does
not have any disputes or claims against any underwriter of such
insurance policies or surety bonds or has failed to pay any premiums
due and payable thereunder, or (C) has not failed to comply with all
conditions contained in such insurance policies and surety bonds. There
are no facts or circumstances under any such insurance policy or surety
bond which would relieve any insurer of its obligation to satisfy in
full any valid claim of the Company.
- 6 -
<PAGE>
(x) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or
threatened against (or circumstances that may give rise to the same),
or involving the properties or business of, the Company which (i)
questions the validity of the capital stock of the Company, this
Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Warrant Agreement
or the Representative's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all material respects), or (iii) might
materially and adversely affect the condition, financial or otherwise,
or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the
Company.
(xi) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Firm Securities, the Option
Warrants, the Representative's Warrants and the Representative's
Securities, enter into this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement and to consummate the transactions
provided for in this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement; and this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement have each been
duly and properly authorized, executed and delivered by the Company.
Each of this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its
terms, and none of the Company's issue and sale of the Firm Securities,
the Option Warrants, the Representative's Warrants and the
Representative's Securities, execution or delivery of this Agreement,
the Warrant Agreement or the Representative's Warrant Agreement, its
performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms of
(i) the certificate of incorporation or by-laws of the Company, (ii)
any license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which the Company is
or may be bound or to which either of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including,
without
- 7 -
<PAGE>
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
(xii) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other
body, domestic or foreign, is required for the issuance of the Firm
Securities, the Option Warrants, the Representative's Warrants and the
Representative's Securities pursuant to the Prospectus and the
Registration Statement, the performance of this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement and the
transactions contemplated hereby and thereby, including without
limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of
the Firm Securities, the Option Warrants, the Representative's Warrants
and the Representative's Securities, except such as have been or may be
obtained under the Act or may be required under state securities or
Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Firm Securities and the Option Securities, and the
Representative's Warrants to be sold by the Company hereunder.
(xiii) All executed agreements, contracts or other documents
or copies of executed agreements, contracts or other documents filed as
exhibits to the Registration Statement to which the Company is a party
or by which it may be bound or to which its assets, properties or
business may be subject have been duly and validly authorized, executed
and delivered by the Company and constitute the legal, valid and
binding agreements of the Company enforceable against the Company in
accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with
respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the
Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the
documents of which they purport to be copies.
(xiv) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus,
and except as may otherwise be indicated or contemplated herein or
therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii)
entered into any transaction other than in the ordinary course of
business, or (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any change in
the debt (long or short term) or liabilities or material adverse change
in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company.
- 8 -
<PAGE>
(xv) No default exists in the due performance and observance
of any term, covenant or condition of any license, contract, collective
bargaining agreement, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement,
partnership agreement, note, loan or credit agreement, purchase order,
or any other agreement or instrument evidencing an obligation for
borrowed money, or any other material agreement or instrument to which
the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is
subject or affected.
(xvi) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance
with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations
involving the Company by the U.S. Department of Labor, or any other
governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company pending before the
National Labor Relations Board or any lockout, strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company, or any predecessor entity, and none has ever
occurred. No representation question exists respecting the employees of
the Company, and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company. No grievance or
arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with
the employees of the Company exists, or is imminent.
(xvii) The Company does not maintain, sponsor or contribute to
any program or arrangement that is an "employee pension benefit plan,"
an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in
Section 3(35) of ERISA. No ERISA Plan (or any trust created thereunder)
has engaged in a "prohibited transaction" within the meaning of Section
406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all
reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been
received from the Internal Revenue Service with respect to each ERISA
Plan which is intended to comply with Code Section 401(a), stating that
such ERISA Plan and the attendant trust are qualified thereunder. The
Company has never completely or partially withdrawn from a
"multiemployer plan."
(xviii) Neither the Company nor any of its employees,
directors, stockholders, partners, or affiliates (within the meaning of
the Rules and Regulations) of any of the foregoing has taken or will
take, directly or indirectly, any action designed to or which
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<PAGE>
has constituted or which might be expected to cause or result in, under
the Exchange Act, or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities or otherwise.
(xix) Except as otherwise disclosed in the Prospectus, none of
the patents, patent applications, trademarks, service marks, trade
names and copyrights, and licenses and rights to the foregoing
presently owned or held by the Company are in dispute so far as known
by the Company or are in any conflict with the right of any other
person or entity. The Company (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names
and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or
proposed to be conducted without infringing upon or otherwise acting
adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is
not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, service mark, trade name,
copyright, know-how, technology or other intangible asset, with respect
to the use thereof or in connection with the conduct of its business or
otherwise.
(xx) The Company owns and has the unrestricted right to use
all trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), inventions, designs, processes, works of authorship,
computer programs and technical data and information (collectively
herein "intellectual property") that are material to the development,
manufacture, operation and sale of all products and services sold or
proposed to be sold by the Company, free and clear of and without
violating any right, lien, or claim of others, including without
limitation, former employers of its employees; provided, however, that
the possibility exists that other persons or entities, completely
independently of the Company, or its employees or agents, could have
developed trade secrets or items of technical information similar or
identical to those of the Company. The Company is not aware of any such
development of similar or identical trade secrets or technical
information by others.
(xxi) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of its intellectual
property in all material respects.
(xxii) The Company has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, free and
clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens
for taxes not yet due and payable.
- 10 -
<PAGE>
(xxiii) Tanner & Co., whose report is filed with the
Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(xxiv) The Company has caused to be duly executed legally
binding and enforceable agreements pursuant to which each of the
Company's officers, directors, stockholders and holders of securities
exchangeable or exercisable for or convertible into shares of Common
Stock has agreed (i) not to, directly or indirectly, issue, offer,
offer to sell, sell, grant any option for the sale or purchase of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose
of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144
of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than thirteen (13) months
following the effective date of the Registration Statement without the
prior written consent of the Representative and the Company and (ii) to
waive all rights to request or demand the registration pursuant to the
Act of any securities of the Company which are registered in the name
of or beneficially owned by any such holder. During the 13 month period
commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer,
assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock. The Company will
cause the Transfer Agent (as hereinafter defined) to mark an
appropriate legend on the face of stock certificates representing all
of such securities and to place "stop transfer" orders on the Company's
stock ledgers.
(xxv) There are no claims, payments, issuances, arrangements
or understandings, whether oral or written, for services in the nature
of a finder's or origination fee with respect to the sale of the
Securities hereunder or any other arrangements, agreements,
understandings, payments or issuance with respect to the Company or any
of its officers, directors, stockholders, partners, employees or
affiliates, that may affect the Underwriters' compensation, as
determined by the National Association of Securities Dealers, Inc.
("NASD").
(xxvi) The Common Stock and Redeemable Warrants have been
approved for listing on the American Stock Exchange ("AMEX").
(xxvii) Neither the Company nor any of its officers,
employees, agents or any other person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate
for office (domestic or foreign) or other person who was, is, or may be
in
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<PAGE>
a position to help or hinder the business of the Company (or assist the
Company in connection with any actual or proposed transaction) which
(a) might subject the Company, or any other such person to any damage
or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might
have had a material adverse effect on the assets, business or
operations of the Company, or (c) if not continued in the future, might
adversely affect the assets, business, condition, financial or
otherwise, earnings, position, properties, value, operations or
prospects of the Company. The Company's internal accounting controls
are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(xxviii) Except as set forth in the Prospectus, no officer,
director, stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under
the Rules and Regulations) of any of the foregoing persons or entities
has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products
which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company
any goods or services, or (ii) a beneficiary interest in any contract
or agreement to which the Company is a party or by which it may be
bound or affected. Except as set forth in the Prospectus under "Certain
Relationships and Related Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or 5% or greater
securityholder of the Company, or any partner, affiliate or associate
of any of the foregoing persons or entities.
(xxix) Any certificate signed by any officer of the Company,
and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
(xxx) The minute books of the Company have been made available
to the Underwriters and contain a complete summary of all meetings and
actions of the directors (including committees thereof) and
stockholders of the Company, since the time of its incorporation, and
reflect all transactions referred to in such minutes accurately in all
material respects.
(xxxi) Except and to the extent described in the Prospectus,
no holders of any securities of the Company or of any options, warrants
or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the
Company or to require the Company to file a registration statement
under the Act and no person or entity holds any anti-dilution rights
with respect to any securities of the Company.
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<PAGE>
(xxxii) (A) The Company is in compliance with all federal,
state, local or foreign laws, common law, rules, codes, administrative
orders or regulations relating to pollution or protection of human
health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
wildlife, including without limitation all laws, common law, rules,
codes, administrative orders and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental Laws")
and (B) to the best of the Company's knowledge, there are no events or
circumstances that could form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company relating
to any Hazardous Materials or the violation of any Environmental Laws.
The Company has no reason to believe that it will not receive all
necessary and required approvals, authorizations, validations and
certifications from applicable regulatory authorities to enable the
Company to commence full operations as contemplated in the Registration
Statement and the Prospectus.
(xxxiii) In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company, in the course of
which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly
or in the aggregate, have a material adverse effect on the Company.
(xxxiv) The Company has as of the effective date of the
Registration Statement (i) entered into an employment agreement with
each of Alan R. Burkart, Carl O. Magnell, James M. DeAngelis, Srinivas
Kilambi, Ph.D. and Michael D. Kiehnau in the forms filed as Exhibits
10.1, 10.2, 10.3, 10.4 and 10.5, respectively, to the Registration
Statement and (ii) purchased term key person insurance on the lives of
Messrs. Burkart, Magnell, DeAngelis and Kilambi in the amount of $1
million each, which policies name the Company as the sole beneficiary
thereof.
(xxxv) As of the date hereof, the Company does not have more
than 15,000,000 shares of Common Stock issued and outstanding
(including securities with equivalent rights as the Common Stock and
shares of Common Stock, or such equivalent securities, issuable upon
exercise of any and all options, warrants and other contract rights and
securities convertible directly or indirectly into shares of Common
Stock or such equivalent securities, but excluding up to 1,235,000
shares of Common Stock issuable
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<PAGE>
upon the exercise of options granted under the Company's 1996 Stock
Option Plan at prices not less than the initial public offering price
per Share).
(xxxvi) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of Doing Business with
Cuba, and the Company further agrees that if it or any affiliate
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with
the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or incorporated
by reference in the Prospectus, if any, concerning the Company's, or
any affiliate's, business with Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide
the Department notice of such business or change, as appropriate, in a
form acceptable to the Department.
(xxxvii) The Company has furnished the Representative and
Underwriters' Counsel with a true and complete copy of the Selling
Stockholder SEC Documents. As used herein, the "Selling Stockholder SEC
Documents" shall mean all documents (other than preliminary material)
that the Selling Stockholder has filed or has been required to file
with the Commission since January 1, 1994. As of its filing date (and,
with respect to any registration statement, the date on which it or any
post-effective amendment was declared effective), each Selling
Stockholder SEC Document was in compliance, in all material respects,
with the applicable requirements of the Act and the Exchange Act,
contained no untrue statement of a material fact and did not omit any
statement of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the
Selling Stockholder included in the Selling Stockholder SEC Documents
complied, at the time of filing with the Commission (and, with respect
to any registration statement, at the time it was declared effective),
as to form, in all material respects, with applicable accounting
requirements and the published rules and regulations of the Commission
with respect thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
periods involved and fairly present, in all material respects, the
consolidated financial position of the Selling Stockholder and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations for the periods presented. Since January 1,
1996, there has not been any change in the business, assets, condition,
financial or otherwise, or results of operations of the Selling
Stockholder or any of its subsidiaries which might materially and
adversely affect the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company.
(xxxviii) The Company is not, and upon the issuance and sale
of the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus under the caption
"Use of Proceeds" will not be, an "investment
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<PAGE>
company" or an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended
(the "1940 Act").
(xxxix) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparations of financial statements in conformity with
generally accepted accounting principles and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorizations; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xl) The Company has entered into a warrant agreement
substantially in the form filed as Exhibit 4.2 to the Registration
Statement (the "Warrant Agreement") with the Representative and The
Bank of New York, as Warrant Agent, in form and substance satisfactory
to the Representative, with respect to the Redeemable Warrants and
providing for the payment of the commission contemplated by Section
4(a)(xxi).
(b) The Selling Stockholder represents and warrants to, and agrees
with, each of the Underwriters as of the date hereof, and as of the Closing Date
and each Option Closing Date, if any, as follows:
(i) The Selling Stockholder has full legal right, power and
authority to enter into this Agreement, the Power of Attorney with
______________ and ______________, or either of them, as
attorney-in-fact (the "Attorney-in-Fact") in the form heretofore
furnished to you (the "Power of Attorney") and the Custody Agreement
with ____________________________ as custodian (the "Custodian") in the
form heretofore furnished to you (the "Custody Agreement"). The Selling
Stockholder has full legal right, power and authority to deliver and
sell the Option Shares, enter into this Agreement, the Power of
Attorney and the Custody Agreement and to consummate the transactions
provided for in this Agreement, the Power of Attorney and the Custody
Agreement; and this Agreement, the Power of Attorney and the Custody
Agreement have each been duly and properly authorized, executed and
delivered by the Selling Stockholder. Each of this Agreement, the Power
of Attorney and the Custody Agreement constitutes a legal, valid and
binding agreement of the Selling Stockholder enforceable against the
Selling Stockholder in accordance with its terms, and none of the
Selling Stockholder's delivery and sale of the Option Shares, execution
or delivery of this Agreement, the Power of Attorney or the Custody
Agreement, its performance hereunder and thereunder, or its
consummation of the transactions contemplated herein and therein,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the
creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind
whatsoever upon, any
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<PAGE>
property or assets (tangible or intangible) of the Selling Stockholder
pursuant to the terms of (i) the certificate of incorporation or
by-laws of the Selling Stockholder, (ii) any license, contract,
collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder is
or may be bound or to which either of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(iii) any statute, judgment, decree, order, rule or regulation
applicable to the Selling Stockholder of any arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Selling Stockholder or any of its activities or
properties. The Attorney-in-Fact, acting alone, is authorized to
execute and deliver this Agreement and the Custody Agreement and the
certificates referred to in Section 6(k) hereof on behalf of the
Selling Stockholder, to authorize the delivery of the Option Shares to
be sold by the Selling Stockholder under this Agreement and to duly
endorse (in blank or otherwise) the certificate or certificates
representing such Option Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of
the Selling Stockholder in connection with this Agreement and the
Custody Agreement.
(ii) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other
body, domestic or foreign, is required for the delivery and sale of the
Option Shares pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement, the Power of Attorney and
the Custody Agreement and the transactions contemplated hereby and
thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for
the delivery and sale of any of the Option Shares, except such as have
been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters'
purchase and distribution of the Firm Securities and the Option
Securities.
(iii) At the date hereof the Selling Stockholder has, and at
the time of delivery of the Option Shares to be sold by the Selling
Stockholder to the several Underwriters, the Selling Stockholder will
have full right, power and authority to sell, assign, transfer and
deliver the Option Shares to be sold by the Selling Stockholder
hereunder. At the date hereof the Selling Stockholder is, and at the
time of delivery of the Option Shares to be sold by the Selling
Stockholder, the Selling Stockholder will be, the lawful owner of and
has and will have, good and marketable title to such Option Shares free
and clear of any liens, charges, pledges, equities, encumbrances,
security interests, claims, community property rights, restrictions on
transfer or other defects in title. Upon delivery of and payment for
the Option Shares to be sold by the Selling Stockholder hereunder, good
and marketable title to such Option Shares will pass to the
Underwriters, free and clear of any liens, charges, pledges, equities,
encumbrances, security interests, claims, community property rights,
restrictions on transfer or other defects in title. Except as
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<PAGE>
described in the Registration Statement and the Prospectus (or, if
there is no Prospectus, the most recent Preliminary Prospectus) or
created hereby, there are no outstanding options, warrants, rights, or
other agreements or arrangements requiring the Selling Stockholder at
any time to transfer any Common Stock to be sold hereunder by the
Selling Stockholder. The Option Shares are not and will not be subject
to any preemptive or other similar rights of any stockholder. All
corporate action required to be taken for the delivery and sale of the
Option Shares has been duly and validly taken; and the certificates
representing the Option shares are in due and proper form.
(iv) At the time when the Registration Statement becomes or
became effective, and at all times subsequent thereto up to and
including the Closing Date and the Option Closing Date, the
Registration Statement and any amendments thereto will not contain any
untrue statement of a material fact regarding the Selling Stockholder
or omit to state a material fact regarding the Selling Stockholder
required to be stated therein or necessary in order to make the
statements therein regarding the Selling Stockholder not misleading,
and the Prospectus (and any supplements thereto) (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) will not
contain any untrue statement of a material fact regarding the Selling
Stockholder or omit to state a material fact regarding the Selling
Stockholder required to be stated therein or necessary in order to make
the statements therein regarding the Selling Stockholder, in light of
the circumstances under which they were made, not misleading, and the
Selling Stockholder is unaware of any material misstatement in or
omission from the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
or of any material adverse information regarding the Selling
Stockholder and his, her or its security holdings which is not set
forth in the Registration Statement and the Prospectus (or, if the
Prospectus is not then in existence, in the most recent Preliminary
Prospectus).
(v) Neither the Selling Stockholder nor any of its employees,
directors, stockholders, partners, or affiliates (within the meaning of
the Rules and Regulations) of any of the foregoing has taken or will
take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities or otherwise.
(vi) There is not pending or threatened against the Selling
Stockholder any action, suit or proceeding which (A) questions the
validity of this Agreement, the Power of Attorney, the Custody
Agreement or of any action taken or to be taken by the Selling
Stockholder pursuant to or in connection with this Agreement, the Power
of Attorney, or the Custody Agreement or (B) is required to be
disclosed in the Registration Statement which is not so disclosed, and
such actions, suits or proceedings as are summarized in the
Registration Statement, if any, are accurately summarized.
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<PAGE>
(vii) On the effective date of the Prospectus, certificates in
negotiable form for the Option Shares to be sold by the Selling
Stockholder under this Agreement on the Option Closing Date, if
requested by the Underwriters pursuant to Section 2(b) hereof, together
with a stock power or powers duly endorsed in blank by the Selling
Stockholder, will have been placed in custody with the Custodian for
the purpose of effecting delivery hereunder and thereunder.
(viii) The Selling Stockholder does not have any registration
rights or other similar rights with respect to any securities of the
Company; and the Selling Stockholder does not have any right of first
refusal or other similar right to purchase any securities of the
Company upon the issuance or sale thereof by the Company or upon the
sale thereof by any other stockholder of the Company.
(ix) The Selling Stockholder has not since the filing of the
initial Registration Statement (i) sold, bid for, purchased, attempted
to induce any person to purchase, or paid anyone any compensation for
soliciting purchases of Common Stock, or (ii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
securities of the Company (except for the sale of the Option Shares to
the Underwriters under this Agreement and except as otherwise permitted
by law).
(x) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the
sale by the Selling Stockholder of the Option Shares, (ii) the purchase
by the Underwriters of the Option Shares from the Selling Stockholder,
(iii) the consummation by the Selling Stockholder of any of its
obligations under this Agreement, or (iv) resales of the Option Shares
in connection with the distribution contemplated hereby.
(xi) Any certificate signed by or on behalf of the Selling
Stockholder and delivered to the Underwriters shall he deemed a
representation and warranty by the Selling Stockholder to the
Underwriters as to the matters covered thereby.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [92% of the public offering price] per Share and $_______ [92% of the
public offering price] per Redeemable Warrant, that number of Firm Securities
set forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representative in its sole discretion shall make to eliminate
any sales or purchases of fractional shares, plus any additional number of Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 11 hereof.
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<PAGE>
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, (i) the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 750,000 Redeemable Warrants at a price of $______ [92% of the public
offering price] per Redeemable Warrant and (ii) the Selling Stockholder hereby
grants an option to the Underwriters, severally and not jointly, to purchase all
or any part of an additional 750,000 shares of Common Stock at a price of
$______ [92% of the public offering price] per share of Common Stock. The option
granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Securities upon notice by the
Representative to the Company and the Selling Stockholder setting forth the
number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for any such
Option Securities. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Representative, but shall not be later than three (3)
full business days after the exercise of said option, nor in any event prior to
the Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
____________, 1996 or at such other time and date as shall be agreed upon by the
Representative and the Company, but not less than three (3) nor more than five
(5) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the "Closing
Date"). In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
office of the Representative or at such other place as shall be agreed upon by
the Representative and the Company on each Option Closing Date as specified in
the notice from the Representative to the Company and the Selling Stockholder.
Delivery of the certificates for the Firm Securities and the Option Securities,
if any, shall be made to the Underwriters against payment by the Underwriters,
severally and not jointly, of the purchase price for the Firm Securities and the
Option Securities, if any, to the order of the Company for the Firm Securities
and the Option Warrants, if any, and to the order of the Selling Stockholder for
the Option Shares, if any, by New York Clearing House funds. In the event such
option is exercised, each of the Underwriters, acting severally and not jointly,
shall purchase that proportion of the total number of Option Securities then
being purchased which the number of Firm Securities set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
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<PAGE>
Securities, subject in each case to such adjustments as the Representative in
its discretion shall make to eliminate any sales or purchases of fractional
shares. Certificates for the Firm Securities and the Option Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to the
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Securities and the Option Securities, if any, shall be
made available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 500,000 shares of Common Stock and/or 500,000
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the respective initial public offering price of the Shares and the Redeemable
Warrants. The Representative's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit 4.4 to the Registration
Statement. Payment for the Representative's Warrants shall be made on the
Closing Date.
3. Public Offering of the Shares and Redeemable Warrants. As soon after
the Registration Statement becomes effective as the Representative deems
advisable, the Underwriters shall make a public offering of the Shares and
Redeemable Warrants (other than to residents of or in any jurisdiction in which
qualification of the Shares and Redeemable Warrants is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
respective public offering price after distribution of the Shares and Redeemable
Warrants has been completed to such extent as the Representative, in its sole
discretion, deems advisable. The Underwriters may enter into one of more
agreements as the Underwriters, in each of their sole discretion, deem advisable
with one or more broker-dealers who shall act as dealers in connection with such
public offering.
4. Covenants and Agreements of the Company and the Selling Stockholder.
(a) The Company covenants and agrees with each of the Underwriters
as follows:
(i) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective
as promptly as practicable and will not at any time, whether before or
after the effective date of the Registration Statement, file any
amendment to the Registration Statement or supplement to the Prospectus
or file any document under the Act or Exchange Act before termination
of the offering of the Shares and Redeemable Warrants by the
Underwriters of which the Representative shall not
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<PAGE>
previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with
the Act, the Exchange Act or the Rules and Regulations.
(ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the
notice in writing (i) when the Registration Statement, as amended,
becomes effective, if the provisions of Rule 430A promulgated under the
Act will be relied upon, when the Prospectus has been filed in
accordance with said Rule 430A and when any post-effective amendment to
the Registration Statement becomes effective; (ii) of the issuance by
the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of
the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, or the institution of proceedings for that purpose;
(iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification
of any of the Securities for offering or sale in any jurisdiction or of
the initiation, or the threatening, of any proceeding for that purpose;
(iv) of the receipt of any comments from the Commission; and (v) of any
request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities
commission shall enter a stop order or suspend such qualification at
any time, the Company will make every effort to obtain promptly the
lifting of such order.
(iii) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) or transmit the
Prospectus by a means reasonably calculated to result in filing with
the Commission pursuant to Rule 424(b)(1) (or, if applicable and if
consented to by the Representative, pursuant to Rule 424(b)(4)) not
later than the Commission's close of business on the earlier of (i) the
second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of
the Registration Statement.
(iv) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration
Statement (including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus which
the Company proposes for use by the Underwriters in connection with the
offering of the Securities which differs from the corresponding
prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any
such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
prospectus to which the Representative or Orrick, Herrington &
Sutcliffe LLP ("Underwriters' Counsel") shall object.
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(v) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the
Representative may designate to permit the continuance of sales and
dealings therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents and
furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Representative agrees
that such action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports at such
times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(vi) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts
to comply with all requirements imposed upon it by the Act and the
Exchange Act, as now and hereafter amended and by the Rules and
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and the Prospectus, or any
amendments or supplements thereto. If at any time when a prospectus
relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of
counsel for the Company or Underwriters' Counsel, the Prospectus, as
then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend the Prospectus to comply with the
Act, the Company will notify the Representative promptly and prepare
and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel, and the Company
will furnish to the Underwriters copies of such amendment or supplement
as soon as available and in such quantities as the Underwriters may
request.
(vii) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on
the day after the end of the fiscal quarter of the Company during which
the effective date of the Registration Statement occurs (ninety (90)
days in the event that the end of such fiscal quarter is the end of the
Company's fiscal year), the Company shall make generally available to
its security holders, in the manner specified in Rule 158(b) of the
Rules and Regulations, and to the Representative, an earnings statement
which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless
required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration
Statement.
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<PAGE>
(A) During a period of seven (7) years after the date
hereof, the Company will furnish to its stockholders, as soon as
practicable, annual reports (including financial statements audited
by independent public accountants) and unaudited quarterly reports
of earnings, and will deliver to the Representative:
(B) concurrently with furnishing such quarterly reports to
its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders and
certified by the Company's principal financial or accounting
officer;
(C) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of
the preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of
independent certified public accountants;
(D) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(E) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission,
the NASD or any securities exchange;
(F) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its affairs, which was released or prepared by or on
behalf of the Company; and
(G) any additional information of a public nature
concerning the Company (and any future subsidiary) or its
businesses which the Representative may request.
During such seven-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the Company and
any of its subsidiaries are consolidated, and will be accompanied by
similar financial statements for any significant subsidiary which is
not so consolidated.
(viii) The Company will maintain a transfer agent and warrant
agent ("Transfer Agent") and, if necessary under the jurisdiction of
incorporation of the Company, a Registrar (which may be the same entity
as the Transfer Agent) for its Common Stock and Redeemable Warrants.
(ix) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the
Representative may designate, copies of each Preliminary Prospectus,
the Registration Statement and any pre-effective or post-effective
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<PAGE>
amendments thereto (two of which copies will be signed and will include
all financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared
after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may
request.
(x) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true
original copies of duly executed, legally binding and enforceable
agreements pursuant to which, for a period of thirteen (13) months from
the effective date of the Registration Statement, each of the Company's
stockholders and holders of securities exchangeable or exercisable for
or convertible into shares of Common Stock agrees that it or he or she
(i) will not, directly or indirectly, issue, offer to sell, sell, grant
an option for the sale or purchase of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for
or evidencing any right to purchase or subscribe for any shares of
Common Stock (either pursuant to Rule 144 of the Rules and Regulations
or otherwise) or dispose of any beneficial interest therein without the
prior consent of the Representative (collectively, the "Lock-up
Agreements") and (ii) waives, during such thirteen (13) month period,
any and all rights to request or demand the registration pursuant to
the Act, of any securities of the Company which are registered in the
name of or beneficially owned by it or he or she, respectively. During
the thirteen (13) month period commencing on the effective date of the
Registration Statement, the Company shall not, without the prior
written consent of the Representative, sell, contract or offer to sell,
issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options,
rights or warrants with respect to any shares of Common Stock. On or
before the Closing Date, the Company shall deliver instructions to the
Transfer Agent authorizing it to place appropriate legends on the
certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the
Company's ledgers.
(xi) Neither the Company nor any of its officers, directors,
stockholders, nor any of its affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action
designed to, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any
securities of the Company.
(xii) The Company shall apply the net proceeds from the sale
of the Firm Securities and the Option Warrants, if any, in the manner,
and subject to the conditions, set forth under "Use of Proceeds" in the
Prospectus. No portion of the net proceeds will be used, directly or
indirectly, to acquire any securities issued by the Company.
(xiii) The Company shall timely file all such reports, forms
or other documents as may be required (including, but not limited to, a
Form SR as may be required
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<PAGE>
pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules
and Regulations.
(xiv) The Company shall furnish to the Representative as early
as practicable prior to each of the date hereof, the Closing Date and
each Option Closing Date, if any, but no later than two (2) full
business days prior thereto, a copy of the latest available unaudited
interim financial statements of the Company (which in no event shall be
as of a date more than thirty (30) days prior to the date of the
Registration Statement) which have been read by the Company's
independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(m) and 6(n) hereof.
(xv) The Company shall cause the Common Stock and Redeemable
Warrants to be listed on AMEX and, for a period of seven (7) years from
the date hereof, use its best efforts to maintain the AMEX listing of
the Common Stock and the Redeemable Warrants to the extent outstanding.
(xvi) For a period of five (5) years from the Closing Date,
the Company shall furnish to the Representative at the Company's sole
expense, (i) daily consolidated transfer sheets relating to the Common
Stock and Redeemable Warrants (ii) the list of holders of all of the
Company's securities and (iii) a Blue Sky "Trading Survey" for
secondary sales of the Company's securities prepared by counsel to the
Company.
(xvii) As soon as practicable, (i) but in no event more than
five (5) business days before the effective date of the Registration
Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in
no event more than thirty (30) days after the effective date of the
Registration Statement, take all necessary and appropriate actions to
be included in Standard and Poor's Corporation Records and Moody's OTC
Manual and to continue such inclusion for a period of not less than
seven (7) years.
(xviii) The Company hereby agrees that it will not, for a
period of thirteen (13) months from the effective date of the
Registration Statement, adopt, propose to adopt or otherwise permit to
exist any employee, officer, director, consultant or compensation plan
or similar arrangement permitting (i) the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other
contract right (x) at an exercise price that is less than the greater
of the public offering price of the Shares set forth herein and the
fair market value on the date of grant or sale or (y) to any of its
executive officers or directors or to any holder of 5% or more of the
Common Stock, except as provided in subsection (ii) of this
subparagraph; (ii) the maximum number of shares of Common Stock or
other securities of the Company purchasable at any time pursuant to
options or warrants issued by the Company to exceed the aggregate
2,000,000 shares reserved for future issuance under the Company's 1996
Stock Option
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<PAGE>
Plan described in the "Executive Compensation-Stock Options" section of
the Prospectus; (iii) the payment for such securities with any form of
consideration other than cash; or (iv) the existence of stock
appreciation rights, phantom options or similar arrangements.
(xix) Until the completion of the distribution of the
Securities, the Company shall not, without the prior written consent of
the Representative and Underwriters' Counsel, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the
offering contemplated hereby, other than trade releases issued in the
ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(xx) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the
Representative's Securities, the Company will not take any action or
actions which may prevent or disqualify the Company's use of Form S-1
(or other appropriate form) for the registration under the Act of the
Representative's Securities. The Company further agrees to use its best
efforts to file such post-effective amendments to the Registration
Statement, as may be necessary, in order to maintain its effectiveness
and to keep such Registration Statement effective while any of the
Redeemable Warrants or Representative's Warrants remain outstanding.
(xxi) Commencing one year and one day from the date hereof, if
the Company engages the Representative as a warrant solicitation agent
under the terms of the Warrant Agreement, the Company shall pay the
Representative a commission equal to five percent (5%) of the exercise
price of the Redeemable Warrants, payable on the date of the exercise
thereof on the terms provided in the Warrant Agreement; provided,
however, the Representative shall be entitled to receive the commission
contemplated by this Section 4(a)(xxi) only if: (i) the Representative
has provided actual services in connection with the solicitation of the
exercise of a Redeemable Warrant by a Warrantholder and (ii) the
Warrantholder exercising a Redeemable Warrant affirmatively designates
in writing on the exercise form on the reverse side of the Redeemable
Warrant Certificate that the exercise of such Warrantholder's
Redeemable Warrant was solicited by the Representative.
(xxii) Prior to the Closing Date, the Company shall have
converted all short-term debt payable to the Selling Stockholder
(including any additional cash advances made by the Selling Stockholder
to the Company prior to the Closing Date which are not (or would not
be) reflected as debt on the Company's balance sheet) into equity as
partial consideration for the Company's previous issuance of 15,000,000
shares of Common Stock to the Selling Stockholder.
(b) The Selling Stockholder covenants and agrees with each of the
Underwriters as follows:
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<PAGE>
(i) The Selling Stockholder will not, directly or indirectly,
without the prior written consent of the Company and the
Representative, offer, offer to sell, sell, grant an option for the
sale or purchase of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of any shares of Common Stock or any securities
convertible into, exchangeable or exercisable for, or evidencing any
right to purchase or subscribe for, any shares of Common Stock (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein for a period of thirteen
(13) months after the date hereof, except pursuant to this Agreement,
and neither the Selling Stockholder nor any of its officers, directors,
stockholders, nor any of its affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action
designed to, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any
securities of the Company.
(ii) The Selling Stockholder consents to the use of the
Prospectus and any amendment or supplement thereto by the Underwriters
and all dealers to whom the Securities may be sold, both in connection
with the offering or sale of the Securities and for such period of time
thereafter as the Prospectus is required by law to be delivered in
connection therewith.
(iii) The Selling Stockholder will review the Prospectus and
will comply with all agreements and satisfy all conditions on its part
to be complied with or satisfied pursuant to this Agreement, the
Custody Agreement and the Power of Attorney at or prior to any Option
Closing Date, if any, and will advise its Attorney-in-Fact prior to any
Option Closing Date, if any statement to be made on behalf of the
Selling Stockholder in the certificates contemplated by Section 6(k)
hereof would be inaccurate if made as of such Option Closing Date.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company and
the Selling Stockholder under this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement (and, in the case of the Selling Stockholder,
under the Custody Agreement and the Power of Attorney), including, without
limitation, (i) the fees and expenses of accountants and counsel for the Company
and the Selling Stockholder, (ii) all costs and expenses incurred in connection
with the preparation, duplication, printing (including mailing and handling
charges), filing, delivery and mailing (including the payment of postage with
respect thereto) of the Registration Statement and the Prospectus and any
amendments and supplements thereto and the printing, mailing (including the
payment of postage with respect thereto) and delivery of this Agreement, the
Warrant Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements
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<PAGE>
thereto supplied to the Underwriters and such dealers as the Underwriters may
request, in quantities as hereinabove stated, (iii) the printing, engraving,
issuance and delivery of the Securities including, but not limited to, (x) the
purchase by the Underwriters of the Firm Securities and the Option Securities
from the Company and the Selling Stockholder, as the case may be, and the
purchase by the Representative of the Representative's Warrants from the
Company, (y) the consummation by each of the Company and the Selling Stockholder
of any of its obligations under this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement (and, in the case of the Selling Stockholder,
under the Custody Agreement and the Power of Attorney), and (z) resale of the
Firm Securities and the Option Securities by the Underwriters in connection with
the distribution contemplated hereby, (iv) the qualification of the Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum", the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, and disbursements
and fees of counsel in connection therewith, (v) sales and marketing costs and
expenses, including but not limited to costs and expenses in connection with the
"road show", information meetings and presentations, bound volumes and
prospectus memorabilia and "tomb-stone" advertisement expenses, (vi) costs and
expenses in connection with due diligence investigations, including but not
limited to the fees of any independent counsel, expert or consultant retained,
(vii) fees and expenses of the Transfer Agent and registrar and all issue and
transfer taxes, if any, (viii) applications for assignment of a rating of the
Securities by qualified rating agencies, (ix) the fees payable to the Commission
and the NASD, and (x) the fees and expenses incurred in connection with the
quotation of the Securities on AMEX and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $50,000 of which has been paid to date. In the event the
Representative elects to exercise the over-allotment option described in Section
2(b) hereof, the Company agrees to pay to the Representative on the Option
Closing Date (by certified or bank cashier's check or, at the Representative's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company and the Selling Stockholder from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholder herein
as of the date hereof and as of the Closing Date
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and each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or each Option Closing Date, if any, of the
statements of the officers of the Company and the Selling Stockholder made
pursuant to the provisions hereof; and the performance by each of the Company
and the Selling Stockholder on and as of the Closing Date and each Option
Closing Date, if any, of its covenants and obligations hereunder and to the
following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
Redeemable Warrants and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period and, prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's opinion, is material, or omits to state a fact
which, in the Representative's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representative shall have received from Underwriters' Counsel,
such opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
counsel to the Company, dated the Closing Date, addressed to the Underwriters
and in form and substance satisfactory to Underwriters' Counsel, to the effect
that:
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(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction, (B) is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires
such qualification or licensing, and (C) has all requisite corporate
power and authority, and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and
has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and
all federal, state and local laws, rules and regulations; and, the
Company has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the business, operations,
condition, financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, or results of
operations of the Company. The disclosures in the Registration
Statement concerning the effects of federal, state and local laws,
rules and regulations on the Company's business as currently conducted
and as contemplated are correct in all material respects and do not
omit to state a fact required to be stated therein or necessary to make
the statements contained therein not misleading in light of the
circumstances in which they were made.
(ii) the Company does not own an interest in any other
corporation, partnership, joint venture, trust or other business
entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "CAPITALIZATION", and the
Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue, sell, transfer, purchase
or redeem any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement and as described in the Prospectus.
The Securities and all other securities issued or issuable by the
Company conform in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. All
issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission with respect thereto,
and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or any
similar rights granted by the Company. The Securities to be sold by the
Company hereunder and under the Warrant Agreement and the
Representative's Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued,
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paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof
will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and
sale of the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper form.
The Representative's Warrants and the Redeemable Warrants constitute
valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the issuance and
delivery pursuant to this Agreement of the Firm Securities and the
Option Securities and the Representative's Warrants to be sold by the
Company, the Underwriters and the Representative, respectively, will
acquire good and marketable title to the Firm Securities and the Option
Securities and the Representative's Warrants free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security interest, or
other restriction or equity of any kind whatsoever. No transfer tax is
payable by or on behalf of the Underwriters in connection with (A) the
issuance by the Company of the Firm Securities, the Option Warrants,
the Representative's Warrants and the Representative's Securities, (B)
the purchase by the Underwriters of the Firm Securities and the Option
Warrants from the Company, and the purchase by the Representative of
the Representative's Warrants from the Company (C) the consummation by
the Company of any of its obligations under this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement, or (D) resales of
the Firm Securities and the Option Securities in connection with the
distribution contemplated hereby.
(iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to
the best of such counsel's knowledge, threatened or contemplated under
the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in
the Registration Statement (or required to be filed under the Exchange
Act if upon such filing they would be incorporated, in whole or in
part, by reference therein) and the Prospectus and filed as exhibits
thereto, and the exhibits which
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have been filed are correct copies of the documents of which they
purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a
party or by which it is bound, incorporated by reference into the
Prospectus and any supplement or amendment thereto, are accurate and
fairly represent the information required to be shown by Form S-1; (C)
there is not pending or threatened against the Company any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of the
Company which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in
all respects), (y) questions the validity of the capital stock of the
Company or this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described
as required; and (E) there is no action, suit or proceeding pending, or
threatened, against or affecting the Company before any court or
arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable
possibility of a decision which may result in a material adverse change
in the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business
or results of operations of the Company, which could adversely affect
the present or prospective ability of the Company to perform its
obligations under this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement;
(vii) the Company has full legal right, power and authority to
enter into each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and to consummate the transactions
provided for therein; and each of this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, assuming
due authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, its
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performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms
of, (A) the certificate of incorporation or by-laws of the Company, (B)
any license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be
bound or to which any of its properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, or (C) any
statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
(viii) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws, as to
which no opinion need be rendered) is required in connection with the
issuance of the Firm Securities and the Option Warrants pursuant to the
Prospectus and the Registration Statement, the issuance of the
Representative's Warrants, the performance of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, and the
transactions contemplated hereby and thereby;
(ix) the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property stated in the Prospectus to be
owned or leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and
payable;
(x) the Company is not in breach of, or in default under, any
term or provision of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, deed of
trust, lease, voting trust agreement, stockholders' agreement,
partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the properties or assets
(tangible or intangible) of the Company is subject or affected; and the
Company is not in violation of any term or provision of its Articles of
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Incorporation or By-Laws or in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation;
(xi) the statements in the Prospectus under "RISK FACTORS,"
"BUSINESS," "MANAGEMENT," "EXECUTIVE COMPENSATION," "PRINCIPAL
STOCKHOLDERS," "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,"
"DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR FUTURE SALE" have
been reviewed by such counsel, and insofar as they refer to statements
of law, descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
(xii) the Securities have been accepted for quotation on AMEX;
(xiii) the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
(xiv) neither the Company nor any of its officers,
stockholders, employees or agents, nor any other person acting on
behalf of the Company has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency or instrumentality of
any government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who is or
may be in a position to help or hinder the business of the Company (or
assist it in connection with any actual or proposed transaction) which
(A) might subject the Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (B) if not given in
the past, might have had an adverse effect on the assets, business or
operations of the Company, as reflected in any of the financial
statements contained in the Registration Statement, or (C) if not
continued in the future, might adversely affect the assets, business,
operations or prospects of the Company;
(xv) no person, corporation, trust, partnership, association
or other entity has the right to include and/or register any securities
of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security
in such registration statement;
(xvi) except as described in the Prospectus, there are no
claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with respect to
the sale of the Securities hereunder or financial consulting
arrangements or any other arrangements, agreements, understandings,
payments or issuances that may affect the Underwriters' compensation,
as determined by the NASD;
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(xvii) assuming due execution by the parties thereto other
than the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
(xviii) except as described in the Prospectus, the Company
does not (A) maintain, sponsor or contribute to any ERISA Plans, (B)
maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C) has never
completely or partially withdrawn from a "multiemployer plan";
(xix) the minute books of the Company have been made available
to the Underwriters and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company since the time
of its incorporation and reflect all transactions referred to in such
minutes accurately in all material respects;
(xx) the Company is not, and upon the issuance and sale of the
Firm Securities, the Option Warrants, the Representative's Warrants and
the Representative's Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus under the caption "USE OF PROCEEDS" will not be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act");
(xxi) the Company has furnished the Representative and
Underwriters' Counsel with a true and complete copy of the Selling
Stockholder SEC Documents. As used herein, the "Selling Stockholder SEC
Documents" shall mean all documents (other than preliminary material)
that Commodore Environmental Services, Inc., a ___________ corporation
and the sole stockholder and parent corporation of the Company (the
"Selling Stockholder"), has filed or has been required to file with the
Commission since January 1, 1994. As of its filing date (and, with
respect to any registration statement, the date on which it or any
post-effective amendment was declared effective), each Selling
Stockholder SEC Document was in compliance, in all material respects,
with the applicable requirements of the Act and the Exchange Act,
contained no untrue statement of a material fact and did not omit any
statement of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the
Selling Stockholder included in the Selling Stockholder SEC Documents
complied, at the time of filing with the Commission (and, with respect
to any registration statement, at the time it was declared effective),
as to form, in all material respects, with applicable accounting
requirements and the published rules and regulations of the Commission
with respect thereto, were prepared in accordance with generally
accepted accounting principles
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applied on a consistent basis during the periods involved and fairly
present, in all material respects, the consolidated financial position
of the Selling Stockholder and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations for the
periods presented. Since January 1, 1996, there has not been any change
in the business, assets, condition, financial or otherwise, or results
of operations of the Selling Stockholder or any of its subsidiaries
which might materially and adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity,
value, operation, properties, business or results of operations of the
Company.
(xxii) except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of the
Company, or any "affiliate" or "associate" (as these terms are defined
in Rule 405 promulgated under the Rules and Regulations) of any of the
foregoing persons or entities has or has had, either directly or
indirectly, (A) an interest in any person or entity which (x) furnishes
or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (y) purchases from
or sells or furnishes to the Company any goods or services, or (B) a
beneficial interest in any contract or agreement to which the Company
is a party or by which it may be bound or affected. Except as set forth
in the Prospectus under "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any
officer, director, or 5% or greater securityholder of the Company, or
any affiliate or associate of any such person or entity;
(xxiii) the Company is in compliance with all provisions of
Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to
Disclosure of Doing Business with Cuba;
(xxiv) to the best of such counsel's knowledge, after due
inquiry, (A) the Company is in compliance with all federal, state,
local or foreign laws, common law, rules, codes, administrative orders
or regulations relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including
without limitation all laws, common law, rules, codes, administrative
orders and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws") and (B) there are no
events or circumstances that could form the basis of an order for
clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company relating to any Hazardous Materials or the violation of any
Environmental Laws;
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<PAGE>
(xxv) the Company has obtained all necessary and required
approvals, authorizations, franchises, licenses, orders, permits,
validations and certifications from regulatory authorities to permit
the commencement of its commercial operations as contemplated in the
Prospectus, and none of such approvals, authorizations, franchises,
licenses, orders, permits, validations and certifications have been
revoked, restricted or limited in any manner and all of such approvals,
authorizations, franchises, licenses, orders, permits, validations and
certifications are in full force and effect; and
(xxvi) to the best of such counsel's knowledge, after due
inquiry, there is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding, domestic or foreign, pending or
threatened (or circumstances that may give rise to the same) involving
the Company's production, use, testing, manufacturing or marketing of
any products or services, which (i) questions the authority of the
Company to produce, use, test, manufacture or market any products or
services as described in the Prospectus, (ii) questions the
completeness or accuracy of data generated by any trials, tests or
studies being conducted by or on behalf of the Company, (iii) is
required to be disclosed in the Prospectus which is not so disclosed,
or (iv) might materially and adversely affect the condition, financial
or otherwise, or the earnings, prospects, value, operations or business
of the Company.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written
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statements of responsible officers of the Company and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel if requested. The opinion of such counsel for
the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Representative, Underwriters' Counsel
and they are each justified in relying thereon. Any opinion of counsel for the
Company shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord.
(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of _______________, special counsel to the Company, dated the
Closing Date, addressed to the Underwriters, in form and substance satisfactory
to Underwriters' Counsel, and in substantially the form of Schedule B attached
hereto.
(f) At the Closing Date, the Underwriters shall have received the
favorable opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, in
its capacity as counsel for the Selling Stockholder, dated the Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) The Selling Stockholder has full legal right, power and
authority to enter into this Agreement, the Power of Attorney with
______________ and ______________, or either of them, as
attorney-in-fact (the "Attorney-in-Fact") in the form heretofore
furnished to you (the "Power of Attorney") and the Custody Agreement
with ____________________________ as custodian (the "Custodian") in the
form heretofore furnished to you (the "Custody Agreement"). The Selling
Stockholder has full legal right, power and authority to deliver and
sell the Option Shares, enter into this Agreement, the Power of
Attorney and the Custody Agreement and to consummate the transactions
provided for in this Agreement, the Power of Attorney and the Custody
Agreement; and this Agreement, the Power of Attorney and the Custody
Agreement have each been duly and properly authorized, executed and
delivered by the Selling Stockholder. Each of this Agreement, the Power
of Attorney and the Custody Agreement constitutes a legal, valid and
binding agreement of the Selling Stockholder enforceable against the
Selling Stockholder in accordance with its terms, and none of the
Selling Stockholder's delivery and sale of the Option Shares, execution
or delivery of this Agreement, the Power of Attorney or the Custody
Agreement, its performance hereunder and thereunder, or its
consummation of the transactions contemplated herein and therein,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the
creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the
Selling Stockholder pursuant to the terms of (i) the certificate of
incorporation or by-laws of the Selling Stockholder, (ii) any
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license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder is or may be bound or to which either of its
properties or assets (tangible or intangible) is or may be subject, or
any indebtedness, or (iii) any statute, judgment, decree, order, rule
or regulation applicable to the Selling Stockholder of any arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Selling Stockholder or any of its
activities or properties. The Attorney-in-Fact, acting alone, is
authorized to execute and deliver this Agreement and the Custody
Agreement and the certificates referred to in Section 6(k) hereof on
behalf of the Selling Stockholder, to authorize the delivery of the
Option Shares to be sold by the Selling Stockholder under this
Agreement and to duly endorse (in blank or otherwise) the certificate
or certificates representing such Option Shares or a stock power or
powers with respect thereto, to accept payment therefor, and otherwise
to act on behalf of the Selling Stockholder in connection with this
Agreement and the Custody Agreement;
(ii) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other
body, domestic or foreign, is required for the delivery and sale of the
Option Shares pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement, the Power of Attorney and
the Custody Agreement and the transactions contemplated hereby and
thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for
the delivery and sale of any of the Option Shares, except such as have
been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters'
purchase and distribution of the Firm Securities and the Option
Securities;
(iii) At the date hereof the Selling Stockholder has, and at
the time of delivery of the Option Shares to be sold by the Selling
Stockholder to the several Underwriters, the Selling Stockholder will
have full right, power and authority to sell, assign, transfer and
deliver the Option Shares to be sold by the Selling Stockholder
hereunder. At the date hereof the Selling Stockholder is, and at the
time of delivery of the Option Shares to be sold by the Selling
Stockholder, the Selling Stockholder will be, the lawful owner of and
has and will have, good and marketable title to such Option Shares free
and clear of any liens, charges, pledges, equities, encumbrances,
security interests, claims, community property rights, restrictions on
transfer or other defects in title. Upon delivery of and payment for
the Option Shares to be sold by the Selling Stockholder hereunder, good
and marketable title to such Option Shares will pass to the
Underwriters, free and clear of any liens, charges, pledges, equities,
encumbrances, security interests, claims, community property rights,
restrictions on transfer or other defects in title. Except as described
in the Registration Statement and the Prospectus (or, if there is no
Prospectus, the most recent Preliminary Prospectus) or created hereby,
there are no outstanding
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options, warrants, rights, or other agreements or arrangements
requiring the Selling Stockholder at any time to transfer any Common
Stock to be sold hereunder by the Selling Stockholder. The Option
Shares are not and will not be subject to any preemptive or other
similar rights of any stockholder. All corporate action required to be
taken for the delivery and sale of the Option Shares has been duly and
validly taken; and the certificates representing the Option shares are
in due and proper form;
(iv) At the time when the Registration Statement becomes or
became effective, and at all times subsequent thereto up to and
including the Closing Date and the Option Closing Date, the
Registration Statement and any amendments thereto will not contain any
untrue statement of a material fact regarding the Selling Stockholder
or omit to state a material fact regarding the Selling Stockholder
required to be stated therein or necessary in order to make the
statements therein regarding the Selling Stockholder not misleading,
and the Prospectus (and any supplements thereto) (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) will not
contain any untrue statement of a material fact regarding the Selling
Stockholder or omit to state a material fact regarding the Selling
Stockholder required to be stated therein or necessary in order to make
the statements therein regarding the Selling Stockholder, in light of
the circumstances under which they were made, not misleading, and the
Selling Stockholder is unaware of any material misstatement in or
omission from the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
or of any material adverse information regarding the Selling
Stockholder and his, her or its security holdings which is not set
forth in the Registration Statement and the Prospectus (or, if the
Prospectus is not then in existence, in the most recent Preliminary
Prospectus);
(v) Neither the Selling Stockholder nor any of its employees,
directors, stockholders, partners, or affiliates (within the meaning of
the Rules and Regulations) of any of the foregoing has taken, directly
or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities or
otherwise;
(vi) There is not pending or threatened against the Selling
Stockholder any action, suit or proceeding which (A) questions the
validity of this Agreement, the Power of Attorney, the Custody
Agreement or of any action taken or to be taken by the Selling
Stockholder pursuant to or in connection with this Agreement, the Power
of Attorney, or the Custody Agreement or (B) is required to be
disclosed in the Registration Statement which is not so disclosed, and
such actions, suits or proceedings as are summarized in the
Registration Statement, if any, are accurately summarized;
(vii) On the effective date of the Prospectus, certificates in
negotiable form for the Option Shares to be sold by the Selling
Stockholder under this Agreement on the Option Closing Date, if
requested by the Underwriters pursuant to Section 2(b) hereof,
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together with a stock power or powers duly endorsed in blank by the
Selling Stockholder, will have been placed in custody with the
Custodian for the purpose of effecting delivery hereunder and
thereunder;
(viii) The Selling Stockholder does not have any registration
rights or other similar rights with respect to any securities of the
Company; and the Selling Stockholder does not have any right of first
refusal or other similar right to purchase any securities of the
Company upon the issuance or sale thereof by the Company or upon the
sale thereof by any other stockholder of the Company;
(ix) The Selling Stockholder has not since the filing of the
initial Registration Statement (i) sold, bid for, purchased, attempted
to induce any person to purchase, or paid anyone any compensation for
soliciting purchases of Common Stock, or (ii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
securities of the Company (except for the sale of the Option Shares to
the Underwriters under this Agreement and except as otherwise permitted
by law); and
(x) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the
sale by the Selling Stockholder of the Option Shares, (ii) the purchase
by the Underwriters of the Option Shares from the Selling Stockholder,
(iii) the consummation by the Selling Stockholder of any of its
obligations under this Agreement, or (iv) resales of the Option Shares
in connection with the distribution contemplated hereby.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Selling Stockholder,
provided that copies of any such statements or certificates shall be delivered
to Underwriters' Counsel if requested. The opinion of such counsel for the
Selling Stockholder shall state that the opinion of any such other counsel is in
form satisfactory to such counsel and that the Representative, Underwriters'
Counsel and they are each justified in relying thereon. Any opinion of counsel
for the Selling Stockholder shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable
state accord. Such counsel shall state that its opinions may be relied upon by
Underwriters' Counsel in rendering its opinion to the Underwriters.
(g) At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinions of each of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, counsel to the Company and the Selling Stockholder, and
_____________________, special counsel to
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the Company, dated such Option Closing Date, addressed to the Underwriters and
in form and substance satisfactory to Underwriters' Counsel confirming as of
such Option Closing Date the statements made by each of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, and __________________, in their respective
opinions delivered on the Closing Date.
(h) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company or the Selling Stockholder, or herein contained.
(i) Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' equity or the
business activities of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is adverse to
the Company; (iii) the Company shall not be in default under any provision of
any instrument relating to any outstanding indebtedness; (iv) the Company shall
not have issued any securities (other than the Securities) or declared or paid
any dividend or made any distribution in respect of its capital stock of any
class and there has not been any change in the capital stock or any material
change in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the Company or affecting any of its properties or
businesses before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may adversely affect the business, operations, earnings, position,
value, properties, results of operations, prospects or financial condition or
income of the Company; and (vii) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(j) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or the Option Closing Date, as the
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case may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to such Closing Date
or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to
the best of each of such person's knowledge, after due inquiry, are
contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements
and information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(a) the Company has not incurred up to and including the Closing Date
or the Option Closing Date, as the case may be, other than in the
ordinary course of its business, any material liabilities or
obligations, direct or contingent; (b) the Company has not paid or
declared any dividends or other distributions on its capital stock; (c)
the Company has not entered into any transactions not in the ordinary
course of business; (d) there has not been any change in the capital
stock or long-term debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings in the ordinary
course of business) of the Company; (e) the Company has not sustained
any loss or damage to its properties or assets, whether or not insured;
(f) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any
affiliated party of any of the foregoing which is required to be set
forth in an amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (j) are to such documents as amended and supplemented at the date of
such certificate.
(k) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate from the Selling
Stockholder (which may he signed by the Attorney-in-Fact), dated the Closing
Date, to the effect that the Selling Stockholder has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
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(A) The representations and warranties of the Selling Stockholder
in this Agreement are true and correct, as if made at and as of the
Closing Date or the Option Closing Date, as the case may be, and such
Selling Stockholder has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement to be performed or
satisfied by the Selling Stockholder at or prior to the Closing Date or
the Option Closing Date, as the case may be; and
(B) The Registration Statement and Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein regarding the Selling
Stockholder, and none of the Registration Statement, the Prospectus nor
any amendment or supplement thereto includes any untrue statement of a
material fact regarding the Selling Stockholder or omits to state any
material fact regarding the Selling Stockholder required to be stated
therein or necessary to make the statements therein regarding the
Selling Stockholder not misleading, and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact regarding the Selling Stockholder or omitted to state a
material fact regarding the Selling Stockholder required to be stated
therein or necessary in order to make the statements therein regarding
the Selling Stockholder, in light of the circumstances under which they
were made, not misleading.
References to the Registration Statement and the Prospectus in this
subsection (k) are to such documents as amended and supplemented at the date of
such certificate.
(l) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(m) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Tanner & Co.:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representative may rely upon the
opinion of Tanner & Co. with respect to the financial statements and
supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the
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latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of the Company,
consultations with officers and other employees of the Company
responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention which
would lead them to believe that (A) the unaudited financial statements
and supporting schedules of the Company included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements of the Company
included in the Registration Statement, or (B) at a specified date not
more than five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or long-term
debt of the Company, or any decrease in the stockholders' equity or net
current assets or net assets of the Company as compared with amounts
shown in the June 30, 1996 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of
liabilities of the Company (including a break-down of commercial paper
and notes payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement;
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
(n) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Tanner & Co. a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm that statements made in the letter furnished pursuant to
subsection (m) of this Section, except that the specified date referred to shall
be a date not more than five (5) days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (m) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
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Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(o) On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(p) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (a)(v) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(q) On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit 4.4 to the Registration Statement, in
final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(r) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for listing on AMEX, subject to
official notice of issuance.
(s) On or before the Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(t) On or before the Closing Date, the Company shall have executed
and delivered to the Representative and the Transfer Agent the Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement, in
final form and substance satisfactory to the Representative.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each of the Underwriters (for purposes of
this Section 7 "Underwriter" shall include the officers, directors, partners,
employees, agents and counsel of the Underwriter, including specifically each
person who may be substituted for an Underwriter as provided in Section 11
hereof), and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities,
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joint or several (and actions, proceedings, investigations, inquiries, suits and
litigation in respect thereof), whatsoever (including but not limited to any and
all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any such claim, action, proceeding, investigation, inquiry,
suit or litigation, commenced or threatened, or any claim whatsoever), as such
are incurred, to which the Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Securities; or (iii) in any application or other document
or written communication (in this Section 7 collectively called "application")
executed by the Company or based upon written information furnished by the
Company or the Selling Stockholder in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, AMEX or any other securities exchange;
(B) the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in the light of the circumstances under which they
were made), or (C) any breach of any representation, warranty, covenant or
agreement of the Company or the Selling Stockholder contained herein or in any
certificate by or on behalf of the Company or any of its officers or the Selling
Stockholder delivered pursuant hereto, unless, in the case of clause (A) or (B)
above, such statement or omission was made in reliance upon and in strict
conformity with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company or the Selling Stockholder may have at common
law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, and the Selling
Stockholder, to the same extent as the foregoing indemnity from the Company and
the Selling Stockholder to the Underwriters but only with respect to statements
or omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any Underwriter by such
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus directly relating to the transactions effected by the Underwriters
in connection with this Offering. Each of the Company and the Selling
Stockholder acknowledges that the statements with respect
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to the public offering of the Firm Securities and the Option Securities set
forth under the heading "Underwriting" and the stabilization legend in the
Prospectus have been furnished by the Underwriters expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release
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<PAGE>
of each indemnified party from all liability arising out of such claim, action,
suit, investigation, inquiry, proceeding or litigation and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company and/or the Selling Stockholder is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company and/or the Selling Stockholder, on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Firm Securities and the Option
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriters hereunder, in each case as set forth in the table
on the Cover Page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholder, or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Firm Securities and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, (i) each person, if any, who controls the Company within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company, (ii) each person, if any, who controls an
Underwriter within the meaning of the Act shall have
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the same rights to contribution as such Underwriter and (iii) each person, if
any, who controls the Selling Stockholder within the meaning of the Act shall
have the same rights to contribution as the Selling Stockholder, subject in each
case to this subsection (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this subsection (d), notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have hereunder or otherwise
than under this subsection (d), or to the extent that such party or parties were
not adversely affected by such omission. The contribution agreement set forth
above shall be in addition to any liabilities which any indemnifying party may
have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company or the Selling Stockholder
submitted pursuant hereto, shall be deemed to be representations, warranties and
agreements at the Closing Date and the Option Closing Date, as the case may be,
and such representations, warranties and agreements of the Company and the
Selling Stockholder, as the case may be, and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, the Selling Stockholder, any controlling person of any Underwriter or
the Company or the Selling Stockholder, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriters and
the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially adversely
disrupted, or in the Representative's opinion will in the immediate future
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the AMEX, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority
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having jurisdiction over such matters; or (iv) if trading of any of the
securities of the Company shall have been suspended, or any of the securities of
the Company shall have been delisted, on any exchange or in any over-the-counter
market; (v) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, that, in each case, in the Representative's judgment, would make it
inadvisable to proceed with the offering, sale and/or delivery of the Securities
or (x) if any of Alan R. Burkart, Carl O. Magnell, James M. DeAngelis and
Srinivas Kilambi, Ph.D. shall no longer serve the Company in their present
capacity.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted by the Representative, by reason of any failure on the part of the
Company or the Selling Stockholder to perform any undertaking or satisfy any
condition of this Agreement by it to be performed or satisfied (including,
without limitation, pursuant to Section 6 or Section 12) then, the Company shall
promptly reimburse and indemnify the Representative for all of its actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to Section 5(c) above). In
addition, the Company shall remain liable for all Blue Sky counsel fees and
disbursements, expenses and filing fees. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to Sections 6, 10, 11 and 12
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within twenty-four (24) hours thereafter,
to make arrangement for one or more of the non-defaulting Underwriters, or any
other underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed
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upon and upon the terms herein set forth; if, however, the Representative shall
not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Securities to be purchased on such date,
the non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company and the Selling Stockholder, terminate the Underwriters'
obligation to purchase Option Securities from the Company and/or the
Selling Stockholder, as the case may be, on such date).
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date or the Option Closing Date, as the case may be, for a period not
exceeding seven (7) days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
12. Default by the Company or the Selling Stockholder. If either the
Company or the Selling Stockholder shall fail at the Closing Date or at any
Option Closing Date, as applicable, to sell and deliver the number of Securities
which it is obligated to sell hereunder on such date, then this Agreement shall
terminate (or, if such default shall occur with respect to any Option Securities
to be purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the Company and
the Selling Stockholder, terminate the Underwriters' obligation to purchase
Option Securities from the Company and/or the Selling Stockholder, as the case
may be, on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section 12 shall relieve the Company and/or the
Selling Stockholder, as the case may be, from liability, if any, in respect of
such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, Chairman, with
a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be
directed to the Company at 150 East
- 52 -
<PAGE>
58th Street, Suite 3400, New York, New York 10155, Attention: Alan R. Burkart,
President and Chief Executive Officer, with a copy to Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, 153 East 53rd Street, New York, New York
10043, Attention: Stephen A. Weiss, Esq. Notices to the Selling Stockholder
shall be directed to the Selling Stockholder at 150 East 58th Street, Suite
3400, New York, New York 10155, Attention: Bentley J. Blum, Chairman, with a
copy to Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, 153 East 53rd
Street, New York, New York 10043, Attention: Stephen A. Weiss, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company, the Selling Stockholder
and the controlling persons, directors and officers referred to in Section 7
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant Agreement
and the Representative's Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative,
the Selling Stockholder and the Company.
- 53 -
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters, the Selling Stockholder and the Company, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
COMMODORE SEPARATION
TECHNOLOGIES, INC.
By: _____________________________________
Alan R. Burkart
President and Chief Executive Officer
COMMODORE ENVIRONMENTAL
SERVICES, INC., as Selling Stockholder
By: _____________________________________
As Attorney-in-Fact for the Selling Stockholder
Confirmed and accepted as of
the date first above written.
NATIONAL SECURITIES CORPORATION
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By: ______________________________________
Steven A. Rothstein
Chairman
- 54 -
<PAGE>
SCHEDULE A
Number of
Number of Redeemable
Shares Warrants
Name of Underwriters to be Purchased to be Purchased
- -------------------- --------------- ---------------
National Securities Corporation..........
Total.................................... 5,000,000 5,000,000
========= =========
- 55 -
<PAGE>
SCHEDULE B
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1996
NATIONAL SECURITIES CORPORATION
As Representative of the several
Underwriters named in Schedule A
to the Underwriting Agreement
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Re: Initial Public Offering of 5,000,000 Shares of Common Stock and
5,000,000 Redeemable Common Stock Purchase Warrants of Commodore
Separation Technologies, Inc.
Gentlemen:
We have acted as special counsel to Commodore Separation
Technologies, Inc., a Delaware corporation (the "Company"), in connection with
the entering into by the Company of that certain Underwriting Agreement by and
among National Securities Corporation (as representative of the several
underwriters named therein) (the "Representative"), Commodore Environmental
Services, Inc., as selling stockholder, and the Company, dated _______________,
1996 (the "Underwriting Agreement"). This opinion is provided to you pursuant to
Section 6(e) of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain registration statement on Form S-1 as filed
by the Company with the Securities and Exchange Commission on
September 12, 1996, together with any and all exhibits and
schedules and all heretofore filed amendments thereto
(collectively, the "Registration Statement");
<PAGE>
-2-
_____________, 1996
(iii) the Company's prospectus dated _______________, 1996
(the "Prospectus");
(iv) a search of the United States Patent and Trademark Office
records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed
on Schedule A annexed hereto and hereby incorporated
by reference herein (collectively, the "Patents")),
and trademarks, trademark applications, service marks
and service mark applications (collectively, the
"Marks") (including, without limitation, the Marks
listed on Schedule B annexed hereto and hereby
incorporated by reference herein (collectively, the
"Trademarks")),
owned, purportedly owned or licensed by the Company
(including, those patents, patent applications and Marks
licensed, without limitation, pursuant to the licenses listed
on Schedule C annexed hereto and hereby incorporated by
reference herein (collectively, the "Licenses")), conducted by
______________________________ and certified as true and
correct as of _______________________, 1996 (no earlier than 5
days prior to the effective date of the Registration
Statement);
(v) a search of the United States Copyright Office records
relevant to ownership of any and all copyrighted material
(including, without limitation, the copyright in, or license
permitting the Company's actual use of, the material licensed
or otherwise distributed by the Company and listed on Schedule
D annexed hereto and hereby incorporated by reference herein
(collectively, the "Copyrighted Material")), owned,
purportedly owned or licensed by the Company conducted by
_____________________ and certified as true and correct as of
__________________, 1996 (no earlier than 5 days prior to the
effective date of the Registration Statement);
(vi) an intellectual property litigation search with respect
to all Patents, Trademarks, Licenses and Copyrighted Material,
listed on Schedules A, B, C and D, respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation offices, in the following jurisdictions --
Delaware, Tennessee, New York and Ohio, with respect to the
following two categories of general intangibles:
(a) the intellectual property general intangibles of
the Company, including, without limitation, the
Company's patents, patent applications,
<PAGE>
-3-
_____________, 1996
inventions, know how, trademarks, service marks,
copyrights, service and trade names, intellectual
property licenses and other rights, and
(b) the intellectual property general intangibles
licensed to the Company, including, without
limitation, the patents, patent applications,
inventions, know how, trademarks, service marks,
copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule C),
said search certified to us as complete and accurate by
________________ and current through ________________________,
1996 (no earlier than 5 days prior to the effective date of
the Registration Statement) and said jurisdictions being the
only jurisdictions in which filing of UCC financing statements
or other documents may be filed to effectively evidence a
security or other interest in said general intangibles; and
(viii) any and all records, documents, instruments and
agreements in our possession or under our control relating to
the Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of our
knowledge" or "to the best of our knowledge, after due inquiry," such language
means that, based upon (i) our inquiries of officers of the Company, (ii) our
review of the Documents, and (iii) our review of such other corporate records,
documents, instruments and agreements described in the first sentence of this
paragraph, we believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact
represented to you by the Company, we advise you that nothing has come to our
attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion
that:
1. To the best of our knowledge, after due inquiry,
except as described in the Prospectus, the Company owns or has
the right to use, free and clear of all liens, encumbrances,
pledges, security interests, defects or other restrictions or
equities of any kind whatsoever,
<PAGE>
-4-
_____________, 1996
(i) all patents and patent applications (including,
without limitation, the Patents),
(ii) all trademarks and service marks (including,
without limitation, the Trademarks),
(iii) all copyrights (including, without limitation,
the Copyrighted Material),
(iv) all service and trade names, and
(v) all intellectual property licenses (including,
without limitation, the Licenses),
used in, or required for, the conduct of the Company's
respective business.
2. To the best of our knowledge, after due inquiry,
the Company possesses all material intellectual property
licenses or rights used in, or required for, the conduct of
its respective business (including, the Licenses and without
limitation, any such licenses or rights described in the
Prospectus as being owned, possessed or licensed by the
Company) and such licenses and rights are in full force and
effect.
3. To the best of our knowledge, after due inquiry,
there is no claim or action, pending, threatened or potential,
which affects or could affect the rights of the Company with
respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications or licenses
used in, or required for, the conduct of the Company's
business.
4. To the best of our knowledge, after due inquiry,
there is no intellectual property based claim or action,
pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any products,
services, processes or licenses, including, without
limitation, the Licenses used in the conduct of the Company's
business.
5. To the best of our knowledge, after due inquiry,
except as described in the Prospectus, the Company is not
under any obligation to pay royalties or fees to any third
party with respect to any material, technology or intellectual
properties developed, employed, licensed or used by the
Company.
6. To the best of our knowledge, after due inquiry,
the statements in the Prospectus under the headings, "Risk
Factors - Unpredictability of Patent
<PAGE>
-5-
_____________, 1996
Protection and Proprietary Technology," "Risk Factors-Royalty
Obligation" and "Business - Intellectual Property", are
accurate in all material respects, fairly represent the
information disclosed therein and do not omit to state any
fact necessary to make the statements made therein complete
and accurate.
7. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement and Prospectus do
not contain any untrue statement of a material fact with
respect to the intellectual property position of the Company
or omit to state any material fact relating to the
intellectual property position of the Company which is
required to be stated in the Registration Statement and the
Prospectus or is necessary to make the statements therein not
misleading.
We call your attention to the fact that the members of this
firm are licensed to practice law in the State of ______________ and before the
United States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of ___________ and the
United States of America.
The opinions expressed herein are for the sole benefit of, and
may be relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
<PAGE>
NUMBER
CS SHARES
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMODORE SEPARATION TECHNOLOGIES, INC.
THIS CERTIFIES THAT CUSIP 202909 10 7
IS OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
OF THE PAR VALUE OF $.001 PER SHARE OF
Commodore Separation Technologies, Inc. transferable on the books of the
corporation, by the holder hereof in person, or by duly authorized
attorney, upon surrender of this Certificate, properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
/s/ Melissa C. Berkowitz /s/ XXXXXXXXXXXXXXXXXXXXXXXXX
- ------------------------ -----------------------------
Secretary President
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
The Corporation will furnish without charge to each stockholder who so requests
the designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof of the Corporation, and
the qualifications, limitations, or restrictions of such preferences and/or
rights. Such request may be made to the Corporation or the transfer agent.
Keep this certificate in a safe place. If it is lost, stolen or destroyed the
Corporation may require a bond of indemnity as a condition to the issuance of a
replacement certificate.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ....................... Custodian .....................
(Cust) (Minor)
under Uniform Gifts to Minors
Act .................................
(State)
Additional abbreviations may also be used though not in the above list.
For value received,.......................hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
|-------------------------------------|
| |
| |
|-------------------------------------|
...............................................................................
Please print or typewrite name and address including postal zip code of assignee
...............................................................................
...............................................................................
.........................................................................Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute
and appoint....................................................................
...............................................................................
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,...............................
.................................................
SIGNATURE(S) GUARANTEED:_______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
Exhibit 4.2
[FORM OF WARRANT AGREEMENT - SUBJECT TO ADDITIONAL REVIEW]
================================================================================
COMMODORE SEPARATION TECHNOLOGIES, INC.
AND
THE BANK OF NEW YORK
AND
NATIONAL SECURITIES CORPORATION
----------
WARRANT AGREEMENT
Dated as of October __, 1996
================================================================================
<PAGE>
AGREEMENT, dated this ____ day of October, 1996, by and among
COMMODORE SEPARATION TECHNOLOGIES, INC., a Delaware corporation (the "Company"),
THE BANK OF NEW YORK, as Warrant Agent (the "Warrant Agent") and NATIONAL
SECURITIES CORPORATION, its successors and assigns (collectively, "National" or
the "Representative").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of
up to 5,000,000 shares of Common Stock (as defined in Section 1) and 5,000,000
redeemable common stock purchase warrants (the "Warrants"), each Warrant
entitling the holder thereof to purchase one share of Common Stock at a price
equal to 140% of the initial public offering price per share of Common Stock,
(ii) the over-allotment option to purchase up to an additional 750,000 shares of
Common Stock from Commodore Environmental Services, Inc., a __________
corporation and the sole stockholder of the Company, and/or 750,000 Warrants
from the Company (the "Over-allotment Option"), and (iii) the sale to National
of warrants (the "Representative's Warrants") to purchase up to 500,000 shares
of Common Stock and/or 500,000 Warrants, the Company will issue up to 6,250,000
Warrants (subject to increase as provided herein and in the Representative's
Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance,
<PAGE>
registration, transfer, exchange and redemption of the Warrants, the issuance of
certificates representing the Warrants, the exercise of the Warrants and the
rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company,
National, the holders of certificates representing the Warrants and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as
amended.
(b) "AMEX" shall mean the American Stock Exchange.
(c) "Common Stock" shall mean the authorized stock of
the Company of any class, whether now or hereafter authorized, which has the
right to participate in the voting and in the distribution of earnings and
assets of the Company without limit as to amount or percentage which at the date
hereof consists of 15,000,000 shares of Common Stock, $.001 par value per share.
(d) "Commission" shall mean the Securities and
Exchange Commission.
(e) "Corporate Office shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its business in
New York, New York, shall be administered, which office is located on the date
hereof at 101 Barclay Street, New York, New York 10286.
2
<PAGE>
(f) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(g) "Exercise Date" shall mean, subject to the
provisions of Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (ii) payment in
cash or by official bank or certified check made payable to the Warrant Agent
for the account of the Company, of the amount in lawful money of the United
States of America equal to the applicable Purchase Price (as hereinafter
defined) in good funds.
(h) "Initial Warrant Exercise Date" shall mean
_____________ __, 1997 [12 months from the effective date of the Registration
Statement].
(i) "Initial Warrant Redemption Date" shall mean
_______________ __, 1998 [18 months from the effective date of the Registration
Statement].
(j) "NASD" shall mean the National Association of
Securities Dealers, Inc.
(k) "Purchase Price" shall mean, subject to
modification and adjustment as provided in Section 8, $_____ per share of Common
Stock [140% of the initial public offering price of the Common Stock] and
further subject to the Company's right, in its sole discretion, to decrease the
Purchase Price for a period of not less than 30 days on not less than 30 days'
prior written notice to the Registered Holders and National.
3
<PAGE>
(l) "Redemption Date" shall mean the date (which may
not occur before the Initial Warrant Redemption Date) fixed for the redemption
of the Warrants in accordance with the terms hereof.
(m) "Redemption Price" shall mean the price at which
the Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $0.10 per Warrant, subject to adjustment from
time to time pursuant to the provisions of Section 9 hereof.
(n) "Registered Holder" shall mean the person in
whose name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(p) "Representative's Warrant Agreement" shall mean
the agreement dated as of _______________ __, 1996 [the date of the Prospectus]
between the Company and National relating to and governing the terms and
provisions of the Representative's Warrants.
(q) "Transfer Agent" shall mean The Bank of New York,
or its authorized successor.
(r) "Underwriting Agreement" shall mean the
underwriting agreement dated ______________ __, 1996 [the date of the
Prospectus] between the Company and the several underwriters listed therein
relating to the purchase for resale to the public of the 5,000,000 shares of
Common Stock and 5,000,000 Warrants.
(s) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
4
<PAGE>
(t) "Warrant Expiration Date" shall mean, unless the
Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:30
p.m. (New York time), on ______________ __, 2001 [60 months from the effective
date of the Registration Statement], or the Redemption Date as defined herein,
whichever date is earlier; provided that if such date shall in the State of New
York be a holiday or a day on which banks are authorized to close, then 5:30
p.m. (New York time) on the next following day which, in the State of New York,
is not a holiday or a day on which banks are authorized to close. Upon five
business days' prior written notice to the Registered Holders, the Company shall
have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase at the Purchase Price therefor from the Initial Warrant Exercise Date
until the Warrant Expiration Date one share of Common Stock upon the exercise
thereof in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement (subject to modification and adjustment as provided in
Section 8) shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as
provided therein, Warrant Certificates representing all or a portion of 500,000
Warrants to purchase up to an aggregate of 500,000 shares of Common Stock
(subject to modification and adjustment as
5
<PAGE>
provided in Section 8 hereof and in the Representative's Warrant Agreement),
shall be countersigned, issued and delivered by the Warrant Agent upon written
order of the Company signed by its Chairman of the Board, Chief Executive
Officer, President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary.
(d) From time to time, up to the Warrant Expiration
Date or the Redemption Date, whichever date is earlier, the Warrant Agent shall
countersign and deliver Warrant Certificates in required denominations of one or
whole number multiples thereof to the person entitled thereto in connection with
any transfer or exchange permitted under this Agreement. Except as provided
herein, no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder, those issued pursuant to the exercise of the
Over-allotment Option and those issued on or after the Initial Warrant Exercise
Date, upon the exercise of fewer than all Warrants held by the exercising
Registered Holder, (ii) Warrant Certificates issued upon any transfer or
exchange of Warrants, (iii) Warrant Certificates issued in replacement of lost,
stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7, (iv)
Warrant Certificates issued pursuant to the Representative's Warrant Agreement,
and (v) at the option of the Company, Warrant Certificates in such form as may
be approved by its Board of Directors, to reflect any adjustment or change in
the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such
6
<PAGE>
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage. The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates) and issued in registered form. Warrants shall be
numbered serially with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf
of the Company by its Chairman of the Board, Chief Executive Officer, President
or any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After countersignature by the
Warrant Agent, Warrant
7
<PAGE>
Certificates shall be delivered by the Warrant Agent to the Registered Holder
promptly and without further action by the Company, except as otherwise provided
by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number
multiples thereof may be exercised by the Registered Holder thereof commencing
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder, upon exercise thereof,
as of the close of business on the Exercise Date. If Warrants in denominations
other than whole number multiples thereof shall be exercised at one time by the
same Registered Holder, the number of full shares of Common Stock which shall be
issuable upon exercise thereof shall be computed on the basis of the aggregate
number of full shares of Common Stock issuable upon such exercise. As soon as
practicable on or after the Exercise Date and in any event within five business
days after such date, if one or more Warrants have been exercised, the Warrant
Agent on behalf of the Company shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or certificates for the
shares of Common Stock deliverable upon such exercise, and the Warrant Agent
shall deliver the same to the person or persons entitled thereto. Upon the
exercise of any one or more Warrants, the Warrant Agent shall promptly notify
the Company in writing of such fact and of the number of securities delivered
upon such exercise and, subject to subsection (b) below, shall cause all
payments of an amount in cash or by check
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made payable to the order of the Company, equal to the Purchase Price, to be
deposited promptly in the Company's bank account.
(b) At any time upon the exercise of any Warrants
after one year and one day from the date hereof, the Warrant Agent shall, on a
daily basis, within two business days after such exercise, notify National of
the exercise of any such Warrants and shall, on a weekly basis (subject to
collection of funds constituting the tendered Purchase Price, but in no event
later than five business days after the last day of the calendar week in which
such funds were tendered), remit to National an amount equal to five percent
(5%) of the Purchase Price of such Warrants then being exercised unless National
shall have notified the Warrant Agent that the payment of such amount with
respect to such Warrant is violative of the General Rules and Regulations
promulgated under the Exchange Act, or the rules and regulations of the NASD or
applicable state securities or "blue sky" laws, or the Warrants are those
underlying the Representative's Warrants in which event, the Warrant Agent shall
have to pay such amount to the Company; provided, that the Warrant Agent shall
not be obligated to pay any amounts pursuant to this Section 4(b) during any
week that such amounts payable are less than $1,000 and the Warrant Agent's
obligation to make such payments shall be suspended until the amount payable
aggregates $1,000, and provided further, that, in any event, any such payment
(regardless of amount) shall be made not less frequently than monthly.
Notwithstanding the foregoing, National shall be entitled to receive the
commission contemplated by this Section 4(b) as Warrant solicitation agent only
if: (i) National has provided actual services in connection with the
solicitation of the exercise of a Warrant by a Registered Holder and (ii) the
Registered Holder exercising a Warrant(s) affirmatively designates in writing on
the exercise form on the
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reverse side of the Warrant Certificate that the exercise of such Registered
Holder's Warrant(s) was solicited by National.
(c) The Company shall not be required to issue
fractional shares on the exercise of Warrants. Warrants may only be exercised in
such multiples as are required to permit the issuance by the Company of one or
more whole shares. If one or more Warrants shall be presented for exercise in
full at the same time by the same Registered Holder, the number of whole shares
which shall be issuable upon such exercise thereof shall be computed on the
basis of the aggregate number of shares purchasable on exercise of the Warrants
so presented. If any fraction of a share would, except for the provisions
provided herein, be issuable on the exercise of any Warrant (or specified
portion thereof), the Company shall pay an amount in cash equal to such fraction
multiplied by the then current market value of a share of Common Stock,
determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted
trading privileges, on AMEX or a national securities exchange, the current
market value of a share of Common Stock shall be the closing sale price of the
Common Stock at the end of the regular trading session on the last business day
prior to the date of exercise of the Warrants on whichever of such exchanges had
the highest average daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, but is traded in the
over-the-counter market, the current market value of a share of Common Stock
shall be the average of the last reported bid and asked
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prices of the Common Stock reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of exercise of the Warrants; or
(3) If the Common Stock is not listed, admitted to unlisted
trading privileges on AMEX or any national securities exchange, and bid and
asked prices of the Common Stock are not reported by the National Quotation
Bureau, Inc., the current market value of a share of Common Stock shall be an
amount, not less than the book value thereof as of the end of the most recently
completed fiscal quarter of the Company ending prior to the date of exercise,
determined by the members of the Board of Directors of the Company exercising
good faith and using customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens and charges with respect to the issue thereof,
and that upon issuance such shares shall be listed on each securities exchange,
if any, on which the other shares of outstanding Common Stock of the Company are
then listed.
(b) The Company covenants that if any securities to
be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly
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issued or delivered upon such exercise, then the Company will file a
registration statement under the federal securities laws or a post-effective
amendment, use its best efforts to cause the same to become effective and to
keep such registration statement current while any of the Warrants are
outstanding and deliver a prospectus which complies with Section 10(a)(3) of the
Act, to the Registered Holder exercising the Warrant (except, if in the opinion
of counsel to the Company, such registration is not required under the federal
securities law or if the Company receives a letter from the staff of the
Commission stating that it would not take any enforcement action if such
registration is not effected). The Company will use its best efforts to obtain
appropriate approvals or registrations under state "blue sky" securities laws
with respect to any such securities. However, Warrants may not be exercised by,
or shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably
authorized as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
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SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office,
books in which, subject to such reasonable regulations as it may prescribe, it
shall register Warrant Certificates and the transfer thereof in accordance with
customary practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse thereof shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may
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require payment by such Holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise
or for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or the Warrant Agent that a new Warrant Certificate has been acquired by a
bona fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
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SECTION 8. Adjustment of Purchase Price and Number of Shares
of Common Stock Deliverable.
(a) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof and prior
to the Warrant Expiration Date, issue or sell any shares of Common Stock for a
consideration per share less than the Purchase Price or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent to the nearest
cent) determined by dividing (i) the sum of (x) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, multiplied
by the Purchase Price in effect immediately prior to such Change of Shares and
(y) the consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination, by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; provided, however, that in
no event shall the Purchase Price be adjusted pursuant to this computation to an
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.
For the purposes of any adjustment to be made in accordance
with this Section 8(a), the following provisions shall be applicable:
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(A) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which shall
be cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights or warrants or the conversion or
exchange of convertible or exchangeable securities) of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor other than cash deemed to
have been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company, using
customary valuation methods and on the basis of prevailing market values for
similar property or services.
(C) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after
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<PAGE>
the opening of business on the day following the record date for the
determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (B) of this Section
8(a).
(E) The number of shares of Common Stock at any one
time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(b) Upon each adjustment of the Purchase Price
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Purchase Price in effect prior to such adjustment and dividing
the product so obtained by the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Sections
8(a) and 8(b) and as provided below) less than the Purchase
17
<PAGE>
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way of dividend
or other distribution), the Purchase Price for the Warrants (whether or not the
same shall be issued and outstanding) in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
Section 8(a) hereof) shall be reduced by the number of shares as to which
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Purchase Price
then in effect shall forthwith be readjusted and thereafter be the price that it
would have been had adjustment been made on the basis of the issuance only of
the shares
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<PAGE>
actually issued plus the shares remaining issuable upon the exercise of those
options, rights or warrants as to which the exercise rights shall not have
expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(A) of this Section 8(c), or in the price per share or ratio at which the
securities referred to in subsection (B) of this Section 8(c)
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<PAGE>
are convertible or exchangeable, such options, rights or warrants or conversion
or exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary of the Company in which merger the
Company is the continuing corporation) and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination) or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon
20
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exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
Corporate Office of the Warrant Agent a statement signed by its Chief Executive
Officer, President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Sections
8(a), (b) and (c). The above provisions of this Section 8(d) shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(d) hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman, Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant,
after such adjustment, and (iii) a brief statement of the facts accounting for
such adjustment. The
21
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Company will promptly file such certificate with the Warrant Agent and cause a
brief summary thereof to be sent by ordinary first class mail to each Registered
Holder at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(g) No adjustment of the Purchase Price shall be made
as a result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof and on the terms described in the final prospectus relating to the public
offering contemplated by the Underwriting Agreement; or (B) the issuance or sale
of shares of Common Stock if the amount of said adjustment shall be less than
$.10, provided, however, that in such case, any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment that shall amount,
together with any adjustment so carried forward, to at least $.10. In addition,
Registered Holders shall not be entitled to cash dividends paid by the Company
prior to the exercise of any Warrant or Warrants held by them.
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SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption
Date, the Company may, on 30 days' prior written notice, redeem all, but not
less than all, of the Warrants at ten cents ($.10) per Warrant, provided,
however, that before any such call for redemption of Warrants can take place,
the average closing sale price for the Common Stock as reported by AMEX, if the
Common Stock is then traded on AMEX (or the average closing sale price, if the
Common Stock is then traded on another national securities exchange) shall have
equalled or exceeded $_____ per share [300% of the initial public offering price
of the Common Stock] for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth trading day prior to the date
on which the notice contemplated by subsections (b) and (c) below is given
(subject to adjustment in the event of any stock splits or other similar events
as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to
redeem all of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
(5) business days prior to the mailing to the Registered Holders of the Warrants
of the notice of redemption, the Company shall deliver or cause to be delivered
to National a similar notice telephonically and confirmed in writing together
with a list of the Registered Holders (including their respective addresses and
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<PAGE>
number of Warrants beneficially owned) to whom such notice of redemption has
been or will be given.
(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the Redemption Date, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificate shall be delivered and the Redemption Price shall be
paid, (iv) if National is engaged as a Warrant solicitation agent, that National
shall receive the commission contemplated by Section 4(b) hereof, and (v) that
the right to exercise the Warrant shall terminate at 5:30 p.m. (New York time)
on the business day immediately preceding the date fixed for redemption. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate
at 5:30 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The Redemption Price payable to the Registered Holders shall be
mailed to such persons at their addresses of record.
(e) The Company shall indemnify National and each
person, if any, who controls National within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of
24
<PAGE>
them may become subject under the Act, the Exchange Act or otherwise, arising
from the registration statement or prospectus referred to in Section 5(b) hereof
to the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify National contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date,
the Company shall furnish to National (i) an opinion of counsel to the Company,
dated such date and addressed to National, and (ii) a "cold comfort" letter
dated such date addressed to National, signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in
a ministerial capacity for the Company and National, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
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(b) The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustments, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence, bad faith or
willful misconduct.
(c) The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company or for National)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief Executive
Officer, President or any Vice President (unless other evidence in respect
thereof is herein specifically prescribed). The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand reasonably
believed by it to be genuine.
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<PAGE>
(e) The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and save it harmless from and against any and all losses, expenses
and liabilities, including judgments, costs and counsel fees, for anything done
or omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of the
Warrant Agent's negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own gross negligence or willful
misconduct), after giving 30 days' prior written notice to the Company. At least
15 days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 15 days after it
has been notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with
27
<PAGE>
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or
any new warrant agent may be converted or merged, any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as though
it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
28
<PAGE>
(i) The Warrant Agent shall retain for a period of
two years from the date of exercise any Warrant Certificate received by it upon
such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Warrant Certificates; provided, however, that
this Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders
representing not less than 66-2/3% of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or to increase the Purchase Price therefor or
to accelerate the Warrant Expiration Date, shall be made without the consent in
writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are presently specifically prescribed by
this Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of National,
other than to cure any ambiguity or to correct any provision which is
inconsistent with any other provision of this Agreement or to make any such
change that is necessary or desirable and which shall not adversely affect the
interests of National and except as may be required by law.
29
<PAGE>
SECTION 12. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the address
of such holder as shown on the registry books maintained by the Warrant Agent;
if to the Company at 150 East 58th Street, Suite 3400, New York, New York 10155,
Attention: Alan R. Burkart, President and Chief Executive Officer, or at such
other address as may have been furnished to the Warrant Agent in writing by the
Company; and if to the Warrant Agent, at its Corporate Office. Copies of any
notice delivered pursuant to this Agreement shall also be delivered to National
Securities Corporation, 1001 Fourth Avenue, Suite 2200, Seattle, Washington
98154-1100, Attention: General Counsel, or at such other address as may have
been furnished to the Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company, National, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer upon
any other person any right, remedy or claim, in equity or at law, or to impose
upon any other person any duty, liability or obligation.
SECTION 15. Termination.
30
<PAGE>
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
[SEAL]
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: ___________________________________
Name:
Title:
Attest:
By: _____________________
Name:
Title:
THE BANK OF NEW YORK,
As Warrant Agent
By: ___________________________________
Name:
Title:
NATIONAL SECURITIES CORPORATION
By: ___________________________________
Name:
Title:
<PAGE>
EXHIBIT A
No. W ______ VOID AFTER _________, 2001
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
COMMODORE SEPARATION TECHNOLOGIES, INC.
CUSIP ______
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.001 par
value, of Commodore Separation Technologies, Inc., a Delaware corporation (the
"Company"), at any time between ___________, 1997 (the "Initial Warrant Exercise
Date"), and the Expiration Date (as hereinafter defined) upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of The Bank of New York,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment
of $_____ per share of Common Stock, [140% of the initial public offering price
of the Common Stock] subject to adjustment (the "Purchase Price"), in lawful
money of the United States of America in cash or by check made payable to the
Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated ___________,
1996 [date of the Prospectus], between the Company, National Securities
Corporation ("National") and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional interests will be issued. In the case
of the exercise of less than all the
A-1
<PAGE>
Warrants represented hereby, the Company shall cancel this Warrant Certificate
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time)
on __________, 2001 [forty-eight (48) months after the Initial Warrant Exercise
Date]. If each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:30 p.m. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant
may be redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing after ______________, 1998 [18 months after the
effective date of the Registration Statement], provided that the average closing
sale price for the Common Stock as reported by the American Stock Exchange (or
the average closing sale price, if the Common Stock is then traded on another
national securities exchange), shall have equalled or exceeded $_____ per share
[300% of the initial public offering price of the Common Stock] for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
on the fifth trading
A-2
<PAGE>
day prior to the date of the Notice of Redemption, as defined below (subject to
adjustment in the event of any stock splits or other similar events). Notice of
redemption (the "Notice of Redemption") shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants except to receive the
$.10 per Warrant upon surrender of this Warrant Certificate.
Under certain circumstances, National may be entitled to receive
an aggregate of five percent (5%) of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated:
COMMODORE SEPARATION TECHNOLOGIES, INC.
[SEAL]
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title: Secretary
COUNTERSIGNED:
THE BANK OF NEW YORK,
as Warrant Agent
By: __________________________
Authorized Officer
A-4
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________ Warrants represented by this Warrant Certificate, and to purchase
the securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
__________________________
__________________________
__________________________
__________________________
(please print or type name and address)
and be delivered to
__________________________
__________________________
__________________________
__________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-5
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by
National Securities Corporation. [ ]
2. The exercise of this Warrant was solicited by
_____________________________________. [ ]
3. The exercise of this Warrant was not
solicited. [ ]
Dated: ________________________ X_______________________________
_______________________________
_______________________________
Address
_______________________________
Social Security or Taxpayer
Identification Number
_______________________________
Signature Guaranteed
_______________________________
A-6
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ______________________________, hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
__________________________
__________________________
__________________________
__________________________
(please print or type name and address)
_____________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints __________________
_____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: ________________________ X_______________________________
Signature Guaranteed
_______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
A-7
<PAGE>
VOID AFTER JUNE 27, 2001
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
WARRANTS
CUSIP 202909 11 5
COMMODORE
---------
COMMODORE SEPARATION TECHNOLOGIES, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.001 par
value, of Commodore Separation Technologies, Inc., a Delaware corporation (the
"Company"), at any time between June 27, 1997 (the "Initial Warrant Exercise
Date"), and the Expiration Date (as hereinafter defined) upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of The Bank of New York,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment
of $8.40, subject to the adjustment (the "Purchase Price"), in lawful money of
the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued pursuant
to and are subject in all respects to the terms and conditions set forth in the
Warrant Agreement (the "Warrant Agreement"), dated June 27, 1996, between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant Agreement, the
Purchase Price and the number of shares of Common Stock subject to purchase upon
the exercise of each Warrant represented hereby are subject to modification or
adjustment.
Each Warrant represented hereby is exercisable at the option of the Registered
Holder, but no fractional interests will be issued. In the case of the exercise
of less than all the Warrants represented hereby, the Company shall cancel this
Warrant Certificate upon the surrender hereof and shall execute and deliver a
new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant
Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time) on the date
which is forty-eight (48) months after the Initial Warrant Exercise Date. If
each such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:30 p.m.
(New York time) on the next following day which in the State of New York is not
a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to the
exercise of this Warrant unless a registration statement under the Securities
Act of 1933, as amended (the "Act"), with respect to such securities is
effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state which such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
<PAGE>
Prior to the exercise of any Warrant represented hereby, the Registered Holder
shall not be entitled to any rights of a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, expect as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be redeemed
at the option of the Company, at a redemption price of $.10 per Warrant, at any
time commencing after December 27, 1997, provided that the average closing sale
price for the Common Stock as reported by the American Stock Exchange shall have
equalled or exceeded $18.00 per share for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the Notice of Redemption, as defined below (subject to adjustment in
the event of any stock splits or other similar events). Notice of redemption
(the "Notice of Redemption") shall be given not later than the thirtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to the Warrants except to receive the $.10 per Warrant upon
surrender of this Warrant Certificate.
Under certain circumstances, National Securities Corporation may be entitled to
receive an aggregate of five percent (5%) of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the Company and
the Warrant Agent may deem and treat the Registered Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary, except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: COMMODORE SEPARATION TECHNOLOGIES, INC.
COUNTERSIGNED:
THE BANK OF NEW YORK, By /s/ XXXXXXXXXXX
as Warrant Agent President
By:
By /s/ Melissa C. Berkowitz
Authorized Office Secretary
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(please print or type name and address)
and be delivered to
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by National
Securities Corporation. / /
2. The exercise of this Warrant was solicited by __________________. / /
3. The exercise of this Warrant was not solicited. / /
Dated: X
------------------------- -------------------------------
-------------------------------
Address
-------------------------------
Social Security or Taxpayer
Identification Number
-------------------------------
Signature Guaranteed
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ________________________________________________________ ,
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
hereby sells, assigns and transfers unto
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(please print or type name and address)
- -------------------------------------------------------------------------------
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
______________________________________________________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: X
--------------------------- -----------------------------------
Signature Guaranteed
-----------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 4.4
[Form of Representative's Warrant Agreement -
Subject to Additional Review]
- --------------------------------------------------------------------------------
COMMODORE SEPARATION TECHNOLOGIES, INC.
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of October __, 1996
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1996
between COMMODORE SEPARATION TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and NATIONAL SECURITIES CORPORATION (hereinafter referred to
variously as the "Holder" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
warrants ("Warrants") to purchase up to an aggregate 500,000 shares of Common
Stock, $.001 par value, of the Company and/or 500,000 redeemable common stock
purchase warrants of the Company ("Redeemable Warrants"), each Redeemable
Warrant to purchase one additional share of Common Stock; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
up to 5,000,000 shares of Common Stock and 5,000,000 Redeemable Warrants (the
"Public Warrants") at an initial public offering price of $____ per share of
Common Stock and $.10 per Public Warrant (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in
<PAGE>
connection with, the Representative acting as the Representative pursuant to the
Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate fifty dollars ($50.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (and/or its designees) is hereby
granted the right to purchase, at any time from _______, 1997 [one year from the
effective date of the Registration Statement], until 5:30 P.M., New York time,
on _______, 2001 [five years from the effective date of the Registration
Statement], up to an aggregate of 500,000 shares of Common Stock and/or 500,000
Redeemable Warrants at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $____ per share of Common Stock [120% of the
initial public offering price per share] and $____ per Redeemable Warrant [120%
of the initial public offering price per Redeemable Warrant], subject to the
terms and conditions of this Agreement. One Redeemable Warrant is exercisable to
purchase one additional share of Common Stock at an initial exercise price of
$_____ [140% of the initial public offering price per share] from _______, 1997
[one year from the effective date of the registration statement] until 5:30 p.m.
New York time on _____, 2001 [five years from the effective date of the
registration statement], at which time the Redeemable Warrants shall expire.
Except as set forth herein, the shares of Common Stock and the Redeemable
Warrants issuable upon exercise of the Warrants are in all respects identical to
the shares of Common Stock and the Public Warrants being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions
- 2 -
<PAGE>
of the Underwriting Agreement. The shares of Common Stock and the Redeemable
Warrants issuable upon exercise of the Warrants are sometimes hereinafter
referred to collectively as the "Securities."
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock and Redeemable Warrant
set forth in Section 6 hereof payable by certified or official bank check in New
York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock and/or Redeemable
Warrants purchased at the Company's principal executive offices in New York
(presently located at 150 East 58th Street, Suite 3400, New York, New York
10155) the registered holder of a Warrant Certificate ("Holder" or "Holders")
shall be entitled to receive a certificate or certificates for the shares of
Common Stock so purchased and a certificate or certificates for the Redeemable
Warrants so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of the Common Stock and Redeemable
Warrants underlying the Warrants). In the event the Company redeems all of the
- 3 -
<PAGE>
Public Warrants (other than the Redeemable Warrants underlying the Warrants),
then the Warrants may only be exercised if such exercise is accompanied by the
simultaneous exercise of the Redeemable Warrant(s) underlying the Warrants being
so exercised. Warrants may be exercised to purchase all or part of the shares of
Common Stock together with an equal or unequal number of the Redeemable Warrants
represented thereby. In the case of the purchase of less than all the shares of
Common Stock and/or Redeemable Warrants purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock and/or Redeemable
Warrants purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to
the method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of shares of Common Stock equal to the quotient derived
from dividing the numerator (x) an amount equal to the difference between (A)
the sum of (1) the number of shares of Common Stock as to which the Warrants are
being exercised multiplied by the per share Market Price, and (2) the number of
Redeemable Warrants as to which the Warrants are being exercised multiplied by
the per Redeemable Warrant Market Price, and (3) the number of shares of Common
Stock issuable upon exercise of the Redeemable Warrants underlying the Warrants
being exercised multiplied by the per share Market Price, and (B) the sum of (1)
the number of Warrants which are being exercised multiplied by the Exercise
Price and (2) the number of Redeemable Warrants included in the Warrants which
are being exercised multiplied
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by the exercise price per Redeemable Warrant (as calculated pursuant to the
Redeemable Warrant Agreement (hereinafter defined)) as then in effect, by the
denominator (y) the per share Market Price of the Common Stock. Solely for the
purposes of this paragraph, Market Price shall be calculated either (i) on the
date on which the form of election attached hereto is deemed to have been sent
to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the
average of the Market Prices for each of the five trading days preceding the
Notice Date, whichever of (i) or (ii) is greater.
Section 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be (i) when referring to
the Common Stock, the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
American Stock Exchange ("AMEX") or the principal securities exchange on which
the Common Stock is listed or admitted to trading, or, if the Common Stock is
not listed or admitted to trading on AMEX or any national securities exchange or
quoted by the National Association of Securities Dealers Automated Quotation
System ("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or if the Common
Stock is not quoted on Nasdaq, as determined in good faith (using customary
valuation methods) by resolution of the members of the Board of Directors of the
Company, based on the best information available to it or (ii) when referring to
a Redeemable Warrant, the last reported sale price, or, in the case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported by
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AMEX or the principal securities exchange on which the Redeemable Warrants are
listed or admitted to trading, or, if the Redeemable Warrants are not listed or
admitted to trading on AMEX or any national securities exchange or quoted by
Nasdaq, the average closing bid price as furnished by the NASD through Nasdaq or
similar organization if Nasdaq is no longer reporting such information, or if
the Redeemable Warrants are not quoted on Nasdaq or are no longer outstanding,
the Market Price of a Redeemable Warrant shall equal the difference between the
Market Price of the Common Stock and the Exercise Price of the Redeemable
Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or
Redeemable Warrants and/or other securities, properties or rights underlying
such Warrants and, upon the exercise of the Redeemable Warrants, the issuance of
certificates for shares of Common Stock and/or other securities, properties or
rights underlying such Redeemable Warrants shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the
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amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying the Redeemable Warrants (and/or other
securities, property or rights issuable upon the exercise of the Warrants or the
Redeemable Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer. Certificates representing the
shares of Common Stock and Redeemable Warrants, and the shares of Common Stock
underlying each Redeemable Warrant (and/or other securities, property or rights
issuable upon exercise of the Warrants or the Redeemable Warrants) shall be
dated as of the Notice Date (regardless of when executed or delivered) and
dividend bearing securities so issued shall accrue dividends from the Notice
Date.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
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6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $____ [120% of the initial public offering price] per share of
Common Stock and $_____ per Redeemable Warrant [120% of the initial public
offering price per Public Warrant]. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
Any transfer of a Warrant shall constitute an automatic transfer and assignment
of the registration rights set forth in Section 7 hereof with respect to the
Securities or other securities, properties or rights underlying the Warrants.
Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context or unless otherwise specified.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and Redeemable Warrants issuable upon
exercise of the Warrants, the shares of Common Stock issuable upon exercise of
such Redeemable Warrants and any of the other securities issuable upon exercise
of the Warrants or Redeemable Warrants (collectively, the "Warrant Securities")
have been registered under the Securities Act of 1933, as amended (the "Act"),
pursuant to the Company's Registration Statement on Form S-1 (Registration No.
333-___) (the "Registration Statement"). All of the representations and
warranties of the Company contained in the Underwriting Agreement relating to
the Registration Statement, the
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Preliminary Prospectus and Prospectus (as such terms are defined in the
Underwriting Agreement) and made as of the dates provided therein, are
incorporated by reference herein. The Company agrees and covenants promptly to
file post-effective amendments to such Registration Statement as may be
necessary in order to maintain its effectiveness and otherwise to take such
action as may be necessary to maintain the effectiveness of the Registration
Statement as long as any Warrants are outstanding. In the event that, for any
reason whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, the certificates representing the Warrant Securities
shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring seven (7) years thereafter, the Company
proposes to register any of its securities under the Act (other than pursuant to
Form S-4, Form S-8 or a comparable registration statement) it will give written
notice by registered mail, at least thirty (30) days prior to the filing of each
such registration statement, to the Representative and to all other Holders of
the Warrants and/or the Warrant Securities of its intention to do so. If the
Representative or other Holders of the Warrants and/or Warrant Securities notify
the Company within twenty (20) business days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representative
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and such Holders of the Warrants and/or Warrant Securities the opportunity to
have any such Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered
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Holders of the Warrants and the Warrant Securities within ten (10) days from the
date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock and per Redeemable Warrant on (x) the date of the notice sent
pursuant to Section 7.3(a) or (y) the expiration of the period specified in
Section 7.4(a) and (ii) any and all Warrants of such Holders at such Market
Price less the Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i)
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the expiration of the period specified in Section 7.4(a) or (ii) the delivery of
the written notice of election specified in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Sections 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) whose Warrant Securities are the subject of such registration
statement will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general
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consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
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(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.3 hereof, without the prior written
consent of the Holders of the Warrants and Warrant Securities representing a
Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's
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counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders holding
a Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company,
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each Holder and such managing underwriter(s), and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter(s). The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Securities and may, at their
option, require that any or all of the representations, warranties and covenants
of the Company to or for the benefit of such underwriter(s) shall also be made
to and for the benefit of such Holders. Such Holders shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriter(s) except as they may relate to such Holders and their intended
methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
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8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately decreased. An adjustment made
pursuant to this Section 8.2 shall be made as of the record date for the subject
stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Securities issuable upon exercise of
the Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
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par value to par value. In the event that the Company shall after the date
hereof issue securities with greater or superior voting rights than the shares
of Common Stock outstanding as of the date hereof, the Holder, at its option,
may receive upon exercise of any Warrant either the Warrant Securities or a like
number of such securities with greater or superior voting rights.
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall have
the right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of securities of the Company for which such Warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 8. The above
provision of this subsection shall similarly apply to successive consolidations
or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
Warrant Securities issuable upon the exercise of the Warrants;
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(b) If the amount of said adjustment shall be less
than two cents (2(cent)) per Warrant Security, provided,
however, that in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per
Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be
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eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock or Redeemable Warrants or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock, Redeemable Warrants
and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. The Company further covenants and agrees that upon exercise of
the Redeemable Warrants underlying the Warrants and payment of the respective
Redeemable Warrant exercise price therefor, all shares of Common Stock and other
securities issuable upon such exercises shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants and Redeemable Warrants and all Redeemable Warrants underlying
the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock or the Public Warrants issued to
the public in connection herewith may then be listed and/or quoted on Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice
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as a stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings or capital surplus
(in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
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proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Redeemable Warrants.
The form of the certificate representing Redeemable Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Redeemable Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Warrant
Agreement dated as of the date hereof by and among the Company, the
Representative and The Bank of New York (the "Redeemable Warrant Agreement").
Each Redeemable Warrant issuable upon exercise of the Warrants shall evidence
the right to initially purchase a fully paid and non-assessable share of Common
Stock at an initial purchase price of $______ [140% of the initial public
offering price per share] from ______ 1997 [one year from the effective date of
the Registration Statement] until 5:30 p.m. New York time on _________ 2001 [5
years from the effective date of the Registration Statement] at which time the
Redeemable Warrants, unless the exercise period has been extended, shall expire.
The exercise price of the Redeemable Warrants and the number of shares of Common
Stock issuable upon the exercise of the Redeemable Warrants are subject to
adjustment, whether or not the Warrants have been exercised and the Redeemable
Warrants have been issued, in the manner and upon the occurrence of the events
set forth in Section 8 of the Redeemable Warrant
- 22 -
<PAGE>
Agreement, which is hereby incorporated herein by reference and made a part
hereof as if set forth in its entirety herein. Subject to the provisions of this
Agreement and upon issuance of the Redeemable Warrants underlying the Warrants,
each registered holder of such Redeemable Warrant shall have the right to
purchase from the Company (and the Company shall issue to such registered
holders) up to the number of fully paid and non-assessable shares of Common
Stock (subject to adjustment as provided herein and in the Redeemable Warrant
Agreement), free and clear of all preemptive rights of stockholders, provided
that such registered holder complies with the terms governing exercise of the
Redeemable Warrant set forth in the Redeemable Warrant Agreement, and pays the
applicable exercise price, determined in accordance with the terms of the
Redeemable Warrant Agreement. Upon exercise of the Redeemable Warrants, the
Company shall forthwith issue to the registered holder of any such Redeemable
Warrant in his name or in such name as may be directed by him, certificates for
the number of shares of Common Stock so purchased. Except as otherwise provided
in this Agreement, the Redeemable Warrants underlying the Warrants shall be
governed in all respects by the terms of the Redeemable Warrant Agreement. The
Redeemable Warrants shall be transferable in the manner provided in the
Redeemable Warrant Agreement, and upon any such transfer, a new Redeemable
Warrant Certificate shall be issued promptly to the transferee. The Company
covenants to, and agrees with, the Holder(s) that without the prior written
consent of the Holder(s), which will not be unreasonably withheld, the
Redeemable Warrant Agreement will not be modified, amended, canceled, altered or
superseded, and that the Company will send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and
- 23 -
<PAGE>
all notices required by the Redeemable Warrant Agreement to be sent to holders
of Redeemable Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company;
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders; or
(c) If to the Representative, to National Securities
Corporation, 1001 Fourth Avenue, Suite 2200, Seattle,
Washington 98154, Attention: General Counsel.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
- 24 -
<PAGE>
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Representative, the Holders and their respective successors and assigns
hereunder.
17. Termination. This Agreement shall terminate at the close
of business on _______, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _______, 2009.
18. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the
- 25 -
<PAGE>
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole benefit of the
Company and the Representative and any other registered Holders of Warrant
Certificates or Warrant Securities.
- 26 -
<PAGE>
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
- 27 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: _________________________________________
Name:
Title:
Attest:
__________________
Secretary
NATIONAL SECURITIES CORPORATION
By: _________________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2001
No. W- Warrants to Purchase
____ Shares of Common Stock and/or
____ Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns,
is the registered holder of Warrants to purchase initially, at any time from
__________, 1997 [one year from the effective date of the Registration
Statement] until 5:30 p.m. New York time on ___________, 2001 [five years from
the effective date of the Registration Statement] ("Expiration Date"), up to
__________ fully-paid and non-assessable shares of common stock, $.001 par value
("Common Stock"), of COMMODORE SEPARATION TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and/or _____ redeemable common stock purchase
warrants of the Company ("Redeemable Warrants") (one Redeemable Warrant
entitling the owner to purchase one fully-paid and non-assessable share of
Common Stock) at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $______ [120% of the initial public offering
price] per share of Common Stock and $____ [120% of the initial public offering
price] per Redeemable Warrant upon surrender of this
A-1
<PAGE>
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _______, 1996 between the Company and NATIONAL SECURITIES
CORPORATION (the "Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
A-2
<PAGE>
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 1996
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: _________________________________________
Name:
Title:
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] ___________________ shares of Common Stock;
[ ] ___________________ Redeemable Warrants;
[ ] ___________________ shares of Common Stock together with an equal
number of Redeemable Warrants; or
[ ] ___________________ shares of Common Stock together with
Redeemable Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House funds to the order of Commodore
Separation Technologies, Inc. in the amount of $_______________________, all in
accordance with the terms of Section 3.1 of the Representative's Warrant
Agreement dated as of ______________________, 1996 between Commodore Separation
Technologies, Inc. and National Securities Corporation. The undersigned requests
that a certificate for such securities be registered in the name of
_____________ whose address is ____________________________________ and that
such Certificate be delivered to ___________________________ whose address is
_________________.
Dated:
Signature _________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
___________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] ___________________ shares of Common Stock;
[ ] ___________________ Redeemable Warrants;
[ ] ___________________ shares of Common Stock together with an equal
number of Redeemable Warrants; or
[ ] ___________________ shares of Common Stock together with
Redeemable Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1996 between Commodore Separation
Technologies, Inc. and National Securities Corporation. The undersigned requests
that a certificate for such securities be registered in the name of
_______________________________________ whose address is
_________________________________ and that such Certificate be delivered to
________________________ whose address is
______________________________________.
Dated:
Signature _________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
___________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________________________ hereby sells,
assigns and transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _____________________
Signature _________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
___________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
_______________________________________
A-6
<PAGE>
October 18, 1996
Commodore Separation Technologies, Inc.
150 East 58th Street, Suite 3400
New York, New York 10155
Dear Sirs:
We are acting as counsel to Commodore Separation Technologies,
Inc. (the "Company") in connection with (a) the Registration Statement on Form
S-1, filed on September 12, 1996 (as amended, the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Act"), covering 5,000,000
shares (the "Shares") of the Company's Common Stock, par value $.001 per share
(the "Common Stock"), and 5,000,000 Redeemable Common Stock Purchase Warrants
(the "Warrants"), including an over-allotment option of up to 750,000 each of
such Shares and Warrants, (b) the Underwriting Agreement between the Company and
National Securities Corporation (the "Underwriting Agreement"), relating to the
Shares and Warrants, and (c) the Warrant Agreement between the Company and The
Bank of New York (the "Warrant Agreement"), relating to the Warrants.
We have examined the originals, or certified, conformed or
reproduction copies, of all such records, agreements, instruments and documents
as we have deemed relevant or necessary as the basis for the opinion hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to such opinion, we have relied
upon, and assumed the accuracy of, certificates and oral or written statements
and other information of or from public officials, officers or representatives
of the Company, and others.
Based upon the foregoing, we are of the opinion that (a) the
Shares, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be validly
<PAGE>
Commodore Separation Technologies, Inc.
October 18, 1996
Page 2
issued, fully paid and non-assessable, and (b) the shares of Common Stock
initially to be reserved for issuance upon exercise of the Warrants pursuant to
the Warrant Agreement, when so issued upon such exercise in accordance with the
terms and provisions of the Warrants and the Warrant Agreement, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL
<PAGE>
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.
---------------------------------------
Tanner + Co.
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------------------
675 East 500 South, Suite 640
Salt Lake City, Utah 84102
Telephone (801) 532-7444
Fax (801) 532-4911
A PROFESSIONAL CORPORATION
Salt Lake City, Utah
October 21, 1996
