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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-22291
COMMODORE SEPARATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3299195
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3240 TOWN POINT DRIVE, SUITE 200, KENNESAW, GEORGIA 30144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 422-1518
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
COMMON STOCK, PAR VALUE $.001 PER SHARE
10% SENIOR CONVERTIBLE REDEEMABLE PREFERRED STOCK, PAR VALUE $.001 PER SHARE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to be the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 15, 1997, 11,500,000 shares of the registrant's Common
Stock, par value $.001 per share, were outstanding.
Non-affiliates of the registrant owned shares of Common Stock as of
September 15, 1997 with an aggregate market value of approximately $3,828,375
(based upon the September 15, 1997 average bid and asked prices of the Common
Stock as quoted by the Nasdaq Small-Cap Market).
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
None
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COMMODORE SEPARATION TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
TABLE OF CONTENTS
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PAGE
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PART I............................................................................................................1
ITEM 1. BUSINESS......................................................................................1
ITEM 2. PROPERTIES....................................................................................9
ITEM 3. LEGAL PROCEEDINGS.............................................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................9
PART II..........................................................................................................10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................10
ITEM 6. SELECTED FINANCIAL DATA......................................................................11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.........15
PART III.........................................................................................................16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........................................16
ITEM 11. EXECUTIVE COMPENSATION.......................................................................20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................28
PART IV..........................................................................................................29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..............................29
SIGNATURES.......................................................................................................32
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Commodore Separation Technologies, Inc., a Delaware corporation (the
"Company"), has developed and intends to commercialize its separation technology
and recovery system known as SLiM(TM) (Supported Liquid Membrane technology).
Based on the results of more than 100 laboratory and other tests to date, the
Company believes that SLiM(TM) can separate and recover solubilized metals
(e.g., chromium, cadmium, silver, mercury, platinum, lead, zinc and nickel),
radionuclides, gas, organics and biochemicals. SLiM(TM) utilizes a process
whereby a contaminated liquid or gaseous feedstream is introduced into a fibrous
membrane unit or module containing a proprietary chemical solution, the
composition of which is customized depending on the types and concentrations of
compounds in the feedstream. As the feedstream enters the membrane, the targeted
substance reacts with SLiM(TM)'s proprietary chemical solution and is extracted
through the membrane into a strip solution where it is then stored. The
remaining feedstream is either recycled or discharged free of the extractant(s).
In some instances, additional treatment may be required prior to disposal.
SLiM(TM) is distinguishable from other existing forms of membrane
filtration technology in that it:
- requires lower initial capital costs and lower operating
costs;
- has the capability of treating a variety of elements and
compounds in numerous industrial settings at greater speed and
with a higher degree of effectiveness, in a wide range of
contaminant concentrations and volume requirements;
- is environmentally safe, in most instances producing no
sludges or other harmful by-products which would require
additional post-treatment prior to disposal;
- can selectively extract target substances while extracting
substantially fewer unwanted substances;
- can typically operate on-site and in less space than competing
technologies;
- can extract metals, organic chemicals and other elements and
compounds in degrees of concentration and purity which permit
their reuse; and
- has the capability, in a single process application, of
selectively extracting multiple elements or compounds from a
mixed process stream.
In August 1996, the Company completed an on-site demonstration of
SLiM(TM) for the decontamination of chromium-contaminated groundwater at the
Port of Baltimore, Maryland. During this demonstration, a SLiM(TM) unit, in a
single feedstream pass-through, reduced the contamination level of chromium from
over 630 parts per million (ppm) to less than one ppm. The results of this test
were verified by Artesian Laboratories, Inc., an independent testing laboratory.
The Company has since completed additional on-site demonstrations of SLiM(TM) at
the Port of Baltimore with similar results. Due to the success of such
demonstrations, in February 1997 the State of Maryland informed the Company that
it will recommend including the SLiM(TM) process as an eligible technology in
the bid documents to remediate chromium leachate at the Port of Baltimore. Based
on management studies and discussions with metals industry executives, the
Company believes that SLiM(TM) represents a significant technological
advancement in the area of environmental remediation.
In September 1996, the Company installed a prototype SLiM(TM) unit at a
Columbus, Ohio metal plating company. DLZ Laboratories, Inc., an independent
testing laboratory, verified that the SLiM(TM) 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 continued to operate this SLiM(TM) unit
for three months 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 was
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.
In January 1997, the Company entered into a license agreement (the
"Lockheed License Agreement") with Lockheed Martin Energy Research Corporation
("Lockheed Martin"), manager of the Oak Ridge National Laboratory, a United
States Department of Energy national laboratory ("Oak Ridge"). Under the terms
of the Lockheed License Agreement, the Company received the exclusive worldwide
license, subject to a government use
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license, to use and develop the technology related to the separation of the
radionuclides technetium and rhenium from mixed wastes containing radioactive
materials. Based on tests conducted at Oak Ridge since May 1994, the Company
believes that this technology is capable of selectively extracting and
recovering technetium, rhenium and other radioactive isotopes as a concentrated
aqueous solution which can be reused in various scientific applications or
disposed of by government-approved techniques including long-term storage. The
Company believes that this technology can be used to remediate nuclear waste
tanks stored at the Department of Energy's atomic energy plants in Rocky Flats,
Colorado; Idaho Falls, Idaho; Paducah, Kentucky; Weldon Springs, Missouri;
Frenchman Flat, Nevada; Los Alamos, New Mexico; Aiken, South Carolina; Oak
Ridge, Tennessee; Pantex, Texas; and Hanford, Washington, and intends to pursue
such opportunities. According to Department of Energy sources, there are
approximately 100 million gallons of mixed radioactive and hazardous chemical
waste stored at these plants.
The Company markets its technology to industries engaged in
metallurgical processing, metal plating and mining, as well as companies
producing organic chemicals and biochemicals and those engaged in gas
separation. The Company is also targeting governmental agencies that have sites
which require remediation and has already completed an on-site demonstration at
the Port of Baltimore. The Company intends to pursue collaborative joint working
and marketing arrangements with, or acquisitions of or investments in, companies
that have a presence in target markets and those that focus on obtaining
environmental remediation projects, including clean-up of harbors, groundwater
and nuclear waste sites. Advanced Sciences, Inc., an affiliate of the Company
("Advanced Sciences"), will help market SLiM(TM) to the United States Department
of Energy ("DOE") and Department of Defense ("DOD").
In April 1997, the Company successfully completed an initial public
offering of its equity securities (the "Initial Public Offering"), from which it
received net proceeds of approximately $11.1 million.
The Company was incorporated in the State of Delaware in November 1995.
The principal executive offices of the Company are located at 3240 Town Point
Drive, Suite 200, Kennesaw, Georgia 30144, and its telephone number is (770)
422-1518.
ORGANIZATION AND CAPITALIZATION OF THE COMPANY
The Company was organized in November 1995 as a wholly owned subsidiary
of Commodore Environmental Services, Inc., a Delaware corporation
("Environmental"). Effective February 29, 1996, pursuant to an assignment of
technology agreement between the Company and Srinivas Kilambi, Ph.D., the
Company's Senior Vice President --Technology, the Company acquired rights to the
SLiM(TM) technology from Dr. Kilambi. In consideration for such technology, the
Company caused Environmental to issue to Dr. Kilambi 200,000 shares of
Environmental common stock and 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, except for
applications related to the radionuclides technetium and rhenium, for which Dr.
Kilambi is entitled to receive a royalty of .66% of net sales (less allowances
for returns, discounts, commissions, freight, and excise or other taxes). In
exchange for Environmental's issuance of such shares to Dr. Kilambi, as well as
Environmental's funding and support of the Company, the Company issued to
Environmental 10,000,000 shares of the common stock, par value $.001 per share
("Common Stock"), of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions."
From the Company's inception to December 1996, Environmental financed
the research and development activities of the Company through direct equity
investments and loans to the Company. Effective as of December 2, 1996, as part
of a corporate restructuring to consolidate all of its current environmental
technology businesses within Commodore Applied Technologies, Inc., a Delaware
corporation and 69.3%-owned, publicly-traded subsidiary of Environmental
("Applied"), Environmental transferred to Applied its 10,000,000 shares of
Company Common Stock, which at the time represented all of the outstanding
shares of capital stock of the Company, and 100 shares of common stock, par
value $.001 per share, of Commodore CFC Technologies, Inc., a Delaware
corporation ("CFC"), which represented all of the outstanding shares of capital
stock of CFC. In addition, Environmental assigned to Applied outstanding Company
notes aggregating $976,200 at December 2, 1996, representing advances previously
made by Environmental to the Company. Such advances have been capitalized by
Applied as its capital contribution to the Company. In consideration for such
transfers, Applied paid Environmental $3,000,000 in cash and issued to
Environmental a warrant (the "Environmental Warrant") expiring December 2, 2003
to purchase 7,500,000 shares of Applied common stock (the "Warrant Shares") at
an exercise price of $15.00 per share. The Environmental Warrant is valued at
$2.4 million and contains provisions granting certain registration rights with
respect to the Warrant Shares. As a result of the Initial Public Offering,
Applied currently owns 87% of the outstanding shares of Common Stock of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," "Security Ownership
of Certain Beneficial Owners and Management" and "Certain Relationships and
Related Transactions."
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MARKET OVERVIEW
Based on market data compiled by the Company, the Company estimates
that, as of June 30, 1997, 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 SLiM(TM) 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, 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, 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.
SLiM(TM)
Although SLiM(TM) uses the same basic principles as other membrane
separation technologies, the Company believes that SLiM(TM) represents a
significant advance in membrane separation technology in the treatment of
solubilized feedstreams. SLiM(TM) acts by separating and extracting the targeted
material(s) from the feedstream, rather than trapping the target material as the
entire feedstream passes through the filter mechanism. 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 SLiM(TM)
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 SLiM(TM) 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.
SLiM(TM) involves injecting a contaminated liquid or gaseous feedstream
into a fibrous membrane unit or module. This module is previously loaded with a
series of chemicals 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
combination 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 SLiM(TM) can be
utilized for the separation and recovery of solubilized metals (e.g., chromium,
cadmium, silver, mercury, platinum, lead, zinc and nickel), radionuclides, gas,
organics and biochemicals.
The typical SLiM(TM) 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 typically
constructed of plastic and contains the microporous fiber membrane through which
the target element or compound is separated from the contaminated feedstream. At
one end of the module, there is attached a set of pumps and tubing that feeds
the contaminated feedstock from its point of origin (such as a metal plating
tank or bath) into the module. Additional pumps and tubing are attached to feed
and recycle the strip solution which concentrates the contaminant that is being
deposited continuously by the Company's proprietary chemicals resident 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 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 chemical mixture 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, using computer data links, the Company will monitor the equipment and
process while in operation.
LABORATORY AND OTHER TEST RESULTS
In more than 100 laboratory and other tests to date, SLiM(TM) 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
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quantity and purity as to economically permit the reuse thereof in most
commercial applications. Test results included the following:
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APPLICABLE
MATERIAL BEFORE TREATMENT AFTER TREATMENT FEDERAL GUIDELINE
- -------- ---------------- --------------- -----------------
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Metals:
Zinc 1,000 ppm Less than 2 ppm (after 30 Less than 2 ppm
minutes)
Nickel 3,200 ppm Less than 1.6 ppm (after 30 Less than 2 ppm
minutes)
Chromium (hexavalent) 630 ppm 0.03 ppm (field test) 0.05 ppm
Aluminum 195 ppm 100 ppm (after 15 minutes) 30 ppm
Silver 177 ppm 1 ppm Less than 2 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:
Rhenium 5 ppm Less than 5 ppb Less than 10 ppb
Anions:
Nitrates 62,000 ppm Less than 100 ppm Less than 10 ppm
</TABLE>
All of these tests were performed on limited quantities of process
streams, and there can be no assurance that the same or similar results would or
could be obtained on a large-scale commercial basis or on any specific project.
Other than with respect to the Company's tests involving the separation and
recovery of zinc, nickel and chromium, no other tests conducted by the Company
have been independently verified.
COMMERCIALIZATION AND MARKETING STRATEGY
During its initial commercialization phase, the Company intends to
lease its equipment 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 will supply these modules at a reasonable
mark-up over 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 obtains
revenues through servicing the SLiM(TM) equipment, including periodic
replacement of the membrane component. In addition to leasing and selling its
equipment, the Company charges 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 focuses its initial marketing efforts on
domestic businesses, the Company is also 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
emphasizes and exploits the following attributes of SLiM(TM).
Metals Separation and Recovery
The Company's initial marketing efforts are 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 prototype SLiM(TM) unit
on-line at a Columbus, Ohio metal plating company. The unit operated in a batch
and in a continuous mode for three months, and, based on operating
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data results, successfully separated and recovered nickel and zinc effluent
streams with concentrations varying from 100 to 1,000 ppm. DLZ Laboratories,
Inc., an independent testing laboratory, verified that the SLiM(TM) 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 decontaminated process
effluent stream was recycled into the plating line rinse tanks, saving the
normal consumption of make-up water at a rate of five gallons per minute.
Based on management studies and discussions with metals industry
executives, the Company believes that the major competitive technology in this
area is precipitation, which generates a metallic sludge by-product requiring
further treatment prior to landfill disposal. By contrast, SLiM(TM) does not
generate harmful metallic sludges, and instead enables nearly 100% process water
recycling while also enabling recovery of valuable raw materials. As costs of
environmental compliance continue to mount, the Company expects SLiM(TM) to
become a preferred alternative to existing metals separation methods.
Environmental Remediation and Restoration
The Company believes that SLiM(TM) has significant potential for
application to environmental remediation and restoration. The Company is
currently involved in pilot projects for the decontamination of water at the
Port of Baltimore. In the case of a project such as the Port of Baltimore
project, it is expected that the remediation 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 SLiM(TM) has the attributes of lower initial capital costs, lower operating
costs and the ability to recover heavy metals for reuse.
In August 1996, the Company completed an on-site demonstration of
SLiM(TM) for the decontamination of water at the Port of Baltimore. During seven
hours of operation, a single SLiM(TM) unit, in a single pass-through of
feedstream, processed 90 gallons of water containing more than 630 ppm of
hexavalent chromium and reduced the hexavalent chromium concentration level to
0.7 ppm. The results of this test were verified by Artesian Laboratories, Inc.,
an independent testing laboratory. The Company was invited to conduct an
additional demonstration at the Port of Baltimore in February 1997 by the Port
and Maryland Environmental Service. During this demonstration, approximately
1,500 gallons of the same feedstream used in the first demonstration were
processed. Hexavalent chromium was reduced to 0.03 ppm, well below the federal
guidelines for unregulated discharge. Due to the success of these
demonstrations, the State of Maryland has included the SLiM(TM) process as an
eligible technology in the bid documents to remediate chromium leachate at the
Port of Baltimore. The Company has engaged a professional engineering company to
design and build commercial-scale units capable of processing larger volumes of
contaminated water. A commercial unit was mobilized to the Port of Baltimore and
commenced operation on June 18, 1997. By June 30, 1997, it had processed
approximately 10,000 gallons of chromium contaminated water. This demonstration
continued through late August 1997.
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.
Radionuclide/Mixed Waste Separation
In the United States, there are numerous sites operated or maintained
by the DOE and/or the DOD at which there are present "mixed wastes" containing
radionuclides intermingled with other hazardous wastes. These sites are also
contaminated with other compounds associated with nuclear weapons, testing and
energy. SLiM(TM) may have significant capabilities in the separation of
radionuclides such as cesium, technetium and rhenium. The United States
government estimates that potential government expenditures in this market could
be between $234 billion and $389 billion over the course of the next 75 years.
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 SLiM(TM), and there can be no assurance as to whether or when
any such contracts may be obtained.
In January 1997, the Company entered into the Lockheed License
Agreement with Lockheed Martin, manager of Oak Ridge. Under the terms of the
Lockheed License Agreement, the Company received the exclusive worldwide
license, subject to a government use license, to use and develop the technology
related to the separation of the radionuclides technetium and rhenium from mixed
wastes containing radioactive materials. The Company also
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received under the Lockheed License Agreement the right to exploit the
technology for other commercial applications. Pursuant to the Lockheed License
Agreement, the Company made an initial cash payment of $50,000 upon the
execution of the agreement and is obligated to pay a royalty to Lockheed Martin
of 2% of net sales (less allowances for returns, discounts, commissions,
freight, and excise or other taxes) up to total net sales of $4,000,000 and 1%
of net sales thereafter. In addition, the Company has agreed to guarantee
Lockheed Martin, during the term of the Lockheed License Agreement, an annual
minimum royalty of $15,000 commencing in the third year of the Lockheed License
Agreement. The Lockheed License Agreement, which may be terminated at any time
solely by the Company, has a term which will last until the end of the life of
all patents or patentable claims described in or ultimately arising out of the
provisional patent filed jointly by the Company and three colleagues of Srinivas
Kilambi, Ph.D., the Company's Senior Vice President -- Technology, who worked
with him at Oak Ridge, covering their inventions related to radionuclides. Based
on tests conducted at Oak Ridge since May 1994, the Company believes that this
technology is capable of selectively extracting and recovering technetium,
rhenium and other radioactive isotopes as a concentrated aqueous solution which
can be reused in various scientific applications or disposed of by
government-approved techniques including long-term storage. The Company believes
that this technology may remediate nuclear waste water stored at the DOE's
atomic energy plants in Rocky Flats, Colorado; Idaho Falls, Idaho; Paducah,
Kentucky; Weldon Springs, Missouri; Frenchman Flat, Nevada; Los Alamos, New
Mexico; Aiken, South Carolina; Oak Ridge, Tennessee; Pantex, Texas; and Hanford,
Washington, and intends to pursue such opportunities. According to DOE sources,
there are approximately 100 million gallons of mixed radioactive and hazardous
chemical waste stored at these plants.
Gas Separation
The SLiM(TM) equipment and technology can possibly be utilized to
separate and recover valuable gases 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, absorption, catalytic removal, and
permselective polymeric membrane separation. However, each of these processes
has disadvantages, which can include high energy usage, high pressure and
temperature requirements, and/or relatively low purity of the recovered gas. The
SLiM(TM) process is predicted to overcome these disadvantages by yielding
relatively pure nitrogen in a low-energy, lower capital cost process conducted
at ambient temperature and pressure. The Company has not developed a strategy or
targeted a market for commercialization of the gas separation application.
Organics Separation and Recovery
As of June 30, 1997, 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. SLiM(TM) may have
significant capabilities in the separation and recovery of a variety of
contaminants, including phenol and nitrophenol (a phenolic derivative), and the
Company believes that such capabilities, although untested, extend to other
organic chemicals such as volatile organic compounds, petrochemicals, other
phenolic derivatives, olefin alkanes and acid gases.
Currently, the primary technology utilized in this area is activated
carbon treatment. Like the other slow biological treatment processes utilized in
this area, the by-products are often more toxic than the original compound. The
Company intends to demonstrate to chemical manufacturers that SLiM(TM) is
effective in dealing with the wide variety of contaminants generated by these
businesses, and that use of SLiM(TM) will substantially reduce the environmental
risks and costs associated with traditional separation methods.
Biochemicals Separation and Recovery
SLiM(TM) may have significant capabilities in the separation and
recovery of biochemicals, including phenylalanine (an amino acid). 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 SLiM(TM).
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.
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CFC SERVICES AGREEMENT
The Company has entered into a services agreement (the "Services
Agreement") with CFC, which has developed and patented a process which, based on
test applications of limited quantities of chlorofluorocarbons, 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 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, 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 are 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 SLiM(TM) and related equipment on certain job
sites. In addition, if the Company begins to market SLiM(TM) internationally,
the Company will be required to comply with laws and regulations and, when
applicable, 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 SLiM(TM) 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 to 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 materially adversely affect
the Company's business, financial condition and results of operations.
The Company maintains environmental liability insurance with limits of
$1.0 million per occurrence and $2.0 million in the aggregate. The Company also
maintains contractor's pollution liability insurance with limits of $1.0 million
per occurrence and $1.0 million in the aggregate. 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 concepts underlying the SLiM(TM) technology were developed by
Srinivas Kilambi, Ph.D., the Company's Senior 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 SLiM(TM)
technology from Dr. Kilambi, together with associated patent rights,
confidential know-how and other property rights created or obtained by Dr.
Kilambi, whether then existing or thereafter created, relating to the
construction, design, development and exploitation of the processes, equipment
and technology related to SLiM(TM) and any other product or development
resulting from the acquired patent rights.
In consideration for his assignment of the SLiM(TM) technology, the
Company caused Environmental to transfer to Dr. Kilambi 200,000 shares of
Environmental common stock and 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, except for applications
related to the radionuclides technetium and rhenium, for which Dr. Kilambi is
entitled to receive a royalty of .66% of net sales (less allowances for returns,
discounts, commissions, freight and excise or other taxes). See " --
Organization and Capitalization of the Company," "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."
7
<PAGE> 10
On September 15, 1997, the Company filed two United States
continuation-in-part ("CIP") provisional patent applications and, on September
16, 1997, filed one international patent application under the Patent
Cooperation Treaty covering the principal features of its SLiM(TM) technology.
One of the CIP provisional patent applications covers the joint inventions of
Dr. Kilambi and Lockheed Martin. The other CIP provisional patent application
and the international patent application cover the sole inventions of Dr.
Kilambi.
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
many 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, SLiM(TM) is capable of handling a broad range of compounds
in a faster and relatively inexpensive manner. Furthermore, the by-products of
the SLiM(TM) 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 SLiM(TM) has substantial advantages over all other
known separation technologies, any one or more of the Company's competitors, or
other enterprises not presently known, may develop technologies which are
superior to SLiM(TM). 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 SLiM(TM) 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 SLiM(TM) is a technical and cost-effective
alternative to other separation technologies on a commercial scale, the Company
may not be able to compete successfully.
RESEARCH AND DEVELOPMENT
Research and development activities are ongoing and utilize internal
technical staff as well as independent consultants retained by the Company. All
such activities are Company-sponsored. Research and development expenditures for
the Company were $985,000 and $1,035,000 for the year ended June 30, 1997 and
for the period from November 15, 1995 (date of inception) to June 30, 1997,
respectively.
8
<PAGE> 11
EMPLOYEES
As of June 30, 1997, the Company had 18 full-time employees, including
11 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.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in approximately
20,800 square feet of space in Kennesaw, Georgia (near Atlanta) under a lease
expiring in February 2002, which the Company began occupying in March 1997. Such
space also serves as the Company's administrative offices and research and
testing laboratories. The Company pays $122,000 in rent per year under such
lease.
The Company maintains marketing offices located in approximately 2,200
square feet of office space in McLean, Virginia, which also serves as offices of
Environmental and Applied. The Company also maintains executive offices located
in approximately 2,000 square feet of office space in New York, New York, which
also serves as offices of Environmental, Applied, certain of their affiliates,
Paul E. Hannesson, the Chairman of the Board and Chief Executive Officer of the
Company, and the Chairman of the Board, President and Chief Executive Officer of
each of Environmental and Applied, and Bentley J. Blum, a director of each of
the Company, Environmental and Applied. See "Certain Relationships and Related
Transactions -- Offices."
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 1997, the Company was not involved in any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1997.
9
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, 10% Senior Convertible Preferred Stock, par
value $.001 per share ("Convertible Preferred Stock"), and Redeemable Common
Stock Purchase Warrants ("Warrants") have been traded and quoted on the Nasdaq
Small-Cap Market ("Nasdaq") since April 3, 1997. The following table sets forth,
for the period indicated, the high and low bid prices of the Common Stock,
Convertible Preferred Stock and Warrants as quoted by Nasdaq. Such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK CONVERTIBLE PREFERRED STOCK WARRANTS
---------------------------- ------------------------------ -----------------------------
HIGH LOW HIGH LOW HIGH LOW
<S> <C> <C> <C> <C> <C> <C>
Quarter ended September $2.25 $1.50 $7.50 $6.50 $0.875 $0.50
30, 1997(1)
Quarter ended June 30, $5.00 $2.125 $10.00 $7.50 $1.875 $0.875
1997(2)
</TABLE>
- --------------------------
(1) Reflects bid information for the period beginning July 1, 1997
through September 15, 1997.
(2) Reflects bid information for the period beginning April 3,
1997 (the date the Common Stock, Convertible Preferred Stock
and Warrants began quoting on Nasdaq) through June 30, 1997.
As of June 30, 1997, there were 12 owners of record of Common Stock,
two owners of record of Convertible Preferred Stock and 10 owners of record of
Warrants.
DIVIDEND INFORMATION
Since its inception, the Company has not paid any cash dividends on its
Common Stock. The Company intends to retain earnings to finance the operation
and expansion of the Company's business and, accordingly, does not plan for the
reasonably foreseeable future to pay cash dividends to holders of the Common
Stock. Any decisions as to the future payment of dividends in respect of the
Common Stock will depend on the earnings and financial position of the Company
and such other factors as the Company's Board of Directors deems relevant.
On June 30, 1997, the Company paid a cash dividend to the holders
of the Convertible Preferred Stock in an aggregate amount of $138,000.
Cumulative dividends in respect of the Convertible Preferred Stock are payable
at the rate of $1.00 per share per annum, quarterly on the last business day of
March, June, September and December of each year, when, as and if declared by
the Board of Directors of the Company, before any dividends are declared or paid
on the Common Stock or any capital stock ranking junior to the Convertible
Preferred Stock.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in the following table as of June
30, 1996 and 1997, for the period from November 15, 1995 (date of inception) to
June 30, 1996, for the year ended June 30, 1997 and for the period from November
15, 1995 (date of inception) to June 30, 1997 are derived from the audited
Financial Statements appearing elsewhere herein. 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 NOVEMBER 15, 1995
STATEMENT OF OPERATIONS (DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION)
DATA:(1) TO JUNE 30, 1996 JUNE 30, 1997 TO JUNE 30, 1997
------------------- ------------- -------------------
<S> <C> <C> <C>
Costs and expenses............. $(60,000) $(3,265,000) $(3,325,000)
Other income and (expense)..... $(1,000) $94,000 $93,000
Net loss....................... $(61,000) $(3,171,000) $(3,232,000)
Net loss per share(2).......... (.01) (.31) (.32)
Ratio of earnings to preferred
stock dividends(3)............. - - -
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Working capital (deficit).................... $(81,000) $7,817,000
Total assets................................. 23,000 9,850,000
Total current liabilities.................... 84,000 1,124,000
Deficit accumulated during development stage. (61,000) (3,232,000)
Stockholders' equity (deficit)............... (61,000) 8,708,000
</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 10,000,000, 10,375,000
and 10,231,000 shares of Common Stock, respectively, being outstanding
for the period.
(3) The Company's operating results are not sufficient to cover the
Convertible Preferred Stock cash dividends.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized in November 1995, has had no commercial
operations to date and has not generated material revenues or any profits 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 commercial-scale units and
installing and operating units 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 Company has generated nominal revenues to date and will not
generate any material revenues until after the Company successfully completes
the installation of units 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 $(61,000).
For the year ended June 30, 1997, the Company incurred additional losses of
$(3,171,000) and anticipates that it may continue to incur significant 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.
RESULTS OF OPERATIONS
Year ended June 30, 1997 compared to Seven Months
(November 15, 1995 - Inception) ended June 30, 1996
For the year ended June 30, 1997, the Company incurred $985,000 of
research and development costs as compared to $50,000 for the seven months ended
June 30, 1996. The increase is due to efforts to commercialize the Company's
technology. Research and development costs include salaries, wages and other
related costs of personnel engaged in research and development activities, as
well as contract services and equipment used in research and development
activities. Research and development costs are expensed when incurred.
General and administrative expenses for the year ended June 30, 1997
were $1,356,000, as compared to $10,000 for the seven months ended June 30,
1996. The increase is due to hiring of personnel and acquisition of
infrastructure (e.g., office and lab space) to commercialize the Company's
technology.
For the year ended June 30, 1997, the Company was charged $705,000 by
Applied as a management fee. This fee is a result of allocated wages and
salaries, rent, insurance (including directors' and officers' liability
insurance), and other administrative expenses related to its executive offices
in New York and its marketing office in Virginia. The management fees commenced
in April 1997.
Gross revenues for the year ended June 30, 1997 were $8,000, as
compared to no revenues for the seven months ended June 30, 1996. The Company
performed a site demonstration at a client's facility which provided nominal
revenues.
Interest income was $99,000 for the year ended June 30, 1997, as
compared to $0 for the seven-month period ended June 30, 1996. This increase
resulted from the investment of proceeds of the Company's Initial Public
Offering since April 1997.
Interest expense was $13,000 for the year ended June 30, 1997, as
compared to $1,000 for the seven-month period ended June 30, 1996. The increased
interest expense is due to a line of credit extended to the Company to fund the
Company's operations pending completion of its Initial Public Offering, which
occurred in April 1997.
12
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Through April 1997, the Company has financed its development efforts
through direct equity investments and loans from Environmental and Applied. From
November 15, 1995 (date of inception) to June 30, 1997, the Company purchased or
constructed equipment totaling $766,000 and has incurred patent filing and
maintenance costs of $58,000. Effective as of December 2, 1996, as part of a
corporate restructuring to consolidate all of its current environmental
technology businesses within Applied, Environmental transferred to Applied all
of the then outstanding shares of capital stock of the Company and another
Environmental subsidiary. In addition, Environmental assigned to Applied
outstanding Company notes aggregating $976,200 at December 2, 1996, representing
advances previously made by Environmental to the Company. Such advances have
been capitalized by Applied as its capital contribution to the Company. In
consideration for such transfers, Applied paid Environmental $3,000,000 in cash
and issued to Environmental the Environmental Warrant. See "Business
- --Organization and Capitalization of the Company" and "Certain Relationships and
Related Transactions --Organization and Capitalization of the Company."
The Company has sustained losses of $(3,171,000) and $(61,000) for the
year ended June 30, 1997 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 $8,000 for the year ended June 30, 1997 as a result of billings from
the Port of Baltimore field test of the SLiM(TM) process. Substantially all of
the Company's losses are attributable to the expenses detailed above. At June
30, 1997 and June 30, 1996, the Company had working capital and working capital
deficit of $7,817,000 and $(81,000), respectively, and stockholders' equity and
deficit of $8,708,000 and $(61,000), respectively. The Company's increase in
working capital and stockholders' equity is principally due to the Company's
receipt of net proceeds of $11.1 million from its Initial Public Offering in
April 1997. The Company anticipates that the proceeds from the Initial Public
Offering will meet its funding needs through June 30, 1998.
The Company has leased a new facility of approximately 20,800 square
feet near Atlanta, Georgia, which it began occupying in March 1997 and which
comprises the Company's principal executive offices, administrative offices and
research and testing laboratories. Approximately $500,000 was required in
connection with leasing the facility and related leasehold improvements.
Additionally, approximately $1.0 million will be required to purchase equipment
or licensing technology necessary to manufacture the modules and produce the
chemicals used in SLiM(TM). The Company anticipates spending approximately $2.8
million to purchase SLiM(TM) components for use in connection with initial
demonstrations and/or installations of SLiM(TM) at customer sites. The Company
has allocated approximately $2.0 million to meet technology and development
costs, including the hiring of additional personnel (including marketing
personnel) and the costs associated with conducting ongoing tests,
demonstrations and enhancements of SLiM(TM).
The Company has also allocated a portion of working capital
(approximately $900,000) to finance a portion of the purchase price relating to
possible acquisitions of, or investments in, complementary (including
competitive) businesses, products or technologies. The Company currently has no
commitments or agreements with respect to any such acquisitions or investments.
In the event any such acquisition or investment opportunity arises in the
future, it is probable that the Company will also be required to obtain
additional financing to complete such transaction.
The Company has also allocated approximately $1.0 million to fund
proposed collaborative arrangements. These costs include, but are not limited
to, 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. As of June 30, 1997, the Company has not determined the
amount to be applied to any one particular proposed collaborative arrangement.
The estimated allocation for funding of proposed collaborative arrangements is
on an aggregate basis.
In April 1997, the Company repaid a $1.5 million line of credit
provided by a commercial bank to the Company in March 1997. The line of credit
was utilized to repay advances made by Applied since December 1, 1996 for
providing equipment installed in the Company's new Atlanta facility and for
working capital purposes.
NET OPERATING LOSSES
At June 30, 1997, the Company had tax loss carryforwards of
approximately $3,232,000. 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.
13
<PAGE> 16
A full valuation allowance has been established because of the
uncertainty about whether the Company will realize the benefit of net operating
losses.
FORWARD-LOOKING STATEMENTS
The Company, or its executive officers and directors on behalf of the
Company, may from time to time make "forward-looking statements" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
the Securities Exchange Act of 1934, as amended (the "Exchange Act" and,
together with the Securities Act, the "Acts"). The Company is filing this Annual
Report on Form 10-K to avail itself of the safe harbor provided in the Acts with
respect to any such (i) forward-looking statements that may be contained in the
Company's reports and other documents filed with the Securities and Exchange
Commission under sections 13 or 15(d) of the Exchange Act and (ii) oral
forward-looking statements made by the Company's executive officers and
directors on behalf of the Company to the press, potential investors, securities
analysts and others. Such forward-looking statements could involve, among other
things, statements regarding the Company's intent, belief or expectation with
respect to (i) the Company's results of operations and financial condition, (ii)
the consummation of acquisition and financing transactions and the effect
thereof on the Company's business, and (iii) the Company's plans and objectives
for future operations and expansion. Any such forward-looking statements would
be subject to the risks and uncertainties that could cause actual results of
operations, financial condition, acquisitions, financing transactions,
operations, expansion and other events to differ materially from those expressed
or implied in such forward-looking statements. Any such forward-looking
statements would be subject to a number of assumptions regarding, among other
things, future economic, competitive and market conditions generally. Such
assumptions would be based on facts and conditions as they exist at the time
such statements are made as well as predictions as to future facts and
conditions, the accurate prediction of which may be difficult and involve the
assessment of events beyond the Company's control. Further, the Company's
business is subject to a number of risks that would affect any such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the ability of the Company to commercialize its technology; foreign
and domestic competition; product demand and industry pricing; cost of
compliance with environmental regulations; and management's estimates of niche
market data. These risks and uncertainties could cause actual results of the
Company to differ materially from those projected or implied by such
forward-looking statements.
14
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company are included as
ITEM 8 and can be found beginning on page F-1 herein:
Report of Independent Accountants.
Balance Sheet as of June 30, 1997 and June 30, 1996.
Statement of Operations for the year ended June 30, 1997, for the
period from November 15, 1995 (date of inception) to June 30,
1996, and for the period from November 15, 1995 to June 30,
1997.
Statement of Changes in Stockholders' Equity for the period from
November 15, 1995 (date of inception) through June 30, 1997.
Statement of Cash Flows for the year ended June 30, 1997, for the
period from November 15, 1995 (date of inception) to June 30,
1996, and for the period from November 15, 1995 to June 30,
1997.
Notes to Financial Statements.
All financial statement schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and, therefore,
have been omitted.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company and its former auditors, Tanner + Co. ("Tanner"), mutually
agreed on July 28, 1997 to terminate their relationship. During the fiscal
period ended June 30, 1996, and through and including July 28, 1997, Tanner's
reports on the Company's financial statements neither contained any adverse
opinions nor were qualified or modified as to any uncertainty, except that
Tanner's auditors' report with respect to the Company's financial statements for
the fiscal period ended June 30, 1996 contained additional paragraphs relating
to the Company continuing as a going concern due to the Company's significant
losses and deficit in working capital.
During the fiscal period ended June 30, 1996, and through and including
July 28, 1997, there were no disagreements with Tanner on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Tanner, would have caused it to make reference to the subject matter of the
disagreements in connection with its report.
The Company has retained Price Waterhouse LLP as its auditors as of
July 28, 1997. The decision to terminate the Company's relationship with Tanner
and to retain Price Waterhouse LLP was recommended by the Audit Committee of the
Board of Directors and unanimously approved by the Board of Directors of the
Company.
15
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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>
Paul E. Hannesson..................... 56 Chairman of the Board and Chief Executive Officer
Edwin L. Harper, Ph.D................. 55 Vice Chairman
Kenneth J. Houle...................... 58 President and Chief Operating Officer
Michael D. Fullwood................... 50 Senior Vice President, Chief Financial and Administrative
Officer, Secretary and General Counsel
James M. DeAngelis.................... 36 Senior Vice President -- Marketing & Sales
Srinivas Kilambi, Ph.D................ 33 Senior Vice President -- Technology
Michael D. Kiehnau, P.E............... 36 Vice President A Finance & Operations
Andrew P. Oddi........................ 36 Vice President and Treasurer
William E. Ingram..................... 51 Vice President and Controller
Bentley J. Blum....................... 56 Director
Kenneth L. Adelman, Ph.D.............. 49 Director
David L. Mitchell..................... 75 Director
William R. Toller..................... 66 Director
</TABLE>
Each director is elected to serve for a term of one year or until his
successor is duly elected and qualified. The Company's officers are elected by,
and serve at the pleasure of, the Board of Directors, subject to the terms of
any employment agreements. Messrs. Hannesson and Blum are brothers-in-law. No
family relationship exists among any other directors or executive officers of
the Company.
PAUL E. HANNESSON has been a director of the Company since its
inception, served as its Chairman of the Board from November 1995 to January 1,
1997, and was reelected Chairman of the Board and elected Chief Executive
Officer effective May 1, 1997. Mr. Hannesson has been a director of Applied
since March 1996 and was elected Chairman of the Board in November 1996. Mr.
Hannesson also served as Chief Executive Officer of Applied from March to
October 1996 and as President of Applied from March to September 1996, and was
reelected Chief Executive Officer of Applied on November 18, 1996 and President
on May 1, 1997. Mr. Hannesson has been a director of Environmental since
February 1993 and was elected its Chairman of the Board and Chief Executive
Officer in November 1996. Mr. Hannesson also served as President of
Environmental from February 1993 to July 1996 and was reelected President on May
1, 1997. Mr. Hannesson also currently serves as the Chairman of the Board and
Chief Executive Officer of Commodore Advanced Sciences, Inc., a wholly owned
subsidiary of Applied ("CAS"), and CFC. Mr. Hannesson was a private investor and
business consultant from 1990 to 1993, and was also an officer and director of
Specialty Retail Services, Inc. from 1989 to August 1991. He currently serves as
Chairman of the Board of Lanxide Corporation, a research and development company
developing metal and ceramic materials ("Lanxide"), where he also serves on its
Executive Committee. Mr. Hannesson is the brother-in-law of Bentley J. Blum, a
director of the Company.
EDWIN L. HARPER, PH.D. has been a director of the Company since January
1, 1997 and was elected Vice Chairman of the Company effective May 1, 1997. Dr.
Harper served as Chairman of the Board and Chief Executive Officer of the
Company from January 1, 1997 to April 1997, and also as President of the Company
for an interim period from January 1 to January 27, 1997. Dr. Harper was also
elected a director of Applied, Environmental, CAS and CFC in May 1997, after
having served as President and Chief Operating Officer of both Environmental and
Applied from November 1996 to April 1997, and was elected Vice Chairman of
Environmental and Applied effective May 1, 1997. Dr. Harper had been the
President and Chief Executive Officer of the Association of American
16
<PAGE> 19
Railroads, a trade association for the major railroads in North America, since
January 1992. Prior to such appointment, Dr. Harper was the Co-Chief Executive
Officer of Campbell Soup Company from November 1989 to January 1990, and its
Executive Vice President and Chief Financial Officer from 1986 to 1991. Dr.
Harper has held several other senior executive officer positions in the past,
with Dallas Corporation (1983 to 1986), Emerson Electric Company (1978 to 1981)
and CertainTeed Corporation (1975 to 1978), and served in the White House as
Assistant to the President, Deputy Director of the Office of Management and
Budget and Chairman of the President's Council on Integrity and Efficiency in
Government from 1981 to 1983. Dr. Harper holds a Ph.D. degree from the
University of Virginia.
KENNETH J. HOULE was elected President and Chief Operating Officer of
the Company effective January 27, 1997. Mr. Houle previously served as the
President of The Hall Chemical Company, a manufacturer of inorganic metal
catalysts and compounds, from April 1995 to September 1996. Prior to such time,
Mr. Houle had served as Vice President and Business Director of the Personal
Care Business Unit of International Specialty Products, Inc., a producer of
specialty chemicals, from April 1992 to March 1995, and the President and Chief
Executive Officer of Ruetgers - Nease Chemical Company, a manufacturer of
organic chemical intermediates and surfactants, from February 1990 to January
1991. Mr. Houle was an independent consultant in the chemical industry from
October 1996 to January 1997. Mr. Houle is a graduate of Siena College, with a
Bachelor's degree in Chemistry, and the Accounting and Financial Management
Program at Columbia University. Mr. Houle also participated in the Masters
degree program in Organic Chemistry at Iowa State University. He is a board
member of the Chemist's Club (New York, New York) and a member of the American
Chemical Society, American Institute of Chemical Engineers and Societe de Chemie
Industrielle (American section). Mr. Houle is also a trustee and board member of
the Ohio Center of Science and Industry.
MICHAEL D. FULLWOOD was elected Senior Vice President, Chief Financial
and Administrative Officer, Secretary and General Counsel of the Company,
Applied, Environmental, CAS and CFC effective May 12, 1997. Mr. Fullwood was
elected a director of Lanxide effective July 6, 1997. From 1987 to 1996, Mr.
Fullwood held numerous positions ranging from Senior Attorney to Executive Vice
President and Chief Financial Officer of Witco Corporation, a New York Stock
Exchange-traded manufacturer of quality specialty chemical and petroleum
products ("Witco"). From 1983 to 1987, Mr. Fullwood served as Senior Attorney at
Scallop Corporation (Royal Dutch/Shell Group), where he specialized in corporate
matters and mass tort litigation and handled international law for Royal
Dutch/Shell Group. Mr. Fullwood also previously served as Senior Attorney of
Caltex Petroleum and Arabian American Oil Company, handling corporate,
contractual and transnational matters. Mr. Fullwood holds a law degree from
Harvard Law School.
JAMES M. DEANGELIS was elected Senior Vice President -- Marketing &
Sales of the Company effective September 1, 1996. He served prior to such time
as Vice President -- Marketing of Environmental and President of CFC since
January 1993. Prior to January 1993, Mr. DeAngelis was completing 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. was elected Senior Vice President -- Technology
of the Company on April 1, 1997. Dr. Kilambi served as Vice President --
Technology of the Company from February 1996 to March 31, 1997, 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 Laboratory, 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.
MICHAEL D. KIEHNAU, P.E. was elected Vice President -- Finance &
Operations on April 1, 1997, after having served as the Company's Chief
Financial Officer from September 1996 to January 1997, and as its Vice President
- -- Operations from January 1, 1997 to March 31, 1997. 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.
ANDREW P. ODDI was elected Vice President and Treasurer of the Company
effective May 1, 1997, after having served as its Vice President -- Finance
since January 1, 1997. Mr. Oddi was also elected Vice President and Treasurer of
Applied, Environmental, CAS and CFC effective May 1, 1997. Mr. Oddi served as
the Vice President of Finance, Chief Financial Officer and Secretary of Applied
from March to November 1996. Mr. Oddi also served as Vice President
17
<PAGE> 20
of Finance & Administration and Chief Financial Officer of Environmental from
1987 to April 1997. From 1982 to 1987, Mr. Oddi was employed by Ernst & Young,
independent accountants, and held the position of audit manager in 1986 and
1987. Mr. Oddi is a Certified Public Accountant.
WILLIAM E. INGRAM was elected Vice President and Controller of the
Company effective May 1, 1997. Mr. Ingram served as Applied's Vice President and
Controller from October 1996 to March 1997, as its Vice President, Finance from
March to April 1997, and was reelected Vice President and Controller effective
May 1, 1997. Mr. Ingram was also elected Vice President and Controller of
Environmental, CAS and CFC effective May 1, 1997. Prior to that Mr. Ingram was
Chief Financial Officer of HydroChem Industrial Services, Inc., a privately
owned, $160 million company providing high pressure water and chemical cleaning
services primarily to the petrochemical industry. Mr. Ingram was Vice President
and Region Controller for Chemical Waste Management, Inc. (CWM) for eleven
years. CWM, a subsidiary of WMX Technologies, provides hazardous waste treatment
and disposal services to a wide range of government and industrial customers. He
also spent two years with the solid waste operations of WMX Technologies. Mr.
Ingram is a Certified Public Accountant and has an MBA from the University of
Florida and a B.S. in Accounting from Florida Southern College.
BENTLEY J. BLUM has been a director of the Company since August 1996.
Mr. Blum served as Chairman of the Board of Applied from March to November 1996,
and has served as a director of Applied since that date. Mr. Blum served as the
Chairman of the Board of Environmental from 1984 to November 1996, and has
served as a director of Environmental since that date. For more than 15 years,
Mr. Blum has been a private investor 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 also a director of
CAS; CFC; 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 Environmental, and is the brother-in-law
of Paul E. Hannesson, the Chairman of the Board and Chief Executive Officer of
the Company.
KENNETH L. ADELMAN, PH.D. joined the Board of Directors of the Company
in April 1997. Dr. Adelman has been a member of the Board of Directors of
Applied and Environmental since July 1996, and was elected Executive Vice
President, Marketing and International Development of Applied as of May 1, 1997.
Since 1987, Dr. Adelman had been an independent consultant on international
issues to various corporations, including Lockheed Martin Corporation and Loral
Corporation. Dr. Adelman held positions of responsibility in arms control during
most of the Reagan Administration. From 1983 to the end of 1987, he was Director
of the United States Arms Control and Disarmament Agency. Dr. Adelman is a
professor at Georgetown University and national editor of Washingtonian
Magazine. Dr. Adelman accompanied President Reagan on summits with Mikhail
Gorbachev and negotiated with Soviet diplomats on nuclear and chemical weapons
control issues, from 1983 to 1987. He also headed the United States team on
annual arms control discussions with top-level officials of the People's
Republic of China from 1983 through 1986. From 1981 to 1983, he served as Deputy
United States Representative to the United Nations with the rank of Ambassador
Extraordinary and Plenipotentiary. Dr. Adelman holds M.A. and Ph.D. degrees from
Georgetown University.
DAVID L. MITCHELL joined the Board of Directors of the Company in April
1997. Mr. Mitchell has been a member of the Board of Directors of Applied and
Environmental since July 1996. For the past 13 years, Mr. Mitchell has been
President and co-founder of Mitchell & Associates, Inc., a banking firm
providing financial advisory services in connection with corporate mergers,
acquisitions and divestitures. Prior to forming Mitchell & Associates in 1982,
Mr. Mitchell was a Managing Director of Shearson/American Express Inc. from 1979
to 1982, a Managing Director of First Boston Corporation from 1976 to 1978, and
a Managing Director of the investment banking firm of S.G. Warburg & Company
from 1965 to 1976. Mr. Mitchell holds a Bachelor's degree from Yale University.
18
<PAGE> 21
WILLIAM E. TOLLER joined the Board of Directors of the Company in April
1997. Mr. Toller is also currently the Vice Chairman of Lanxide and Chairman and
Chief Executive Officer of Titan Consultants, Inc.. Mr. Toller was a director
and the Chairman and Chief Executive Officer of Witco. Mr. Toller had been the
Chairman and Chief Executive Officer of Witco since October 1990 and recently
retired in July 1996. Mr. Toller joined Witco in 1984 as an executive officer
when it acquired the Continental Carbon Company of Conoco, Inc., where he had
been its President and an officer since 1955. Mr. Toller is a graduate of the
University of Arkansas with a Bachelor's degree in Economics, and the Stanford
University Graduate School Executive Program. Mr. Toller serves on the board of
directors of Chase Industries, Inc., Fuseplus, Inc., where he is also Chairman
of the Organization and Compensation Committee, and the United States Chamber of
Commerce, where he is also a member of the Labor Relations and International
Policy Committees. Mr. Toller is also a member of the Board of Trustees and the
Executive and Finance Committees of the International Center for the Disabled, a
member of the Board of Associates of the Whitehead Institute for Biomedical
Research, a member of the National Advisory Board of First Commercial Bank in
Arkansas, a member of the Dean's Executive Advisory Board and the International
Business Committee at the University of Arkansas, College of Business
Administration, and a member of the Board of Presidents of the Stamford Symphony
Orchestra.
BOARD COMMITTEES
The Company's Board of Directors has an Audit Committee, a
Compensation, Stock Option and Benefits Committee and an Executive and Finance
Committee. The responsibilities of the Audit Committee (which consists of
Messrs. Mitchell (Chairman) and Toller) 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, Stock Option and Benefits Committee (which consists of Messrs.
Toller (Chairman) and Mitchell) has responsibility for establishing and
reviewing employee compensation, 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. The Executive and Finance Committee
(which consists of Messrs. Hannesson (Chairman), Blum and Toller) has
responsibility for establishing the Company's executive, accounting and
reporting principles, policies and practices, as well as the Company's internal
accounting, financial and operating controls.
COMPENSATION OF DIRECTORS
Each non-management director of the Company receives a directors' fee
of $500 per meeting for attendance at Board of Directors meetings, and is
reimbursed for actual expenses incurred in respect of such attendance. The
Company does not intend to separately compensate employees for serving as
directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the outstanding shares
of Common Stock of the Company, to file initial reports of ownership and reports
of changes in ownership of shares of Common Stock with the Securities and
Exchange Commission (the "Commission"). Such persons are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the fiscal year ended June 30, 1997, and upon a
review of Form 5 and amendments thereto furnished to the Company with respect to
the fiscal year ended June 30, 1997, or upon written representations received by
the Company from certain reporting persons that no Form 5 were required for
those persons, the Company believes that no director, executive officer or
holder of more than 10% of the shares of Common Stock of the Company failed to
file on a timely basis the reports required by Section 16(a) of the Exchange Act
during the fiscal year ended June 30, 1997, except Michael D. Kiehnau, who
inadvertently failed to file a Form 4 with respect to a transaction that
occurred in April 1997 (such transaction was subsequently reported on a Form 5
filed with the Commission on July 29, 1997).
19
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the amount of all compensation paid by
the Company and/or its affiliates and allocated to the Company's operations for
services rendered during each of fiscal years 1997 and 1996 to the person
serving as the Company's current Chief Executive Officer and to each of the
Company's four most highly compensated executive officers other than the Chief
Executive Offer whose total salary and bonus compensation exceeded $100,000
during any such year (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------------------------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDER- ALL OTHER
COMPEN- STOCK LYING LTIP COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS PAYOUTS SATION
POSITION YEAR(1) ($) ($) ($) ($) (#) ($) ($)
-------- ------- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul E. Hannesson 1997 -0- -0- 49,375(2) -0- 175,000 -0- -0-
Chief Executive 1996 -0- -0- -0- -0- -0- -0- -0-
Officer 1995 -- -- -- -- -- -- --
Kenneth J. Houle 1997 77,596(3) -0- -0- -0- 100,000 -0- -0-
President & Chief 1996 -0- -0- -0- -0- -0- -0- -0-
Operating Officer 1995 -- -- -- -- -- -- --
Michael D. 1997 -0- -0- 16,442(2) -0- 67,500 -0- -0-
Fullwood 1996 -0- -0- -0- -0- -0- -0- -0-
Senior Vice 1995 -- -- -- -- -- -- --
President
James M. DeAngelis 1997 120,833 -0- -0- -0- 101,250 -0- -0-
Senior Vice 1996 -0- -0- -0- -0- -0- -0- -0-
President 1995 -- -- -- -- -- -- --
Srinivas Kilambi, 1997 105,481 40,000 -0- -0- 67,500 -0- -0-
Ph.D. 1996 34,038 -0- -0- -0- -0- -0- -0-
Senior Vice 1995 -- -- -- -- -- -- --
President --
Technology
</TABLE>
(1) Information is presented for the Company's fiscal year ending on June
30.
(2) Represents amounts charged by Applied for 50% of the salaries of
Messrs. Hannesson and Fullwood.
(3) Represents amount of salary paid to Mr. Houle from January 27, 1997,
the date on which Mr. Houle was elected President and Chief Operating
Officer, to June 30, 1997.
20
<PAGE> 23
STOCK OPTIONS
The following table sets forth certain information concerning options
granted in fiscal 1997 to the Named Executive Officers under the Plan. The
Company has no outstanding stock appreciation rights and granted no stock
appreciation rights during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED EXERCISE OF STOCK PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION OPTION TERM
NAME GRANTED (#) IN FISCAL YEAR(5) ($/SH) DATE 5% ($) 10% ($)
---- ----------- ----------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Paul E. Hannesson 135,000(1) 15.7% 5.00 12/31/01 -0- -0-
40,000(2) 4.7% 2.50 12/31/01 -0- -0-
Kenneth J. Houle 100,000(3) 11.6% 5.00 12/31/01 -0- -0-
Michael D. Fullwood 67,500(4) 7.9% 2.50 12/31/01 -0- -0-
James M. DeAngelis 101,250(1) 11.8% 5.00 12/31/01 -0- -0-
Srinivas Kilambi, Ph.D. 67,500(1) 7.9% 5.00 12/31/01 -0- -0-
</TABLE>
(1) Options were granted in September 1996. 20% of such options are
currently exercisable, and 20% vest each year through September
2000.
(2) Options were granted in June 1997. 20% of such options are
currently exercisable, and 20% vest each year through June 2001.
(3) Options were granted in January 1997. 20% of such options are
currently exercisable, and 20% vest each year through January
2001.
(4) Options were granted in May 1997. 20% of such options are
currently exercisable, and 20% vest each year through May 2001.
(5) Percentages based on 860,000 stock options granted to employees in
fiscal year 1996.
21
<PAGE> 24
The following table sets forth certain information concerning the
exercise of options and the value of unexercised options held under the Plan at
June 30, 1997 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT FISCAL YEAR-
SHARES VALUE AT FISCAL YEAR-END(#) END($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- ------------ ------ ------------- ----------------
<S> <C> <C> <C> <C>
Paul E. Hannesson -0- -0- 35,000/140,000 -0-/-0-
Kenneth J. Houle -0- -0- 20,000/80,000 -0-/-0-
Michael D. Fullwood -0- -0- 13,500/54,000 -0-/-0-
James M. DeAngelis -0- -0- 20,250/81,000 -0-/-0-
Srinivas Kilambi, Ph.D. -0- -0- 13,500/54,000 -0-/-0-
</TABLE>
-----------------------
(1) Represents the difference between the exercise price and the
closing price on the date of exercise, multiplied by the number of
shares acquired.
(2) Represents the difference between the last bid price of the Common
Stock of $2.25 on September 15, 1997, and the exercise price of
the Common Stock options multiplied by the applicable number of
options. Since the last bid price on such date was below the
exercise price of the options, a zero (-0-) value is computed.
22
<PAGE> 25
EMPLOYMENT AGREEMENTS
Paul E. Hannesson, the Company's Chairman of the Board and Chief
Executive Officer, entered into an employment agreement with Environmental as of
November 18, 1996 for a term expiring on December 31, 1999. Pursuant to such
employment agreement, Mr. Hannesson agreed to devote his business and
professional time and efforts to the business of Environmental as a senior
executive officer, and to serve in senior executive positions with one or more
of Environmental's affiliates, including the Company. The employment agreement
provides that Mr. Hannesson shall receive, among other things, a base salary at
an annual rate of $395,000 through December 31, 1997, and will receive not less
than $434,500 through December 31, 1998 and not less than $477,950 through
December 31, 1999, for services rendered to Environmental and its affiliates,
including the Company. Pursuant to the employment agreement, Mr. Hannesson
received, among other things: (i) a signing bonus of (a) $150,000 cash and (b)
stock options to purchase 950,000 shares of common stock of Environmental, which
options vested on the date of his employment agreement; and (ii) options to
purchase an aggregate of 2,500,000 shares of Environmental common stock,
exercisable in installments over a period of five years commencing on the date
of his employment agreement. Mr. Hannesson is also eligible to receive options
to purchase common stock of each publicly-traded affiliate of Environmental in
the amount of 1.0% of such affiliate's total outstanding shares of common stock
on the date of grant, and incentive compensation of up to $225,000 per year for
achieving certain goals.
Michael D. Fullwood, the Company's Senior Vice President, Chief
Financial and Administrative Officer, Secretary and General Counsel, entered
into an employment agreement with Environmental on May 7, 1997 for a term
expiring on April 30, 1999. Pursuant to such employment agreement, Mr. Fullwood
agreed to devote his business and professional time and efforts to the business
of Environmental as its Senior Vice President, Chief Financial and
Administrative Officer, Secretary and General Counsel, and to serve in such
capacities with one or more of Environmental's affiliates, including the
Company. The employment agreement provides that Mr. Fullwood shall receive,
among other things, a base salary at an annual rate of $225,000 through April
30, 1998, which base salary shall be increased by not less than 5% per year
during the term of the agreement, for services rendered to Environmental and its
affiliates, including the Company. Pursuant to the employment agreement, Mr.
Fullwood received, among other things: (i) options to purchase an aggregate of
500,000 shares of Environmental common stock, exercisable in installments over a
period of five years commencing on the date of his employment agreement. Mr.
Fullwood is also eligible to receive options to purchase 125,000 shares of
common stock of Applied and 67,500 shares of Common Stock of the Company, and
incentive compensation of up to $75,000 per year for achieving certain goals.
Each of Kenneth J. Houle, James M. DeAngelis and Srinivas Kilambi,
Ph.D. entered into an employment agreement with the Company for a term expiring
on December 31, 1999. Pursuant to these employment agreements, Messrs. Houle,
DeAngelis and Kilambi have agreed to devote substantially all of their business
and professional time and efforts to the business of the Company as executive
officers. The employment agreements provide that Messrs. Houle, DeAngelis and
Kilambi shall receive a fixed base salary at an annual rate of $180,000,
$145,000 and $110,000, 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. Houle, DeAngelis and Kilambi are entitled to participate in the Plan and
the Company's Executive Bonus Plan.
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 intends to obtain commitments for $1,000,000 key-man life insurance
policies in respect of each of Messrs. Houle, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation, Stock Option and Benefits Committee
during the fiscal year ended June 30, 1997 were William R. Toller (Chairman) and
David L. Mitchell. No member of the Compensation, Stock Option and Benefits
Committee has any interlocking relationship with any corporation that requires
disclosure under this heading.
23
<PAGE> 26
REPORT OF THE COMPENSATION, STOCK OPTION AND BENEFITS COMMITTEE ON EXECUTIVE
COMPENSATION
The Compensation, Stock Option and Benefits Committee (the "Committee")
of the Board of Directors of the Company was established in June 1997 and
conducted a meeting on June 17, 1997. The duties and responsibilities of the
Committee include the following:
(a) approval of annual salaries and other benefits provided for
executive officers of the Company;
(b) approval of the adoption of compensation plans in which the
executive officers of the Company may be participants and
awarding of benefits under such plans;
(c) administration and interpretation of the Plan, and
determination of the recipients, amounts and other terms
(subject to the requirements of the Plan) of options which may
be granted under the Plan from time to time; and
(d) undertaking studies and making recommendations with respect to
the Company's compensation structure and policies and the
development of management personnel.
The Committee's policies with respect to executive compensation are
intended to achieve the following goals. First, they are intended to create base
compensation levels sufficient to attract and retain talented and dedicated
executive officers. Second, the compensation policies are intended to provide a
direct link between performance during the year (both the performance of the
Company as a whole and the performance of the individual officer) as a part of
the officer's compensation. Third, the compensation policies are intended to
provide executive officers with the opportunity to acquire an equity stake in
the Company through the grant of options pursuant to the Plan.
During the fiscal year ended June 30, 1997, the full Board of Directors
approved bonuses and granted options to certain of its executive officers and
certain employees. In each case, the Board of Directors' decision was based upon
the principles and procedures outlined above.
COMPENSATION, STOCK OPTION AND BENEFITS COMMITTEE
William R. Toller (Chairman)
David L. Mitchell
24
<PAGE> 27
SECURITY OWNERSHIP OF CERTAIN
ITEM 12. BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 15,
1997 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>
NUMBER OF SHARES OF COMMON PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS STOCK BENEFICIALLY COMMON STOCK
OF BENEFICIAL OWNER(1) OWNED(2) BENEFICIALLY OWNED
- ---------------------- -------- ------------------
<S> <C> <C>
Commodore Applied Technologies, Inc......... 10,000,000 87.0%
Commodore Environmental
Services, Inc.(3)......................... 10,000,000 87.0%
Bentley J. Blum(4).......................... 10,000,000 87.0%
Paul E. Hannesson(5)........................ 896,151 7.8%
Edwin L. Harper(6).......................... 200,201 1.7%
Kenneth J. Houle(7)......................... 20,000 *
Michael D. Fullwood(8)...................... 35,326 *
James M. DeAngelis(9)....................... 94,690 *
Srinivas Kilambi, Ph.D.(10)................. 37,133 *
Michael D. Kiehnau(11)...................... 16,125 *
Andrew P. Oddi(12).......................... 50,390 *
William E. Ingram(13)....................... 12,033 *
Kenneth L. Adelman(14)...................... 80,913 *
David L. Mitchell(15)....................... 59,448 *
William R. Toller(16)....................... 15,188 *
All executive officers and directors
as a group (13 persons)..................... 10,000,000 87.0%
</TABLE>
* Percentage ownership is less than 1%.
(1) The address of each of Commodore Applied Technologies, Inc., Commodore
Environmental Services, Inc., Bentley J. Blum, Paul E. Hannesson,
Michael D. Fullwood, Kenneth L. Adelman, Ph.D., David L. Mitchell and
William R. Toller is 150 East 58th Street, Suite 3400, New York, New
York 10155. The address of Edwin L. Harper, Ph.D. is 6867 Elm Street,
Suite 210, McLean, Virginia 22101. The address of Kenneth J. Houle,
James M. DeAngelis, Srinivas Kilambi and Michael D. Kiehnau is 3240
Town Point Drive, Suite 200, Kennesaw, Georgia 30144. The address of
William E. Ingram is 1420 N. Sam Houston Parkway E., Suite 190,
Houston, Texas 77032. The address of Andrew P. Oddi is 40 Cutter Mill
Road, Suite 509, Great Neck, New York 11021. 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.
25
<PAGE> 28
(3) Represents all of the shares of Common Stock held by Applied, its
69.3%-owned subsidiary.
(4) Represents all of the shares of Common Stock held indirectly by
Environmental, 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 Environmental, representing together 51.7% of the outstanding shares
of Environmental common stock. Does not include 440,000 shares of
Environmental common stock owned by Simone Blum, the mother of Mr.
Blum, and 395,000 shares of Environmental common stock owned by Samuel
Blum, the father of Mr. Blum. Mr. Blum disclaims any beneficial
interest in the shares of Environmental common stock owned by his
spouse, mother and father.
(5) Consists of: (a) 35,000 shares of Common Stock, representing 20% of the
175,000 stock options granted to Mr. Hannesson under the Plan, which
are currently exercisable; and (b) Mr. Hannesson's indirect beneficial
interest in the shares of Common Stock, based upon an aggregate of (i)
2,650,000 shares of Environmental common stock owned by Suzanne
Hannesson, the spouse of Mr. Hannesson, (ii) 2,650,000 shares of
Environmental common stock owned by the Hannesson Family Trust (Suzanne
Hannesson and John D. Hannesson, trustees) for the benefit of Mr.
Hannesson's spouse, (iii) currently exercisable options to purchase
1,950,000 shares of Environmental common stock, representing 12.0% of
the outstanding shares of Environmental common stock, and (iv) 80,000
shares of Applied common stock, representing 20% of the 400,000 stock
options granted to Mr. Hannesson under Applied's 1996 Stock Option
Plan, which are currently exercisable. Does not include 1,000,000
shares of Environmental common stock owned by each of Jon Paul and
Krista Hannesson, the adult children of Mr. Hannesson, and additional
stock options to purchase 2,000,000 shares of Environmental common
stock at $.84 per share, which vest and become exercisable ratably on
November 18 of each of 1998 through 2001. Mr. Hannesson disclaims any
beneficial interest in the shares of Environmental common stock owned
by or for the benefit of his spouse and children.
(6) Consists of: (a) Dr. Harper's indirect beneficial interest in the
shares of Common Stock, based upon his ownership of (i) currently
exercisable options to purchase 950,000 shares of Environmental common
stock, and (ii) currently exercisable options to purchase 162,375
shares of Applied common stock; and (b) 25,000 shares of Common Stock,
representing 20% of the 125,000 stock options granted to Dr. Harper
under the Plan, which are currently exercisable.
(7) Consists of 20,000 shares of Common Stock, representing 20% of the
100,000 stock options granted to Mr. Houle under the Plan, which are
currently exercisable.
(8) Consists of: (a) Mr. Fullwood's indirect beneficial interest in the
shares of Common Stock, based upon his ownership of (i) 100,000 shares
of Environmental common stock, representing 20% of the options to
purchase 500,000 shares of Environmental common stock granted to Mr.
Fullwood, which are currently exercisable and (ii) 25,000 shares of
Applied common stock, representing 20% of the options to purchase
125,000 shares of Applied common stock granted to Mr. Fullwood under
Applied's 1996 Stock Option Plan, which are currently exercisable; and
(b) 13,500 shares of Common Stock, representing 20% of the options to
purchase 67,500 shares of Common Stock granted to Mr. Fullwood under
the Plan, which are currently exercisable.
(9) Consists of: (a) Mr. DeAngelis' indirect beneficial interest in the
shares of Common Stock, based upon his ownership of (i) 480,000 shares
of Environmental common stock, (ii) currently exercisable options to
purchase 100,000 shares of Environmental common stock and (iii) 15,000
shares of Applied common stock, representing 20% of the 75,000 stock
options granted to Mr. DeAngelis under Applied's 1996 Stock Option
Plan, which are currently exercisable; and (b) 20,250 shares of Common
Stock, representing 20% of the 101,250 stock options granted to Mr.
DeAngelis under the Plan, which are currently exercisable.
(10) Consists of: (a) Dr. Kilambi's indirect beneficial interest in the
shares of Common Stock, based upon his ownership of 200,000 shares of
Environmental common stock; and (b) 13,500 shares of Common Stock,
representing 20% of the 67,500 stock options granted to Dr. Kilambi
under the Plan, which are currently exercisable.
(11) Consists of 1,000 shares of the Company's Common Stock and 15,125
shares of Common Stock, representing 20% of the 75,625 stock options
granted to Mr. Kiehnau under the Plan, which are currently exercisable.
(12) Consists of: (a) Mr. Oddi's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of (i) 250,000 shares of
Environmental common stock, (ii) 40,000 shares of Environmental common
stock, representing 20% of the options to purchase 200,000 shares of
Environmental common stock
26
<PAGE> 29
granted to Mr. Oddi, which are currently exercisable, and (iii) 15,000
shares of Applied common stock, representing 20% of the options to
purchase 75,000 shares of Applied common stock granted to Mr. Oddi
under Applied's 1996 Stock Option Plan, which are currently
exercisable; and (b) 10,125 shares of Common Stock, representing 20% of
the 50,625 stock options granted to Mr. Oddi under the Plan, which are
currently exercisable.
(13) Consists of Mr. Ingram's indirect beneficial interest of common stock,
based upon his ownership of 30,000 shares of Applied common stock,
representing 20% of the 150,000 stock options granted to Mr. Ingram
under Applied's 1996 Stock Option Plan, which are currently
exercisable.
(14) Consists of: (a) 5,000 shares of the Company's Common Stock; (b) 15,188
shares of Common Stock, representing 33-1/3% of the 45,563 stock
options granted to Dr. Adelman under the Plan, which are currently
exercisable; and (c ) Dr. Adelman's indirect beneficial interest in the
shares of Common Stock based upon his ownership of (i) currently
exercisable options to purchase 805,000 shares of Environmental common
stock and (ii) currently exercisable options to purchase 135,000 shares
of Applied common stock.
(15) Consists of: (a) Mr. Mitchell's indirect beneficial interest in the
shares of Common Stock based upon his ownership of currently
exercisable options to purchase 135,000 shares of Applied common stock;
and (b) 15,188 shares of Common Stock, representing 33 1/3% of the
45,563 stock options granted to Mr. Mitchell under the Plan, which are
currently exercisable.
(16) Consists of 15,188 shares of Common Stock, representing 33-1/3% of the
45,563 stock options granted to Mr. Toller under the Plan, which are
currently exercisable.
27
<PAGE> 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION AND CAPITALIZATION OF THE COMPANY
The Company was organized in November 1995 as a wholly-owned subsidiary
of Environmental. Effective February 29, 1996, pursuant to an assignment of
technology agreement between the Company and Srinivas Kilambi, Ph.D., the
Company's Senior Vice President -- Technology, the Company acquired rights to
the SLiM(TM) technology from Dr. Kilambi. In consideration for such technology,
the Company caused Environmental to transfer to Dr. Kilambi 200,000 shares of
Environmental common stock and 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, except for
applications related to the radionuclides technetium and rhenium, for which Dr.
Kilambi is entitled to receive a royalty of .66% of net sales (less allowances
for returns, discounts, commissions, freight, and excise or other taxes). In
exchange for Environmental's issuance of such shares to Dr. Kilambi, as well as
Environmental's funding and support of the Company, the Company issued to
Environmental 10,000,000 shares of Common Stock. See "Business -- Organization
and Capitalization of the Company" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
From the Company's inception to December 1996, Environmental financed
the research and development activities of the Company through direct equity
investments and loans to the Company. Effective as of December 2, 1996, as part
of a corporate restructuring to consolidate all of its current environmental
technology businesses within Applied, Environmental transferred to Applied its
10,000,000 shares of Company Common Stock, which at the time represented all of
the outstanding shares of capital stock of the Company, and 100 shares of common
stock of CFC, which represented all of the outstanding shares of capital stock
of CFC. In addition, Environmental assigned to Applied outstanding Company notes
aggregating $976,200 at December 2, 1996, representing advances previously made
by Environmental to the Company. Such advances have been capitalized by Applied
as its capital contribution to the Company. In consideration for such transfers,
Applied paid Environmental $3,000,000 in cash and issued to Environmental the
Environmental Warrant expiring December 2, 2003 to purchase 7,500,000 Warrant
Shares at an exercise price of $15.00 per share. The Environmental Warrant is
valued at $2.4 million and contains provisions granting certain registration
rights with respect to the Warrant Shares. As a result of the Initial Public
Offering, Applied currently owns 87% of the outstanding shares of Common Stock
of the Company. See "Business -- Organization and Capitalization of the Company"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LOANS INVOLVING AFFILIATES
In March 1997, the Company entered into a $1,500,000 line of credit
with a commercial bank. The entire line of credit was borrowed prior to the
completion of the Company's Initial Public Offering to repay advances made by
Applied to the Company since December 1, 1996 for providing equipment installed
in the Company's new Atlanta facility and for working capital purposes. The line
of credit was guaranteed by Applied and secured by cash collateral provided by
Applied. Upon completion of the Initial Public Offering, the Company applied
$1,500,000 of the net proceeds to repay such line of credit, and such guarantee
and cash collateral was released to Applied.
OFFICES
The Company maintains offices located in approximately 2,200 square
feet of space in McLean, Virginia, which also serve as offices of Environmental
and Applied, and also maintains approximately 2,000 square feet of office space
in New York, New York, which also serves as offices of Environmental, Applied,
certain of their affiliates, and Messrs. Bentley J. Blum and Paul E.
Hannesson.
In addition, prior to the Company's occupation of its Kennesaw, Georgia
facility in March 1997, the Company shared facilities in Columbus, Ohio with
Environmental and certain of its other subsidiaries. The Company paid an
allocable share of rent equal to $750 per month for such space. The Company
terminated the existing lease in Columbus, Ohio on March 31, 1997.
FUTURE TRANSACTIONS
In connection with the Initial Public Offering, the Company's Board of
Directors 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.
28
<PAGE> 31
PART IV
EXHIBITS, FINANCIAL STATEMENT
ITEM 14. SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements.
The following documents are filed as part of this Annual Report:
Report of Independent Accountants.
Balance Sheet as of June 30, 1997 and June 30, 1996.
Statement of Operations for the year ended June 30, 1997, for the
period from November 15, 1995 (date of inception) to June 30,
1996, and for the period from November 15, 1995 to June 30, 1997.
Statement of Changes in Stockholders' Equity for the period from
November 15, 1995 (date of inception) through June 30, 1997.
Statement of Cash Flows for the year ended June 30, 1997, for the
period from November 15, 1995 (date of inception) to June 30,
1996, and for the period from November 15, 1995 to June 30, 1997.
Notes to Financial Statements.
All financial statement schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and, therefore,
have been omitted.
Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement between the Company and
National Securities Corporation, as Representative of the
several Underwriters listed therein (the "Representative").(5)
3.1 Restated Certificate of Incorporation of the Company.(1)
3.2 By-Laws of the Company.(1)
3.3 Form of Certificate of Designation, Preferences and Rights of
10% Senior Convertible Redeemable Preferred Stock of the
Company.(6)
4.1 Specimen Common Stock Certificate.(2)
4.2 Form of Warrant Agreement among the Company, the
Representative and the Bank of New York.(5)
4.3 Specimen Warrant Certificate.(3)
4.4 Form of Representative's Warrant Agreement between the Company
and the Representative, including form of Representative's
Warrant therein.(5)
4.5 Specimen Convertible Preferred Stock Certificate.(3)
10.1 Employment Agreement, dated as of August 1, 1996, between the
Company and Alan R. Burkart.(1)
10.2 Employment Agreement, dated as of September 1, 1996, between
the Company and Carl O. Magnell.(1)
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
10.3 Employment Agreement, dated as of September 1, 1996, between
the Company and James M. DeAngelis.(1)
10.4 Employment Agreement, dated as of September 1, 1996, between
the Company and Srinivas Kilambi, Ph.D.(1)
10.5 Employment Agreement, dated as of September 1, 1996, between
the Company and Michael D. Kiehnau.(1)
10.6 1996 Stock Option Plan of the Company.(1)
10.7 Executive Bonus Plan of the Company.(1)
10.8 Memorandum of Understanding, dated August 30, 1996, between
the Company and Teledyne Brown Engineering, a Division of
Teledyne Industries, Inc., as amended.(1) and (5)
10.9 Memorandum of Understanding, dated August 29, 1996, between
the Company and Sverdrup Environmental, Inc., as amended.(1)
and (5)
10.10 Services Agreement, dated August 31, 1996, between the Company
and Commodore CFC Technologies, Inc.(1)
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.(1)
10.12 Employment Agreement, dated as of October 31, 1996, between
Environmental and Edwin L. Harper, Ph.D.(3)
10.13 Undivided Rights (Sole Commercial) License Agreement, dated
January 5, 1997, between Lockheed Martin Energy Research
Corporation and the Company.(3)
10.14 Stock Purchase Agreement, dated as of December 2, 1996, by and
between Environmental and Applied.(3)
10.15 Form of Revolving Credit Agreement between the Company and
Environmental.(5)
10.16 Employment Agreement, dated as of January 27, 1997, between
the Company and Kenneth J. Houle.(4)
*10.17 Employment Agreement, dated as of November 18, 1996, between
Environmental and Paul E. Hannesson.
*10.18 Employment Agreement, dated May 7, 1997, between Environmental
and Michael D. Fullwood.
22.1 Subsidiaries of the Company.(1)
*27.1 Financial Data Schedule.
</TABLE>
- --------------------------
* Filed herewith.
(1) Incorporated herein by reference and filed as an Exhibit to the
Registrant's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on September 12, 1996 (File No.
333-11813) (the "Registration Statement").
(2) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 1 to the Registration Statement filed with the Securities and
Exchange Commission on October 18, 1996.
(3) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 3 to the Registration Statement filed with the Securities and
Exchange Commission on January 23, 1997.
30
<PAGE> 33
(4) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 4 to the Registration Statement filed with the Securities and
Exchange Commission on January 28, 1997.
(5) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 5 to the Registration Statement filed with the Securities and
Exchange Commission on March 13, 1997.
(6) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 6 to the Registration Statement filed with the Securities and
Exchange Commission on March 25, 1997.
Reports on Form 8-K:
On July 31, 1997, the Company filed with the Commission a Current
Report on Form 8-K, dated July 28, 1997, with respect to the mutual agreement of
the Company and Tanner + Co. to terminate their relationship and the Company's
decision to change its fiscal year end from June 30 to December 31.
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on September 24, 1997.
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: /s/ Paul E. Hannesson
-------------------------------------------
Paul E. Hannesson, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Paul E. Hannesson
- ---------------------------------- Chief Executive Officer (Principal September 24, 1997
Paul E. Hannesson Executive Officer)
/s/ Michael D. Fullwood
- ---------------------------------- Chief Financial and Administrative September 24, 1997
Michael D. Fullwood Officer (Principal Financial Officer)
/s/ Paul E. Hannesson
- ---------------------------------- Chairman of the Board September 24, 1997
Paul E. Hannesson
/s/ Edwin L. Harper
- ---------------------------------- Vice Chairman September 24, 1997
Edwin L. Harper, Ph.D.
/s/ Bentley J. Blum
- ---------------------------------- Director September 24, 1997
Bentley J. Blum
/s/ David L. Mitchell
- ---------------------------------- Director September 24, 1997
David L. Mitchell
/s/ William E. Toller
- ---------------------------------- Director September 24, 1997
William E. Toller
/s/ Kenneth L. Adelman
- ---------------------------------- Director September 24, 1997
Kenneth L. Adelman, Ph.D.
</TABLE>
32
<PAGE> 35
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE NO.
- -------------------- --------
<S> <C>
Report of Independent Accountants F-1
Independent Auditors' Report F-1A
Balance Sheet as of June 30, 1997 and June 30, 1996 F-2
Statement of Operations for the year ended June 30, 1997, for the
period from November 15, 1995 (date of inception) to June 30,
1996, and for the period from November 15, 1995 to June 30, 1997 F-3
Statement of Changes in Stockholders' Equity for the period from
November 15, 1995 (date of inception) through June 30, 1997 F-4
Statement of Cash Flows for the year ended June 30, 1997, for the
period from November 15, 1995 (date of inception) to June 30,
1996, and for the period from November 15, 1995 to June 30,1997 F-5
Notes to Financial Statements F-6
Financial Statement Schedules None
</TABLE>
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Commodore Separation Technologies, Inc. (a development stage company)
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Commodore Separation
Technologies, Inc. (a development stage company) at June 30, 1997, and the
results of its operations and its cash flows for the year then ended and the
period from November 15, 1995 (inception) through June 30, 1997, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Philadelphia, Pennsylvania
August 6, 1997
F-1
<PAGE> 37
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.
TANNER + CO.
Salt Lake City, Utah
August 1, 1996
F-1A
<PAGE> 38
Commodore Separation Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $ 166 $ 3
Temporary investments 8,727 --
Receivables from related party 12 --
Prepaid assets and other current receivables 36 --
-------- --------
Total current assets 8,941 3
Property and equipment:
Technical equipment 411 7
Office equipment 355 3
Leasehold improvements 203 --
-------- --------
969 10
Less accumulated depreciation 116 --
-------- --------
Net property and equipment 853 10
Intangible assets, net of accumulated amortization of $2 and $0 56 10
-------- --------
$ 9,850 $ 23
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 288 $ 18
Accrued liabilities 141 12
Due to related party 695 54
-------- --------
Total current liabilities 1,124 84
Capital lease obligation 18 --
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 10% non-cumulative,
5,000,000 shares authorized, 600,000 and 0 shares
issued and outstanding, respectively 1 --
Common stock, $.001 par value, 50,000,000 shares
authorized, 11,500,000 and 10,000,000 shares issued
and outstanding, respectively 11 10
Additional paid in capital 11,928 5
Subscription receivable -- (15)
Deficit accumulated during the development stage (3,232) (61)
-------- --------
Total stockholders' equity (deficit) 8,708 (61)
-------- --------
$ 9,850 $ 23
======== ========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 39
Commodore Separation Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
NOVEMBER 15, AMOUNTS FROM
1995 NOVEMBER 15,
YEAR (DATE OF 1995
ENDED INCEPTION) (DATE OF
JUNE 30, TO JUNE 30, INCEPTION) TO
1997 1996 JUNE 30, 1997
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 985 $ 50 $ 1,035
General and administrative 1,356 10 1,366
Depreciation and amortization 118 -- 118
Corporate overhead expenses 705 -- 705
Sales and marketing 51 -- 51
Licensing fee 50 -- 50
------- ------- -------
Total costs and expenses 3,265 60 3,325
------- ------- -------
Revenue 8 -- 8
Interest income 99 -- 99
Interest expense (13) (1) (14)
------- ------- -------
Net loss before income taxes (3,171) (61) (3,232)
Income tax benefit -- -- --
------- ------- -------
Net loss $(3,171) $ (61) $(3,232)
======= ======= =======
Net loss per share $ (0.31) $ (0.01) $ (0.32)
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 40
cOMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------------ --------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Common stock issued for cash on
November 15, 1995 (inception) at $1 per share 100 -- -- --
Stock split of 150,000 shares for one share
on September 5, 1996 14,999,900 15 -- --
Reverse stock split of 1.50 shares
for one share on November 26, 1996 (5,000,000) (5) -- --
Net loss for the period from
November 15, 1995 through June 30, 1996 -- -- -- --
----------- ----------- ----------- -----------
Balance, June 30, 1996 10,000,000 10 -- --
Collection of subscription receivable -- -- -- --
Conversion of notes payable to capital -- -- -- --
Proceeds from sale of common stock and warrants 1,500,000 1 -- --
Proceeds from sale of preferred stock and warrants -- -- 600,000 1
Dividend on preferred stock -- -- -- --
Net loss for the year ended June 30, 1997 -- -- -- --
----------- ----------- ----------- -----------
Balance, June 30, 1997 11,500,000 $ 11 600,000 $ 1
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE SHAREHOLDERS'
SUBSCRIPTION PAID IN DEVELOPMENT EQUITY
RECEIVABLE CAPITAL STAGE (DEFICIT)
<S> <C> <C> <C> <C>
Common stock issued for cash on
November 15, 1995 (inception) at $1 per share -- -- -- --
Stock split of 150,000 shares for one share
on September 5, 1996 (15)
Reverse stock split of 1.50 shares
for one share on November 26, 1996 -- 5 -- --
Net loss for the period from
November 15, 1995 through June 30, 1996 -- -- (61) (61)
----------- ----------- ----------- -----------
Balance, June 30, 1996 (15) 5 (61) (61)
Collection of subscription receivable 15 -- -- 15
Conversion of notes payable to capital -- 976 -- 976
Proceeds from sale of common stock and warrants -- 6,108 -- 6,109
Proceeds from sale of preferred stock and warrants -- 4,977 -- 4,978
Dividend on preferred stock -- (138) -- (138)
Net loss for the year ended June 30, 1997 -- -- (3,171) (3,171)
----------- ----------- ----------- -----------
Balance, June 30, 1997 $ -- $ 11,928 $ (3,232) $ 8,708
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 41
Commodore Separation Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
NOVEMBER 15, AMOUNTS FROM
1995 NOVEMBER 15,
YEAR (DATE OF 1995
ENDED INCEPTION) (DATE OF
JUNE 30, TO JUNE 30, INCEPTION) TO
1997 1996 JUNE 30, 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,171) $ (61) $ (3,232)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 118 -- 118
Changes in assets and liabilities:
Accounts payable 270 18 288
Accrued liabilities 129 12 141
Receivables from related party (12) -- (12)
Other assets (36) -- (36)
-------- -------- --------
Net cash used in operating activities (2,702) (31) (2,733)
Cash flows from investing activities:
Acquisition of intangible assets (48) (10) (58)
Purchase of property and equipment (352) (3) (355)
Acquisition of leasehold improvements (203) -- (203)
Construction of technical equipment (404) (7) (411)
Temporary investments purchased (8,727) -- (8,727)
-------- -------- --------
Net cash used in investing activities (9,734) (20) (9,754)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock and warrants 6,109 -- 6,109
Proceeds from sale of preferred stock and warrants 4,978 -- 4,978
Preferred stock dividend (138) -- (138)
Borrowings from stockholder 641 54 695
Collection of subscription receivable 15 -- 15
Contributed capital 976 -- 976
Increase in capital lease obligation 18 -- 18
-------- -------- --------
Net cash provided by financing activities 12,599 54 12,653
Increase in cash 163 3 166
Cash, beginning of period 3 -- --
-------- -------- --------
Cash, end of period $ 166 $ 3 $ 166
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 13 $ 1 $ 14
======== ======== ========
Income taxes $ -- $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 42
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND
Commodore Separation Technologies, Inc. (a development stage company) (the
"Company") was incorporated on November 15, 1995, under the laws of the
state of Delaware. Effective February 29, 1996, the Company acquired the
rights to its proprietary separation technology and entered into a royalty
agreement with the inventor of the technology as described in Note 5.
Pursuant to these agreements, the company caused its then parent, Commodore
Enviornmental Services, Inc. ("Enviornmental") to issue 200,000 shares of
Enviornmental common stock to the inventor of the technology.
The Company is a process technology company which has developed and
intends to commercialize its separation technology and recovery system,
known as SLiM(TM). The Company believes SLiM(TM) 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. There
are no material differences in instruments from the recorded book value as
of June 30, 1997.
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and
improvements are capitalized and minor replacements, maintenance and
repairs which do not increase the useful lives of the assets are expensed
as incurred. Depreciation and amortization are recorded using a
straight-line method over estimated useful lives of the assets, which vary
from two to ten years.
INTANGIBLE ASSETS
The Company has incurred costs associated with applying for certain
patents. These costs are amortized over 17 years. Accumulated amortization
was $1,792 and $101 at June 30, 1997 and June 30, 1996, respectively.
LOSS PER SHARE
Loss per share is computed based on the average number of shares
outstanding of 10,375,000, 10,000,000 and 10,231,000 shares for the year
ended June 30, 1997, for the period November 15, 1995 (date of inception)
to June 30, 1996 and for the period November 15, 1995 to June 30, 1997,
respectively.
F-6
<PAGE> 43
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
INCOME TAXES
Deferred income taxes are provided in amounts sufficient to give effect to
timing differences between financial and tax reporting.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
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.
3. RELATED PARTY TRANSACTIONS
For the year ended June 30, 1997, the Company was charged a management fee
by Commodore Applied Technologies Inc. ("Applied") of $705,000. This
management fee is a result of allocated wages and salaries, rent,
insurance (including director and officer liability insurance) and other
administrative expenses relating to its executive offices in New York and
its marketing office in Virginia. The management fees commenced in April
1997.
The Company owed unsecured advances of $54,000 as of June 30, 1996 to its
then sole stockholder, Environmental, and $695,000 to its current majority
stockholder, Applied, as of June 30, 1997.
Effective December 2, 1996, Environmental transferred 100% of the capital
stock of the Company and notes receivable from the Company which
aggregated $976,200 to its 69.3% owned subsidiary, Applied in exchange for
cash and a warrant to purchase shares of Applied common stock. Concurrent
with this transaction, Applied contributed the notes receivable from the
Company as a capital contribution. The transfer has been accounted for as
a transaction between entities under common control. Accordingly, the
historical basis of Environmental's investment and the net assets of the
Company were not adjusted.
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
paid a monthly rent of $750 for the Ohio space.
F-7
<PAGE> 44
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
4. INCOME TAXES
The difference between the income tax benefit at statutory rates for the
periods ended June 30, 1997 and June 30, 1996, respectively, and the
amount presented in the financial statements are as follows:
<TABLE>
<CAPTION>
(in thousands)
JUNE 30,
1997 1996
<S> <C> <C>
Tax benefit at statutory rates $ (1,078) $ (21)
Valuation allowance 1,078 21
--------- ---------
$ - $ -
========= =========
Deferred tax assets are as follows:
<CAPTION>
(in thousands)
JUNE 30,
1997 1996
<S> <C> <C>
Net operating loss carryforward $ (1,099) $ (21)
Valuation allowance 1,099 21
--------- ---------
Net deferred tax asset $ - $ -
========= =========
</TABLE>
At June 30, 1997, the Company had tax loss carryforwards of approximately
$3,232,000. 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 full valuation allowance has been established because of the uncertainty
about whether the Company will realize the benefit of net operating
losses.
5. ROYALTY AGREEMENTS
As described in Note 1, the Company has an agreement with an officer of
the Company pursuant to which the officer is to receive a royalty of 2% of
collected revenues from the Company's membrane separation technology
through December 3, 2002, except for applications related to the
radionuclides technetium and rhenium, for which the officer is entitled to
receive a royalty of .66% of net sales (less allowances for returns,
discounts, commissions, freight and excise or other taxes).
The Company also has a license agreement with Lockheed Martin Energy
Research Corporation, manager of the Oak Ridge National Laboratory, a U.S.
Department of Energy national laboratory, whereby Lockheed Martin received
a $50,000 licensing fee during the year ended June 30, 1997,
F-8
<PAGE> 45
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
and is to receive a royalty of 2% of net sales of the Company's products
or processes covered under the agreement (less allowances for returns,
discounts, commissions, freight, and excise or other taxes) up to total
net sales of $4,000,000 and 1% of net sales thereafter. in addition, the
Company has agreed to guarantee Lockheed Martin, commencing in the third
year of the agreement, an annual minimum royalty of $15,000.
6. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and No. 129,
"Disclosure of Information About Capital Structure." Both statements are
effective for periods ending after December 15, 1997 and neither is
expected to have a material impact on the financial position or results of
operations of the Company.
7. PUBLIC STOCK OFFERING
In April, 1997, the Company completed an Initial Public Offering of
1,500,000 units each consisting of one share of Common Stock and a Warrant
to purchase one share of Common Stock, and 600,000 units each consisting
of one share of Convertible Preferred Stock and a Warrant to purchase one
share of Common Stock.
Proceeds from the offering were as follows:
<TABLE>
<CAPTION>
COMMON PREFERRED
UNITS UNITS
----- -----
<S> <C> <C>
Proceeds allocated to shares $5,564,000 $5,214,000
Proceeds allocated to warrants 2,086,000 846,000
------------ ------------
Gross proceeds 7,650,000 6,060,000
Less: Discount and offering expenses 1,541,000 1,082,000
------------ ------------
Net proceeds $6,109,000 $4,978,000
============ ============
</TABLE>
The underwriter of the offering exercised its right to purchase an
additional 315,000 Warrants for $31,500.
8. CAPITAL STRUCTURE
COMMON STOCK:
On September 5, 1996, the Company amended its Certificate of Incorporation
authorizing up to 5,000,000 shares of Preferred Stock, $.001 par value and
up to 50,000,000 shares of Common Stock, $.001 par value.
F-9
<PAGE> 46
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
The Company also effected a 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 were all held by Environmental. On
November 26, 1996, the outstanding shares were reduced to 10,000,000 based
on a 1-for-1.50 reverse stock split. The financial statements have been
prepared as though the above changes in stockholders' equity had occurred
at November 15, 1995.
PREFERRED STOCK:
The Convertible Preferred Stock has a par value of $.01 per share and a
stated value of $10.00 per share. Cumulative dividends are payable at the
rate of $1.00 per share per annum, quarterly on the last business day of
March, June, September and December of each year, commencing June 30,
1997, when, and if declared by the Board of Directors, before any
dividends are declared or paid on the Common Stock or any capital stock
ranking junior to the Convertible Preferred Stock. Failure to pay any
quarterly dividend will result in a reduction of the conversion price as
described below.
The Convertible Preferred Stock is convertible into Common Stock at any
time prior to redemption at a conversion rate of 1.67 shares of Common
Stock for each share of Convertible Preferred Stock (an effective
conversion price of $6.00 per share of Common Stock), subject to
adjustment under certain circumstances, including the failure of the
Company to pay a dividend on the Convertible Preferred Stock within 30
days of a dividend payment date, which will result in each instance in a
reduction of $.50 per share in the conversion price but not below $3.75
per share.
The Convertible Preferred Stock is redeemable, in whole but not in part,
by the Company upon 30 days' prior written notice after April 3, 2000 at
$10.00 per share, plus accumulated and unpaid dividends, provided the
closing bid price of the Common Stock for at least 20 consecutive trading
days ending not more than 10 trading days prior to the date of the notice
of redemption equals or exceeds $10.00 per share or, after April 3, 2001,
at certain cash redemption prices plus accumulated and unpaid dividends.
The holders of Convertible Preferred Stock have the right, voting as a
class, to approve or disapprove of the issuance of any class or series of
stock ranking senior to or on a parity with the Convertible Preferred
Stock with respect to declaration and payment of dividends or the
distribution of assets on liquidation, dissolution or winding-up. In
addition, if the company fails to pay dividends on the Convertible
Preferred Stock for four consecutive quarterly dividend payment periods,
holders of Convertible Preferred Stock voting separately as a class will
be entitled to elect one director; such voting right will be terminated as
of the next annual meeting of stockholders of the Company following
payment of all accrued dividends.
Upon liquidation, dissolution or winding up of the company, holders of
Convertible Preferred Stock are entitled to receive liquidation
distributions equivalent to $10.00 per share (plus accumulated and unpaid
dividends) before any distribution to holders of the Common Stock or any
capital stock ranking junior to the convertible Preferred Stock.
F-10
<PAGE> 47
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
WARRANTS
Each Warrant entitles the holder thereof to purchase, at any time from
April 3, 1998 through April 3, 2002, one share of Common stock at a price
of $5.50 per share, subject to adjustment. Commencing October 3, 1998, 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 equals or exceeds $15.00
per share, subject to adjustment, for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the
date of the notice of redemption.
REPRESENTATIVE'S WARRANTS
In connection with the Offering, the Company sold to National Securities,
(the "Underwriter"), for $.0001 per warrant, warrants to purchase from the
Company up to 60,000 shares of Convertible Preferred Stock, 150,000 shares
of Common Stock and/or 210,000 Warrants (the "Representative's Warrants").
The Representative's Warrants are exercisable at a price of $12.00 per
share of Convertible Preferred Stock, $6.00 per share of Common Stock and
$.12 per Warrant from April 3, 1998 through April 3, 2001, and are
restricted from sale, transfer, assignment or hypothecation prior to that
date, except to officers of the Underwriter. 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.
9. STOCK OPTION PLAN
On September 5, 1996, Environmental (as sole stockholder of the Company)
approved the Company's 1996 Stock Option plan, as previously adopted by the
Company's Board of Directors (the "Plan"), pursuant to which officers,
directors, and/or key employees and/or consultants of the company can
receive incentive stock options and non-qualified stock options to purchase
up to an aggregate of 1,350,000 shares of the Company's Common Stock (of
which no more than 1,147,500 shares may be issued pursuant to non-qualified
stock options). On September 5, 1996, December 18, 1996, and January 27,
1997, the Company's Board of Directors awarded, effective upon completion
of the initial public offering, non-qualified stock options under the Plan
to certain key executive officers entitling them to purchase an aggregate
of 630,000 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 (1997 in the case of one executive officer) through 2000,
inclusive, beginning on the closing date of the initial public offering
and, unless exercised, expire on December 31, 2001 (subject to prior
termination in accordance with the applicable stock option agreements).
F-11
<PAGE> 48
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
In addition, non-qualified options to purchase an aggregate of 136,689
shares of Common Stock were awarded, effective upon completion of the
initial 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 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
the initial public 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. In December 1996 and January 1997, Applied as
purchaser of 100% of the capital stock of the Company, ratified the Plan
and all issuances thereunder.
In May and June 1997, the Company granted incentive and non-qualified stock
options to purchase an aggregate of 230,000 shares of the Company's common
stock.
As of June 30, 1997, none of the aforementioned stock options had been
exercised.
The Company has adopted the intrinsic value method of accounting for stock
options and warrants under Accounting Principles Board Opinion No. 25 with
footnote disclosures of the pro forma effects as if the SFAS 123 fair value
method had been adopted.
Had compensation expense for the Company's employee stock options been
determined based on the fair value at the grant date for awards in 1996
consistent with the provisions of SFAS 123, the Company's net loss per
share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
<S> <C>
Net loss - as reported $(3,171,000)
Net loss - pro forma $(3,706,000)
Loss per share - as reported $ (.31)
Loss per share - pro forma $ (.35)
</TABLE>
SFAS 123 requires stock options to be valued using an approach such as the
Black-Scholes option pricing model. The Black-Scholes model calculates the
fair value of the grant based upon certain assumptions about the underlying
stock. The expected dividend yield of the stock is zero, the expected life
of the options is 5 years, the expected volatility is 60 percent, and the
expected risk-free rate of return is 6.50 percent, calculated as the rate
offered on U.S. Government securities with the same term at the expected
life of the options. The weighted average remaining contractual life of all
options outstanding at June 30, 1997 is 4.2 years. The weighted average
fair value of options granted during the year ended June 30, 1997 is $2.47.
No options were granted in the prior period.
F-12
<PAGE> 49
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is committed under non-cancelable operating leases for office
space. Future obligations under the leases for the next five years are as
follows:
<TABLE>
<S> <C>
1998 $ 122,000
1999 122,000
2000 122,000
2001 122,000
2002 92,000
-------------
$ 580,000
-------------
</TABLE>
Rent expense approximated $72,000 for the year ended June 30, 1997.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with four executives and key
personnel. Aggregate minimum payments under the employment agreements are
as follows:
<TABLE>
<S> <C>
1998 $ 523,000
1999 523,000
2000 261,500
-------------
Total $ 1,307,500
-------------
</TABLE>
The Company has a five-year Executive Bonus Plan (the "Bonus Plan") under
which a number of executives and employees of the Company are entitled to
formula bonuses. Since inception of the Bonus Plan, bonus criteria have not
been met.
LITIGATION
The Company has no matters of litigation arising in the ordinary course of
business which in the opinion of management will not have a material
adverse effect on its financial condition or results of operation.
F-13
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement between the Company and
National Securities Corporation, as Representative of the
several Underwriters listed therein (the "Representative").(5)
3.1 Restated Certificate of Incorporation of the Company.(1)
3.2 By-Laws of the Company.(1)
3.3 Form of Certificate of Designation, Preferences and Rights of
10% Senior Convertible Redeemable Preferred Stock of the
Company.(6)
4.1 Specimen Common Stock Certificate.(2)
4.2 Form of Warrant Agreement among the Company, the
Representative and the Bank of New York.(5)
4.3 Specimen Warrant Certificate.(3)
4.4 Form of Representative's Warrant Agreement between the Company
and the Representative, including form of Representative's
Warrant therein.(5)
4.5 Specimen Convertible Preferred Stock Certificate.(3)
10.1 Employment Agreement, dated as of August 1, 1996, between the
Company and Alan R. Burkart.(1)
10.2 Employment Agreement, dated as of September 1, 1996, between
the Company and Carl O. Magnell.(1)
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C>
10.3 Employment Agreement, dated as of September 1, 1996, between
the Company and James M. DeAngelis.(1)
10.4 Employment Agreement, dated as of September 1, 1996, between
the Company and Srinivas Kilambi, Ph.D.(1)
10.5 Employment Agreement, dated as of September 1, 1996, between
the Company and Michael D. Kiehnau.(1)
10.6 1996 Stock Option Plan of the Company.(1)
10.7 Executive Bonus Plan of the Company.(1)
10.8 Memorandum of Understanding, dated August 30, 1996, between
the Company and Teledyne Brown Engineering, a Division of
Teledyne Industries, Inc., as amended.(1) and (5)
10.9 Memorandum of Understanding, dated August 29, 1996, between
the Company and Sverdrup Environmental, Inc., as amended.(1)
and (5)
10.10 Services Agreement, dated August 31, 1996, between the Company
and Commodore CFC Technologies, Inc.(1)
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.(1)
10.12 Employment Agreement, dated as of October 31, 1996, between
Environmental and Edwin L. Harper, Ph.D.(3)
10.13 Undivided Rights (Sole Commercial) License Agreement, dated
January 5, 1997, between Lockheed Martin Energy Research
Corporation and the Company.(3)
10.14 Stock Purchase Agreement, dated as of December 2, 1996, by and
between Environmental and Applied.(3)
10.15 Form of Revolving Credit Agreement between the Company and
Environmental.(5)
10.16 Employment Agreement, dated as of January 27, 1997, between
the Company and Kenneth J. Houle.(4)
*10.17 Employment Agreement, dated as of November 18, 1996, between
Environmental and Paul E. Hannesson.
*10.18 Employment Agreement, dated May 7, 1997, between Environmental
and Michael D. Fullwood.
22.1 Subsidiaries of the Company.(1)
*27.1 Financial Data Schedule.
</TABLE>
- --------------------------
* Filed herewith.
(1) Incorporated herein by reference and filed as an Exhibit to the
Registrant's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on September 12, 1996 (File No.
333-11813) (the "Registration Statement").
(2) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 1 to the Registration Statement filed with the Securities and
Exchange Commission on October 18, 1996.
(3) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 3 to the Registration Statement filed with the Securities and
Exchange Commission on January 23, 1997.
<PAGE> 52
(4) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 4 to the Registration Statement filed with the Securities and
Exchange Commission on January 28, 1997.
(5) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 5 to the Registration Statement filed with the Securities and
Exchange Commission on March 13, 1997.
(6) Incorporated herein by reference and filed as an Exhibit to Amendment
No. 6 to the Registration Statement filed with the Securities and
Exchange Commission on March 25, 1997.
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into as of
the 18th day of November 1996, by and between COMMODORE ENVIRONMENTAL SERVICES,
INC., a Delaware corporation having offices at 150 East 58th Street, Suite 3400,
New York, New York 10155 (the "Company"), and PAUL F. HANNESSON, an individual
residing at 2361 Golf Brook Drive, West Palm Beach, Florida 33414 (the
"Employee").
WITNESSETH:
WHEREAS, the Employee has substantial knowledge and experience relating
to the management and operation of technology-driven developmental businesses,
and the Company desires to obtain the full-time services of the Employee to
serve in a senior executive capacity with the Company; and
WHEREAS, the Employee is ready, willing and able to serve as a senior
executive officer of the Company, all upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
Part A. Employment.
1. Duties. Subject to the terms and conditions of this Agreement,
the Company shall employ the Employee and the Employee shall render services to
the Company in the capacities and with the titles of Executive Chairman and
Chief Executive Officer of the Company. In addition, the Employee shall serve in
such capacity and have such title with such
<PAGE> 2
of the Company's subsidiaries as may be requested from time to time by the
Company, without requirement of any additional compensation to the Employee,
2. Full-Time Employment. Throughout the period of his employment
hereunder, the Employee shall devote his full and entire professional and
business time, attention, knowledge and skills to faithfully, diligently and to
the best of his abilities perform his duties hereunder. It is expected that the
Employee will render his services primarily from the Company's New York, New
York office, provided that the Employee will engage in such travelling as may be
reasonably required in connection with the performance of his duties hereunder,
3. Director. The Company will cause the Employee to remain a
member of the Board of Directors of the Company and each of its publicly-traded
subsidiaries, for so long as the Employee remains the Company's Executive
Chairman and Chief Executive Officer.
4. Ability to Perform. The Employee hereby represents and
warrants to the Company that he is under no legal disability and has entered
into no agreements which in any way limit or render the Employee incapable of
performing his obligations under this Agreement or his fiduciary duties as the
Executive Chairman and Chief Executive Officer of the Company. The Employee
further covenants that he will not impair his ability to carry out his
obligations under this Agreement or his fiduciary duties as the President and
Chief Operating Officer of the Company by entering into any agreement or in any
way assisting others, directly or indirectly, to enter into any agreement which
will violate the confidentiality and non-competition provisions of Part D of
this Agreement.
2
<PAGE> 3
Part B. Term of Employment: Termination of Agreement.
1. Term. Subject to prior termination in accordance with the
provisions hereof, the term of this Agreement shall commence on November 18,
1996 and shall continue through and including December 31, 1999 (the "Term").
2. Termination For Cause. Anything contained in Section 1 of this
Part B to the contrary notwithstanding, this Agreement may be terminated at the
option of the Board of Directors of the Company (the "Board") for "Cause" (as
hereinafter defined), effective upon the giving of written notice of termination
to the Employee. As used herein, the term "Cause" shall mean and be limited to:
(a) any act committed by the Employee against the
Company, or any of its subsidiaries or divisions, constituting: (i) fraud, (ii)
misappropriation of corporate opportunity, breach of fiduciary duty or
non-disclosure of a conflict of interest, (iii) self-dealing, (iv) embezzlement
of funds, (v) felony conviction for conduct involving moral turpitude or other
criminal conduct, or (vi) the disregard by the Employee of the reasonable
directions of the Board; or
(b) the breach or default by the Employee in the
performance of any material provision of this Agreement (including but not
limited to Part D below); or
(c) alcoholism or any other form of addiction which
impairs the Employee's ability to perform his duties hereunder.
3. Death or Disability. Anything contained in Section 1 of this
Part B to the contrary notwithstanding, this Agreement may be terminated by the
Company: (i) upon the death of the Employee, or (ii) on thirty (30) days' prior
written notice to the Employee, in the
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event that the Employee shall be physically or mentally disabled or impaired so
as to prevent him from continuing the normal and proper performance of his
duties and responsibilities hereunder for a period of three (3) consecutive
months. The initial determination as to whether the Employee is disabled or
impaired shall be made by the physician regularly treating the condition causing
the disability. The Company shall have the right to require the Employee to be
examined by a physician duly licensed to practice medicine in the State in which
the Employee has his primary residence to determine such physician's opinion as
to the Employee's disability. If such physician's opinion differs from that of
the physician treating the Employee, or a physician thereafter retained by the
Employee, they shall forthwith select a third physician so licensed whose
opinion, after examination and review of available information, shall be
conclusive and binding upon all parties hereto. All costs of the physician
regularly treating or thereafter retained by the Employee shall be paid by the
Employee. All costs of the physician retained by the Company shall be paid by
the Company. If a third physician is required, then the costs of that physician
shall be paid by the Company.
4. No Further Obligations. Upon any termination of this Agreement
by the Company for "Cause" pursuant to Section 2 of this Part B, or by reason of
the Employee's death or disability pursuant to Section 3 of this Part B, neither
the Company nor any subsidiary or division thereof shall be liable for or be
required to pay to the Employee any further remuneration, compensation or other
benefits hereunder.
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Part C. Compensation: Expenses.
1. Base Salary. (a) For the first year (ending December 31, 1997)
during which this Agreement is in force, the Employee's annual salary shall be
$395,000, (b) for the second year (ending December 31, 1998), the Employee's
annual salary shall be not less than $434,500, and (c) for the third year
(ending December 31, 1999), the Employee's annual salary shall be not less than
$477,950.
2. Signing Bonus. As a signing bonus, upon the commencement of
this Agreement, the Employee shall be (a) paid $150,000 in cash and (b) granted
stock options to purchase 950,000 shares of common stock, par value $.01 per
share, of the Company (the "Common Stock"). The Company further agrees to pay
the Employee up to $225,000 of any tax liability that arises out of payments
made to the Employee or stock options granted to the Employee under this Part C
of this Agreement. Any payments required to be made under this Section 2 will be
made in advance of the Employee's need for such funds, but in no event sooner
than March 31, 1997, provided that (i) the Employee shall give the Company
reasonable notice in advance of his need for such funds and (ii) the Employee
shall present to the Company all supporting documentation therefor, including,
without limitation, copies of his tax returns.
3. Company Stock Options. In consideration for the Employee's
entering into this Agreement with the Company, in addition to the stock options
under paragraph 2 of this Part C, the Company is, as of the date hereof,
granting to the Employee a stock option (the "Stock Option") to purchase an
aggregate of 2,500,000 shares of Common Stock at an exercise price per share
equal to the closing sale or bid price of the Common Stock as reported or quoted
on the OTC Bulletin Board, Nasdaq Stock Market or American Stock Exchange, as
the case may
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be, on the last trading day prior to the date hereof. Provided that the Employee
is in the full-time employ of the Company on each date of exercise, such Stock
Option will be exercisable as to 500,000 shares of Common Stock commencing on
the first anniversary of the date hereof (the "Initial Vesting Date") and as to
an additional 500,000 shares of Common Stock commencing on each of the four
successive anniversaries of the Initial Vesting Date. The other terms and
conditions of the Stock Option shall be as set forth in a separate Stock Option
Agreement between the Company and the Employee. In addition, the Company
acknowledges and agrees that the stock options to purchase 500,000 shares of
Common Stock at an exercise price of $.53 per share currently held by the
Employee will vest effective as of the date of this Agreement.
4. Subsidiary stock Options. As additional consideration for the
Employee's entering into this Agreement with the Company, the Company will from
time to time in the future grant to the Employee five-year stock options to
purchase common stock of each publicly-traded subsidiary of the Company in the
amount of 1.00% of such subsidiary's total outstanding shares of common stock on
the date that such subsidiary's stock is first publicly traded (giving effect,
however, to dilution of the securities then being offered), in each case at an
exercise price per share equal to the then-current fair market value per share
on such date.
5. Incentive Compensation. The Employee will be entitled to
receive incentive compensation of up to $225,000 per year for achieving certain
goals to be established and determined by the parties within 120 days after the
date of this Agreement, but in no event shall such incentive compensation be
less than $25,000 per year.
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6. Benefits. In addition to the foregoing compensation, the
Employee shall, throughout the period of his employment hereunder, be eligible
to participate in any and all group health, group life and/or other benefit
plans generally made available by the Company to its employees, provided that
nothing herein contained shall be deemed to require the Company to maintain or
continue any particular plan or policy.
7. Automobile Expenses. The Company shall provide the Employee
with the full-time use of an automobile and shall be reimbursed by the Company,
upon presentment of appropriate receipts and/or vouchers therefor, for all
reasonable expenses related to such automobile, including but limited to,
insurance, maintenance and garage. The Employee shall be responsible for any
taxes payable by reason of the use and receipt of such automobile and
reimbursements.
8. Relocation Expense. As of the date hereof, the Employee
maintains his primary residence in Florida, while the Company's headquarters are
maintained in New York. Each of the Company and the Employee agrees that a
relocation of the Employee's primary residence to the area of the Company's
headquarters (a "Relocation") may be required, in which event the Employee
agrees to effect such Relocation as expeditiously as possible. During the Term,
and until Relocation, if any, is effected, the Company shall provide the
Employee, at the Company's cost, with appropriate living quarters in the New
York metropolitan area. If Relocation is required, the Company shall reimburse
the Employee for all of his reasonable expenses customarily incurred in
connection with (i) selling the Employee's present primary residence (including
customary commission on such sale), (ii) purchasing and occupying a new primary
residence and (iii) moving the Employee, his family and their physical assets.
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9. Vacation. The Employee shall be entitled to up to four (4)
weeks of vacation per year, to be taken at such times as shall be mutually
agreeable to the Company and the Employee, and so as not to unduly interfere
with the business of the Company. The Employee may carry over, to the next
annual period hereunder, up to two (2) weeks of unused vacation time as at the
end of each year of the term of this Agreement.
10. Expenses. In addition to the compensation set forth above,
throughout the period of the Employee's employment hereunder, the Company shall
also reimburse the Employee or cause the Employee to be reimbursed, upon
presentment by the Employee to the Company of appropriate receipts and vouchers
therefor, for any reasonable business expenses incurred by the Employee in
connection with the performance of his duties and responsibilities hereunder;
provided, however, that in order to be reimbursable hereunder, any such expense
must be deductible (in whole or in part) by the Company for federal income tax
purposes.
Part D. Confidentially: Non-Competition. As a material inducement to
cause the Company to enter into this Agreement, the Employee hereby covenants
and agrees that:
1. Confidential Information. The Employee shall, at all times
during and subsequent to the Term, keep secret and retain in strictest
confidence all confidential matters of the Company, and the "know-how", trade
secrets, technical processes, inventions, equipment specifications, equipment
designs, plans, drawings, research projects, confidential client lists, details
of client, subcontractor or consultant contracts, pricing policies, operational
methods, marketing plans and strategies, project development, acquisition and
bidding techniques and plans, business acquisition plans, and new personnel
acquisition plans of the Company and its subsidiaries and divisions (whether now
known or hereafter learned by the Employee), except
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to the extent that (i) such information is generally available to the public
without restriction, (ii) the Employee obtains confidentiality agreements with
respect to such confidential information, (iii) the Employee is requested by the
Board of Directors of the Company or a Committee thereof, or by the Chairman of
the Company, to disclose such confidential information, (iv) such information is
provided to a customer of the Company pursuant to a request received from such
customer in the ordinary course of business, or (v) the Employee is under
compulsion of either a court order or a governmental agency's or authority's
inquiry, order or request to so disclose such information.
2. Property of the Company.
(a) Except as otherwise provided herein, all lists,
records and other non-personal documents or papers (and all copies thereof)
relating to the Company and/or any of its subsidiaries or divisions, including
such items stored in computer memories, on microfiche or by any other means,
made or compiled by or on behalf of the Employee, or made available to the
Employee, are and shall be the property of the Company, and shall be delivered
to the Company on the date of termination of the Employee's employment with the
Company, or sooner upon request of the Company at any time or from time to time.
(b) All inventions, including any procedures, formulas,
methods, processes, uses, apparatuses, patterns, designs, plans, drawings,
devices or configurations of any kind, any and all improvements to them which
are developed, discovered, made or produced, and all trade secrets and
information used by the Company and/or its subsidiaries and divisions
(including, without limitation, any such matters created or developed by the
Employee during the term of this Agreement), shall be the exclusive property of
the Company or the subject
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subsidiary, and shall be delivered to the Company or the subject subsidiary
(without the Employee retaining any copies, components or records thereof) on
the date of termination of the Employee's employment with the Company; provided,
however, that nothing herein contained shall be deemed to grant to the Company
any property rights in any inventions or other intellectual property which may
at any time be developed by the Employee which is wholly unrelated to any
business then engaged in or under development by the Company.
3. Employees of the Company. The Employee shall not, at any time
(whether during the term of this Agreement or at any time thereafter), directly
or indirectly, for or on behalf of any business enterprise other than the
Company and/or its subsidiaries and affiliates, solicit any employee of the
Company or any of its subsidiaries to leave his or her employment with the
Company or such subsidiary, or encourage any such employee to leave such
employment, without the prior written approval of the Company in each instance.
4. Non-Competition. For so long as the Employee shall be
receiving any compensation or remuneration under this Agreement, and for a
further period of one (1) year thereafter, the Employee shall not, directly or
indirectly, whether individually or as an employee, stockholder (other than the
passive ownership of up to 5% of the capital stock of a publicly traded
corporation), partner, joint venturer, agent or other representative of any
other person, firm or corporation, engage or have any interest in any business
(other than the Company or any of its subsidiaries or affiliates) which, in any
country in which the Company or any of its subsidiaries or divisions does or
solicits business during the Term, is engaged in or derives any revenues from
performing any functionally equivalent services or marketing any
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functionally equivalent products as those services provided and products
marketed by the Company or any of its subsidiaries or divisions during the Term.
5. Severability of Covenants. The Employee acknowledges and
agrees that the provisions of this Part D are (a) made in consideration of the
premises and undertakings of the Company set forth herein, (b) made for good,
valuable and adequate consideration received and to be received by the Employee,
and (c) reasonable and necessary, in terms of the time, geographic scope and
nature of the restrictions, for the protection of the Company and the business
and good will thereof. It is intended that the provisions of this Part D be
fully severable, and in the event that any of the foregoing restrictions, or any
portion of the foregoing restrictions, shall be deemed contrary to law, invalid
or unenforceable in any respect by any court or tribunal of competent
jurisdiction, then such restrictions shall be deemed to be amended, modified and
reduced in scope and effect, as to duration and/or geographic area, only to that
extent necessary to render same valid and enforceable (and in such reduced form,
such provisions shall then be enforceable), and any other of the foregoing
restrictions shall be unaffected and shall remain in full force and effect.
6. Equitable Remedies. The parties hereby acknowledge that, in
the event of any breach or threatened breach by the Employee of the provisions
of this Part D, the Company will suffer irreparable harm and will not have an
adequate remedy at law. Accordingly, in the event of any such breach or
threatened breach, the Company may seek and obtain appropriate equitable relief
to restrain or enjoin such breach or threatened breach and/or to compel
compliance herewith.
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Part E. Miscellaneous.
1. Binding Effect. All of the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the Employee, the
Company and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns.
2. Notices. Except as may otherwise be provided herein, any
notice, request, demand or other communication required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or when mailed by certified mail, return receipt requested,
addressed to a party at the address of such party first set forth above, or at
such other address as such party may hereafter have designated by notice. Copies
of all notices hereunder shall simultaneously be sent by first class post-paid
mail to Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, Citicorp Center,
153 East 53rd Street, New York, New York 10022, Attn: Stephen A. Weiss, Esq.
3. Waivers. Neither this Agreement nor any of the terms or
conditions hereof may be waived, amended or modified except by means of a
written instrument duly executed by the party to be charged therewith.
4. Captions. The captions and paragraph headings used in this
Agreement are for convenience of reference only, and shall not affect the
construction or interpretation of this Agreement or any of the provisions
hereof.
5. Governing Law. This Agreement, and all matters of disputes
relating to the validity, construction, performance or enforcement hereof, shall
be governed by, and construed under, the laws of the State of New York, without
giving effect to principles of conflicts of laws thereof.
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6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
7. Arbitration. Except for any court action or proceeding to
obtain equitable relief in respect of the provisions of Part D above, any
dispute involving the interpretation or application of this Agreement shall be
resolved by final and binding arbitration before an arbitrator designated by,
and mutually acceptable to, the Company and the Employee. In the event that the
parties cannot agree to the appointment of a mutually acceptable arbitrator, the
subject dispute shall be resolved by final and binding arbitration before one or
more arbitrators designated by the American Arbitration Association in New York,
New York, unless mutually agreed to otherwise. The award of any of such
arbitrator(s) may be enforced in any court of competent jurisdiction.
8. Assignment.
(a) This Agreement is intended for the sole and exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns, and
no other person or entity shall have any right to rely on this Agreement or to
claim or derive any benefit herefrom absent the express written consent of the
party to be charged with such reliance or benefit.
(b) The Employee may not assign or otherwise transfer any
of his obligations or duties hereunder to any other person, firm or corporation,
it being understood and agreed that this Agreement is intended to be for the
personal services of the Employee only and of no other person.
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(c) The Company shall have the right, at any time and
from tune to time, to cause any payments required hereunder to be made by any
subsidiary of the Company. Furthermore, the Company may assign this Agreement to
any successor-in-interest who may acquire, whether by direct purchase, sale of
securities, merger or consolidation, the assets, business or properties of the
Company; provided that no such assignment shall relieve the Company of its
duties and obligations to the Employee hereunder, without the prior written
consent of the Employee.
9. Superseding Effect. This Agreement supersedes and replaces any
previous employment agreement entered into by the Employee with the Company or
any subsidiary or affiliate thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By: /s/ Bentley J. Blum
----------------------------------
Bentley J. Blum
Chairman of the Board
/s/ Paul E. Hannesson
----------------------------------
Paul E. Hannesson
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into the 7th
day of May 1997, by and between COMMODORE ENVIRONMENTAL SERVICES, INC., a
Delaware corporation having offices at 150 East 58th Street, Suite 3400, New
York, New York 10155 (the "Company"), and MICHAEL FULLWOOD, an individual
residing at 75 Old Roxbury Road, Roxbury, Connecticut 06755 (the "Employee").
WITNESSETH:
WHEREAS, the Employee has substantial knowledge and experience relating
to financial management and administration, and the Company desires to obtain
the full-time services of the Employee to serve in a senior executive capacity
with the Company and its direct and indirect subsidiary corporations
(collectively, the "Subsidiaries"); such Subsidiaries to expressly include,
without limitation, Commodore Applied Technologies, Inc. ("CXI"), Commodore
Separation Technologies, Inc. ("CST"), Commodore Advanced Sciences, Inc. ("CAS")
and Commodore CFC Technologies, Inc. ("Refrigerant"); and
WHEREAS, the Employee is ready, willing and able to serve as a senior
executive officer of the Company and the Subsidiaries (collectively, the
"Corporations"), all upon the terms and subject to the conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
<PAGE> 2
Part A. Employment.
1. Duties. Subject to the terms and conditions of this Agreement,
the Company shall employ the Employee and the Employee shall render services to
the Corporations in the capacities and with the titles of Senior Vice President,
Chief Financial and Administrative Officer, Secretary and General Counsel of the
Company and each of its Subsidiaries. Employee shall report to the Chairman of
the Board of the Company. Subject always to the direction of the Chairman of the
Board of the Company and the Chairmen of the Boards of the Subsidiaries and the
Boards of Directors of the Corporation, as appropriate, Employee shall have the
authority to and the responsibility of managing the financial, legal and
administrative functions of the Corporations, including the functions of
treasury, accounting, law, corporate secretary, internal audit, information
systems and human resources. No additional compensation shall be paid to the
Employee for service to any of the Company's Subsidiaries.
2. Full-Time Employment. Throughout the period of his employment
hereunder, the Employee shall devote his full and entire professional and
business time, attention, knowledge and skills to faithfully, diligently and to
the best of his abilities perform his duties hereunder. It is expected that the
Employee will render his services primarily from the Company's New York, New
York office, provided that the Employee will engage in such travelling as may be
reasonably required in connection with the performance of his duties hereunder.
3. Ability to Perform. The Employee hereby represents and warrants
to the Company that he is under no legal disability and has entered into no
agreements which in any way limit or render the Employee incapable of performing
his obligations under this Agreement
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or his fiduciary duties as the Senior Vice President, Chief Financial and
Administrative Officer, Secretary and General Counsel of the Company. The
Employee further covenants that he will not impair his ability to carry out his
obligations under this Agreement or his fiduciary duties as the Senior Vice
President, Chief Financial and Administrative Officer, Secretary and General
Counsel of the Company by entering into any agreement or in any way assisting
others, directly or indirectly, to enter into any agreement which will violate
the confidentiality and non-competition provisions of Part D of this Agreement.
Part B. Term of Employment: Termination of Agreement.
1. Term. Subject to prior termination in accordance with the
provisions hereof, the term of this Agreement shall commence on May 1, 1997 and
shall continue through and including April 30, 1999 (the "Term").
Notwithstanding the foregoing, the Board of Directors of the Company shall have
the right to extend this Agreement on the same terms and conditions, upon
written notice from the Company to the Employee given at any time on or before
March 31, 1999 and March 31, 2000, respectively, for up to two (2) additional
periods of one year each. As used herein, the "Term" of this Agreement shall
include the initial two (2) year Term through April 30, 1999 and either or both
of the additional one (1) year extensions provided for herein.
2. Termination For Cause. Anything contained in Section 1 of this
Part B to the contrary notwithstanding, this Agreement may be terminated at the
option of the Board of Directors of the Company (the "Board") for "Cause" (as
hereinafter defined), effective upon the giving of written notice of termination
to the Employee. As used herein, the term "Cause" shall mean and be limited to:
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(a) any act committed by the Employee against the Company, or any
of its Subsidiaries or divisions, constituting: (i) fraud, (ii) misappropriation
of corporate opportunity, breach of fiduciary duty or non-disclosure of a
conflict of interest, (iii) self-dealing, (iv) embezzlement of funds, (v) felony
conviction for conduct involving moral turpitude or other criminal conduct, or
(vi) the disregard by the Employee of the reasonable directions of the Board or
of the Chief Executive Officer of the Company; provided, that Employee has been
given written notice of such disregard and a reasonable opportunity to cure the
same; or
(b) the breach or default by the Employee in the performance of any
material provision of this Agreement (including but not limited to Part D
below); provided, that Employee has been given written notice of such breach or
default, and a reasonable opportunity to cure the same; or
(c) alcoholism or any other form of addiction which impairs the
Employee's ability to perform his duties hereunder.
3. Death or Disability. Anything contained in Section 1 of this Part B
to the contrary notwithstanding, this Agreement may be terminated by the
Company; (i) upon the death of the Employee, or (ii) on thirty (30) days' prior
written notice to the Employee, in the event that the Employee shall be
physically or mentally disabled or impaired so as to prevent him from continuing
the normal and proper performance of his duties and responsibilities hereunder
for a period of three (3) consecutive months. The initial determination as to
whether the Employee is disabled or impaired shall be made by the physician
regularly treating the condition causing the disability. The Company shall have
the right to require the Employee to be examined by a physician duly licensed to
practice medicine in the State in which the
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Employee has his primary residence to determine such physician's opinion as to
the Employee's disability. If such physician's opinion differs from that of the
physician treating the Employee, or a physician thereafter retained by the
Employee, they shall forthwith select a third physician so licensed whose
opinion, after examination and review of available information, shall be
conclusive and binding upon all parties hereto. All costs of the physician
regularly treating or thereafter retained by the Employee shall be paid by the
Employee. All costs of the physician retained by the Company shall be paid by
the Company. If a third physician is required, then the costs of that physician
shall be paid by the Company.
4. No Further Obligations. Upon any termination of this Agreement by the
Company for "Cause" pursuant to Section 2 of this Part B, or by reason of the
Employee's death or disability pursuant to Section 3 of this Part B, neither the
Company nor any Subsidiary or division thereof shall be liable for or be
required to pay to the Employee any further remuneration, compensation or other
benefits hereunder; provided, however, that in the event of termination due to
disability, the Company shall pay the Employee the benefits described in Section
8 of Part C.
5. Breach of Agreement by Company. In the event the Company or the
Corporations materially breach this Agreement or are in default hereunder,
Employee may resign by written notice to the Company, provided that Employee
shall have given written notice to the Company of the alleged breach or default
and given the Company a reasonable opportunity to cure the alleged breach or
default. In the event that the Employee resigns pursuant to this Section 5 of
this Part B, he shall be entitled to the benefits described in Section 8 of
Part C.
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Part C. Compensation: Expenses.
1. Base Salary. Throughout the Term of this Agreement, the Company
shall pay, or shall cause its Subsidiaries to pay, to the Employee an annual
salary at the rate of $225,000 per annum for the first year, which rate shall be
increased by not less than 5% per year during the Term of this Agreement (the
"Base Salary"). Such Base Salary shall be paid no less frequently than monthly
in accordance with the customary payroll practices of the Company, and shall
include deductions for all federal withholding, social security and other
applicable taxes required to be withheld by an employer.
2. Company Stock Options. In consideration for the Employee's
entering into this Agreement with the Company, in addition to the stock options
under Section 3 of this Part C, the Company is, as of the date hereof, granting
to the Employee a stock option (the "Stock Option") to purchase an aggregate of
500,000 shares of Company Common Stock at an exercise price per share equal to
the closing sale or bid price of the Company Common Stock as reported or quoted
on the OTC Bulletin Board, on the Nasdaq Stock Market or other recognized
national securities exchange, on the last trading day prior to the date hereof.
Provided that the Employee is in the full-time employ of the Company on each
date of exercise, such Stock Option will be exercisable as to 100,000 shares of
Common Stock commencing on the date hereof (the "Initial Vesting Date") and as
to an additional 100,000 shares of Common Stock commencing on each of the four
successive anniversaries of the Initial Vesting Date. The other terms and
conditions of the Stock Option shall be as set forth in a separate Stock Option
Agreement between the Company and the Employee.
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3. Subsidiary Stock Options.
(a) CXI. In addition to the stock options under Section 2 of
this Part C, by its execution of this Agreement, CXI is, as of the date hereof,
granting to the Employee a stock option (the "CXI Stock Option") to purchase an
aggregate of 125,000 shares of CXI common stock at an exercise price per share
equal to the closing sale or bid price of the CXI common stock as reported or
quoted on the American Stock Exchange or other national securities exchange, on
the last trading day prior to the date hereof. Provided that the Employee is in
the full-time employ of the Company and continuing to render services to CXI on
each date of exercise, such CXI Stock Option will be exercisable as to 25,000
shares of CXI common stock commencing on the Initial Vesting Date and as to an
additional 25,000 shares of CXI common stock commencing on each of the four
successive anniversaries of the Initial Vesting Date. The other terms and
conditions of the CXI Stock Option shall be set forth in a separate Stock Option
Agreement between CXI and the Employee.
(b) CST. In addition to the stock options under Section 2 of
this Part C, by its execution of this Agreement, CST is, as of the date hereof,
granting to the Employee a stock option (the "CST Stock Option") to purchase an
aggregate of 67,500 shares of CST common stock at an exercise price per share
equal to the closing sale or bid price of the CST common stock as reported or
quoted on the Nasdaq Stock Market or other national securities exchange, on the
last trading day prior to the date hereof. Provided that the Employee is in the
full-time employ of the Company and continuing to render services to CST on
each date of exercise, such CST Stock Option will be exercisable as to 13,500
shares of CST common stock commencing on the Initial Vesting Date and as to an
additional 13,500 shares of CST common
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<PAGE> 8
stock commencing on each of the four successive anniversaries of the Initial
Vesting Date. The other terms and conditions of the CST Stock Option shall be
as set forth in a separate Stock Option Agreement between CST and the Employee.
4. Incentive Compensation. The Employee will be entitled to receive
incentive compensation of up to $75,000 per year for achieving certain goals to
be established and determined by the parties within 120 days after the date of
this Agreement, but in no event shall such incentive compensation be less than
$25,000 per year. Sums set forth in this Section 4 of Part C shall be increased
by not less than 5% per year during the Term of this Agreement. For performance
significantly beyond the agreed-upon goals in the sole discretion and judgment
of the Chairman of the Board, the Company shall consider paying the Employee
incentive compensation in excess of $75,000 per year.
5. Benefits. In addition to the foregoing compensation, the Employee
shall, throughout the period of his employment hereunder, be eligible to
participate in any and all group health, group life and/or other benefit plans
generally made available by the Company to its employees, provided that nothing
herein contained shall be deemed to require the Company to maintain or continue
any particular plan or policy.
6. Vacation. The Employee shall be entitled to up to four (4) weeks
of vacation per year, to be taken at such times as shall be mutually agreeable
to the Company and the Employee, and so as not to unduly interfere with the
business of the Company. The Employee may carry over, to the next annual period
hereunder, up to two (2) weeks of unused vacation time as at the end of each
year of the term of this Agreement.
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7. Expenses. In addition to the compensation set forth above, throughout
the period of the Employee's employment hereunder, the Company shall also
reimburse the Employee or cause the Employee to be reimbursed, upon presentment
by the Employee to the Company of appropriate receipts and vouchers therefor,
for any reasonable business expenses incurred by the Employee in connection
with the performance of his duties and responsibilities hereunder; provided,
however, that in order to be reimbursable hereunder, any such expense must be
deductible (in whole or in part) by the Company for federal income tax
purposes.
8. Severance. In the event that Employee is terminated without "Cause,"
the Company shall appoint Employee as a consultant (the "Consultant") to the
Company and one or more of its Subsidiaries for a period of six months (the
"Consulting Period") following the date of the Employee's termination as an
employee of the Company. During the Consulting Period, the Consultant shall be
paid a monthly fee equal to one-twelfth of the Base Salary set forth in Section
1 of Part C and shall receive the incentive compensation set forth in Section 4
of Part C. In addition, all of the options to purchase stock of the Company and
the Subsidiaries which have been granted to Employee pursuant to this
Agreement, and which have vested as of the date of Employee's termination as an
employee of the Company, will be deemed vested and will remain exercisable by
the Consultant and not subject to forfeiture as a result of the termination of
this Agreement. Notwithstanding the foregoing, any options to purchase stock of
the Company and the Subsidiaries which have been granted to Employee pursuant
to this Agreement, and which have not vested as of the date of Employee's
termination as an employee of the Company will be deemed forfeited by the
Employee.
9
<PAGE> 10
Part D. Confidentiality: Non-Competition. As a material inducement to
cause the Company to enter into this Agreement, the Employee hereby covenants
and agrees that:
1. Confidential Information. The Employee shall, at all times
during and subsequent to the Term, keep secret and retain in strictest
confidence all confidential matters of the Corporations, and the "know-how",
trade secrets, technical processes, inventions, equipment specifications,
equipment designs, plans, drawings, research projects, confidential client
lists, details of client, subcontractor or consultant contracts, pricing
policies, operational methods, marketing plans and strategies, project
development, acquisition and bidding techniques and plans, business acquisition
plans, and new personnel acquisition plans of the Corporations and its
Subsidiaries and divisions (whether now known or hereafter learned by the
Employee), except to the extent that (i) such information is generally
available to the public without restriction, (ii) the Employee obtains
confidentiality agreements with respect to such confidential information, (iii)
the Employee is requested by the Board of Directors of the Corporations or a
Committee thereof, or by the Chairman of the Corporations, to disclose such
confidential information, (iv) such information is provided to a customer of
the Corporations pursuant to a request received from such customer in the
ordinary course of business, or (v) the Employee is under compulsion of either
a court order or a governmental agency's or authority's inquiry, order or
request to so disclose such information.
2. Property of the Corporations.
(a) Except as otherwise provided herein, all lists,
records and other non-personal documents or papers (and all copies thereof)
relating to the Corporations and/or any of its Subsidiaries or divisions,
including such items stored in computer memories, on
10
<PAGE> 11
microfiche or by any other means, made or compiled by or on behalf of the
Employee, or made available to the Employee, are and shall be the property of
the Corporations, and shall be delivered to the Corporations on the date of
termination of the Employee's employment with the Company, or sooner upon
request of the Company at any time or from time to time.
(b) All inventions, including any procedures, formulas, methods,
processes, uses, apparatuses, patterns, designs, plans, drawings, devices or
configurations of any kind, any and all improvements to them which are
developed, discovered, made or produced, and all trade secrets and information
used by the Corporations and/or its Subsidiaries and divisions (including,
without limitation, any such matters created or developed by the Employee during
the term of this Agreement), shall be the exclusive property of the Corporations
or the subject Subsidiary, and shall be delivered to the Company or the subject
Subsidiary (without the Employee retaining any copies, components or records
thereof) on the date of termination of the Employee's employment with the
Corporations; provided, however, that nothing herein contained shall be deemed
to grant to the Corporations any property rights in any inventions or other
intellectual property which may at any time be developed by the Employee which
is wholly unrelated to any business then engaged in or under development by the
Corporations.
3. Employees of the Corporations. The Employee shall not, at any time
(whether during the term of this Agreement or at any time thereafter), directly
or indirectly, for or on behalf of any business enterprise other than the
Company and/or its Subsidiaries and affiliates, solicit any employee of the
Company or any of its Subsidiaries to leave his or her employment with the
Company or such Subsidiary, or encourage any such employee to leave such
employment, without the prior written approval of the Corporations in each
instance.
11
<PAGE> 12
4. Non-Competition. For so long as the Employee shall be receiving any
compensation or remuneration under this Agreement, and for a further period of
one (1) year thereafter, the Employee shall not, directly or indirectly,
whether individually or as an employee, stockholder (other than the passive
ownership of up to 5% of the capital stock of a publicly traded corporation),
partner, joint venturer, agent or other representative of any other person,
firm or corporation, engage or have any interest in any business (other than
the Company or any of its Subsidiaries or affiliates) which, in any country in
which the Company or any of its Subsidiaries or divisions does or solicits
business during the Term, is engaged in or derives any revenues from performing
any functionally equivalent services or marketing any functionally equivalent
products as those services provided and products marketed by the Company or any
of its Subsidiaries or divisions during the Term.
5. Severability of Covenants. The Employee acknowledges and agrees
that the provisions of this Part D are (a) made in consideration of the
premises and undertakings of the Company set forth herein, (b) made for good,
valuable and adequate consideration received and to be received by the
Employee, and (c) reasonable and necessary, in terms of the time, geographic
scope and nature of the restrictions, for the protection of the Company and the
business and good will thereof. It is intended that the provisions of this Part
D be fully severable, and in the event that any of the foregoing restrictions,
or any portion of the foregoing restrictions, shall be deemed contrary to law,
invalid or unenforceable in any respect by any court or tribunal of competent
jurisdiction, then such restrictions shall be deemed to be amended, modified
and reduced in scope and effect, as to duration and/or geographic area, only to
that extent necessary to render same valid and enforceable (and in such
reduced form, such
12
<PAGE> 13
provisions shall then be enforceable), and any other of the foregoing
restrictions shall be unaffected and shall remain in full force and effect.
6. Equitable Remedies. The parties hereby acknowledge that,
in the event of any breach or threatened breach by the Employee of the
provisions of this Part D, the Company will suffer irreparable harm and will not
have an adequate remedy at law. Accordingly, in the event of any such breach or
threatened breach, the Company may seek and obtain appropriate equitable relief
to restrain or enjoin such breach or threatened breach and/or to compel
compliance herewith.
Part E. Miscellaneous.
1. Indemnification. The Company agrees to indemnify and
hold harmless Employee from any and all liabilities incurred or sustained by
him in connection with any claim, action, investigation, suit, or proceeding to
which he may be made a party by reason of his being or having been an officer,
director, or employee of the Corporations or any of them, to the maximum extent
permitted by applicable law. The Company shall advance any reasonable legal
fees to be incurred by Employee in defending himself in any proceeding against
the imposition of any such liability to the extent permitted by applicable law.
2. Binding Effect. All of the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the Employee, the
Company and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns.
3. Notices. Except as may otherwise be provided herein,
any notice, request, demand or other communication required or permitted under
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally or when mailed by certified
13
<PAGE> 14
mail, return receipt requested, addressed to a party at the address of such
party first set forth above, or at such other address as such party may
hereafter have designated by notice. Copies of all notices hereunder shall
simultaneously be sent by first class post-paid mail to Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, Citicorp Center, 153 East 53rd Street, New
York, New York 10022, Attn: Stephen A. Weiss, Esq.
4. Waivers. Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged therewith.
5. Captions. The captions and paragraph headings used in this Agreement
are for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
6. Governing Law. This Agreement, and all matters or disputes relating
to the validity, construction, performance or enforcement hereof, shall be
governed by, and construed under, the laws of the State of New York, without
giving effect to principles of conflicts of laws thereof.
7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
8. Arbitration. Except for any court action or proceeding to obtain
equitable relief in respect of the provisions of Part D above, any dispute
involving the interpretation or application of this Agreement shall be resolved
by final and binding arbitration before an arbitrator designated by, and
mutually acceptable to, the Company and the Employee. In the
14
<PAGE> 15
event that the parties cannot agree to the appointment of a mutually acceptable
arbitrator, the subject dispute shall be resolved by final and binding
arbitration before one or more arbitrators designated by the American
Arbitration Association in New York, New York, unless mutually agreed to
otherwise. The award of any of such arbitrator(s) may be enforced in any court
of competent jurisdiction.
9. Assignment.
(a) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns, and no other person
or entity shall have any right to rely on this Agreement or to claim or derive
any benefit herefrom absent the express written consent of the party to be
charged with such reliance or benefit.
(b) The Employee may not assign or otherwise transfer any of his
obligations or duties hereunder to any other person, firm or corporation, it
being understood and agreed that this Agreement is intended to be for the
personal services of the Employee only and of no other person.
(c) The Company shall have the right, at any time and from time to
time, to cause any payments required hereunder to be made by any Subsidiary of
the Company. Furthermore, the Company may assign this Agreement to any
successor-in-interest who may acquire, whether by direct purchase, sale of
securities, merger or consolidation, the assets, business or properties of the
Company; provided that no such assignment shall relieve the
15
<PAGE> 16
Company of its duties and obligations to the Employee hereunder, without the
prior written consent of the Employee.
10. Superseding Effect. This Agreement supersedes and replaces any
previous employment agreement entered into by the Employee with the Company or
any Subsidiary or affiliate thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By: /s/ Paul E. Hannesson
----------------------------------
Paul E. Hannesson
Chairman of the Board
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ Paul E. Hannesson
----------------------------------
Paul E. Hannesson
Chairman of the Board
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: /s/ Paul E. Hannesson
----------------------------------
Paul E. Hannesson
Chairman of the Board
/s/ Michael D. Fullwood
--------------------------------------
Michael D. Fullwood
16
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