<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1997
REGISTRATION NO. 333-11813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------
COMMODORE SEPARATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3559 11-3299195
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
150 East 58th Street, Suite 3400
New York, New York 10155
telephone: (212) 308-5800; facsimile: (212) 753-0731
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PAUL E. HANNESSON
Vice Chairman of the Board
Commodore Separation Technologies, Inc.
150 East 58th Street, Suite 3400
New York, New York 10155
telephone: (212) 308-5800; facsimile: (212) 753-0731
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
STEPHEN A. WEISS, ESQ. LAWRENCE B. FISHER, ESQ.
SPENCER G. FELDMAN, ESQ. Orrick, Herrington & Sutcliffe LLP
Greenberg, Traurig, Hoffman, 666 Fifth Avenue
Lipoff, Rosen & Quentel New York, New York 10103
153 East 53rd Street telephone: (212) 506-5000
New York, New York 10022 facsimile: (212) 506-5151
telephone: (212) 801-9200
facsimile: (212) 223-7161
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================
Proposed
maximum Proposed
offering price maximum Amount of
Title of each class of Amount to be per aggregate registration
securities to be registered registered(1) security(2) offering price fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of
one share of Convertible
Preferred Stock and one
Redeemable Common Stock
Purchase Warrant ("Preferred
Units") .................... 1,725,000(3) $10.10 $17,422,500 --(15)
- ----------------------------------------------------------------------------------------------
Units, each consisting of one
share of Common Stock and
one Redeemable Common Stock
Purchase Warrant ("Common
Units") .................... 1,725,000(4) $6.10 $10,522,500 --(15)
- ----------------------------------------------------------------------------------------------
Common Stock, $.001 par value 1,725,000(5) $6.00 $10,350,000 $3,136.36
- ----------------------------------------------------------------------------------------------
Convertible Preferred Stock,
$.001 par value ............ 1,725,000(6) $10.00 $17,250,000 $5,227.27
- ----------------------------------------------------------------------------------------------
Common Stock, $.001 par
value, issuable upon
conversion of Convertible
Preferred Stock ............ 2,300,000(7) $7.50 $17,250,000 $5,227.27
- ----------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants ("Public
Warrants") ................. 3,450,000(8) $0.10 $345,000 $104.55
- ----------------------------------------------------------------------------------------------
Common Stock, $.001 par
value, issuable upon
exercise of Public Warrants 3,450,000(9) $8.40 $28,980,000 $8,781.82
- ----------------------------------------------------------------------------------------------
Representative's Warrants to
purchase Convertible
Preferred Stock, Common
Stock and Public Warrants .. 150,000 $.0001 $15 --
- ----------------------------------------------------------------------------------------------
Common Stock, $.001 par
value, issuable upon
exercise of Representative's
Warrants ................... 150,000(10) $7.20 $1,080,000 $327.27
- ----------------------------------------------------------------------------------------------
Convertible Preferred Stock
issuable upon exercise of
Representative's Warrants .. 150,000(11) $12.00 $1,800,000 $545.45
- ----------------------------------------------------------------------------------------------
Common Stock, $.001 par
value, issuable upon
conversion of Convertible
Preferred Stock issuable
upon exercise of
Representative's Warrants .. 200,000(12) $7.50 $1,500,000 $454.54
- ----------------------------------------------------------------------------------------------
Public Warrants issuable upon
exercise of Representative's
Warrants ................... 300,000(13) $0.12 $36,000 $10.91
- ----------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Public Warrants
issuable upon exercise of
Representative's Warrants .. 300,000(14) $8.40 $2,520,000 $763.64
- ----------------------------------------------------------------------------------------------
Total ................................................................. $24,579.08(16)
==============================================================================================
</TABLE>
(1) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Convertible Preferred Stock, the Public Warrants and
the Representative's Warrants.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(3) Includes 225,000 Preferred Units which may be purchased by the
Underwriters from the Registrant to cover over-allotments, if any.
<PAGE>
(4) Includes 225,000 Common Units which may be purchased by the Underwriters
from the Registrant to cover over-allotments, if any.
(5) Includes 225,000 shares of Common Stock which may be purchased by the
Underwriters from the Registrant to cover over-allotments, if any.
(6) Includes 225,000 shares of Convertible Preferred Stock which may be
purchased by the Underwriters from the Registrant to cover
over-allotments, if any.
(7) Includes 2,300,000 shares of Common Stock underlying 1,725,000 shares of
Convertible Preferred Stock.
(8) Includes 450,000 Public Warrants which may be purchased by the
Underwriters from the Registrant to cover over-allotments, if any.
(9) Includes 450,000 shares of Common Stock underlying 450,000 Public
Warrants which may be purchased by the Underwriters from the Registrant
to cover over-allotments, if any.
(10) Consists of shares of Common Stock issuable upon exercise of the
Representative's Warrants issued to the Representative of the several
Underwriters (the "Representative").
(11) Consists of Convertible Preferred Stock issuable upon exercise of the
Representative's Warrants issued to the Representative.
(12) Consists of shares of Common Stock underlying the Convertible Preferred
Stock issuable upon exercise of the Representative's Warrants issued to
the Representative.
(13) Consists of Public Warrants issuable upon exercise of Representative's
Warrants issued to the Representative.
(14) Consists of shares of Common Stock underlying the Public Warrants
issuable upon exercise of the Representative's Warrants issued to the
Representative.
(15) No additional filing fee is required.
(16) A registration fee of $41,874.16 has been previously paid.
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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<CAPTION>
Item
Number Item Caption in Form S-1 Location in Prospectus
---------- -------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page of Prospectus; Additional
Prospectus Information; Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be Registered Prospectus Summary; Capitalization; Description of
Securities; Certain Federal Income Tax
Considerations
10. Interests of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant Outside Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; Use of Proceeds;
Capitalization; Dividend Policy; Dilution; Selected
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Executive
Compensation; Principal Stockholders; Certain
Relationships and Related Transactions; Description
of Securities; Shares Eligible for Future Sale;
Financial Statements; Outside Back Cover Page of
Prospectus
12. Disclosure of Commission Position on Not applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED JANUARY 23, 1997
PROSPECTUS
UNITS CONSISTING OF 1,500,000 SHARES OF
10% SENIOR CONVERTIBLE REDEEMABLE PREFERRED STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS AND
UNITS CONSISTING OF 1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
COMMODORE SEPARATION TECHNOLOGIES, INC.
------
Commodore Separation Technologies, Inc., a Delaware corporation (the
"Company"), hereby offers (the "Offering") two separate units of securities
(collectively, the "Units") consisting of: (a) 1,500,000 shares of 10% Senior
Convertible Redeemable Preferred Stock, par value $.001 per share and
liquidation preference of $10.00 per share (the "Convertible Preferred
Stock") and 1,500,000 Redeemable Common Stock Purchase Warrants (the
"Warrants"), each unit (the "Preferred Units") consisting of one share of
Convertible Preferred Stock and one Warrant; and (b) 1,500,000 shares of
Common Stock, par value $.001 per share (the "Common Stock") and 1,500,000
Warrants, each unit (the "Common Units") consisting of one share of Common
Stock and one Warrant. The Convertible Preferred Stock, Common Stock and
Warrants included in the Units are sometimes collectively referred to as the
"Securities." Until completion of the Offering, the Securities included in
the Preferred Units and Common Units may only be purchased together in their
respective Units, but each of the Securities will trade separately
immediately after the Offering. The Convertible Preferred Stock is
convertible into Common Stock at any time prior to redemption at the rate of
1.33 shares of Common Stock for each share of Convertible Preferred Stock, an
effective conversion price of $7.50 per share or 125% of the initial public
offering price per share of Common Stock (subject to adjustment under certain
circumstances). Commencing February , 2000, the Convertible Preferred Stock
is subject to redemption by the Company, in whole but not in part, at $10.00
per share, plus accumulated and unpaid dividends on 30 days' prior written
notice, provided that 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 $11.25 per share [150% of
the per share conversion price], or after February , 2001, at the cash
redemption prices set forth herein, plus accumulated and unpaid dividends.
Cumulative dividends on the Convertible Preferred Stock at the rate of $1.00
per share per annum are payable quarterly, out of funds legally available
therefor, on the last business day of March, June, September and December of
each year, commencing March 31, 1997. Each Warrant included in the Preferred
Units and Common Units contains identical terms and entitles the registered
holder thereof to purchase one share of Common Stock at an initial exercise
price of $8.40 per share, subject to adjustment, at any time commencing one
year after the date of this Prospectus until five years after the date of
this Prospectus. Commencing 18 months after the date of this Prospectus, the
Warrants are subject to redemption by the Company, in whole but not in part,
at $.10 per Warrant on 30 days' prior written notice provided that the
average closing sale price of the Common Stock equals or exceeds $18.00 per
share (subject to adjustment under certain circumstances) for any 20 trading
days within a period of 30 consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. See "Description
of Securities."
Prior to this Offering, there has been no public market for the Securities
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained. It
is currently anticipated that the initial public offering prices of the
Preferred Units and the Common Units will be $10.10 per unit and $6.10 per
unit, respectively, with the Convertible Preferred Stock, Common Stock and
Warrants priced at $10.00 per share, $6.00 per share and $.10 per Warrant,
respectively. For information regarding the factors considered in determining
the initial public offering prices of the Securities and the terms of the
Convertible Preferred Stock and Warrants, see "Risk Factors" and
"Underwriting." Application has been made to include the Convertible
Preferred Stock, the Common Stock and the Warrants on the Nasdaq Small-Cap
Market ("Nasdaq") under the symbols "CXOTP," "CXOT" and "CXOTW,"
respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 9 AND
"DILUTION."
<PAGE>
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================
Price to Public Underwriting Discount (1) Proceeds to Company (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Unit .................... $10.10 $.808 $9.29
- --------------------------------------------------------------------------------------------------------------------
Per share of Convertible Preferred
Stock ............................... $10.00 $ .80 $9.20
- --------------------------------------------------------------------------------------------------------------------
Per Warrant ......................... $ .10 $.008 $.092
- --------------------------------------------------------------------------------------------------------------------
Per Common Unit ...................... $ 6.10 $.488 $5.61
- --------------------------------------------------------------------------------------------------------------------
Per share of Common Stock ........... $ 6.00 $ .48 $5.52
- --------------------------------------------------------------------------------------------------------------------
Per Warrant ......................... $ .10 $.008 $.092
- --------------------------------------------------------------------------------------------------------------------
Total (3) ............................ $24,300,000 $1,944,000 $22,356,000
====================================================================================================================
</TABLE>
(see footnotes on following page)
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the Securities will be made against payment
at the offices of National Securities Corporation, Seattle, Washington, on or
about , 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
The Company has developed and intends to commercialize its proprietary
separation and recovery technology called CST. The following diagram illustrates
how its CST process works:
[Diagram of CST Process]
- -----------------------------------------------------------------------------
(continued from cover page)
- --------
(1) Does not include additional compensation payable to National Securities
Corporation, the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other
compensation payable to the Representative.
(2) Before deducting estimated expenses of $533,500 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within 45
days after the date of this Prospectus to purchase up to 225,000 additional
shares of Convertible Preferred Stock, up to 225,000 additional shares of
Common Stock and/or up to 450,000 additional Warrants, all upon the same
terms and conditions as set forth above, solely to cover over-allotments, if
any (the "Over-allotment Option"). The Over-allotment Option may be
exercised to purchase shares or Convertible Preferred Stock, shares of
Common Stock and Warrants, solely shares of Convertible Preferred Stock or
shares of Common Stock or Warrants, or any combination thereof. If such
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $27,945,000,
$2,235,600 and $25,709,400, respectively. See "Underwriting."
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL-CAP
MARKET, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and make
available such other periodic reports as the Company may deem to be
appropriate or as may be required by law.
------
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations and business of the Company,
including statements under the captions "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
These forward-looking statements are subject to certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward looking statements include, among many others, the
following: (1) competitive conditions in the industry in which the Company
operates and (2) general economic conditions that are less favorable than
expected.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and must be read in conjunction
with, the more detailed information and financial statements and notes
thereto appearing elsewhere in this Prospectus. Unless otherwise indicated,
all references in the Prospectus to (a) share and per share information
reflects a 150,000-for-one stock split effected on September 5, 1996 and a
one-for-1.5 reverse stock split effected on November 26, 1996, and (b) the
Company's authorized and outstanding securities give effect to the filing
prior to the date of this Prospectus of a Certificate of Designation,
Preferences and Rights amending the Company's Certificate of Incorporation to
authorize the Convertible Preferred Stock, and does not give effect to (i)
any exercise of the Underwriters' Over-allotment Option, (ii) the issuance of
up to 2,000,000 shares of Common Stock upon conversion of the Convertible
Preferred Stock, (iii) the issuance of up to 3,000,000 shares of Common Stock
upon exercise of the Warrants, (iv) the issuance of up to 150,000 shares of
Convertible Preferred Stock, 150,000 shares of Common Stock and/or 300,000
Warrants upon exercise of the Representative's Warrants, (v) the issuance of
up to 500,000 shares of Common Stock upon conversion of the Convertible
Preferred Stock and exercise of the Warrants included in the Representative's
Warrants, (vi) the issuance of up to 737,689 shares of Common Stock upon
exercise of stock options outstanding as of the date of this Prospectus, and
(vii) the issuance of up to 612,311 additional shares of Common Stock
reserved for issuance upon exercise of additional stock options that may be
granted under the Company's 1996 Stock Option Plan. See "Executive
Compensation -- Stock Options" and "Underwriting." The Company is a
development stage company which has had no commercial operations to date.
THE COMPANY
Commodore Separation Technologies, Inc. (the "Company") has developed and
intends to commercialize its membrane separation and recovery system called
CST. Based on the results of more than 100 laboratory and other tests to
date, the Company believes that CST can separate and recover chrome,
chromium, cadmium, silver, mercury, platinum, lead, zinc, nickel,
trichlorethylene, polychlorinated biphenyls, methylene chloride, amino acids,
antibiotics, radionuclides, and other organic and inorganic targeted
substances from liquid or gaseous feedstreams. CST 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 CST'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 as non-toxic
effluent. In some instances, additional treatment may be required prior to
disposal.
CST is distinguishable from other existing forms of membrane filtration
technology in that it:
o requires low initial capital costs and low operating costs;
o has the capability of treating a wide variety of elements and compounds
in a wide variety of industrial settings at great speed and with a high
degree of effectiveness, regardless of contaminant concentrations,
volume requirements and other variables;
o is environmentally safe, in most instances producing no sludges or
other harmful by-products which would require additional post-treatment
prior to disposal;
o can selectively extract target substances, while extracting
substantially fewer unwanted substances;
o can typically operate on-site and in less than 40 square feet of space
for the entire system;
o can extract metals, organic chemicals and other elements and compounds
in degrees of concentration and purity which permit their reuse; and
o has the capability, in a single process application, of selectively
extracting multiple elements or compounds from a mixed process stream.
3
<PAGE>
In August 1996, the Company completed an on-site demonstration of CST for
the decontamination of chromium-contaminated groundwater at the Port of
Baltimore, Maryland. During this demonstration, a CST unit, in a single
feedstream pass-through, reduced the contamination level of chromium from
more than 400 parts per million (ppm) to less than one ppm. The results of
this test were verified by Artesian Laboratories, Inc., an independent
testing laboratory. Based on management studies and discussions with metals
industry executives, the Company believes that CST represents a significant
technological advancement in the area of environmental remediation as the
only technology capable of on-site chromium removal and recovery that enables
effluent discharge without additional treatment.
In September 1996, the Company installed a commercial scale CST unit at a
Columbus, Ohio metal plating company. DLZ Laboratories, Inc., an independent
testing laboratory, verified that the CST unit processed the initial batch of
process effluent stream and reduced nickel and zinc contamination from 900
ppm to 2 ppm in one hour. The Company has continued to operate this CST unit
to process nickel and zinc effluent streams containing concentrations of 200
to 400 ppm, and the unit has consistently reduced the contaminant levels to 1
to 5 ppm. The decontaminated process effluent stream is being recycled into
the plating line rinse tanks, saving the plating company its normal
consumption of make-up water at a rate of five gallons per minute. The
recovered nickel and zinc solution is currently being analyzed by the plating
company for reuse in its plating operations.
In January 1997, the Company entered into a license agreement with
Lockheed Martin Energy Research Corporation ("Lockheed Martin"), manager of
the Oak Ridge National Laboratory, a U.S. Department of Energy national
laboratory ("Oak Ridge"). Under the terms of the 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. 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 U.S. 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 will market 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. Although the Company has entered into memorandums of
understanding for proposed working arrangements with Teledyne Brown
Engineering, Inc., a subsidiary of Allegheny Teledyne Inc. ("Teledyne
Brown"), and Sverdrup Environmental, Inc. ("Sverdrup"), and is bidding on
certain projects, there can be no assurance that any of these activities will
result in definitive collaborative agreements or project awards. Even if
project contracts are awarded to the Company, CST has never been utilized on
a large-scale basis, and there is no assurance that this technology will
perform successfully on a large-scale commercial basis, or that it will be
profitable to the Company. There can also be no assurance that this
technology will not be superseded by other competing technologies.
The Company was incorporated in the State of Delaware in November 1995,
and is a wholly-owned subsidiary of Commodore Applied Technologies, Inc.
("Applied"), which, in turn, is a 69.3%-owned sub-
4
<PAGE>
sidiary of Commodore Environmental Services, Inc. ("Commodore"). To date,
Commodore and Applied have financed the Company's development through direct
equity investments and loans. The principal executive offices of the Company
are located at 150 East 58th Street, Suite 3400, New York, New York 10155,
and its telephone number is (212) 308-5800.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered ................... 1,500,000 Preferred Units, each unit consisting of one share of Convertible
Preferred Stock and one Warrant, and 1,500,000 Common Units, each unit consisting
of one share of Common Stock and one Warrant.
Offering Prices:
Preferred Units .................... $10.10 per unit.
Convertible Preferred Stock ....... $10.00 per share.
Warrants .......................... $.10 per Warrant.
Common Units ....................... $6.10 per unit.
Common Stock ...................... $6.00 per share.
Warrants .......................... $.10 per Warrant.
Securities outstanding prior to the
Offering ........................... 10,000,000 shares of Common Stock, no shares of Convertible Preferred Stock,
and no Warrants.
Securities to be outstanding after the
Offering:
Prior to conversion of the
Convertible Preferred Stock and 11,500,000 shares of Common Stock, 1,500,000 shares of Convertible Preferred
exercise of Warrants ............ Stock, and 3,000,000 Warrants.
Giving effect to full conversion of
the Convertible Preferred Stock
and full exercise of Warrants ... 16,500,000 shares of Common Stock.
Terms of Convertible
Preferred Stock:
Dividend Rate and Payment Dates .... 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 March 31, 1997, when, as 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. See "Dividend Policy" and "Description of Securities -- Convertible
Preferred Stock."
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Conversion Rights .................. Convertible into Common Stock at any time prior to redemption at a conversion
rate of 1.33 shares of Common Stock for each share of Convertible Preferred
Stock (an effective conversion price of $7.50 per share or 125% of the initial
public offering price per share of Common Stock), subject to adjustment under
certain circumstances including in the event of 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.
See "Description of Securities -- Convertible Preferred Stock."
Optional Cash Redemption .......... Redeemable, in whole but not in part, by the Company upon 30 days' prior
written notice after February , 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 $11.25
per share [150% of the per share conversion price] or, after February ,
2001, at the cash redemption prices set forth herein, plus accumulated and
unpaid dividends. See "Description of Securities -- Convertible Preferred
Stock."
Voting Rights ..................... 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. See "Description
of Securities -- Convertible Preferred Stock."
Liquidation Preference ............ 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. See "Description of Securities
-- Convertible Preferred Stock."
Priority .......................... The Convertible Preferred Stock will be senior to and have priority over
the Common Stock with respect to the payment of dividends and upon liquidation,
dissolution or winding-up of the Company.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Terms of Warrants .................. Each Warrant entitles the holder thereof to purchase, at any time commencing
one year after the date of this Prospectus until five years after the date
of this Prospectus, one share of Common Stock at a price of $8.40 per share,
subject to adjustment. Commencing 18 months after the date of this Prospectus,
the Warrants are subject to redemption by the Company, in whole but not in
part, at $.10 per Warrant on 30 days' prior written notice provided that
the average closing sale price of the Common Stock equals or exceeds $18.00
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. See "Description of Securities -- Warrants."
Use of Proceeds .................... The Company intends to apply the net proceeds of this Offering to conduct
ongoing development of its technology; acquire manufacturing equipment;
establish its Atlanta facility; finance potential acquisitions; fund proposed
collaborative arrangements; purchase CST components; and for working capital
and general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq Symbols:(1)
Common Stock ................... "CXOT"
Convertible Preferred Stock ...... "CXOTP"
Warrants ......................... "CXOTW"
Risk Factors ....................... An investment in the Securities offered hereby involves a high degree of
risk and immediate and substantial dilution, and should be made only by investors
who can afford the loss of their entire investment. See "Risk Factors" and
"Dilution."
</TABLE>
- ------
(1) There can be no assurance that the Securities will be accepted for
quotation on Nasdaq.
7
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data included in the following table as of June 30,
1996 and for the period from November 15, 1995 (date of inception) to June
30, 1996 are derived from the audited Financial Statements appearing
elsewhere herein. The summary financial data as of September 30, 1996, for
the three months then ended and for the period from November 15, 1995 (date
of inception) to September 30, 1996 are unaudited and, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such data. Financial data
for the periods through September 30, 1996 are not necessarily indicative of
the results of operations to be expected for the Company's fiscal year ending
December 31, 1996. The summary financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and notes thereto appearing
elsewhere herein.
<TABLE>
<CAPTION>
November 15, 1995
(date of Three Months November 15, 1995
inception) Ended (date of inception)
Statement of Operations Data(1) to June 30, 1996 September 30, 1996 to September 30, 1996
----------------- ------------------ ---------------------
<S> <C> <C> <C>
Revenue ..................................... $ 0 $ 7,758 $ 7,758
----------------- ------------------ ---------------------
Costs and expenses:
Research and development ............... 50,080 165,280 215,360
General and administrative ............. 9,720 128,307 138,027
Amortization ........................... 101 266 367
----------------- ------------------ ---------------------
Loss before interest and taxes .............. (59,901) (286,095) (345,996)
Interest expense ............................ 1,035 4,600 5,635
----------------- ------------------ ---------------------
Net loss .................................... (60,936) (290,695) (351,631)
================= ================== =====================
Net loss per share(2) ....................... (.01) (.03) (.04)
Ratio of earnings to preferred stock
dividends ................................. --(3) --(3) --(3)
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1996
--------------- -------------------------------------------
Pro Forma,
Pro as
Balance Sheet Data: Actual Forma(4) Adjusted(5)
------------ ----------- -------------
<S> <C> <C> <C> <C>
Working capital (deficit) ..... $(81,630) $(524,765) $ 451,235 $21,544,735
Total assets .................. 23,327 329,193 897,193 21,990,693
Total current liabilities ..... 84,163 665,824 257,824 257,824
Deficit accumulated during
development stage ............ (60,936) (351,631) (351,631) (351,631)
Stockholders' equity (deficit) (60,836) (336,631) 639,369 21,732,869
</TABLE>
<PAGE>
- ------
(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 shares of
Common Stock being outstanding for the period presented. See Note 1 of
Notes to Financial Statements.
(3) The Company's operating results are not sufficient to cover the
Convertible Preferred Stock cash dividends. See "Risk Factors --
Inadequate Dividend Coverage" and "Dividend Policy."
(4) Gives effect on a pro forma basis to the contribution by Commodore and
Applied to the equity of the Company prior to the completion of this
Offering (the "Capital Contribution") of a total of $976,000,
representing $15,000 in cash and the conversion of short-term debt of
$408,000 outstanding at September 30, 1996, and an additional $568,000 of
the Capital Contribution made by Commodore and Applied to the Company
subsequent to September 30, 1996. See "Capitalization."
(5) Gives effect on a pro forma, as adjusted basis to (i) the Capital
Contribution of $976,000 and (ii) the sale by the Company of the Units
offered hereby at an assumed initial public offering price of $10.10 per
Preferred Unit, consisting of one share of Convertible Preferred Stock at
$10.00 per share and one Warrant at $.10 per Warrant, and $6.10 per
Common Unit, consisting of one share of Common Stock at $6.00 per share
and one Warrant at $.10 per Warrant, and the initial application of the
estimated net proceeds therefrom. See "Use of Proceeds" and "Certain
Relationships and Related Transactions."
8
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk and should be made only by investors who can afford the loss of their
entire investment. Prospective investors should carefully review and consider
the risk factors described below and the other information in this Prospectus
before purchasing the Securities.
NO OPERATING HISTORY; ACCUMULATED AND WORKING CAPITAL DEFICITS; INITIAL
COMMERCIALIZATION STAGE; GOING CONCERN DISCLOSURE IN INDEPENDENT AUDITORS'
REPORT
The Company was organized in November 1995 and has had no commercial
operations to date. Since its inception, the Company has been engaged
principally in organizational activities, including developing a strategic
operating plan, entering into contracts, hiring personnel, developing test
modules and installing and operating modules on a limited basis for
demonstration or test purposes. The Company is considered a development stage
company for accounting purposes because it has not generated any material
revenues to date. Accordingly, the Company has no relevant operating history
upon which an evaluation of its performance and prospects can be made. The
Company is subject to all of the business risks associated with a new
enterprise, including, but not limited to, risks of unforeseen capital
requirements, failure of market acceptance, failure to establish business
relationships, and competitive disadvantages as against larger and more
established companies. The report of the independent auditors with respect to
the Company's financial statements included in this Prospectus includes a
"going concern" qualification, indicating that the Company's significant
operating losses and deficits in working capital and stockholders' equity
raise substantial doubt about its ability to continue as a going concern.
The Company has generated nominal revenues to date, and will not generate
any material revenues until after the Company successfully completes the
installation of modules in a significant number of industrial companies, of
which no assurance can be given. As of September 30, 1996 and June 30, 1996,
the Company had working capital deficits of $(524,765) and $(81,630),
respectively, and stockholders' deficits of $(336,631) and $(60,836),
respectively. During the period from November 15, 1995 (date of inception) to
September 30, 1996, the Company has incurred operating losses of $(351,631),
and anticipates that it may continue to incur significant operating losses
for the foreseeable future. There can be no assurance as to whether or when
the Company will generate material revenues or achieve profitable operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business" and Financial Statements.
INADEQUATE DIVIDEND COVERAGE
The annual dividend requirement on the Convertible Preferred Stock is
$1,500,000 ($1,725,000 if the Over-allotment Option is exercised in full).
The future earnings of the Company, if any, will not initially be adequate to
pay the dividends on the Convertible Preferred Stock, and, although the
Company will pay quarterly dividends out of available capital surplus, there
can be no assurance that the Company will maintain sufficient capital surplus
or that future earnings, if any, will be adequate to pay the dividends on the
Convertible Preferred Stock. Under the Delaware General Corporation Law,
dividends may be paid only out of legally available funds. Failure to pay any
quarterly dividend will result in a reduction in the conversion price and
failure to pay a total of four consecutive quarterly dividends will entitle
the holders of the Convertible Preferred Stock, voting separately as a class,
to elect one director. In addition, no dividends or distributions may be
declared, paid or made if the Company is or would be rendered insolvent by
virtue of such dividend or distribution. See "Dividend Policy" and
"Description of Securities -- Convertible Preferred Stock."
UNPROVEN ON LARGE-SCALE COMMERCIAL BASIS
CST has never been utilized on a large-scale commercial basis. All of the
tests conducted to date by the Company with respect to CST have been
performed on limited quantities of process streams, and there can be no
assurance that the same or similar results could be obtained on a large-scale
commercial basis or on any specific project. The Company has never utilized
CST under the conditions and in the volumes that will be required to be
profitable and cannot predict all of the difficulties that may arise. In
addition, most of the results of more than 100 laboratory and other tests
conducted by the Company have not been verified by an independent testing
laboratory. Thus, it is possible that the Company's CST unit may require
further research, development,
9
<PAGE>
design and testing, as well as regulatory clearances, prior to larger-scale
commercialization. Additionally, the Company's ability to operate its
business successfully will depend on a variety of factors, many of which are
outside the Company's control, including competition, cost and availability
of strategic components, changes in governmental initiatives and
requirements, changes in regulatory requirements, and the costs associated
with equipment repair and maintenance. See "Business."
DEPENDENCE ON STRATEGIC COMPONENTS
The Company currently has a limited number of sources of supply for some
CST components, such as fibers and membrane casings. Business disruptions or
financial difficulties of suppliers, or raw material shortages or other
causes beyond the Company's control, could adversely affect the Company by
increasing the cost of goods sold or reducing the availability of such
components. In its development to date, the Company has been able to obtain
adequate supplies of these strategic components. However, as it commences
commercial activities, the Company expects to experience a rapid and
substantial increase in its requirements for these components. If the Company
were unable to obtain a sufficient supply of required components, the Company
could experience significant delays in the manufacture of CST equipment,
which could result in the loss of orders and customers, and could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company plans to use a portion of the net
proceeds of this Offering to build its own manufacturing plant for these
strategic components, there can be no assurance as to whether or when such
plant will be completed, that it will be able to manufacture components more
inexpensively than the cost of current sources of supply or that, prior to
the completion of such plant, the Company will not require alternative
sources of such components or experience delays in obtaining adequate CST
components. The occurrence of any of such events would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if the cost of raw materials or finished components
were to increase, there can be no assurance that the Company would be able to
pass such increases to its customers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Dependence on
Suppliers" and "Business -- Proposed Manufacturing Operations."
UNCERTAINTY OF MARKET ACCEPTANCE
Many prospective users of CST have committed substantial resources to
other forms of process stream treatments or technologies. The Company's
growth and future financial performance will depend on its ability to
demonstrate to prospective users the technical and economic advantages of CST
over these alternatives. There can be no assurance that the Company will be
successful in this effort. Furthermore, it is possible that competing
alternatives may be perceived to have, or may actually have, certain
advantages over CST for certain industries or applications. See "Business."
RISK OF INTERNATIONAL OPERATIONS
The Company intends to market CST in international markets, including both
industrialized and developing countries. International operations entail
various risks, including political instability, economic instability and
recessions, exposure to currency fluctuations, difficulties of administering
foreign operations generally, and obligations to comply with a wide variety
of foreign import and United States export laws, tariffs and other regulatory
requirements. The Company's competitiveness in overseas markets may be
negatively impacted when there is a significant increase in the value of the
dollar against the currencies of the other countries in which the Company
does business. In addition, the laws of certain foreign countries may not
protect the Company's proprietary rights to the same extent as the laws of
the United States. See "Business -- Environmental Matters," "-- Intellectual
Property" and "-- Competition."
ACQUISITION-RELATED RISKS
As part of its growth strategy, the Company will seek to acquire or invest
in complementary (including competitive) businesses, products or
technologies. See "Use of Proceeds." The process of integrating such acquired
assets into the Company's operations may result in unforeseen operating
difficulties and expenditures and may absorb significant management attention
that would otherwise be available for the ongoing develop-
10
<PAGE>
ment of the Company's business. There can be no assurance that the
anticipated benefits of any acquisitions will be realized. In addition,
future acquisitions by the Company could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other
intangible assets, any of which could materially adversely affect the
Company's operating results and financial position. Acquisitions also involve
other risks, including entering markets in which the Company has no or
limited prior experience and the potential loss of key employees. The Company
currently has no commitments or agreements with respect to any possible
acquisitions or investments.
UNPREDICTABILITY OF PATENT PROTECTION AND PROPRIETARY TECHNOLOGY
The Company currently has one United States utility patent application
pending and two United States provisional patent applications pending and may
in the future file foreign patent applications. The Company's success
depends, in part, on its ability to obtain patents, maintain trade secrecy,
and operate without infringing on the proprietary rights of third parties.
There can be no assurance that the patents of others will not have an adverse
effect on the Company's ability to conduct its business, that any of the
Company's pending patent applications will be approved, that the Company will
develop additional proprietary technology which is patentable or that any
patents issued to the Company will provide the Company with competitive
advantages or will not be challenged by third parties. Furthermore, there can
be no assurance that others will not independently develop similar or
superior technologies, duplicate elements of CST, or design around CST.
The Company's liquid membrane technology patent applications are based on
the selective combination of different known solvents, supports, diluents,
carriers and other components to separate a variety of metals, chemicals and
other targeted substances. While the Company believes that its technology
covers all separation applications, third parties may have developed, or may
subsequently assert claims to, certain of these solvents, supports, diluents,
carriers or other components for one or more specific applications. In such
event, the Company may need to acquire licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. There can
be no assurance that any license acquired under such patents would be made
available to the Company on acceptable terms, if at all, or that the Company
would prevail in any such contest. In addition, the Company could incur
substantial costs in defending itself in suits brought against the Company
for alleged infringement of another party's patents or in defending the
validity or enforceability of the Company's patents, or in bringing patent
infringement suits against other parties based on the Company's patents.
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which it seeks to protect, in
part, by confidentiality agreements with its prospective working partners and
collaborators, employees and consultants. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets and proprietary
know-how will not otherwise become known or be independently discovered by
others. See "Business -- Intellectual Property."
ROYALTY OBLIGATIONS
Pursuant to an assignment of technology agreement between the Company and
Srinivas Kilambi, Ph.D., the Company's Vice President-Technology, the Company
agreed to pay Dr. Kilambi a royalty through December 3, 2002 equal to 2% of
the Company's revenues actually received and attributed to the commercial
application of the technology acquired from Dr. Kilambi, 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). Pursuant to the Company's license agreement with Lockheed Martin, the
Company made an initial cash payment of $50,000 upon the execution of the
agreement and is obligated to pay, commencing in the third year of the
agreement, 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, commencing in the third
year of the agreement, an annual minimum royalty of $15,000. See "Business --
Commercialization and Marketing Strategy -- Radionuclide/Mixed Waste
Separation." Payments of such royalties to Dr. Kilambi and Lockheed Martin
are based on Company revenues and are not related to or contingent upon the
Company attaining profitability or positive cash flow. As a result, such
payments will adversely
11
<PAGE>
affect operating results and divert cash resources from use in the Company's
business, and possibly at times when the Company's liquidity and access to
funding may be limited. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Business -- Intellectual Property" and "Certain Relationships
and Related Transactions -- Organization and Capitalization of the Company."
RISK OF ENVIRONMENTAL LIABILITY
The Company's operations, as well as the use of the specialized technical
equipment by its customers, are subject to numerous federal, state and local
regulations relating to the storage, handling and transportation of certain
regulated materials. Although the Company's role is generally limited to the
leasing of its specialized technical equipment for use by its customers,
there is always the risk of the mishandling of such materials or
technological or equipment failures, which could result in significant claims
against the Company. Any such claims against the Company could materially
adversely affect the Company's business, financial condition and results of
operations.
As CST is commercialized, the Company may be required to obtain
environmental liability insurance in the future in amounts greater than it
currently maintains. There can be no assurance that such insurance will
provide coverage against all claims, and claims may be made against the
Company (even if covered by the Company's insurance policy) for amounts
substantially in excess of applicable policy limits. Any such event could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Environmental Matters."
POTENTIAL NEED FOR ADDITIONAL FINANCING
Prior to this Offering, financing for all of the Company's activities had
been provided in the form of direct equity investments and loans by Commodore
and Applied. Although the Company anticipates that the net proceeds of this
Offering will be sufficient to sustain its operations for approximately 24
months following the date of this Prospectus, the Company's future capital
requirements could vary significantly and will depend on certain factors,
many of which are not within the Company's control. These include the ongoing
development and testing of CST as a remediation and industrial waste
management technology; the nature and timing of remediation and clean-up
projects and permits required; and the availability of financing.
In the environmental remediation market, the Company may not be able to
enter into favorable business collaborations and might thus be required to
bid upon projects for its own account. If such bids were successful, the
Company would be required to make significant expenditures on personnel and
capital equipment which would require significant financing in amounts
substantially in excess of the net proceeds of this Offering. In addition,
the Company's lack of operational experience and limited capital resources
could make it difficult, if not highly unlikely, to successfully bid on major
reclamation or clean-up projects. In such event, the Company's business
development could be limited to remediation of smaller commercial and
industrial sites with significantly lower potential for profit.
The expansion of the Company's business will require the commitment of
significant capital resources toward the hiring of technical and operational
support personnel, the development of a manufacturing and testing facility
for CST equipment, and the building of equipment to be used both for on-site
test demonstrations and the remediation of contaminated elements. In the
event the Company is presented with one or more significant reclamation or
clean-up projects, individually or in conjunction with collaborative working
partners, it may require additional capital to take advantage of such
opportunities. There can be no assurance that such financing will be
available or, if available, that it will be on favorable terms. If adequate
financing is not available, the Company may be required to delay, scale back
or eliminate certain of its development programs, to relinquish rights to
certain of its technologies, or to license third parties to commercialize
technologies that the Company would otherwise seek to develop itself. To the
extent the Company raises additional capital by issuing equity securities,
investors in this Offering will be diluted. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
COMPETITION AND TECHNOLOGICAL ALTERNATIVES
The Company anticipates that CST's primary market will be for industrial
by-products treatment and disposal. The Company has had limited experience in
marketing CST and has not previously had any employees
12
<PAGE>
or personnel whose primary responsibilities for the Company consisted of
sales or marketing functions. Other participants in both the private and
public sectors include several large domestic and international companies and
numerous small companies, many of whom have substantially greater financial
and other resources and more manufacturing, marketing and sales experience
than the Company. In addition, as membrane separation technology evolves,
there exists the possibility that CST may be rendered obsolete by one or more
competing technologies. Any one or more of the Company's competitors, or one
or more other enterprises not presently known to the Company, may develop
technologies which are superior to CST or other technologies utilized by the
Company. To the extent that the Company's competitors are able to offer more
cost-effective separation technology alternatives, the Company's ability to
compete could be materially and adversely affected. See "Business."
NO ASSURANCE OF COLLABORATIVE AGREEMENTS OR PROJECT AWARDS
In addition to its direct marketing efforts, the Company proposes to
pursue opportunities in the environmental remediation market through
collaborative joint working arrangements with companies that have a
significant presence in well-established industries or markets, and that can
introduce CST as an enabling technology to industry participants. However,
neither the Company nor any of its prospective collaborative joint working
partners have been awarded any project contracts. There can be no assurance
that the Company will enter into any definitive joint project arrangements
with its prospective working partners or others, or that any such definitive
arrangements will be on terms and conditions that will enable the Company to
generate profits. Furthermore, even if the Company is successful in obtaining
one or more project awards, such projects may be curtailed or eliminated, or
other problems may arise, which could materially adversely affect the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY MANAGEMENT AND OTHER PERSONNEL
The Company is dependent on the efforts of its senior management and
scientific staff, including Edwin L. Harper, Ph.D., Chairman of the Board,
President and Chief Executive Officer, Paul E. Hannesson, Vice Chairman of
the Board, Carl O. Magnell, Executive Vice President, James M. DeAngelis,
Senior Vice President, Srinivas Kilambi, Ph.D., Vice President -- Technology,
Michael D. Kiehnau, Vice President -- Operations and Andrew P. Oddi, Vice
President -- Finance. Messrs. Magnell, DeAngelis, Kilambi and Kiehnau have
employment agreements with the Company. Dr. Harper has an employment
agreement with Commodore which requires him to serve from time to time in
senior executive positions with one or more of Commodore's subsidiaries,
including the Company. The proceeds of key man life insurance policies on the
lives of certain of such individuals may not be adequate to compensate the
Company for the loss of any of such individuals. The loss of the services of
any one or more of such persons may have a material adverse effect on the
Company. See "Executive Compensation -- Employment Agreements."
The Company's future success will depend in large part upon its ability to
attract and retain skilled scientific, management, operational and marketing
personnel. Prior to this Offering, the Company has not had any employees or
personnel whose responsibilities for the Company were focused primarily on
sales or marketing. The Company faces competition for hiring such personnel
from other companies, government entities and other organizations. There can
be no assurance that the Company will continue to be successful in attracting
and retaining such personnel. See "Use of Proceeds," "Management" and
"Executive Compensation."
POTENTIAL CONFLICTS OF INTEREST
Edwin L. Harper, Ph.D., the Company's Chairman of the Board, President and
Chief Executive Officer, also serves as the President and Chief Operating
Officer of both Commodore and Applied and devotes a portion of his business
and professional time and efforts to the respective businesses of Commodore
and Applied. In addition, Paul E. Hannesson, Bentley J. Blum, Kenneth L.
Adelman, Ph.D. and David L. Mitchell (the "Commodore Directors"), all of whom
are directors of the Company, also serve as directors of Commodore and/or
Applied. While the Company believes that its business and technologies are
distinguishable from those of Commodore and Applied, and that it does not
compete in the markets in which Commodore and Applied compete, Dr. Harper and
the Commodore Directors may have potential conflicts of interest with respect
to, among other things, potential corporate opportunities, business
combinations, joint ventures and/or other business opportunities that
13
<PAGE>
may become available to them, the Company, Commodore and/or Applied.
Moreover, while Dr. Harper has agreed to devote a majority of his business
and professional time and efforts to the Company, potential conflicts of
interest also include the amount of time and effort devoted by him to the
affairs of Commodore and Applied. The Company may be materially adversely
affected if Dr. Harper and/or the Commodore Directors choose to place the
interests of Commodore and/or Applied before those of the Company. Each of
Dr. Harper and the Commodore Directors has agreed that, to the extent such
opportunities arise, he will carefully consider a number of factors,
including whether such opportunities were presented to him in his capacity as
an officer or director of the Company, whether such opportunities are within
the Company's line of business or consistent with its strategic objectives
and whether the Company will be able to undertake or benefit from such
opportunities. In addition, the Company's Board of Directors has adopted a
policy whereby any future transactions between the Company and any of its
subsidiaries, affiliates, officers, directors, principal stockholders or any
affiliates of the foregoing will be on terms no less favorable to the Company
than could reasonably be obtained in "arm's length" transactions with
independent third parties, and any such transactions will also be approved by
a majority of the Company's disinterested outside directors. Dr. Harper and
the Commodore Directors also owe fiduciary duties of care and loyalty to the
Company under Delaware law. However, the failure of the Company's management
to resolve any conflicts of interest in favor of the Company could materially
adversely affect the Company's business, financial condition and results of
operations.
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, the Resource
Conservation and Recovery Act, as amended ("RCRA"), and the Occupational
Safety and Health Act of 1970 ("OSHA"), which may require the Company, its
prospective working partners or its customers to obtain permits or approvals
to utilize CST and related equipment on certain job sites. In addition, if
the Company begins to market CST 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 CST and its by-products do not pose environmental risks. There
is no assurance that such studies, if successful, will not be more costly or
time-consuming than anticipated. Further, if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended,
or are interpreted or enforced differently, the Company, its prospective
working partners and/or its customers may be required to meet stricter
standards of operation and/or obtain additional operating permits or
approvals. There can be no assurance that the Company will meet all of the
applicable regulatory requirements. Failure to obtain such permits, or
otherwise to comply with such regulatory requirements, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Government Regulation."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
Approximately 48.1% of the net proceeds of this Offering has been
allocated for working capital and general corporate purposes. The Company may
use a portion of the net proceeds of this Offering allocated for working
capital and general corporate purposes for loans to Commodore and such
proceeds may not be available for other corporate purposes. In addition,
approximately 5.9% and 4.7% of the net proceeds of this Offering,
respectively, has been allocated for potential acquisitions and proposed
collaborative arrangements for which the Company has no binding agreements as
of the date of this Prospectus. Accordingly, the Company will have broad
discretion as to the application of a significant portion of the net proceeds
of this Offering. See "Use of Proceeds."
DILUTION
Purchasers of shares of Common Stock in this Offering will experience an
immediate and substantial dilution of $4.11 per share (based on an assumed
initial public offering price of $6.00 per share of Common Stock in this
Offering), or approximately 68.5%, in the net tangible book value of the
shares of Common Stock purchased by them in this Offering. Additional
dilution to future net tangible book value per share may occur upon
14
<PAGE>
exercise of outstanding stock options and warrants (including the Warrants
and the Representative's Warrants) and may occur, in addition, if the Company
issues additional equity securities in the future, including issuances of
Common Stock pursuant to the conversion of the Convertible Preferred Stock.
Applied acquired its shares of Common Stock for cash consideration which was
substantially less than the initial public offering price of the shares of
Common Stock offered hereby. As a result, new investors will bear
substantially all of the risks inherent in an investment in the Company. See
"Dilution" and "Certain Relationships and Related Transactions."
CONTROL BY PRINCIPAL STOCKHOLDER; LOAN TO COMMODORE
Applied is currently the sole stockholder of the Company and, after
completion of this Offering, will own approximately 87.0% of the outstanding
Common Stock of the Company (approximately 60.6% assuming conversion of all
Convertible Preferred Stock and exercise of all Warrants). Applied is a
public company whose shares are traded on the American Stock Exchange.
Commodore, which owns 69.3% of the common stock of Applied, is also a public
company whose shares are quoted on the OTC Bulletin Board. Accordingly,
events or circumstances having an adverse effect on either or both of
Commodore or Applied, including fluctuations in their respective market
prices, could have a material adverse effect on the market prices of the
Securities.
Bentley J. Blum, a director of the Company, beneficially owned, directly
and through entities controlled by him, approximately 51.8% of the
outstanding common stock of Commodore as of December 31, 1996. Paul E.
Hannesson, the Company's Vice Chairman of the Board, beneficially owned
approximately 11.6% of the outstanding Commodore common stock as of such
date. Accordingly, through his indirect beneficial ownership of a controlling
stock interest in Applied, Mr. Blum will be able to control the voting of
Applied's shares at all meetings of stockholders of the Company and, because
the Common Stock does not have cumulative voting rights, will be able to
determine the outcome of the election of all of the Company's directors and
determine corporate and stockholder action on other matters. Messrs. Blum and
Hannesson are also directors of both Commodore and Applied. See "-- Potential
Conflicts of Interest," "Management," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
On or immediately prior to the consummation of this Offering, the Company
intends to enter into a revolving credit agreement with Commodore pursuant to
which the Company may lend from time to time, prior to the second anniversary
of this Offering, up to $5,000,000 to Commodore for its working capital
needs. To the extent of such borrowings, cash resources will be diverted from
use in the Company's business, and possibly at times when the Company's
liquidity and access to funding may be limited. There can be no assurance
that Commodore will promptly repay any outstanding amounts under the
revolving credit agreement or not otherwise default under such agreement. In
the event of any such default, the collateral held by the Company under the
agreement may not be sufficient to adequately compensate the Company for any
loans made thereunder. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Certain Relationships and Related Transactions --
Loan Agreement with Commodore."
RISK OF PRODUCT LIABILITY
The Company proposes initially to license CST equipment and, upon
completion of its proposed Atlanta facility, to manufacture all or a
substantial portion of that equipment. The equipment will be utilized in a
variety of industrial and other settings, and will be used to handle
materials resulting from pressurized and chemical processes. Accordingly, the
equipment will be subject to risks of breakdowns and malfunctions, and there
exists the possibility of claims for personal injury and business losses
arising out of such breakdowns and malfunctions. There can be no assurance
that the Company's product liability insurance will provide coverage against
all claims, and claims may be made against the Company (even if covered by
the Company's insurance policy) for amounts substantially in excess of
applicable policy limits. Any such event could have a material adverse effect
on the Company's business, financial condition and results of operations.
NO DIVIDENDS ON COMMON STOCK
The Company has never paid any dividends on its Common Stock, and has no
plans to pay dividends on its Common Stock in the foreseeable future.
Furthermore, pursuant to the terms governing the Convertible Pre-
15
<PAGE>
ferred Stock, the Company's Board of Directors may not declare dividends
payable to holders of Common Stock unless and until all accrued cash
dividends through the most recent past annual dividend payment date have been
paid in full to holders of the Convertible Preferred Stock. See "Dividend
Policy."
POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF SECURITIES FROM FUTURE SALES OF
COMMON STOCK
Future sales of Common Stock by Applied or other stockholders (including
option holders) under Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"), or through outstanding registration rights granted to the
holders of the Representative's Warrants, could have an adverse effect on the
market prices of the Securities. The Company and Applied, as well as all
holders of outstanding securities exercisable for or convertible into Common
Stock, have agreed not to, directly or indirectly, issue, agree or offer to
sell, sell, transfer, assign, distribute, grant an option for purchase or
sale of, pledge, hypothecate or otherwise encumber or dispose of any
beneficial interest in such securities for a period of 13 months following
the date of this Prospectus without the prior written consent of the
Representative. Sales of substantial amounts of Common Stock or the
perception that such sales could occur could adversely affect prevailing
market prices for the Convertible Preferred Stock, the Common Stock and/or
the Warrants. All of the shares of Convertible Preferred Stock, shares of
Common Stock and Warrants, and all shares of Common Stock issuable upon
conversion or exercise of such Securities, will have been registered under
the Securities Act and may be immediately converted into or exercised for up
to 6,250,000 additional shares of Common Stock, all of which are immediately
salable. Such sales may further adversely affect the market price of the
Common Stock. See "Shares Eligible For Future Sale."
NO ASSURANCE OF PUBLIC TRADING MARKET; ARBITRARY DETERMINATION OF PUBLIC
OFFERING PRICES
Prior to this Offering, there has been no public market for the
Convertible Preferred Stock, the Common Stock or the Warrants, and there can
be no assurance that an active trading market for any of the Securities will
develop or, if developed, be sustained after the Offering. The initial public
offering prices of the Securities offered hereby and the terms of the
Convertible Preferred Stock and Warrants have been arbitrarily determined by
negotiations between the Company and the Representative, and do not
necessarily bear any relationship to the Company's assets, book value,
results of operations or any other generally accepted criteria of value. See
"Underwriting."
POSSIBLE VOLATILITY OF MARKET PRICES
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performances of
specific companies. Announcements of new technologies and changing policies
and regulations of the federal government and state governments and other
external factors, as well as potential fluctuations in the Company's
financial results, may have a significant impact on the prices of the
Securities.
CERTAIN ANTI-TAKEOVER PROVISIONS AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
OF SECURITIES FROM ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation and By-Laws contain certain
provisions that could have the effect of delaying or preventing a change of
control of the Company, which could limit the ability of security holders to
dispose of their Convertible Preferred Stock, Common Stock and/or Warrants in
such transactions. The Certificate of Incorporation authorizes the Board of
Directors to issue one or more series of preferred stock without stockholder
approval. Such preferred stock could have voting and conversion rights that
adversely affect the voting power of the holders of Convertible Preferred
Stock and/or Common Stock, or could result in one or more classes of
outstanding securities that would have dividend, liquidation or other rights
superior to those of the Convertible Preferred Stock and/or Common Stock.
Issuance of such preferred stock may have an adverse effect on the then
prevailing market price of the Convertible Preferred Stock, Common Stock
and/or Warrants. Additionally, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an inter-
16
<PAGE>
ested stockholder, unless the business combination is approved in a
prescribed manner. Section 203 could have the effect of delaying or
preventing a change of control of the Company. See "Description of Securities
- -- Preferred Stock" and "-- Section 203 of the Delaware Law."
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation includes provisions to
eliminate, to the full extent permitted by the DGCL as in effect from time to
time, the personal liability of directors of the Company for monetary damages
arising from a breach of their fiduciary duties as directors. The Certificate
of Incorporation also includes provisions to the effect that (subject to
certain exceptions) the Company shall, to the maximum extent permitted from
time to time under the law of the State of Delaware, indemnify, and upon
request shall advance expenses to, any director or officer to the extent that
such indemnification and advancement of expenses is permitted under such law,
as it may from time to time be in effect. In addition, the Company's By-Laws
(the "By-Laws") require the Company to indemnify, to the full extent
permitted by law, any director, officer, employee or agent of the Company for
acts which such person reasonably believes are not in violation of the
Company's corporate purposes as set forth in the Certificate of
Incorporation. As a result of such provisions in the Certificate of
Incorporation and the By-Laws, stockholders may be unable to recover damages
against the directors and officers of the Company for actions taken by them
which constitute negligence, gross negligence or a violation of their
fiduciary duties, which may reduce the likelihood of stockholders instituting
derivative litigation against directors and officers and may discourage or
deter stockholders from suing directors, officers, employees and agents of
the Company for breaches of their duty of care, even though such action, if
successful, might otherwise benefit the Company and its stockholders. See
"Executive Compensation -- Limitation of Directors' and Officers' Liability
and Indemnification."
POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK SENIOR TO THE CONVERTIBLE
PREFERRED STOCK
In addition to the Convertible Preferred Stock, the Company will have
approximately 3,125,000 shares of Preferred Stock authorized after the
designation of Convertible Preferred Stock which may be issued with dividend,
liquidation, voting and redemption rights senior to the Convertible Preferred
Stock; provided, however, that any such issuance of senior preferred stock
must be approved by the holders of a majority of the outstanding shares of
Convertible Preferred Stock. See "Description of Securities -- Convertible
Preferred Stock."
SPECULATIVE NATURE OF THE WARRANTS; POSSIBLE REDEMPTION OF WARRANTS
The Warrants do not confer any rights of Common Stock ownership on their
holders, such as voting rights or the right to receive dividends, but merely
represent the right to acquire shares of Common Stock at a fixed price for a
limited period of time. Specifically, commencing one year after the date of
this Prospectus, holders of the Warrants may exercise their right to acquire
Common Stock and pay an exercise price of $8.40 per share [140% of the
initial public offering price per share of Common Stock], subject to
adjustment upon the occurrence of certain events, until five years after the
date of this Prospectus, after which date any unexercised Warrants will
expire and have no further value. Moreover, following the completion of this
Offering, the market value of the Warrants is uncertain and there can be no
assurance that the market value of the Warrants will equal or exceed their
initial public offering price. There can be no assurance that the market
price of the Common Stock will ever equal or exceed the exercise price of the
Warrants, and consequently, whether it will ever be profitable for holders of
the Warrants to exercise the Warrants.
Commencing 18 months after the date of this Prospectus, the Warrants are
subject to redemption at $.10 per Warrant on 30 days' prior written notice
provided that the average closing sale price of the Common Stock equals or
exceeds $18.00 per share [300% of the initial public offering price of the
Common Stock] for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice
of redemption. If the Warrants are redeemed, holders of the Warrants will
lose their right to exercise the Warrants after the expiration of the 30-day
notice period. Upon receipt of a notice of redemption, holders will be
required to: (i) exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for them to do so, (ii) sell the Warrants at
the then-prevailing market price, if any, when they might otherwise wish to
hold the Warrants, or (iii) accept the redemption price which is likely to be
substantially less than
17
<PAGE>
the market value of the Warrants at the time of redemption. In the event that
holders of the Warrants elect not to exercise their Warrants upon notice of
redemption, the unexercised Warrants will be redeemed prior to exercise, and
the holders thereof will lose the benefit of the appreciated market price of
the Warrants, if any, and/or the difference between the market price of the
underlying Common Stock as of such date and the exercise price of such
Warrants, as well as any possible future price appreciation in the Common
Stock. See "Description of Securities -- Warrants."
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF PREFERRED STOCK
Commencing February , 2000 and extending through February , 2001, the
Convertible Preferred Stock may be redeemed by the Company in whole but not
in part, provided certain market conditions are met or alternatively, after
February , 2001 may be redeemed by the Company in whole or in part at any
time at specified premiums in excess of the initial public offering price of
the Convertible Preferred Stock. The Company may choose to redeem the
Convertible Preferred Stock rather than incur the cost of keeping a
registration statement current with the Securities and Exchange Commission
(the "Commission") for the shares of Common Stock underlying the Convertible
Preferred Stock. Redemption or automatic conversion of the Convertible
Preferred Stock could force the holders to convert the Convertible Preferred
Stock at a time when it may be disadvantageous for the holders to do so, to
sell the Convertible Preferred Stock at the then current market price when
they might otherwise wish to hold the Convertible Preferred Stock for
possible additional appreciation and receipt of dividends, or to accept the
redemption price, which is likely to be substantially less than the market
value of the Convertible Preferred Stock at the time of redemption.
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities or "blue sky" laws of the state
of residence of the exercising holder of the Warrants. There can be no
assurance that the Company will be able to have all of the shares of Common
Stock issuable upon exercise of the Warrants registered or qualified on or
before the exercise date and will be able to maintain a current prospectus
relating thereto until the expiration of the Warrants. The value of the
Warrants may be greatly reduced if a current prospectus covering the Common
Stock issuable upon the exercise of the Warrants is not kept effective or if
such Common Stock is not qualified or exempt from qualification in the states
in which the holders of the Warrants reside. The Warrants will be separately
tradeable immediately after this Offering. In the event investors purchase
the Warrants in the secondary market or move to a jurisdiction in which the
shares underlying the Warrants are not registered or qualified during the
period that the Warrants are exercisable, the Company will be unable to issue
shares to those persons desiring to exercise their Warrants unless and until
the shares are qualified for sale in jurisdictions in which such purchasers
reside, or an exemption from such qualification exists in such jurisdictions,
and holders of the Warrants will have no choice but to attempt to sell the
Warrants in a jurisdiction where such sale is permissible or allow them to
expire unexercised. See "Description of Securities -- Warrants."
LIMITED UNDERWRITING HISTORY
The Representative has participated in only 12 public offerings as an
underwriter in the last five years. In evaluating an investment in the
Company, prospective investors in the Securities offered hereby should
consider the Representative's limited experience. See "Underwriting."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby (assuming an initial public offering price of $10.10 per Preferred
Unit, consisting of one share of Convertible Preferred Stock at $10.00 per
share and one Warrant at $.10 per Warrant, and $6.10 per Common Unit,
consisting of one share of Common Stock at $6.00 per share and one Warrant at
$.10 per Warrant), after deduction of underwriting discounts and other
estimated offering expenses, are estimated to be approximately $21,093,500
(approximately $24,337,550 if the Over-allotment Option is exercised in
full). The Company intends to utilize such net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Dollar Amount Net Proceeds
--------------- ---------------
<S> <C> <C>
Technology and development costs (1) ............. $ 3,000,000 14.2%
Acquisition of manufacturing equipment (2) ....... 2,500,000 11.9
Atlanta facility (3) ............................. 2,000,000 9.5
Potential acquisitions (4) ....................... 1,250,000 5.9
Funding of proposed collaborative arrangements (5) 1,000,000 4.7
CST module system construction (6) ............... 1,200,000 5.7
Working capital and general corporate purposes (7) 10,143,500 48.1
--------------- ---------------
Total ......................................... $21,093,500 100.0%
=============== ===============
</TABLE>
- ------
(1) Includes the hiring of additional personnel (including marketing
personnel) and the costs associated with conducting ongoing tests,
demonstrations and enhancements of CST. See "Business -- Research and
Development."
(2) Consists of costs anticipated to be incurred in connection with
purchasing the equipment necessary to manufacture the modules and produce
the proprietary chemicals used in CST. See "Business -- Proposed
Manufacturing Operations."
(3) Consists of costs anticipated to be incurred in connection with equipping
a new facility of approximately 20,000 square feet near Atlanta, Georgia,
which the Company has leased and anticipates occupying in January 1997
and which will comprise the Company's executive and administrative
offices, research and testing laboratories, and CST manufacturing plant.
See "Business -- Proposed Manufacturing Operations" and "-- Properties."
(4) Represents funds which the Company intends to utilize to finance the
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. See "Risk Factors -- Acquisition -- Related Risks."
(5) Expenditures in respect of collaborative arrangements will include
salaries and benefits of personnel, equipment design and procurement
costs, costs of leasing or otherwise obtaining additional operating
facilities, analytical and other testing costs, professional fees,
insurance and other administrative expenses. In each arrangement,
personnel expenses may be expected to account for at least 50% of the
costs of each collaborative arrangement, and equipment costs are likely
to constitute the next largest component of expenditures. As of the date
of this Prospectus, the Company has not determined the amount of net
proceeds of this Offering to be applied to any one particular proposed
collaborative arrangement because the Company is currently in
negotiations with a number of companies involving, among other issues,
the level of its proposed funding commitment. The estimated allocation of
the net proceeds for funding of proposed collaborative arrangements is on
an aggregate basis. In addition, in the event a definitive agreement is
not entered into by the Company and Teledyne Brown or Sverdrup,
respectively, on or before February 28, 1997, such memorandum of
understanding may be terminated by either company upon written notice.
See "Risk Factors -- No Assurance of Collaborative Agreements or Project
Awards" and "Business -- Collaborative Working Arrangements."
(6) Consists of costs anticipated to be incurred in connection with
purchasing CST components for use in connection with initial
demonstrations and/or installations of CST at customer sites.
19
<PAGE>
(7) Working capital and general corporate purposes include amounts required
to pay officers' salaries, professional fees, ongoing public reporting
costs, office-related expenses and other corporate expenses, including
interest and overhead. Also includes up to $5,000,000 which the Company
may lend from time to time to Commodore, pursuant to a proposed revolving
credit agreement with Commodore, to be used by Commodore for its working
capital needs. In the event that the Company does not consummate the
revolving credit agreement, such funds will be utilized by the Company
for working capital and general corporate purposes. See "Risk Factors --
Control by Principal Stockholder; Loan to Commodore," "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions -- Loan Agreement with Commodore." Any additional
net proceeds received from the exercise of the Over-allotment Option will
be used for working capital and general corporate purposes.
The Company believes that the net proceeds of this Offering will be
sufficient to meet its cash, operational and liquidity requirements for a
minimum of 24 months after the date of this Prospectus. While the initial
allocation of the net proceeds of this Offering represents the Company's best
estimates of their use, the amounts actually expended for these purposes may
vary significantly from the specific allocation of the net proceeds set forth
above, depending on numerous factors, including changes in the general
economic and/or regulatory climate, and the progress and market acceptance of
the Company's technology. See "Risk Factors -- Broad Discretion in
Application of Proceeds." However, there can be no assurance that the net
proceeds of the Offering will satisfy the Company's requirements for any
particular period of time. The Company anticipates that, after 24 months from
the receipt of the net proceeds of this Offering, additional funding may be
needed. No assurance can be given that such additional financing will be
available on terms acceptable to the Company, if at all. See "Risk Factors --
Potential Need for Additional Financing." Pending specific allocation of the
net proceeds of this Offering, the net proceeds will be invested in
short-term, investment grade, interest-bearing obligations.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (a) as of
September 30, 1996, (b) pro forma at September 30, 1996, giving effect to a
Capital Contribution of $976,000 (of which $408,000 represents the conversion
of short-term debt of sole stockholder to equity and an additional $568,000
represents stockholder advances made to the Company subsequent to September
30, 1996), and (c) pro forma at September 30, 1996, as adjusted giving effect
to the Capital Contribution of $976,000 and the sale by the Company of the
Securities offered hereby (at an assumed initial public offering price of
$10.10 per Preferred Unit, consisting of one share of Convertible Preferred
Stock at $10.00 per share and one Warrant at $.10 per Warrant, and $6.10 per
Common Unit, consisting of one share of Common Stock at $6.00 per share and
one Warrant at $.10 per Warrant) and the initial application of the estimated
net proceeds therefrom. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Securities." This table should be read
in conjunction with the Company's Financial Statements and the notes thereto
which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------
Pro Forma,
Actual Pro Forma as Adjusted
------------ ----------- -------------
<S> <C> <C> <C>
Short-term debt of sole stockholder ........ $ 408,000 $ 0 $ 0
============ =========== =============
Stockholders' equity:
Preferred Stock, $.001 per value;
authorized 5,000,000 shares; no
shares issued and outstanding;
1,500,000 shares issued and
outstanding pro forma, as adjusted .. $ -- $ -- $ 1,500
Common Stock, $.001 par value;
authorized 50,000,000 shares;
10,000,000 shares issued and
outstanding; 11,500,000 shares issued
and outstanding pro forma, as
adjusted ............................ 10,000 10,000 11,500
Additional paid-in capital ............ 5,000 981,000 22,071,500
Accumulated deficit ................... (351,631) (351,631) (351,631)
------------ ----------- -------------
Total stockholders' equity (deficit) ....... $(336,631) $ 639,369 $21,732,869
------------ ----------- -------------
Total capitalization ................... $(336,631) $ 639,369 $21,732,869
============ =========== =============
</TABLE>
21
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends, and does not intend
to pay any dividends in the foreseeable future on its shares of Common Stock.
Pursuant to the terms governing the Convertible Preferred Stock, the
Company's Board of Directors may not declare dividends payable to holders of
Common Stock unless and until all accrued cash dividends through the most
recent past annual payment date have been paid in full to holders of the
Convertible Preferred Stock. Earnings of the Company, if any, not paid as
dividends to holders of the Convertible Preferred Stock are expected to be
retained for use in expanding the Company's business. The payment of
dividends on the Common Stock is within the discretion of the Board of
Directors of the Company and will depend upon the Company's earnings, if any,
capital requirements, financial condition and such other factors as are
considered to be relevant by the Board of Directors from time to time. The
Company's future earnings, if any, will not initially be adequate for the
payment of dividends on the Convertible Preferred Stock, in which event such
dividends will be paid out of the Company's then capital surplus (the
Company's net assets minus the aggregate par or stated value of the
outstanding shares of the Company's capital stock), if any. On a pro forma
basis, after giving effect to this Offering, the Company's capital surplus as
of September 30, 1996 was $22,071,500. The payment of dividends and any
future operating losses will reduce such capital surplus, which may adversely
affect the Company's ability to continue to pay dividends on the Convertible
Preferred Stock. The failure to pay quarterly dividends will result in a
reduction of the conversion price on the Convertible Preferred Stock and may
give rise to voting rights to the holders of such Convertible Preferred
Stock. See "Risk Factors -- Inadequate Dividend Coverage" and "Description of
Securities -- Convertible Preferred Stock."
22
<PAGE>
DILUTION
At September 30, 1996, the Company's negative net tangible book value was
$(428,635), or $(.04) per share of Common Stock. The net tangible book value
of the Company is the tangible assets less total liabilities. After giving
effect to the Capital Contribution to the equity of the Company of a total of
$976,000 (of which $408,000 represents the conversion of short-term debt at
September 30, 1996 payable to Commodore by the Company to equity and $568,000
represents additional advances made to the Company subsequent to September
30, 1996) prior to the completion of this Offering, the sale by the Company
of the Securities offered hereby (assuming an initial public offering price
of $10.10 per Preferred Unit, consisting of one share of Convertible
Preferred Stock at $10.00 per share and one Warrant at $.10 per Warrant, and
$6.10 per Common Unit, consisting of one share of Common Stock at $6.00 per
share and one Warrant at $.10 per Warrant) and the initial application of the
estimated net proceeds therefrom, the pro forma net tangible book value of
the Company as of September 30, 1996 would have been approximately
$21,715,158, or $1.89 per share. This represents an increase in net tangible
book value per share of $1.93 to the Company's existing stockholders and an
immediate dilution of $4.11 per share (or 68.5%) to new stockholders
purchasing Common Stock and Convertible Preferred Stock in this Offering. The
following table illustrates this dilution on a per share basis:
<TABLE>
<CAPTION>
Assumed initial public offering price per share ......... $6.00
<S> <C> <C>
Negative net tangible book value per share before
the Offering ..................................... $(0.04)
Increase per share attributable to payments by new
stockholders ..................................... $ 1.93
---------
Pro forma net tangible book value per share after the
Offering .............................................. $1.89
-------
Dilution per share to new stockholders .................. $4.11
=======
</TABLE>
In the event the Over-allotment Option is exercised in full, the net
tangible book value at September 30, 1996 would have been approximately
$24,939,183 and the dilution of net tangible book value per share to new
stockholders would have been approximately $3.87.
The following table sets forth the number of shares of Common Stock
purchased from the Company by its existing stockholder, the number of shares
of Common Stock to be purchased by investors in this Offering at an assumed
initial public offering price of $6.00 per share and the total consideration
paid and to be paid to the Company, and the average price paid per share.
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration per Share
------------------------- ---------------------------- ---------------
Number Percent Amount Percent
------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
New investors ...... 1,500,000 13.0% $9,000,000 90.1% $ 6.00
Existing stockholder 10,000,000 87.0% 991,000(1) 9.9% $ .10
------------ --------- --------------- --------- ---------------
Total ........... 11,500,000 100.0% $9,991,000(2) 100.0%
============ ========= =============== =========
</TABLE>
- ------
(1) Includes a total Capital Contribution by Commodore of $976,000 of Company
notes, representing advances made by Commodore to the Company from its
inception through November 26, 1996, which notes were purchased by
Applied as of December 2, 1996. See "Certain Relationships and Related
Transactions -- Organization and Capitalization of the Company" and Note
1 of Notes to Financial Statements. For these purposes, no value is
attributed to the shares of common stock of Commodore issued by Commodore
to enable the Company to acquire certain intellectual property rights
relating to CST from Srinivas Kilambi, Ph.D., the Company's Vice
President - Technology. See "Business -- Intellectual Property."
(2) Does not include $15,000,000 paid by new investors for 1,500,000 shares
of Convertible Preferred Stock and $300,000 paid for 3,000,000 Warrants.
23
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data included in the following table as of June 30,
1996 and for the period from November 15, 1995 (date of inception) to June
30, 1996 are derived from the audited Financial Statements appearing
elsewhere herein. The selected financial data as of September 30, 1996, for
the three months then ended and for the period from November 15, 1995 (date
of inception) to September 30, 1996 are unaudited and, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such data. Financial data
for the periods through September 30, 1996 are not necessarily indicative of
the results of operations to be expected for the Company's fiscal year ending
December 31, 1996. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and notes thereto appearing
elsewhere herein.
<TABLE>
<CAPTION>
November 15, 1995 Three Months November 15, 1995
(date of
inception) Ended (date of inception)
Statement of Operations Data:(1) to June 30, 1996 September 30, 1996 to September 30, 1996
----------------- ------------------ ---------------------
<S> <C> <C> <C>
Revenue ............................ $ 0 $ 7,758 $ 7,758
----------------- ------------------ ---------------------
Costs and expenses:
Research and development ......... 50,080 165,280 215,360
General and administrative ....... 9,720 128,307 138,027
Amortization. .................... 101 266 367
----------------- ------------------ ---------------------
Loss before interest and taxes ..... (59,901) (286,095) (345,996)
Interest expense ................... 1,035 4,600 5,635
----------------- ------------------ ---------------------
Net loss ........................... (60,936) (290,695) (351,631)
================= ================== =====================
Net loss per share(2) .............. (.01) (.03) (.04)
Ratio of earnings to preferred stock
dividends ........................ -- (3) -- (3) -- (3)
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1996
--------------- -------------------------------------------
Pro Forma,
Pro as
Balance Sheet Data: Actual Forma(4) Adjusted(5)
------------ ----------- -------------
<S> <C> <C> <C> <C>
Working capital (deficit) .................. $(81,630) $(524,765) $ 451,235 $21,544,735
Total assets ............................... 23,327 329,193 897,193 21,990,693
Total current liabilities .................. 84,163 665,824 257,824 257,824
Deficit accumulated during development stage (60,936) (351,631) (351,631) (351,631)
Stockholders' equity (deficit) ............. (60,836) (336,631) 639,369 21,732,869
</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 shares of
Common Stock being outstanding for the period presented. See Note 1 of
Notes to Financial Statements.
(3) The Company's operating results are not sufficient to cover the
Convertible Preferred Stock cash dividends. See "Risk Factors --
Inadequate Dividend Coverage" and "Dividend Policy."
(4) Gives effect on a pro forma basis to the Capital Contribution of a total
of $976,000, representing $15,000 in cash and the conversion of
short-term debt of $408,000 outstanding at September 30, 1996, and an
additional $568,000 of the Capital Contribution made by Commodore and
Applied to the Company subsequent to September 30, 1996. See
"Capitalization."
(5) Gives effect on a pro forma, as adjusted basis to (i) the Capital
Contribution of $976,000 and (ii) the sale by the Company of the Units
offered hereby at an assumed initial public offering price of $10.10 per
Preferred Unit, consisting of one share of Convertible Preferred Stock at
$10.00 per share and one Warrant at $.10 per Warrant, and $6.10 per
Common Unit, consisting of one share of Common Stock at $6.00 per share
and one Warrant at $.10 per Warrant, and the initial application of the
estimated net proceeds therefrom. See "Use of Proceeds" and "Certain
Relationships and Related Transactions."
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized in November 1995 and has had no commercial
operations to date. Since its inception, the Company has been engaged
principally in organizational activities, including developing a strategic
operating plan, entering into contracts, hiring personnel, developing test
modules and installing and operating modules on a limited basis for
demonstration or test purposes. Accordingly, the Company has no relevant
operating history upon which an evaluation of its performance and prospects
can be made. The Company is subject to all of the business risks associated
with a new enterprise, including, but not limited to, risks of unforeseen
capital requirements, failure of market acceptance, failure to establish
business relationships, and competitive disadvantages as against larger and
more established companies. The report of the independent auditors with
respect to the Company's financial statements included in this Prospectus
includes a "going concern" qualification, indicating that the Company's
significant losses and deficits in working capital and stockholders' equity
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company has generated nominal revenues to date, and will not generate
any material revenues until after the Company successfully completes the
installation of modules in a significant number of industrial companies, of
which no assurance can be given. During the period from November 15, 1995
(date of inception) to June 30, 1996, the Company incurred a net loss of
$(60,936). From July 1, 1996 to September 30, 1996, the Company incurred
additional operating losses of $(290,695), and anticipates that it may
continue to incur significant operating losses for the foreseeable future.
There can be no assurance as to whether or when the Company will generate
material revenues or achieve profitable operations. See "Business" and
Financial Statements.
DEPENDENCE ON SUPPLIERS
The Company has not to date conducted any manufacturing operations, but
has relied on unaffiliated suppliers to provide fibers, membrane casings and
other materials and components utilized in CST. The Company has not
previously experienced any delays or difficulties in obtaining any of these
items, although there can be no assurance that such difficulties may not be
encountered in the future. The Company has allocated a portion of the net
proceeds of this Offering to the establishment of a facility in Atlanta, part
of which will be dedicated to operations related to the manufacturing of
chemicals, fibers, membrance casings and other materials and components
utilized in CST. See "Risk Factors -- Dependence on Strategic Components" and
"Use of Proceeds."
LIQUIDITY AND CAPITAL RESOURCES
The Company has to date financed its development efforts through direct
equity investments and loans from Commodore and Applied. From November 15,
1995 (date of inception) to September 30, 1996, the Company has purchased or
constructed equipment totalling $171,982 and has incurred patent filing and
maintenance costs of $18,078. As of September 30, 1996, the Company's
aggregate indebtedness to Commodore was $408,000. As of November 26, 1996,
$568,000 in additional funds have been advanced by Commodore to the Company.
Effective December 1, 1996, Commodore sold 100% of the Company's capital
stock and the capital stock of another subsidiary to Applied and assigned the
Company's $976,000 of notes to Applied in consideration of $3,000,000 and,
subject to any applicable stockholder approval and notification requirements,
shall issue a seven-year warrant to purchase 7,500,000 shares of Applied
common stock at $15.00 per share. Applied has agreed to contribute the entire
amount of such $976,000 Company indebtedness to the Company's equity prior to
completion of this Offering. See "Certain Relationships and Related
Transactions."
The Company has sustained losses of $(290,695) and $(60,936) for the three
month period ended September 30, 1996 and for the period from November 15,
1995 (date of inception) to June 30, 1996, respectively. The Company had no
revenues during the period from November 15, 1995 (date of inception) to June
30, 1996 and had revenues of $7,758 for the three-month period ended
September 30, 1996 as a result of billings from the Port of Baltimore field
test of the CST process. Substantially all of the Company's losses are
attributable to the expenses detailed above. At September 30, 1996 and June
30, 1996, the Company had working capital deficits
25
<PAGE>
of $(524,765) and $(81,630), respectively, and stockholders' deficits of
$(336,631) and $(60,836), respectively. The Company has received significant
advances in working capital from Commodore and Applied which has allowed it
to continue its operations. There can be no assurance that it will continue
to receive such financial assistance.
The Company believes that the net proceeds of the Offering will be
sufficient to meet its cash, operational and liquidity requirements for a
minimum of 24 months after the date of this Prospectus.
The Company has leased a new facility of approximately 20,000 square feet
near Atlanta, Georgia, which it anticipates occupying in January 1997 and
which will comprise the Company's executive and administrative offices,
research and testing laboratories and CST manufacturing plant. It is
anticipated that approximately $2,000,000 of the net proceeds of this
Offering will be required with respect to leasing such facility and related
leasehold improvements. Additionally, it is anticipated that approximately
$2,500,000 of the net proceeds of this Offering will be required to purchase
the equipment necessary to manufacture the modules and produce the
proprietary chemicals used in CST. Prior to the Company's facility becoming
operational for manufacturing, the Company anticipates spending approximately
$1,200,000 of the net proceeds of this Offering to purchase CST components
for use in connection with initial demonstrations and/or installations of CST
at customer sites. The Company is continuing to further the development of
CST through additional testing, demonstrations and enhancements which will
require the hiring of additional personnel and additional research and
development costs. See "Use of Proceeds" and "Business -- Proposed
Manufacturing Operations" and "-- Properties."
The Company has also allocated $1,250,000 of the net proceeds of this
Offering to finance 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. See "Risk Factors -- Acquisition - Related
Risks."
The Company has allocated $1,000,000 of the net proceeds of this Offering
for the funding of proposed collaborative arrangements. These costs include,
but are not limited to, salaries and benefits of personnel, equipment design
and procurement costs, cost of leasing or otherwise obtaining additional
operating facilities, analytical and other testing costs, professional fees,
insurance and other administrative expenses. As of the date of this
Prospectus, the Company has not determined the amount of net proceeds of this
Offering to be applied to any one particular proposed collaborative
arrangement because the Company is currently in negotiations with a number of
companies involving, among other issues, the level of its proposed funding
commitment. The estimated allocation of the net proceeds for funding of
proposed collaborative arrangements is on an aggregate basis. In addition, in
the event a definitive agreement is not entered into by the Company and
Teledyne Brown or Sverdrup, respectively, on or before February 28, 1997,
such memorandum of understanding may be terminated by either company upon
written notice. See "Risk Factors -- No Assurance of Collaborative Agreements
or Project Awards," "Use of Proceeds" and "Business -- Collaborative Working
Arrangements."
The Company intends to enter into a revolving credit agreement with
Commodore on or immediately prior to the consummation of this Offering,
pursuant to which the Company may lend from time to time, prior to the second
anniversary of this Offering, up to $5,000,000 to Commodore for its working
capital needs. Borrowings under the agreement will be secured by Commodore's
pledge of 1,000,000 shares of Applied common stock held by it and will bear
interest at the rate of 10% per annum, with interest payable quarterly on
outstanding amounts. The principal balance outstanding will be due on the
second anniversary of this Offering, subject to mandatory prepayment of
principal and interest, in whole or in part, from the net cash proceeds in
excess of $5,000,000 from any public or private, equity or debt financing
made by Commodore at any time before maturity. The Company's obligation to
lend such funds to Commodore is subject to a number of conditions, including
review by the Company of the proposed use of such funds by Commodore. The
Company intends to utilize a portion of the net proceeds of this Offering to
perform its obligations under such agreement. See "Risk Factors -- Control by
Principal Stockholder; Loan to Commodore," "Use of Proceeds" and "Certain
Relationships and Related Transactions -- Loan Agreement with Commodore."
Pursuant to an assignment of technology agreement between the Company and
Srinivas Kilambi, Ph.D., the Company's Vice President-Technology, the Company
agreed to pay Dr. Kilambi a royalty through December 3, 2002 equal to 2% of
the Company's revenues actually received and attributed to the commercial
application of the technology acquired from Dr. Kilambi, except for
applications related to the radionuclides technetium and
26
<PAGE>
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). Pursuant to the license agreement with Lockheed
Martin, the Company made an initial cash payment of $50,000 upon the
execution of the agreement and is obligated to pay, commencing in the third
year of the agreement, 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, commencing in
the third year of the agreement, an annual minimum royalty of $15,000. See
"Business -- Commercialization and Marketing Strategy -- Radionuclide/Mixed
Waste Separation." Payment of such royalties to Dr. Kilambi and Lockheed
Martin is based on Company revenues and is not related to or contingent upon
the Company attaining profitability or positive cash flow. As a result, such
payments will adversely affect operating results and divert cash resources
from use in the Company's business, and possibly at times when the Company's
liquidity and access to funding may be limited. See "Business -- Intellectual
Property" and "Certain Relationships and Related Transactions -- Organization
and Capitalization of the Company."
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standard Statement No. 121, "Accounting for Long Lived
Assets" and No. 123, "Accounting and Disclosure of Stock-Based Compensation."
Statement No. 121 is effective for years beginning after December 15, 1995.
The effect of adoption of Statement No. 121 will not have a material effect
on the Company's financial statements. Statement No 123 is effective for
years beginning after December 15, 1995. The effect of adoption of Statement
No. 123 is not expected to have a material effect on the Company's financial
statements as the Company has adopted only the disclosure requirements of
Statement No. 123.
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards of approximately
$119,000, which expire in the year 2011. The amount of net operating loss
carryforward that can be used in any one year will be limited by the
applicable tax laws which are in effect at the time such carryforward can be
utilized. A valuation allowance of $119,000 has been established to offset
any benefit from the net operating loss carryforward as it cannot be
determined when or if the Company will be able to utilize the net operating
losses.
27
<PAGE>
BUSINESS
GENERAL
The Company has developed and intends to commercialize its membrane
separation and recovery system called CST. Based on the results of more than
100 laboratory and other tests to date, the Company believes that CST can
separate and recover chrome, chromium, cadmium, silver, mercury, platinum,
lead, zinc, nickel, trichlorethylene, polychlorinated biphenyls, methylene
chloride, amino acids, antibiotics, radionuclides, and other organic and
inorganic targeted substances from liquid or gaseous feedstreams. CST
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 CST'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 as non-toxic effluent. In some instances, additional treatment may
be required prior to disposal.
CST is distinguishable from other existing forms of membrane filtration
technology in that it:
o requires low initial capital costs and low operating costs;
o has the capability of treating a wide variety of elements and compounds
in a wide variety of industrial settings at great speed and with a high
degree of effectiveness, regardless of contaminant concentrations,
volume requirements and other variables;
o is environmentally safe, in most instances producing no sludges or
other harmful by-products which would require additional post-treatment
prior to disposal;
o can selectively extract target substances, while extracting
substantially fewer unwanted substances;
o can typically operate on-site and in less than 40 square feet of space
for the entire system;
o can extract metals, organic chemicals and other elements and compounds
in degrees of concentration and purity which permit their reuse; and
o 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 CST for
the decontamination of chromium-contaminated groundwater at the Port of
Baltimore, Maryland. During this demonstration, a CST unit, in a single
feedstream pass-through, reduced the contamination level of chromium from
more than 400 parts per million (ppm) to less than one ppm. The results of
this test were verified by Artesian Laboratories, Inc., an independent
testing laboratory. Based on management studies and discussions with metals
industry executives, the Company believes that CST represents a significant
technological advancement in the area of environmental remediation as the
only technology capable of on-site chromium removal and recovery that enables
effluent discharge without additional treatment.
In September 1996, the Company installed a commercial scale CST unit at a
Columbus, Ohio metal plating company. DLZ Laboratories, Inc., an independent
testing laboratory, verified that the CST unit processed the initial batch of
process effluent stream and reduced nickel and zinc contamination from 900
ppm to 2 ppm in one hour. The Company has continued to operate this CST unit
to process nickel and zinc effluent streams containing concentrations of 200
to 400 ppm, and the unit has consistently reduced the contaminant levels to 1
to 5 ppm. The decontaminated process effluent stream is being recycled into
the plating line rinse tanks, saving the plating company its normal
consumption of make-up water at a rate of five gallons per minute. The
recovered nickel and zinc solution is currently being analyzed by the plating
company for reuse in its plating operations.
In January 1997, the Company entered into a license agreement with
Lockheed Martin, manager of Oak Ridge. Under the terms of the 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. Based on tests conducted at Oak Ridge
28
<PAGE>
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 U.S.
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 will market 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. Although the Company has entered into memorandums of
understanding for proposed working arrangements with Teledyne Brown and
Sverdrup, and is bidding on certain projects, there can be no assurance that
any of these activities will result in definitive collaborative agreements or
project awards. Even if project contracts are awarded to the Company, CST has
never been utilized on a large-scale basis, and there is no assurance that
this technology will perform successfully on a large-scale commercial basis,
or that it will be profitable to the Company. There can also be no assurance
that this technology will not be superseded by other competing technologies.
MARKET OVERVIEW
Based on market data compiled by the Company, the Company estimates that,
as of August 1, 1996, there were approximately 7,500 companies operating
metal plating and metal finishing facilities in the United States, and an
additional 1,500 such facilities in Canada. Based on estimated sales by these
facilities, the Company believes that on average each of these facilities
could utilize four to ten CST membrane units. The Company estimates that, as
of such date, there were approximately 50 companies in the United States
involved in industrial gas separation, and based on these companies'
estimated sales, the Company believes that on average each of these companies
could utilize two to four membrane units operating at significant volumes.
Further, as of August 1, 1996, based on market data compiled by the Company,
the potential market from organic chemical companies is in excess of 10,000
companies in the United States. Based on these companies' estimated sales,
the Company believes that on average each of these companies could utilize
two to four membrane units operating at significant volumes. Additionally, as
of such date, there were more than 5,000 biochemical, bulk drug manufacturing
and pharmaceutical companies operating in the United States and Canada, and
based on these companies' estimated sales, the Company believes that on
average the typical such company could utilize two to four membrane units
operating at substantial volumes. The Company believes that the potential
international market for each of the above applications could be twice the
size of the North American market. Federal, state and local government
entities are also a potential market for the Company, particularly in the
area of environmental remediation and clean-up.
As with any new technology or process, or a significant advancement of an
existing technology or process, there may be initial resistance to the use of
CST on a large scale, and certain prospective projects for the Company may
have already been committed to other forms of technology. In each case, the
Company expects to introduce its process on a test basis through the
introduction of sample membrane units to demonstrate the efficacy of the
technology, with the aim of full installation and/or project awards based on
the performance of the sample units.
ALTERNATIVE SEPARATION TECHNOLOGIES
Membrane separation and extraction technologies have been utilized
commercially for several decades. Prior to the development of CST, membrane
separation and extraction capabilities were broken into four subranges,
consisting of microfiltration, ultrafiltration, nanofiltration and reverse
osmosis (hyperfiltration), each distinguished and defined by the relative
particle size which the particular process was capable of separating from
29
<PAGE>
the feedstream, and by whether the compounds were suspended or dissolved in
the feedstream. Existing technologies currently in use for the treatment of
solubilized feedstreams (in which the containment is dissolved, rather than
suspended, in the feedstream) include: (i) ion exchange (wherein electrically
charged ions that are electrochemically held by ion exchange resin beads are
exchanged for ions of similar charge in a solution in which the beads are
immersed), (ii) reverse osmosis (wherein solutions are desalted or
concentrated by driving them through membranes using relatively high
hydraulic pressure, resulting in contaminants being excluded or rejected by
the membranes), (iii) precipitation (wherein chemicals are used to
precipitate out the contaminants for eventual off-site disposal), (iv)
ultrafiltration (wherein moderate hydraulic pressure is used to transfer
water and low molecular weight species through a membrane while blocking
relatively large-sized contaminants such as suspended solids, colloids and
large organic molecules) and (v) chromatography (wherein mixtures are
separated into their constituents by preferential adsorption on solids).
CST
Although CST uses the same basic principles as other membrane separation
technologies, the Company believes that CST represents a significant advance
in membrane separation technology in the treatment of solubilized
feedstreams. In contrast to the five alternative separation technologies
described above, CST acts by separating and extracting the targeted
material(s) from the feedstream, rather than extracting the feedstream from
the targeted material(s). As a result, for the first time, a single process
is capable of treating a wide variety of elements and compounds in a wide
variety of industrial settings, and doing so at great speed and with a high
degree of effectiveness regardless of particle size, volume requirements and
other variables. The Company also believes that CST is the first membrane
separation technology which is capable, in a single process application, of
selectively extracting multiple elements or compounds from a mixed process
stream. The CST membrane modules can also be configured in various sizes and
numbers and for varying capacities, and operate on the manufacturing site at
ambient temperatures and pressures.
CST involves injecting a contaminated liquid or gaseous feedstream into
the Company-designed fibrous membrane unit or module. This module is
continuously fed with a recycled stream of proprietary chemical solution
whose composition will vary depending on the types of compounds in the
feedstream. As the feedstream enters the membrane unit, the metal or other
substance to be extracted reacts with the proprietary chemical solution in
the fibrous membrane, and the metallic or other ions are extracted through
the membrane into a strip solution which is concentrated and gathered in a
separate storage container. The balance of the feedstream is either recycled
or simply discharged as normal effluent. In some instances, additional
treatment may be required prior to disposal, or disposal may need to be made
in a regulated manner. The Company believes that CST can be utilized for the
separation and recovery of chrome, chromium, cadmium, silver, mercury,
platinum, lead, zinc, nickel, trichlorethylene, polychlorinated biphenyls,
methylene chloride, amino acids, antibiotics, radionuclides, and other
organic and inorganic substances.
The typical CST module is cylindrical in shape and can be situated on a
surface or in an area the size of a desktop. The module casing is constructed
of either steel or plastic (depending on the required durability for the
particular process application), and contains the microporous fiber membrane
through which the target element or compound is separated from the
contaminated feedstream. At one end of the module, there is attached a set of
pumps and tubing that feeds the contaminated feedstock from its point of
origin (such as a metal plating tank or bath) into the module. Additional
pumps and tubing are attached to feed and recycle the chemical solution which
is the active element in the membrane, and discharge tubing or piping is
attached at the other end of the module, to carry away the separated
concentrated metal solution or other compound, and the wastewater and other
non-reusable by-product. The Company plans to produce a range of modules that
will precisely conform to the customer's requirements for volume and
capacity, and thus accommodate the available space in the customer's
facility. The Company also formulates the active chemical compound for the
process in each customer application, and performs the initial installation
of the equipment at the customer site. The customer will operate the
equipment and, by computer hook-up, the Company will monitor the equipment
and process while in operation.
30
<PAGE>
LABORATORY AND OTHER TEST RESULTS
In more than 100 laboratory and other tests to date, CST has demonstrated
the ability to successfully separate a variety of metals and other substances
from liquid and gaseous process streams. In each instance, the process stream
was reduced to levels approaching federal guidelines under the Federal Clean
Water Act for the disposal of the reacted process stream as normal wastewater
effluent, and the recovered materials were of sufficient quantity and purity
as to economically permit the reuse thereof in most commercial applications.
Test results included the following:
<TABLE>
<CAPTION>
Applicable
Material Before Treatment After Treatment Federal Guideline
- ------------------ ----------------- ---------------------------------------- ---------------------
<S> <C> <C> <C>
Metals:
Zinc ........ 1,000 ppm Less than 2 ppm (after 30 minutes) Less than 2 ppm
Nickel ...... 3,200 ppm Less than 1.6 ppm (after 30 minutes) Less than 2 ppm
Chromium .... 430 ppm 0.49 ppm (field test) 5 ppm
Aluminum .... 195 ppm 100 ppm (after 15 minutes) 30 ppm
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:
Cesium ...... 10 ppm Less than 5 parts per billion (ppb) Less than 10 ppb
Rhenium ..... 5 ppm Less than 5 ppb Less than 10 ppb
Anions:
Nitrates .... 62,000 ppm Less than 100 ppm Less than 10 ppm
</TABLE>
All of these tests were performed on limited quantities of process
streams, and there can be no assurance that the same or similar results would
or could be obtained on a large-scale commercial basis or on any specific
project. Other than with respect to the Company's tests involving the
separation and recovery of zinc, nickel and chromium, no other tests
conducted by the Company have been independently verified. See "Risk Factors
- -- Unproven on Large-Scale Commercial Basis."
31
<PAGE>
COMPETITIVE AND OPERATIONAL ASPECTS OF CST
The following chart highlights certain of the salient differences which
the Company believes, based on the limited quantities of process streams
tested, distinguish CST from other membrane separation technologies. As shown
below, the Company believes that CST has substantially broader applications
than most of the other technologies, and is generally capable of superior
results in less time. Other than with respect to the Company's tests
involving the separation and recovery of zinc, nickel and chromium, no other
independent tests have been conducted by the Company to verify the accuracy
of the specifications shown below.
<TABLE>
<CAPTION>
CST PROCESS ION EXCHANGE
----------- -------------
<S> <C> <C>
Process Description Reaction-diffusion membrane transport Ionic exchange
- ------------------------------------------------------------------------------------------------------
Process Temperatures Ambient-80|SDC Ambient-80|SDC
- ------------------------------------------------------------------------------------------------------
Process Pressure 15-20 pounds per square inch (psi) 20-30 psi
- ------------------------------------------------------------------------------------------------------
Target Compounds Metals, Organics, Volatile organic Metals, Anions
compounds, Gases, Biochemicals,
Radionuclides, Anions
- ------------------------------------------------------------------------------------------------------
Target Metals Electroplating, Metal Finishing, Petroleum, Electroplating,
Petrochemical, Paper, Organics, Food Metal Finishing
Process, Biotechnology, Textile
- ------------------------------------------------------------------------------------------------------
Reaction Time Instantaneous 1-2 seconds
- ------------------------------------------------------------------------------------------------------
Process Selectivity Greater than 1,000:1 Less than 70:1
(Desired: Undesired)
- ------------------------------------------------------------------------------------------------------
Product Recovery Greater than 99.9% Greater than 99.9%
- ------------------------------------------------------------------------------------------------------
Loading Limitations None Operates only at
low feed velocities
- ------------------------------------------------------------------------------------------------------
Process Speed Very high Low to medium
- ------------------------------------------------------------------------------------------------------
Post-Treatment Required No Yes
- ------------------------------------------------------------------------------------------------------
Comments; Limitations Readily integrated into other processes; Readily integrated
may need prefiltration to remove suspened into other processes
or heavier particles
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
REVERSE
OSMOSIS/
ULTRA-
PRECIPITATION CHROMATOGRAPHY FILTRATION
- -------------- --------------- ----------------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Precipitation as metal Adsorption High pressure transport of
hydroxides water across a membrane
- -----------------------------------------------------------------------------------------
Ambient Ambient Ambient-80|SDC
- -----------------------------------------------------------------------------------------
15-25 psi 25 psi 100-1,000 psi
- -----------------------------------------------------------------------------------------
Heavy Metals Biochemicals Water
- -----------------------------------------------------------------------------------------
Electrochemicals, Biotechnology Electroplating, Metal Finishing,
Metal Finishing Petroleum, Petrochemical,
Paper, Organics, Food Process,
Biotechnology, Textile
- -----------------------------------------------------------------------------------------
2-10 seconds Several minutes Not applicable
- -----------------------------------------------------------------------------------------
0:1 2-5:1 0:1
- -----------------------------------------------------------------------------------------
None Greater than 90% Greater than 90%
- -----------------------------------------------------------------------------------------
None Operates only at Cannot produce large throughput
very low flow rates without clogging
- -----------------------------------------------------------------------------------------
High Very low Medium
- -----------------------------------------------------------------------------------------
Yes Yes Yes
- -----------------------------------------------------------------------------------------
Non-selective; most Limited to low feed Energy intensive; non-selective;
labor intensive; no concentration; non- needs prefiltration;
product recovery selective; slow relatively expensive
process
</TABLE>
33
<PAGE>
COMMERCIALIZATION AND MARKETING STRATEGY
During the initial commercialization phase, the Company expects to lease
the CST modules to customers, with the lease payments being due and payable
after installation and successful start-up of the equipment. When replacement
modules are required, the Company expects to supply these modules at a
reasonable mark-up over their cost. As new patents are filed and issued, the
Company may, for certain applications, determine to make a direct sale of the
equipment with additional long-term royalty payment provisions. The Company
also expects to obtain revenues through servicing the CST equipment,
including periodic replacement of the membrane component. In addition to
leasing and selling its equipment, the Company intends to charge its
customers based on a percentage of the customer's actual cost savings derived
from reduced disposal costs and recovered reusable materials. In applications
in which reusable materials are not recovered, the Company's ongoing charges
may be based on the volume of materials processed. Although the Company plans
to focus its initial marketing efforts on domestic businesses, the Company
will also be prepared to pursue international opportunities, which may arise
from successful presentations to multinational corporations or from overseas
referrals by domestic entities.
In specific industries and for specific applications, the Company intends
to emphasize and exploit the following attributes of CST.
Metals Separation and Recovery
The Company's initial marketing efforts will be in the industrial sector,
in which the separation and recovery of metal-bearing liquid solutions
present a substantial market. Primary among the potential customers in this
area are metal plating and metal finishing operations, which generate
substantial volumes of mixed metals process streams for which no previous
technology was available to effect proper separation.
In September 1996, the Company installed a commercial scale CST unit
on-line at Plating Technology Inc., a Columbus, Ohio metal plating company
("PTI"). The unit is currently operating on a continuous mode and, based on
operating data results to date, is successfully separating and recovering
nickel and zinc effluent streams with concentrations varying from 100 to
1,000 ppm. DLZ Laboratories, Inc., an independent testing laboratory,
verified that the CST unit processed the initial batch of process effluent
stream and reduced nickel and zinc contamination from 900 ppm to 2 ppm in one
hour. The Company's own data indicate that, in ongoing use on effluent
streams containing nickel and zinc concentrations of 200 to 400 ppm, this CST
unit has consistently reduced the level of contaminants to 1 to 5 ppm. The
decontaminated process effluent stream is being recycled into PTI's plating
line rinse tanks, saving PTI its normal consumption of make-up water at a
rate of five gallons per minute. The recovered nickel and zinc solution is
currently being analyzed by PTI for reuse in its plating operations.
Based on management studies and discussions with metals industry
executives, the Company believes that the major competitive technology in
this area is precipitation, which generates a metallic sludge by-product
requiring further treatment prior to landfill disposal. By contrast, CST does
not generate harmful metallic sludges, and instead enables close to 100%
process water recycling, while also enabling recovery of valuable raw
materials. As costs of environmental compliance continue to mount, the
Company expects CST to become a preferred alternative to existing metals
separation methods.
Gas Separation
The CST equipment and technology can also be utilized to separate and
recover valuable gases (such as nitrogen) from mixed gaseous and liquid
compounds. For example, nitrogen is used for a wide variety of process
applications, including oil recovery, food processing, metal heat treatment,
and pharmaceutical testing and development.
Nitrogen is typically obtained by separating it from oxygen, using
processes such as cryogenic distillation, adsorption, catalytic removal, and
permselective polymeric membrane separation. However, each of these processes
has drawbacks, which can include high energy usage, high pressure and
temperature requirements, and/or relatively low purity of the recovered gas.
The CST process overcomes these drawbacks by yielding relatively pure
nitrogen in a low-energy, low capital cost process conducted at ambient
temperature and pressure. The Company has prepared a proposal for a prototype
unit for the production of high-purity nitrogen for use in food processing,
but has not otherwise developed a strategy or targeted a market for
commercialization of the gas separation application.
34
<PAGE>
Organics Separation and Recovery
As of August 1, 1996, based on market data compiled by the Company, there
were more than 10,000 organic chemical industry companies operating in the
United States. These companies generate significant volumes of waste process
streams, including mixed organic/non-organic streams. CST has been
demonstrated to have significant capabilities in the separation and recovery
of a variety of contaminants, including phenol and nitrophenol (a phenolic
derivative), and the Company believes that such capabilities, although
untested, extend to other organic chemicals such as volatile organic
compounds, petrochemicals, other phenolic derivatives, olefin alkanes and
acid gases.
Currently, the primary technology utilized in this area is activated
carbon treatment. Like the other slow biological treatment processes utilized
in this area, the by-products are often more toxic than the original
compound. The Company intends to demonstrate to chemical manufacturers that
CST is effective in dealing with the wide variety of contaminants generated
by these businesses, and that use of CST will substantially reduce the
environmental risks and costs associated with traditional separation methods.
Biochemicals Separation and Recovery
CST has also been demonstrated to have significant capabilities in the
separation and recovery of biochemicals, including phenylalanine (an amino
acid), and the Company believes that such capabilities, although untested,
extend to other biochemicals such as proteins, other amino acids,
antibiotics, glycerides, fatty acids, drug delivery vehicles and other
pharmaceuticals. Mixed wastes containing these materials are generated in
both research and development functions and in manufacturing functions. These
materials have substantial value, and the Company intends to emphasize both
the value of the recovered materials and the enhanced and speedier
environmental compliance attributes of CST.
Currently, the primary competing technology in this area is
chromatography, which requires substantially greater time to treat
significant volumes of material, and is substantially less selective in the
types of materials that can be separated from the liquid feedstream.
Environmental Remediation and Restoration
The Company believes that CST has significant potential for application to
environmental remediation and restoration. The Company is currently involved
in pilot projects for the decontamination of water in the Port of Baltimore,
and for clean-up of trichlorethylene-contaminated groundwater on Cape Cod,
Massachusetts. In the case of a project such as the Port of Baltimore
project, it is expected that the remediating technology will be applied
continuously over a period of many years, until the subject contamination (in
the case of Baltimore, chromium leaching from underlying soil into the
aquifer) has been demonstrated to have been abated for a significant period
of time.
In contrast to other remediation technologies, the Company believes that
CST has the attributes of low initial capital costs, low operating costs and
the ability to recover heavy metals, organic chemicals and varied volatile
organic compounds for reuse.
In August 1996, the Company completed an on-site demonstration of CST for
the decontamination of water in the Port of Baltimore. During seven hours of
operation, a single CST unit, in a single pass-through of feedstream,
processed 90 gallons of water containing more than 400 ppm of chromium, and
reduced the contamination level to 0.49 ppm. This reduced level of
contamination was below the federal guideline (5 ppm) for the unregulated
discharge of water. The results of this test were verified by Artesian
Laboratories, Inc., an independent testing laboratory. The Company believes
that compliance with such guideline can be achieved either by refinement of
chemical formulation or process procedure, by dilution of the processed water
with a small amount of uncontaminated water, or by passing the processed
water through a larger or supplemental CST unit. The Company believes that
the same process is capable of achieving comparable results in the same time
period on substantially greater volumes of contaminated water, either by
increasing the flow of feedstream into the membrane, by configuring and
utilizing a larger module, or by installing and operating additional modules.
As indicated above, this demonstration was performed on limited quantities of
process streams, and there can be no assurance that the same or similar
results would or could be obtained on a larger scale.
35
<PAGE>
To speed its entry in this market, the Company intends to enter into
collaborative joint working and marketing arrangements with established
engineering and environmental service organizations which are expected to
provide technical and professional expertise, market presence and
credibility. Although the Company has entered into memorandums of
understanding with several such companies, the Company has not to date
entered into any definitive agreements or received any firm contract awards.
See "-- Collaborative Working Arrangements."
Radionuclide/Mixed Waste Separation
In the United States, there are numerous sites operated or maintained by
the Department of Energy ("DOE") and/or the Department of Defense at which
there are present "mixed wastes" containing radionuclides intermingled with
other hazardous wastes. These sites are also contaminated with other
compounds associated with nuclear weapons, testing and energy. CST has been
demonstrated to have significant capabilities in the separation of
radionuclides such as cesium, technetium and rhenium, and the Company
believes that such capabilities, although untested, extend to most of the
other compounds found at such sites. 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.
This element of the market is a significant subcategory of the general
environmental remediation that can be undertaken with CST. In addition to low
initial capital costs and low operational costs, CST has the advantage of
cost-effectively separating both dissolved mixed waste and radionuclides, and
allowing separate handling and disposal of both hazardous waste types. The
Company anticipates pursuing this market area in collaboration with
established engineering and environmental service organizations, who can
provide technical and professional expertise, market presence and
credibility. Neither the Company nor any of its collaborative partners have
been awarded any contracts to use CST, and there can be no assurance as to
whether or when any such contracts may be obtained.
In January 1997, the Company entered into a license agreement with
Lockheed Martin, manager of Oak Ridge (the "Lockheed License Agreement").
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 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,
commencing in the third year of the Lockheed License Agreement, 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 recently filed jointly by
the Company and three of Dr. Kilambi's colleagues who worked with him at Oak
Ridge, covering their inventions related to radionuclides. See "--
Intellectual Property" below.
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 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.
The DOE has reported that better methods of separating radionuclides could
lead to reduced volumes of high-level waste and lower ongoing costs.
Radionuclides in high-level wastes are a small fraction (.001% or less)
36
<PAGE>
of DOE's waste volume. Each disposal canister for high-level waste is
expected to cost approximately $1 million to build and maintain. The Company
believes that concentrating the radionuclides in these wastes could reduce
the number of canisters needed by at least tenfold, and save significant sums
in ongoing costs. The Company currently does not have, nor can there be any
assurance that it will be awarded, any contract with the DOE to use its
separation technology at DOE plants.
PROPOSED MANUFACTURING OPERATIONS
The Company currently has a limited number of outside sources of supply
for some strategic components used in CST, including chemicals, fibers and
membrane casings. Business disruptions or financial difficulties of such
suppliers, or raw material shortages or other causes beyond the Company's
control, could adversely affect the Company by increasing their cost of goods
sold or reducing the availability of such components. The use of outside
suppliers also entails risks of quality control and disclosure of proprietary
information.
The Company has leased a new facility of approximately 20,000 square feet
near Atlanta, Georgia, which it anticipates occupying in January 1997 and
will comprise the Company's research and testing laboratories and CST
manufacturing plant. It is anticipated that approximately $2,000,000 of the
net proceeds of this Offering will be required with respect to leasing such
facility and related leasehold improvements. Additionally, it is anticipated
that approximately $2,500,000 of the net proceeds of this Offering will be
required to purchase the equipment necessary to manufacture the modules and
produce the proprietary chemicals used in CST. Prior to the Company's
facility becoming operational for manufacturing, the Company anticipates
spending approximately $1,200,000 of the net proceeds of this Offering to
purchase CST components for use in connection with initial demonstrations
and/or installations of CST at customer sites. Once the plant is fully
operational, the Company expects to benefit from greater quality control,
increased assurance of product availability, and greater protection of
proprietary information and technology. See "Risk Factors -- Dependence on
Strategic Components" and "-- Unpredictability of Patent Protection and
Proprietary Technology" and "Use of Proceeds."
COLLABORATIVE WORKING ARRANGEMENTS
As of the date of this Prospectus, the Company has entered into
memorandums of understanding with Teledyne Brown and Sverdrup for various
uses and applications of CST, principally in connection with large-scale
clean-ups of governmental facilities.
Pursuant to separate memorandums of understanding with each of Teledyne
Brown and Sverdrup, the Company and each of Teledyne Brown and Sverdrup,
respectively, have agreed to negotiate, on a non-exclusive basis, the
formation of one or more mutually agreeable business arrangements concerning
the marketing, application and commercialization of CST. In addition to
conducting due diligence with respect to each company's technology in
accordance with the confidentiality provisions contained in the memorandums
of understanding, the Company and each of Teledyne Brown and Sverdrup,
respectively, are currently negotiating the scope, covered applications and
geographical territory encompassed by the proposed joint marketing and
commercialization activities. It is expected that the Company's relationship
with Teledyne Brown will focus on Department of Energy sites such as Hanford,
Washington and Mound, Ohio, and that the Company's initial opportunities with
Sverdrup will focus on Department of Defense sites such as Cape Cod,
Massachusetts. In the event a definitive agreement is not entered into by the
Company and Teledyne Brown or Sverdrup, respectively, on or before February
28, 1997, such memorandum of understanding may be terminated by either
company upon written notice and, except for the survival of the
confidentiality provisions, without any further liability to the other
company. As of the date of the Prospectus, the Company has not determined the
amount of net proceeds of this Offering to be applied to these or any other
particular proposed collaborative working arrangement. See "Use of Proceeds."
Although the Company believes that it will enter into definitive joint
working agreements with Teledyne Brown, Sverdrup and other potential
collaborative partners, there can be no assurance that these memorandums of
understanding or other future discussions will result in any definitive joint
ventures or related agreements, or, even if such agreements are executed,
that the Company and its prospective collaborators will be awarded any
projects that will ultimately result in revenues and earnings for the
Company.
37
<PAGE>
CFC SERVICES AGREEMENT
Effective upon completion of this Offering, the Company will enter into a
services agreement (the "Services Agreement") with Commodore CFC
Technologies, Inc., a wholly-owned subsidiary of Applied ("CFC
Technologies"), which has developed and patented a process which, based on
test applications of limited quantities of chlorofluorocarbons ("CFCs"), may
be able to separate mixtures of refrigerants so that they can be returned to
productive use at purity levels meeting industry standards. Pursuant to the
Services Agreement, the Company will provide advice, assistance and guidance,
and, where necessary, personnel to implement the same, in connection with,
among others, administrative, financial and related matters, product design,
development and promotion, and marketing, sales and related operations to CFC
Technologies in connection with its business and operations in exchange for
which the Company will be paid an annual fee equal to 75% of the net income
of CFC Technologies, if any, and reimbursement of expenses incurred in
furnishing such services. The Services Agreement may be terminated by either
party at any time upon not less than 90 days' prior notice.
GOVERNMENT REGULATION
The Company and its customers 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 CST and related equipment
on certain job sites. In addition, if the Company begins to market CST
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 CST and its by-products do not
pose environmental risks. There is no assurance that such studies, if
successful, will not be more costly or time-consuming than anticipated.
Further, if new environmental legislation or regulations are enacted or
existing legislation or regulations are amended, or are interpreted or
enforced differently, the Company, its prospective working partners and/or
its customers may be required to meet stricter standards of operation and/or
obtain additional operating permits or approvals.
ENVIRONMENTAL MATTERS
The Company's operations, as well as the use of specialized technical
equipment by its customers, are subject to numerous federal, state and local
regulations relating to the storage, handling and transportation of certain
regulated materials. Although the Company's role is generally limited to the
leasing of its specialized technical equipment for use by its customers,
there is always the risk of the mishandling of such materials or
technological or equipment failures, which could result in significant claims
against the Company. Any such claims against the Company could materially
adversely affect the Company's business, financial condition and results of
operations.
The Company maintains environmental liability insurance with limits of
$1,000,000 per occurrence and $1,000,000 in the aggregate. The Company may be
required to obtain environmental liability insurance in greater amounts in
the future as CST is commercialized. There can be no assurance that such
insurance will provide coverage against all claims, and claims may be made
against the Company (even if covered by the Company's insurance policy) for
amounts substantially in excess of applicable policy limits. Any such event
could have a material adverse effect on the Company's business, financial
condition and results of operations.
INTELLECTUAL PROPERTY
The basic principles underlying the CST technology were developed by
Srinivas Kilambi, Ph.D., the Company's Vice President - Technology. Effective
February 29, 1996, pursuant to an assignment of technology agreement between
the Company and Dr. Kilambi, the Company acquired rights to the CST
technology from Dr. Kilambi, together with associated patent rights,
confidential know-how and other property rights created or obtained by Dr.
Kilambi, whether then existing or thereafter created, relating to the
construction, design, development and exploitation of the processes,
equipment and technology related to CST and any other product or development
resulting from the acquired patent rights.
38
<PAGE>
In consideration for his assignment of the CST technology, the Company
transferred to Dr. Kilambi 200,000 shares of common stock of Commodore, which
had been contributed to the Company by Commodore to effect the transaction,
and the Company agreed to pay Dr. Kilambi a royalty through December 3, 2002
equal to 2% of its revenues actually received and attributed to the
commercial application of the acquired technology, 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions -- Organization and Capitalization of the Company."
The Company has filed one United States utility patent application and two
United States provisional patent applications covering the principal features
of its CST technology. One provisional patent application covers the joint
inventions of Dr. Kilambi and Lockheed Martin, and a corresponding utility
patent application containing the specific patent claims is expected to be
filed in the near future. The Company may also pursue foreign patent
protection where it deems appropriate.
The Company's liquid membrane technology patent applications are based on
the selective combination of different known solvents, supports, diluents,
carriers and other components to separate a variety of metals, chemicals and
other targeted substances. While the Company believes that its technology
covers all separation applications, third parties may have developed, or may
subsequently assert claims to, certain of these solvents, supports, diluents,
carriers or other components for one or more specific applications. In such
event, the Company may need to acquire licenses to, or to contest the
validity of, issued or pending patents or claims of third parties.
To protect its trade secrets and the unpatented proprietary information in
its development activities, the Company requires its employees, consultants
and contractors to enter into agreements providing for the confidentiality
and the Company's ownership of such trade secrets and other unpatented
proprietary information originated by such persons while in the employ of the
Company. The Company also requires potential collaborative partners to enter
into confidentiality and non-disclosure agreements.
There can be no assurance that any patents which may hereafter be
obtained, or any of the Company's confidentiality and non-disclosure
agreements, will provide meaningful protection of the Company's confidential
or proprietary information in the case of unauthorized use or disclosure. In
addition, there can be no assurance that the Company will not incur
significant costs and expenses, including the costs of any future litigation,
to defend its rights in respect of any such intellectual property.
COMPETITION
The most common alternative methods for metals separation from solubilized
process streams presently include ion exchange, reverse osmosis,
precipitation, ultrafiltration and chromatography. The Company believes that
most of these methods have certain drawbacks, including lack of selectivity
in the separation process, inability to handle certain metals in the process
streams, and the creation of sludges and other harmful by-products which
require further post-treatment prior to disposal. For example, reverse
osmosis and ultrafiltration are incapable of separating chrome and chromium
materials from wastewater streams, and precipitation results in the
production of sludge which requires dewatering, drying and disposal in a
landfill. Certain of these other technologies also entail long process times,
and are relatively expensive.
By contrast, CST is capable of handling a broad range of compounds in a
faster and relatively inexpensive manner. Furthermore, the by-products of the
CST process consist primarily of wastewater, which can be discharged as
normal wastewater effluent, and to a substantially lesser extent and in only
rare circumstances, materials requiring landfill disposal.
Separation technologies are currently utilized by a wide variety of
domestic and international companies, including several large companies
having substantially greater financial and other resources than the Company.
Although the Company believes that CST has substantial advantages over all
other known separation technologies, any one or more of the Company's
competitors, or other enterprises not presently known, may develop
technologies which are superior to CST. To the extent the Company's
competitors are able to offer comparable
39
<PAGE>
services at lower prices or of higher quality, or more cost-effective
alternatives, the Company's ability to compete effectively could be
materially adversely affected. The Company believes that its ability to
compete in both the commercial and governmental sectors is dependent upon CST
being a superior, more cost-effective method to achieve separation and/or
recovery of a variety of materials in varying amounts and configurations. In
the event that the Company is unable to demonstrate that CST is a technical
and cost-effective alternative to other separation technologies on a
commercial scale, the Company may not be able to successfully compete.
RESEARCH AND DEVELOPMENT
The Company continues to perform research and development activities with
respect to CST, utilizing its internal technical staff as well as independent
consultants. Such activities have to date been entirely Company-sponsored.
Research and development expenditures were $165,280 and $215,360 for the
three month period ended September 30, 1996 and the period from November 15,
1995 (date of inception) to September 30, 1996, respectively.
The Company intends to expand its research and development efforts
following this Offering. In addition to conducting ongoing tests,
demonstrations and enhancements of CST, the Company's efforts are expected to
focus on the optimization of performance and design for module manufacturing,
development of new carriers and diluents, and investigation of additional
process applications. The Company will use a portion of the net proceeds of
this Offering for such ongoing development costs, which will include the
hiring of additional personnel. See "Use of Proceeds."
EMPLOYEES
As of December 31, 1996, the Company had 12 full-time employees, including
five with advanced scientific degrees. The Company believes that it has been
successful in attracting experienced and capable personnel. All of the
Company's employees have entered into agreements with the Company requiring
them not to disclose the Company's proprietary information, assigning to the
Company all rights to inventions made during their employment, and
prohibiting them from competing with the Company. The Company's employees are
not represented by any labor union. The Company believes that relations with
its employees are satisfactory.
PROPERTIES
The Company leases approximately 7,000 square feet of space in Columbus,
Ohio from an unaffiliated third party under a lease expiring on January 31,
1997, which the Company uses as its laboratory and administrative offices.
The Company shares such space with Commodore and certain of its other
subsidiaries. As of July 1, 1996, the Company pays an allocable share of the
rent equal to $750 per month for such space.
The Company's principal executive offices are located in approximately
2,000 square feet of office space in New York, New York, which also serves as
the principal executive offices of Commodore, Applied, certain of their
affiliates, and Bentley J. Blum and Paul E. Hannesson, directors of each of
the Company, Commodore and Applied. The Company does not pay any rent with
respect to such offices. An allocable share of such rent would not be
material. See "Certain Relationships and Related Transactions -- Offices."
The Company has leased a new facility of approximately 20,000 square feet
near Atlanta, Georgia, which it anticipates occupying in January 1997 and
will comprise the Company's executive and administrative offices, research
and testing laboratories and CST manufacturing plant. See "Use of Proceeds."
Upon commencement of its occupancy at such facility, the Company, together
with Commodore, may elect to terminate the existing lease in Columbus, Ohio.
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company or
its properties is subject.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The names and ages of the executive officers, key employees and directors
of the Company, and their positions with the Company, are as follows:
Name Age Position
------------------------- ----- -----------------------------
Edwin L. Harper, Ph.D ... 55 Chairman of the Board, President
and Chief Executive Officer
Paul E. Hannesson ....... 56 Vice Chairman of the Board
Carl O. Magnell, P.E. ... 55 Executive Vice President
James M. DeAngelis ...... 36 Senior Vice President
Srinivas Kilambi, Ph.D. . 32 Vice President -- Technology
Michael D. Kiehnau, P.E. 35 Vice President -- Operations
Andrew P. Oddi .......... 35 Vice President -- Finance
Bentley J. Blum ......... 55 Director
Kenneth L. Adelman, Ph.D. 49 Director(1)
David L. Mitchell ....... 74 Director(1)
William R. Toller ....... 66 Director(1)
- ------
(1) Positions will be assumed upon completion of this Offering.
Edwin L. Harper, Ph.D. was appointed Chairman of the Board, President and
Chief Executive Officer of the Company effective January 1, 1997. Dr. Harper
has been the President and Chief Operating Officer of both Commodore and
Applied since November 18, 1996. Dr. Harper had been the President and Chief
Executive Officer of the Association of American 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.
It is the Company's intention following completion of the Offering to
conduct a search for a qualified President and Chief Operating Officer for
the Company to enable Dr. Harper to devote a majority of his professional
time and efforts in his capacity as President and Chief Operating Officer of
Commodore and Applied. However, Dr. Harper will serve as Chairman of the
Board, President and Chief Executive Officer of the Company and devote a
majority of his professional time and efforts to the Company until such time
as a President and Chief Operating Officer acceptable to the Board of
Directors of the Company shall be hired, and will continue to serve as
Chairman of the Board and Chief Executive Officer of the Company thereafter.
Paul E. Hannesson was appointed Vice Chairman of the Board of the Company
effective January 1, 1997, after having served as its Chairman of the Board
since its inception. Mr. Hannesson has also been a director of Commodore
since February 1993 and currently serves as its Chairman, and served until
July 1996 as its President and Chief Executive Officer. Mr. Hannesson has also
been a director of Applied and its Chief Executive Officer since March 1996
and currently serves as its Chairman, and was its President from March to
September 1996. Mr. Hannesson was a private investor and business consultant
from 1990 to 1993. He currently serves as Chairman of the Board of Lanxide
Corporation, a research and development company developing metal and ceramic
materials ("Lanxide"), where he also serves on its Compensation Committee.
Mr. Hannesson is the brother-in-law of Bentley J. Blum, a Director of the
Company.
Carl O. Magnell, P.E. was appointed Executive Vice President of the
Company effective September 1, 1996. He served prior to such time as
Executive Vice President, Governmental Operations of Applied since July 1996.
From September 1995 to July 1996, Mr. Magnell served as Vice President for
Business Development of Commodore. From 1992 to August 1995, Mr. Magnell
served as Director of Research for Civil Engineering Research Foundation (an
industry-sponsored engineering research group), and from 1964 to 1992, Mr.
Magnell
41
<PAGE>
served in various engineering capacities with the U.S. Army Corps of
Engineers, including brigade commander in Europe and as Engineer for U.S.
Forces in Korea, retiring as a colonel. Mr. Magnell holds a B.S. degree from
the United States Military Academy, and M.S. degrees in Civil Engineering and
Political Science from the Massachusetts Institute of Technology. He is a
licensed professional engineer.
James M. DeAngelis was appointed Senior Vice President of the Company
effective September 1, 1996. He served prior to such time as Vice President
- -- Marketing of Commodore and President of CFC Technologies since January
1993. Prior to January 1993, Mr. DeAngelis was a full-time student, and
completed M.B.A. and Masters in International Management degrees from the
American Graduate School of International Management. Mr. DeAngelis holds
B.S. degrees in Biology and Physiology from the University of Connecticut.
Srinivas Kilambi, Ph.D. has served as Vice President -- Technology of the
Company since February 1996, and was a part-time consultant to the Company
from December 1995 to the time he became an officer of the Company. Prior to
joining the Company, Dr. Kilambi was a graduate student at the University of
Tennessee, where he received a Ph.D. in Chemical Engineering in January 1996.
During the course of his graduate studies, Dr. Kilambi also performed
research at Clarkson University, Potsdam, New York (from August 1991 to June
1993) and Oak Ridge National 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 appointed Vice President --Operations of the
Company effective January 1, 1997, after having served as its Chief Financial
Officer since September 1996. From 1992 to August 1996, Mr. Kiehnau served as
a manager for Brown & Root, Inc. (an engineering and construction firm), and
from 1983 to 1990, Mr. Kiehnau served in various engineering capacities with
the U.S. Army Corps of Engineers in the United States, Europe and Central
America. From 1990 to 1992, Mr. Kiehnau was a full-time student. Mr. Kiehnau
holds a B.S. degree from the United States Military Academy, an M.A. in
International Relations from Boston University, and an M.B.A. from the
Harvard Graduate School of Business Administration. He is a licensed
professional engineer.
Andrew P. Oddi was appointed Vice President -- Finance of the Company
effective January 1, 1997. Mr. Oddi has been the Vice President -- Finance
and Administration and Chief Financial Officer of Commodore since 1987, and
had been the Vice President of Finance, Chief Financial Officer and Secretary
of Applied from March to November 1996. From 1982 to 1987, he was employed as
an auditor with Ernst & Young, independent accountants. Mr. Oddi is a
certified public accountant.
Bentley J. Blum has been a director of the Company since August 1996. Mr.
Blum has been a director of Commodore since 1984 and a director of Applied
since July 1996. For more than 15 years, Mr. Blum has been actively engaged
in real estate acquisitions and currently is the sole stockholder and
director of a number of corporations which hold real estate interests, oil
drilling interests and other corporate interests. Mr. Blum is a director of
Lanxide; Federal Resources Corporation, a company formerly engaged in
manufacturing, retail distribution and natural resources development;
Specialty Retail Services, Inc., a former distributor of professional beauty
products; and North Valley Development Corp., an inactive real estate
development company. Mr. Blum is the controlling stockholder of Commodore,
and is the brother-in-law of Paul E. Hannesson, the Vice Chairman of the
Board of the Company.
Kenneth L. Adelman, Ph.D. has agreed to join the Board of Directors of the
Company upon completion of this Offering. Dr. Adelman has been a member of
the Board of Directors of Applied and Commodore since July 1996. Since 1987,
Dr. Adelman has been an independent consultant on international issues to
various corporations, including Lockheed Martin Marietta Corporation and
Loral Corporation. Previously, Dr. Adelman held positions of responsibility
in arms control during most of the Reagan Administration. From 1983 to the
end of 1987, he was Director of the United States Arms Control and
Disarmament Agency. Dr. Adelman was a Professor at Georgetown University and
a writer for Washingtonian Magazine from 1987 to 1991. Dr. Adelman
accompanied President Reagan on summits with Mikhail Gorbachev, and
negotiated with Soviet diplomats on nuclear and chemical weapons control
issues, from 1985 to 1987. He also headed the United States team on
42
<PAGE>
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 has agreed to join the Board of Directors of the Company
upon completion of this Offering. Mr. Mitchell has been a member of the Board
of Directors of Applied and Commodore 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.
William E. Toller has agreed to join the Board of Directors of the Company
upon completion of this Offering. Mr. Toller is a director and the former
Chairman and Chief Executive Officer of Witco Corporation, a New York Stock
Exchange-traded manufacturer of quality specialty chemical and petroleum
products ("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. He serves on the board of directors of the
Chemical Manufacturers Association and is a member of the National Advisory
Board of First Commercial Bank in Arkansas, the American Petroleum Institute
and the American Chemical Society.
BOARD COMMITTEES
The Company's Board of Directors has an Audit Committee, a Compensation
Committee and a Stock Option Committee. The responsibilities of the Audit
Committee (which, upon completion of this Offering, will consist of Messrs.
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 Committee (which, upon completion of this Offering, will
consist of Messrs. Toller (Chairman), Mitchell and Hannesson) has
responsibility for establishing and reviewing employee compensation. The
Stock Option Committee (which, upon completion of this Offering, will consist
of Messrs. Adelman (Chairman), Mitchell and Blum) has responsibility for
administering and interpreting the Company's 1996 Stock Option Plan (the
"Plan"), and determining the recipients, amounts, and other terms (subject to
the requirements of the Plan) of options which may be granted under the Plan
from time to time.
COMPENSATION OF DIRECTORS
Non-management directors of the Company will receive directors' fees of
$500 per meeting for attendance at Board of Directors meetings, and are
reimbursed for actual expenses incurred in respect of such attendance. The
Company does not intend to separately compensate employees for serving as
directors.
EXECUTIVE COMPENSATION
The Company was organized in November 1995. No salaries were paid by the
Company at any time through June 30, 1996, except for approximately $33,000
paid to Dr. Kilambi in the six months ended June 30, 1996 pursuant to his
employment agreement. The Company has entered into employment agreements with
its executive officers, as more fully described below. Except for Dr.
Kilambi, whose employment agreement commenced on February 29, 1996, the
employment agreements for the other executive officers commenced on
43
<PAGE>
August 1, 1996. To date, the salaries of the Company's executive officers
have been paid from the proceeds of advances made to the Company by
Commodore. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- Liquidity and Capital Resources."
EMPLOYMENT AGREEMENTS
Each of Carl O. Magnell, P.E., James M. DeAngelis, Srinivas Kilambi, Ph.D.
and Michael D. Kiehnau, P.E. has entered into an employment agreement with
the Company for a term expiring on December 31, 1999. Pursuant to these
employment agreements, Messrs. Magnell, DeAngelis, Kilambi and Kiehnau have
agreed to devote substantially all of their business and professional time
and efforts to the business of the Company as its Executive Vice President,
Senior Vice President, Vice President -- Technology, and Vice President --
Operations, respectively. The employment agreements provide that Messrs.
Magnell, DeAngelis, Kilambi and Kiehnau shall receive a fixed base salary at
an annual rate of $105,000, $145,000, $110,000 and $88,000, respectively, for
services rendered in such positions, and each may be entitled to receive, at
the sole discretion of the Board of Directors of the Company or a committee
thereof, bonuses and/or stock options based on the achievement (in whole or
in part) by the Company of its business plan and by the employee of fixed
personal performance objectives. Each of Messrs. Magnell, DeAngelis, Kilambi
and Kiehnau are entitled to participate in the Company's Stock Option Plan
and Executive Bonus Plan. See "-- Stock Options" and "-- Executive Bonus
Plan" below.
The employment agreements also provide for termination by the Company upon
death or disability (defined as three aggregate months of incapacity during
any 365-consecutive day period) or upon conviction of a felony crime of moral
turpitude or a material breach of their obligations to the Company. In the
event any of the employment agreements are terminated by the Company without
cause, such executive will be entitled to compensation for the balance of the
term. The Company has obtained commitments for $1,000,000 key-man life
insurance policies in respect of each of Messrs. Magnell, DeAngelis and
Kilambi.
The employment agreements also contain covenants (a) restricting the
executive from engaging in any activities competitive with the business of
the Company during the terms of such employment agreements and one year
thereafter, (b) prohibiting the executive from disclosure of confidential
information regarding the Company at any time, and (c) confirming that all
intellectual property developed by the executive and relating to the business
of the Company constitutes the sole and exclusive property of the Company.
Edwin L. Harper, Ph.D., the Company's Chairman of the Board, President and
Chief Executive Officer, entered into an employment agreement with Commodore
in October 1996 for a term expiring on December 31, 1999. Pursuant to such
employment agreement, Dr. Harper agreed to devote substantially all of his
business and professional time and efforts to the business of Commodore as
its President and Chief Operating Officer, and also agreed to serve in senior
executive positions with one or more of Commodore's subsidiaries, including
the Company. The employment agreement provides that Dr. Harper shall receive
a fixed base salary at an annual rate of $375,000 for services rendered as
President and Chief Operating Officer of Commodore, as well as options to
purchase an aggregate of 2,000,000 shares of Commodore common stock,
exercisable over a period of five years commencing on the date of his
employment agreement, but shall not receive any additional compensation for
services rendered in senior executive positions with any of Commodore's
subsidiaries, including the Company. Dr. Harper is also eligible to receive
options to purchase common stock of each publicly-traded subsidiary of
Commodore in the amount of .75% of such subsidiary's total outstanding shares
of common stock on the date of grant. The employment agreement also provides
that Dr. Harper shall be entitled to receive bonuses based on the achievement
(in whole or in part) by Commodore of its business plan and by Dr. Harper of
fixed personal performance objectives. In addition, Dr. Harper shall be
eligible to participate in Commodore's group health, life and other benefit
plans made available by Commodore to its employees. Dr. Harper's employment
agreement contains covenants (a) restricting him from engaging in any
activities competitive with the business of Commodore or any of its subsidiaries
during the term of such employment agreement and one year thereafter, (b)
prohibiting him from disclosure of confidential information regarding
Commodore or any of its subsidiaries at any time and (c) confirming that all
intellectual property developed by him and relating to the business of
Commodore or any of its subsidiaries constitutes the sole and exclusive
property of Commodore or its subsidiaries.
44
<PAGE>
Pursuant to an assignment of technology agreement between the Company and
Dr. Kilambi, effective February 29, 1996, the Company agreed to pay to Dr.
Kilambi a royalty through December 3, 2002 equal to 2% of the Company's
revenues actually received and attributed to the commercial application of
the acquired technology, 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Business -- Intellectual Property" and
"Certain Relationships and Related Transactions -- Organization and
Capitalization of the Company."
STOCK OPTIONS
On September 5, 1996, Commodore (as sole stockholder of the Company)
approved the Company's 1996 Stock Option Plan, as previously adopted by the
Company's Board of Directors (the "Plan"), pursuant to which 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 and December 18, 1996, the Company's Board of Directors
awarded, effective upon completion of this Offering, non-qualified stock
options under the Plan to certain key executive officers entitling them to
purchase an aggregate of 601,000 shares of Common Stock, all of which provide
for an exercise price equal to the initial public offering price of the
Common Stock, are exercisable at the rate of 20% of the number of options
granted in each of calendar 1996 through 2000, inclusive, beginning on the
closing date of this Offering and, unless exercised, expire on December 31,
2001 (subject to prior termination in accordance with the applicable stock
option agreements). In addition, non-qualified options to purchase an
aggregate of 136,689 shares of Common Stock were awarded, effective upon
completion of this Offering, to members of the Board of Directors who are not
employed or otherwise affiliated with the Company, all of which are
exercisable at an exercise price equal to the initial public offering price
of the Common Stock, are exercisable at the rate of 33 1/3 % of the number of
options granted in each of calendar 1996 through 1998, inclusive, beginning
on the closing date of this Offering, and, unless exercised, expire on
December 31, 2001 (subject to prior termination in accordance with the
applicable stock option agreements). The exercise price applicable to all
outstanding stock options represents not less than 100% of the fair market
value of the underlying Common Stock as of the date that such options were
granted, as determined by the Board of Directors of the Company on the date
that such options were granted. In December 1996, Applied, as purchaser of
100% of the capital stock of the Company, ratified the Plan and all issuances
thereunder.
With respect to incentive stock options, the Plan provides that the
exercise price of each such option must be at least equal to 100% of the fair
market value of the Common Stock on the date that such option is granted (and
110% of fair market value in the case of stockholders who, at the time the
option is granted, own more than 10% of the total outstanding Common Stock),
and requires that all such options have an expiration date not later than
that date which is one day before the tenth anniversary of the date of the
grant of such options (or the fifth anniversary of the date of grant in the
case of 10% stockholders). However, with certain limited exceptions, in the
event that the option holder ceases to be associated with the Company, or
engages in or is involved with any business similar to that of the Company,
such option holder's incentive options immediately terminate. Pursuant to the
provisions of the Plan, the aggregate fair market value, determined as of the
date(s) of grant, for which incentive stock options are first exercisable by
an option holder during any one calendar year cannot exceed $100,000.
With respect to non-qualified stock options, the Plan requires that the
exercise price of all such options be at least equal to 100% of the fair
market value of the Common Stock on the date such option is granted, provided
that non-qualified options may be issued at a lower exercise price (but in no
event less than 85% of fair market value) if the net pre-tax income of the
Company in the full fiscal year immediately preceding the date of the grant
of such option (the "Prior Year") exceeded 125% of the mean annual average
net pre-tax income of the Company for the three fiscal years immediately
preceding such Prior Year. Non-qualified options must have an expiration date
not later than that date which is the day before the eighth anniversary of
the date of the grant of the subject option. However, with certain limited
exceptions, in the event that the option holder ceases to be associated with
the Company, or engages in or becomes involved with any business similar to
that of the Company, such option holder's non-qualified options immediately
terminate.
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<PAGE>
The following table lists information on stock options granted to each of
the Company's executive officers and directors and to all executive officers
and directors as a group. All of such stock options were granted on September
5, 1996 and December 18, 1996, and (i) with respect to all stock options
other than those in favor of Messrs. Adelman, Mitchell and Toller, are
exercisable at the rate of 20% per calendar year in each of 1996 through
2000, inclusive (subject to prior termination under the terms of the
applicable option agreements), or (ii) with respect to the stock options
granted to Messrs. Adelman, Mitchell and Toller, subject to their election as
directors of the Company, are exercisable at the rate of 33 1/3 % per
calendar year in each of 1996 through 1998, inclusive (subject to prior
termination under the terms of the applicable option agreements), and, to the
extent not exercised, expire on December 31, 2001. As of the date of this
Prospectus, none of such options have been exercised.
<TABLE>
<CAPTION>
Number of Percentage of
Shares Total
Name of Underlying Type of Options Exercise
Officer or Options Option Granted Price per
Director Granted Granted Under Plan Share
------------------------------------ ------------ --------------- --------------- -----------
<S> <C> <C> <C> <C>
Edwin L. Harper, Ph.D. ............. 125,000 Non-Qualified 16.9% *
Paul E. Hannesson .................. 135,000 Non-Qualified 18.3% *
Carl O. Magnell .................... 71,000 Non-Qualified 9.6% *
James M. DeAngelis ................. 101,250 Non-Qualified 13.7% *
Srinivas Kilambi, Ph.D. ............ 67,500 Non-Qualified 9.1% *
Michael D. Kiehnau ................. 50,625 Non-Qualified 6.9% *
Andrew P. Oddi ..................... 50,625 Non-Qualified 6.9% *
Kenneth L. Adelman, Ph.D. .......... 45,563 Non-Qualified 6.2% *
David L. Mitchell .................. 45,563 Non-Qualified 6.2% *
William R. Toller .................. 45,563 Non-Qualified 6.2% *
------------ --------------- -----------
All executive officers and directors
as a group (eleven persons) ....... 737,689 100.0%
============ =============== ===============
</TABLE>
- ------
* To be equal to the initial public offering price per share of the Common
Stock in this Offering.
EXECUTIVE BONUS PLAN
On September 5, 1996, the Company's Board of Directors established a
five-year Executive Bonus Plan (the "Bonus Plan") to reward executive
officers and other key employees based upon the Company achieving certain
performance levels. Under the Bonus Plan, commencing with the Company's 1997
fiscal year and for each of the four fiscal years thereafter, the Company
will have discretion to award bonuses in an aggregate amount in each fiscal
year equal to 1% of the Company's consolidated net revenues for such fiscal
year, provided and on the condition that the Company achieves a consolidated
net profit before taxes of not less than 5% of consolidated net sales in each
year, and provided that the aggregate bonuses in each year (out of the
maximum amount of 1% of annual net sales) shall not be in excess of the
proportion by which the Company's consolidated net profit before taxes is
greater than 5% of consolidated net sales but less than 15% of consolidated
net sales. The Compensation Committee of the Board of Directors of the
Company will determine the allocable amounts or percentages of the bonus pool
which may be paid annually to participants. Bonuses under the Bonus Plan are
not exclusive of other bonuses that may be awarded by the Board of Directors
or the Compensation Committee from time to time.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company has included in its Certificate of Incorporation and By-Laws
provisions to (i) eliminate the personal liability of its directors and
officers for monetary damages resulting from breaches of their fiduciary duty
(provided that such provisions do not eliminate liability for breaches of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under
Section 174 of the Delaware General Corporation Law (the "Delaware Law"), or
for any transaction from which the director and/or officer derived an
improper personal benefit), and (ii) indemnify its directors and officers to
46
<PAGE>
the fullest extent permitted by the Delaware Law, including circumstances in
which indemnification is otherwise discretionary. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus with respect to (i) the beneficial ownership of the Common Stock
of the Company by each beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company, each director, each executive officer
and all executive officers and directors of the Company as a group, and (ii)
the number of shares of Common Stock owned by each such person and group.
Unless otherwise indicated, the owners have sole voting and investment power
with respect to their respective shares.
<TABLE>
<CAPTION>
Percentage of Outstanding
Common Stock
Number of Shares Beneficially Owned
of Common Stock ----------------------------------
Name and Address of Beneficially After
Beneficial Owner(1) Owned(2) Before Offering Offering(15)
----------------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Commodore Applied
Technologies, Inc. ..................... 10,000,000 100.0% 87.0%
Commodore Environmental Services,
Inc.(3) ................................ 10,000,000 100.0% 87.0%
Bentley J. Blum(4) ...................... 10,000,000 100.0% 87.0%
Paul E. Hannesson(5) .................... 947,059 9.5% 8.2%
Edwin L. Harper, Ph.D.(6) ............... 101,177 1.0% *
Carl O. Magnell(7) ...................... 39,770 * *
James M. DeAngelis(8) ................... 97,092 * *
Srinivas Kilambi, Ph.D.(9) .............. 39,996 * *
Michael D. Kiehnau(10) .................. 10,125 * *
Andrew P. Oddi(11) ...................... 40,035 * *
Kenneth L. Adelman, Ph.D(12) ............ 15,188 * *
David L. Mitchell(13) ................... 15,188 * *
William R. Toller(14) ................... 15,188 * *
All executive officers and directors as a
group (eleven persons) ................. 10,000,000 100.0% 87.0%
</TABLE>
- ------
*Percentage ownership is less than 1%.
(1) The addresses of each of Commodore Applied Technologies, Inc., Commodore
Environmental Services, Inc., Bentley J. Blum, Paul E. Hannesson, Andrew
P. Oddi, 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 8000 Towers Crescent Drive,
Suite 1350, Vienna, Virginia 22182. The address of Carl O. Magnell,
James M. DeAngelis and Srinivas Kilambi, Ph.D. is 1487 Delashmut Avenue,
Columbus, Ohio 43212. The address of Michael D. Kiehnau is 215 Prairie
Street, Concord, Massachusetts 01742. Bentley J. Blum and Paul E.
Hannesson are brothers-in-law.
(2) As used herein, the term beneficial ownership with respect to a security
is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the
power to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose or direct the disposition of) with
respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire
such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting and investment
rights.
(3) 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
Commodore, based upon Mr. Blum's beneficial ownership of 28,224,050
shares and his spouse's ownership of 2,000,000 shares of common stock of
Commodore, representing together 51.8% of the outstanding shares of
Commodore common stock. As of December 31, 1996, there were 58,299,368
outstanding shares of Commodore common stock. Does not include 440,000
shares of Commodore common stock owned by Simone Blum, the mother of Mr.
Blum, and 395,000 shares of Commodore common stock owned by Samuel Blum,
the father of Mr. Blum. Mr. Blum disclaims any beneficial interest in
the shares of Commodore common stock owned by his spouse, mother and
father.
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<PAGE>
(5) Consists of (a) 27,000 shares of Common Stock, representing 20% of the
135,000 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 Commodore common stock owned by Suzanne Hannesson,
the spouse of Mr. Hannesson, (ii) 2,650,000 shares of Commodore common
stock owned by the Hannesson Family Trust (Suzanne Hannesson and John D.
Hannesson, trustees) for the benefit of Mr. Hannesson's spouse, (iii)
currently exercisable options to purchase 500,000 and 950,000 shares of
Commodore common stock at $.53 per share and $1.12 per share,
respectively, representing collectively 11.6% of the outstanding shares
of Commodore 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 Commodore common stock
owned by each of Jon Paul and Krista Hannesson, the adult children of
Mr. Hannesson and additional stock options to purchase 2,500,000 shares
of Commodore common stock at $1.12 per share, which vest and become
exercisable ratably on November 18 of each of 1997 through 2001. Mr.
Hannesson disclaims any beneficial interest in the shares of Commodore
common stock owned by or for the benefit of his spouse and children.
(6) Consists of (a) Dr. Harper's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 375,000 shares of Commodore
common stock, and currently exercisable options to purchase 200,000
shares of Commodore common stock at $1.12 per share, of which additional
options to purchase 1,800,000 shares of Commodore common stock vest and
become exercisable ratably on November 18 of each of 1997 through 2001,
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 (a) Mr. Magnell's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 60,000 shares of Commodore
common stock, and currently exercisable options to purchase 40,000
shares of Commodore common stock at $.50 per share, and 35,000 shares of
Applied Common Stock at $6.00 per share, granted to Mr. Magnell under
Applied's 1996 Stock Option Plan, and (b) 14,200 shares of Common Stock,
representing 20% of the 71,000 stock options granted to Mr. Magnell
under the Plan, which are currently exercisable.
(8) Consists of (a) Mr. DeAngelis' indirect beneficial interest in the
shares of Common Stock, based upon his ownership of 480,000 shares of
Commodore common stock, and currently exercisable options to purchase
100,000 shares of Commodore common stock at $.03 per share, and (b)
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.
(9) Consists of (a) Dr. Kilambi's indirect beneficial interest in the shares
of Common Stock, based upon his ownership of 200,000 shares of Commodore
common stock, and (b) 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.
(10) Consists of 10,125 shares of Common Stock, representing 20% of the
50,625 stock options granted to Mr. Kiehnau under the Plan, which are
currently exercisable.
(11) Consists of (a) Mr. Oddi's indirect beneficial interest in the shares of
Common Stock, based upon his ownership of 250,000 shares of Commodore
common stock, 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.
(12) Consists of 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.
(13) Consists of 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.
(14) 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.
(15) Assuming the full conversion of the Convertible Preferred Stock and the
exercise of the Warrants offered hereby, the percentage of outstanding
common stock beneficially owned by Applied, Commodore and Mr. Blum would
be 60.6% and by Mr. Hannesson would be 5.7%.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION AND CAPITALIZATION OF THE COMPANY
The Company was organized in November 1995 as a wholly-owned subsidiary of
Commodore. Effective February 29, 1996, pursuant to an assignment of
technology agreement between the Company and Srinivas Kilambi, Ph.D., the
Company's Vice President--Technology, the Company acquired rights to the CST
technology from Dr. Kilambi. In consideration for such technology, the
Company transferred to Dr. Kilambi 200,000 shares of common stock of
Commodore, which had been contributed to the Company by Commodore to effect
the transaction, and the Company agreed to pay Dr. Kilambi a royalty through
December 3, 2002 equal to 2% of the Company's revenues actually received and
attributed to the commercial application of the acquired technology, 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 Commodore's issuance of such shares to the Company,
as well as Commodore's funding and support of the Company, the Company issued
to Commodore 10,000,000 shares of Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources" and "Business -- Intellectual Property."
Since the Company's inception, Commodore has financed the research and
development activities of the Company through direct equity investments and
loans to the Company. As of September 30, 1996, the Company's aggregate
indebtedness to Commodore was approximately $408,000. As of December 2, 1996,
$568,000 in additional funds had been advanced by Commodore to the Company.
Commodore has agreed to contribute the entire amount of such intercompany
debt to the Company's equity, without requirement of the issuance of any
additional shares of capital stock.
Effective as of December 2, 1996, as part of a corporate restructuring to
consolidate all of its current environmental technology businesses within
Applied (its 69.3%-owned, publicly-traded subsidiary), Commodore transferred
to Applied 100% of the capital stock of the Company and 100% of the capital
stock of CFC Technologies, another subsidiary of Commodore.
In addition, Commodore assigned to Applied outstanding Company notes
aggregating $976,000 at November 26, 1996, representing advances previously
made by Commodore to the Company. Such advances will be capitalized by
Applied prior to the date of this Offering as its Capital Contribution to the
Company. In consideration for such transfers, Applied paid Commodore
$3,000,000 in cash and, subject to any applicable stockholder approval and
notification requirements, shall issue to Commodore a warrant expiring
December 1, 2003 to purchase 7,500,000 shares of Applied common stock at an
exercise price of $15.00 per share.
LOAN AGREEMENT WITH COMMODORE
The Company intends to enter into a revolving credit agreement with
Commodore, on or immediately prior to the consummation of this Offering,
pursuant to which the Company may lend from time to time, prior to the second
anniversary of this Offering, up to $5,000,000 to Commodore for its working
capital needs. Borrowings under the agreement will be secured by Commodore's
pledge of 1,000,000 shares of Applied common stock held by it and will bear
interest at the rate of 10% per annum, with interest payable quarterly on
outstanding amounts. The principal balance outstanding will be due on the
second anniversary of this Offering, subject to mandatory prepayment of
principal and interest, in whole or in part, from the net cash proceeds in
excess of $5,000,000 from any public or private, equity or debt financing
made by Commodore at any time before maturity. The Company's obligation to
lend such funds to Commodore is subject to a number of conditions, including
review by the Company of the proposed use of such funds by Commodore. The
Company intends to utilize a portion of the net proceeds of this Offering to
perform its obligations under such agreement. See "Risk Factors -- Control by
Principal Stockholder; Loan to Commodore," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
OFFICES
The Company's principal executive offices are located in approximately
2,000 square feet of office space in New York, New York, which also serves as
the principal executive offices of Commodore, Applied, certain of
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their affiliates, and Messrs. Bentley J. Blum and Paul E. Hannesson,
directors of each of the Company, Commodore and Applied. The Company does not
pay any rent with respect to such offices. In addition, the Company currently
shares facilities in Columbus, Ohio with Commodore and certain of its other
subsidiaries. The Company pays an allocable share of rent equal to $750 per
month for such space. See "Business - Properties."
The Company has leased a new facility of approximately 20,000 square feet
near Atlanta, Georgia, which it anticipates occupying in January 1997 and
will comprise the Company's executive and administrative offices, research
and testing laboratories and CST manufacturing plant. See "Use of Proceeds."
Upon commencement of its occupancy at such facility, the Company, together
with Commodore, may elect to terminate the existing lease in Columbus, Ohio.
FUTURE TRANSACTIONS
In connection with the Offering, the Company's Board of Directors has
adopted a policy whereby any future transactions between the Company and any
of its subsidiaries, affiliates, officers, directors, principal stockholders
or any affiliates of the foregoing will be on terms no less favorable to the
Company than could reasonably be obtained in "arm's length" transactions with
independent third parties, and any such transactions will also be approved by
a majority of the Company's disinterested outside directors.
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DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 50,000,000 shares of Common Stock, par value $.001 per share,
and 5,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"), which Preferred Stock may be issued with such rights,
designations and privileges (including redemption and voting rights) as the
Board of Directors may, from time to time, determine.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share and,
subject to the rights of the holders of the Preferred Stock (discussed
below), to receive dividends when and as declared by the Board of Directors,
and to share ratably in the assets of the Company legally available for
distribution in the event of the liquidation, dissolution or winding up of
the Company. The Board of Directors may not declare dividends payable to
holders of Common Stock unless and until all accrued cash dividends through
the most recent past annual dividend payment date have been paid in full to
holders of the Convertible Preferred Stock. Holders of the Common Stock do
not have subscription, redemption or conversion rights, nor do they have any
preemptive rights. In the event the Company were to elect to sell additional
shares of its Common Stock following this Offering, investors in this
Offering would have no right to purchase such additional shares. As a result,
their percentage equity interest in the Company would be diluted. The shares
of Common Stock offered hereby will be, when issued and paid for, fully-paid
and not liable for further call or assessment. Holders of the Common Stock do
not have cumulative voting rights, which means that the holders of more than
half of the outstanding shares of Common Stock (subject to the rights of the
holders of the Preferred Stock) can elect all of the Company's directors, if
they choose to do so. In such event, the holders of the remaining shares
would not be able to elect any directors. The Board is empowered to fill any
vacancies on the Board. Except as otherwise required by the Delaware Law, all
stockholder action is taken by vote of a majority of the outstanding shares
of Common Stock voting as a single class present at a meeting of stockholders
at which a quorum (consisting of a majority of the outstanding shares of the
Company's Common Stock) is present in person or by proxy.
PREFERRED STOCK
The Company is authorized by its Certificate of Incorporation to issue a
maximum of 5,000,000 shares of Preferred Stock, in one or more series and
containing such rights, privileges and limitations, including voting rights,
conversion privileges and/or redemption rights, as may, from time to time, be
determined by the Board of Directors of the Company. Preferred Stock may be
issued in the future in connection with acquisitions, financings or such
other matters as the Board of Directors deems to be appropriate. In the event
that any such shares of Preferred Stock shall be issued, a Certificate of
Designation, setting forth the series of such Preferred Stock and the
relative rights, privileges and limitations with respect thereto, shall be
filed with the Secretary of State of the State of Delaware. The effect of
such Preferred Stock is that the Company's Board of Directors alone, within
the bounds and subject to the federal securities laws and the Delaware Law,
may be able to authorize the issuance of Preferred Stock which could have the
effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect
the voting and other rights of holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may also adversely affect
the voting power of the holders of Common Stock, including the loss of voting
control to others.
CONVERTIBLE PREFERRED STOCK
The issuance of 1,875,000 shares of Convertible Preferred Stock has been
authorized by resolutions adopted by the Board of Directors and set forth in
a Certificate of Designation, Preferences and Rights of 10% Senior
Convertible Redeemable Preferred Stock filed with the Secretary of State of
the State of Delaware, which contains the designations, rights, powers,
preferences, qualifications and limitations of the Convertible Preferred
Stock. Upon issuance, the shares of Convertible Preferred Stock offered
hereby will be fully paid and non-assessable.
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Dividends. The holders of the Convertible Preferred Stock are entitled to
receive if, when and as declared by the Board of Directors out of funds
legally available therefor, cumulative dividends at the rate of $1.00 per
share per annum, payable quarterly on the last business day of March, June,
September and December of each year, commencing March 31, 1997 (each a
"Dividend Payment Date"), to the holders of record as of a date, not more
than 60 days prior to the Dividend Payment Date, as may be fixed by the Board
of Directors. Dividends accrue from the first day of the year in which such
dividend may be payable, except with respect to the first annual dividend
which shall accrue from the date of issuance of the Convertible Preferred
Stock.
Dividends on the Convertible Preferred Stock will accrue whether or not
the Company has earnings, whether or not there are funds legally available
for the payment of such dividends and whether or not such dividends are
declared. Dividends accumulate to the extent they are not paid on the
Dividend Payment Date to which they relate. Accumulated unpaid dividends will
not bear interest. Under Delaware Law, the Company may declare and pay
dividends or make other distributions on its capital stock only out of
capital surplus, as defined in the Delaware Law. On September 30, 1996, the
Company had available surplus of $5,000 (or $22,071,500 after giving effect
to this Offering). The payment of dividends and any future operating losses
will reduce such surplus of the Company, which may adversely affect the
ability of the Company to continue to pay dividends on the Convertible
Preferred Stock. In addition, no dividends or distributions may be declared,
paid or made if the Company is or would be rendered insolvent by virtue of
such dividend or distribution.
No dividends may be paid on any shares of capital stock ranking junior to
the Convertible Preferred Stock (including the Common Stock) unless and until
all accumulated and unpaid dividends on the Convertible Preferred Stock have
been declared and paid in full.
Conversion. At the election of the holder thereof, each share of
Convertible Preferred Stock will be convertible into Common Stock at any time
on or after the date of issuance and prior to redemption at a conversion rate
of 1.33 shares of Common Stock for each share of Convertible Preferred Stock
(an effective conversion price of $7.50 per share or 125% of the initial
public offering price per share of Common Stock) (the "Conversion Price").
The Conversion Price is subject to adjustment from time to time in the event
of (i) the issuance of Common Stock as a dividend or distribution on any
class of capital stock of the Company; (ii) the combination, subdivision or
reclassification of the Common Stock; (iii) the distribution to all holders
of Common Stock of evidences of the Company's indebtedness or assets
(including securities, but excluding cash dividends or distributions paid out
of earned surplus); (iv) 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, or 50% of the initial per
share Conversion Price of the shares of Common Stock issuable upon conversion
of the Convertible Preferred Stock; or (v) the sale of Common Stock at a
price, or the issuance of options, warrants or convertible securities with an
exercise or conversion price per share, less than the lower of the then
current Conversion Price or the then current market price of the Common Stock
(except upon exercise of options outstanding on the date of this Prospectus
and options thereafter granted to employees, officers, directors,
stockholders or consultants pursuant to existing stock option plans). No
adjustment in the Conversion Price will be required until cumulative
adjustments require an adjustment of at least 5% in the Conversion Price. No
fractional shares will be issued upon conversion, but any fractions will be
adjusted in cash on the basis of the then current market price of the Common
Stock. Payment of accumulated and unpaid dividends will be made upon
conversion to the extent of legally available funds. The right to convert the
Convertible Preferred Stock terminates on the date fixed for redemption.
In case of any consolidation or merger to which the Company is a party
(other than a consolidation or merger in which the Company is the surviving
party and the Common Stock is not changed or exchanged), or in case of any
sale or conveyance of all or substantially all the property and assets of the
Company, each share of Convertible Preferred Stock then outstanding will be
convertible from and after such merger, consolidation or sale or conveyance
of property and assets into the kind and amount of shares of stock or other
securities and property receivable as a result of such consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock into
which such share of Convertible Preferred Stock could have been converted
immediately prior to such merger, consolidation, sale or conveyance.
Optional Cash Redemption. The Company may, at its option, redeem the
Convertible Preferred Stock, in whole but not in part, upon 30 days prior
written notice at any time after February , 2000 at a redemption
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price of $10.00 per share, plus accumulated and unpaid dividends, if the
Market Price of the Common Stock (as defined below) equals or exceeds $11.25
per share [150% of the per share Conversion Price] for at least 20
consecutive trading days ending not more than 10 trading days prior to the
date of the notice of redemption. The term "Market Price" means the closing
bid price as reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by Nasdaq or, if not traded
thereon, the high bid price as reported by Nasdaq or, if not quoted thereon,
the high bid price on the OTC Bulletin Board or in the National Quotation
Bureau sheet listing for the Common Stock, or, if not listed therein, as
determined in good faith by the Board of Directors.
In addition, the Company may, at its option, redeem the Convertible
Preferred Stock in whole but not in part, at any time after February , 2001
at the redemption prices set forth below, plus accumulated and unpaid
dividends:
Redemption Price
Date of Redemption Per Share
-------------------------------------- --------------------
February , 2001 to February , 2002 . $
February , 2002 to February , 2003 .
February , 2003 to February , 2004 .
February , 2004 and thereafter ......
Provisions Relating to Optional Cash Redemption. Notice of redemption must
be mailed to each holder of Convertible Preferred Stock to be redeemed at his
last address as it appears upon the Company's registry books at least 30 days
prior to the date fixed for redemption (the "Redemption Date"). On and after
the Redemption Date, dividends will cease to accumulate on shares of
Convertible Preferred Stock called for redemption.
On or after the Redemption Date, holders of Convertible Preferred Stock
which have been redeemed shall surrender their certificates representing such
shares to the Company at its principal place of business or as otherwise
specified in the notice of redemption or exchange and thereupon either (i)
the redemption price of such shares shall be payable to the order of, or (ii)
the shares of Common Stock shall be issued to, the person whose name appears
on such certificate or certificates as the owner thereof; provided, that a
holder of Convertible Preferred Stock may elect to convert such shares into
Common Stock at any time prior to the Redemption Date.
From and after the Redemption Date, all rights of the holders of redeemed
shares shall cease with respect to such shares and such shares shall not
thereafter be transferred on the books of the Company or be deemed to be
outstanding for any purpose whatsoever.
Voting Rights. The holders of Convertible Preferred Stock are not entitled
to vote, except as set forth below and as provided by applicable law. On
matters subject to a vote by holders of Convertible Preferred Stock, the
holders are entitled to one vote per share.
The affirmative vote of at least a majority of the shares of Convertible
Preferred Stock, voting as a class, shall be required to authorize, effect or
validate the creation and issuance of any class or series of stock ranking
superior to or on parity with the Convertible Preferred Stock with respect to
the declaration and payment of dividends or distribution of assets on
liquidation, dissolution or winding-up. In the event that the Company has the
right to redeem the Convertible Preferred Stock, no such vote is required if,
prior to the time such class is issued, provision is made for the redemption
of all shares of Convertible Preferred Stock and such Convertible Preferred
Stock is redeemed on or prior to the issuance of such class.
In the event that the Company fails to pay any dividends for four
consecutive quarterly dividend payment periods, the holders of the
Convertible Preferred Stock, voting separately as a class, shall be entitled
to elect one director. Such right will be terminated as of the next annual
meeting of stockholders of the Company following payment of all accrued
dividends.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, before any payment or distribution
of the assets of the Company (whether capital or surplus), or the proceeds
thereof, may be made or set apart for the holders of Common Stock or any
stock ranking junior to Convertible Preferred Stock, the holders of
Convertible Preferred Stock will be entitled to receive, out of the
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assets of the Company available for distribution to stockholders, a
liquidating distribution of $10.00 per share, plus any accumulated and unpaid
dividends. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the assets of the Company are insufficient to make
the full payment of $10.00 per share, plus all accumulated and unpaid
dividends on the Convertible Preferred Stock and similar payments on any
other class of stock ranking on a parity with the Convertible Preferred Stock
upon liquidation, then the holders of Convertible Preferred Stock and such
other shares will share ratably in any such distribution of the Company's
assets in proportion to the full respective distributable amounts to which
they are entitled.
A consolidation or merger of the Company with or into another corporation
or sale or conveyance of all or substantially all the property and assets of
the Company will not be deemed to be a liquidation, dissolution or
winding-up, voluntary or involuntary, of the Company for purposes of the
foregoing. See " Conversion."
Miscellaneous. The Company is not subject to any mandatory redemption or
sinking fund provision with respect to the Convertible Preferred Stock. The
holders of the Convertible Preferred Stock are not entitled to preemptive
rights to subscribe for or to purchase any shares or securities of any class
which may at any time be issued, sold or offered for sale by the Company.
Shares of Convertible Preferred Stock redeemed or otherwise reacquired by the
Company shall be retired by the Company and shall be unavailable for
subsequent issuance as any class of the Company's Preferred Stock.
WARRANTS
The following is a brief summary of certain provisions of the Warrants.
Reference is made to the actual text of the Warrant Agreement between the
Company, the Representative and The Bank of New York (the "Warrant Agent"), a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, for a more complete description of the
Warrants. See "Additional Information."
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time during the four year period commencing one
year after the date of this Prospectus, one share of Common Stock at a price
of $8.40 per share [140% of the initial public offering price per share of
Common Stock], subject to adjustment in accordance with the anti-dilution and
other provisions referred to below. The holder of any Warrant may exercise
such Warrant by surrendering the certificate representing the Warrant to the
Warrant Agent, with the subscription form thereon properly completed and
executed, together with payment of the exercise price. No fractional shares
will be issued upon the exercise of the Warrants.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon
the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock, or sale by the Company
of shares of its Common Stock or other securities convertible into Common
Stock (exclusive of options and shares under the Plan, and other limited
exceptions) at a price below the then-applicable exercise price of the
Warrants. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable
warrantholders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Common Stock that might have been purchased upon the exercise of
the Warrant.
Redemption Provisions. Commencing 18 months after the date of this
Prospectus, the Warrants are subject to redemption at $.10 per Warrant on 30
days' prior written notice provided that the average closing sale price of
the Common Stock equals or exceeds $18.00 per share [300% of the initial
public offering price of the Common Stock] (subject to adjustment for stock
dividends, stock splits, combinations or reclassifications of the Common
Stock), for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption. In the event the Company exercises the right to redeem the
Warrants, such Warrants will be exercisable until the close of business on
the business day immediately preceding the date for redemption fixed in such
notice. If any Warrant called for redemption is not exercised by such time,
it will cease to be exercisable and the holder will be entitled only to the
redemption price.
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Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at
any time on or prior to their expiration date five years from the date of
this Prospectus, at which time the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the
Warrants instead of exercising them. There can be no assurance, however, that
a market for the Warrants will develop or continue.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do
not adversely affect the interests of the warrantholders. The Company may, in
its sole discretion, lower the exercise price of the Warrants for a period of
not less than 30 days on not less than 30 days' prior written notice to the
warrantholders and the Representative. Modification of the number of
securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Warrants, without the consent of two-thirds of the warrantholders.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered,
qualified or deemed to be exempt under the securities laws of the state of
residence of the exercising holder of the Warrants. Although the Company will
use its best efforts to have all of the shares of Common Stock issuable upon
exercise of the Warrants registered or qualified on or before the exercise
date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there can be no assurance that it will be able to
do so.
The Warrants are separately transferable immediately upon issuance.
Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise
qualified for sale, purchasers may buy Warrants in the aftermarket or may
move to jurisdictions in which the shares underlying the Warrants are not so
registered or qualified during the period that the Warrants are exercisable.
In this event, the Company would be unable to issue shares to those persons
desiring to exercise their Warrants, and holders of Warrants would have no
choice but to attempt to sell the Warrants in a jurisdiction where such sale
is permissible or allow them to expire unexercised.
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the
date of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock, or
(iii) on or after such date, the business combination is approved by the
board of directors and by the affirmative vote of at least 66 2/3 % of the
outstanding voting stock that is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns
(or within three years, did own) 15% or more of the corporation's voting
stock.
TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT
The Transfer Agent and Registrar for the Convertible Preferred Stock and
the Common Stock and the Warrant Agent for the Warrants is The Bank of New
York, 101 Barclay Street, New York, New York 10286.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 11,500,000 shares
of Common Stock outstanding, of which (i) the 1,500,000 shares of Common
Stock offered hereby, (ii) the 1,500,000 shares of Convertible Preferred
Stock, (iii) the 3,000,000 Warrants, (iv) the maximum of 2,000,000 shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock and
(v) the maximum of 3,000,000 shares of Common Stock issuable upon exercise of
the Warrants will be transferable without restriction under the Securities
Act. The other 10,000,000 outstanding shares of Common Stock, all of which
are owned by Applied, are "restricted securities" (as that term is defined in
Rule 144 promulgated under the Securities Act) which may be publicly sold
only if registered under the Securities Act or if sold in accordance with an
applicable exemption from registration, such as Rule 144. In general, under
Rule 144 as currently in effect, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted securities for at least two years, is entitled
to sell (together with any person with whom such individual is required to
aggregate sales), within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or, if the Common Stock is quoted on Nasdaq or another national
securities exchange, the average weekly trading volume during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements, and the availability
of current public information regarding the Company. A person who has not
been an affiliate of the Company for at least three months, and who has
beneficially owned restricted securities for at least three years, is
entitled to sell such restricted shares under Rule 144 without regard to any
of the limitations described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus
pursuant to written compensatory benefit plans such as the Plan and written
contracts such as option agreements. Rule 701 is also available for sales of
shares acquired by persons pursuant to the exercise of options granted prior
to the effective date of this Prospectus, regardless of whether the option
exercise occurs before or after the effective date of this Prospectus.
Securities issued in reliance on Rule 701 are "restricted securities" within
the meaning of Rule 144 and, beginning 90 days after the date of this
Prospectus, may be sold by persons other than affiliates of the Company
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its two-year minimum holding period
requirement.
Options granted under the Plan to purchase a total of 737,689 shares of
Common Stock are currently outstanding, and options to purchase an additional
612,311 shares of Common Stock are reserved for future issuance under the
Plan. Of the options granted under the Plan, 165,763 of such options are
currently exercisable, with the remaining outstanding options to become
exercisable at the rate of 165,763 options in each of December 1997 and 1998,
and 120,200 options in each of December 1999 and 2000. Shares of Common Stock
issued upon the exercise of outstanding options will be "restricted
securities" and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. Potential
exemptions include those available under Rule 144 and Rule 701.
No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will
have on the market prices of the Common Stock, the Convertible Preferred
Stock and the Warrants prevailing from time to time. The Company and Applied,
as well as all officers and directors of the Company and all holders of
outstanding securities exercisable for or convertible into Common Stock
(other than the Representative's Warrants), have agreed not to, directly or
indirectly, issue, agree or offer to sell, sell, transfer, assign,
distribute, grant an option for purchase or sale of, pledge, hypothecate or
otherwise encumber or dispose of any beneficial interest in such securities
for a period of 13 months following the date of this Prospectus without the
prior written consent of the Representative. The sale or issuance, or the
potential for sale or issuance, of Common Stock after such 13-month period
could have an adverse impact on the market prices of the Convertible
Preferred Stock, the Common Stock and/or the Warrants. Sales of substantial
amounts of Common Stock or the perception that such sales could occur could
adversely affect prevailing market prices for the Convertible Preferred
Stock, the Common Stock and/or the Warrants. All of the shares of Convertible
Preferred Stock to be outstanding will have been registered under the
Securities Act. See "Underwriting."
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
counsel to the Company, the material federal income tax consequences of
acquiring, owning and disposing of the Convertible Preferred Stock, the
Common Stock and the Warrants are as follows, subject to the qualifications
set forth in the two immediately following paragraphs.
This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, and Internal Revenue Service (the
"IRS") rulings and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action; any
such changes could be retroactively applied in a manner that could adversely
affect a holder of the Convertible Preferred Stock, Common Stock and/or
Warrants. The following does not discuss all of the tax consequences that may
be relevant to a purchaser in light of particular circumstances or to
purchasers subject to special rules, such as foreign investors, retirement
trusts, and life insurance companies. No information is provided with respect
to foreign, state or local tax laws, estate or gift tax considerations, or
other tax laws that may be applicable to particular categories of investors.
The discussion assumes that purchasers of the Convertible Preferred Stock,
Common Stock and/or Warrants will hold the Convertible Preferred Stock,
Common Stock and/or Warrants as a "capital asset" within the meaning of Code
Section 1221. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS AS TO
ANY FEDERAL, STATE, LOCAL AND FOREIGN OR OTHER TAX CONSIDERATIONS RELEVANT TO
THEM.
DIVIDENDS
Distributions with respect to the Convertible Preferred Stock and the
Common Stock will be treated as dividends and taxable as ordinary income to
the extent that the distributions are made out of the Company's current or
accumulated earnings and profits. To the extent that a distribution is not
made out of the Company's current or accumulated earnings and profits, the
distribution will constitute a non-taxable return of capital reducing the
holder's adjusted tax basis in the shares of Convertible Preferred Stock or
Common Stock held and, to the extent the distribution exceeds such basis,
will result in capital gain. At December 31, 1995, the Company had a deficit
in accumulated earnings and profits. Accordingly, the treatment of
distributions with respect to the Convertible Preferred Stock will be
determined by the Company's earnings and profits, if any, subsequent to
December 31, 1995.
Dividend income of individuals, certain closely held corporations and
personal service corporations (as defined in Code Section 469(j) may not be
offset by losses or credits from "passive activities," such as losses or
credits incurred in connection with certain rental activities or the
ownership of limited partnership interests.
Corporate stockholders will be eligible to claim a dividends-received
deduction (currently 70% of the amount of the dividend for most corporate
stockholders) with respect to distributions that are treated as dividends on
the Convertible Preferred Stock and Common Stock in calculating their taxable
income.
Under Code Section 246(c), the dividends-received deduction will not be
available with respect to any dividend on the shares of Convertible Preferred
Stock and Common Stock if such shares have been held for 45 days or less (or
90 days or less if the holder of the shares of Convertible Preferred Stock
received dividends with respect to the shares of Convertible Preferred Stock
which are attributable to a period or periods aggregating in excess of 366
days). The holding period of the shares of Convertible Preferred Stock for
this purpose is determined in accordance with certain specific rules set
forth in Code Section 246(c), which reduces the holding period for any period
where the holder's risk of loss, as to such stock, is diminished by certain
arrangements, such as the holding of an option to sell the same, or
substantially identical, securities. Regulations issued on May 26, 1993 also
reduce the holding period for any period in which a holder of Convertible
Preferred Stock has outstanding a short sale of Common Stock.
Code Section 246A provides a further restriction on the availability of
the dividends-received deduction on the shares of Convertible Preferred Stock
and Common Stock if the shares are classified as "debt-financed portfolio
stock." The shares of Convertible Preferred Stock will be classified as
debt-financed portfolio stock when
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<PAGE>
the holder incurs indebtedness directly attributable to the investment in the
shares of Convertible Preferred Stock. In that event, the dividends-received
deduction would be reduced to take into account the average amount of such
indebtedness. Also, the United States Treasury Department is authorized to
issue regulations that (i) would reduce the interest deductions attributable
to indebtedness in certain cases in which the obligor of such indebtedness is
a person other than the recipient of the dividend, and (ii) would provide
that any reduction in the dividends-received deduction cannot exceed the
amount of any interest deduction allocable to such dividend.
A corporate shareholder will be required to reduce its basis in shares of
the Convertible Preferred Stock and Common Stock (but not below zero) by the
amount of any "extraordinary dividend" which is not taxed because of the
dividends-received deduction if such holder is not considered to have held
such stock for more than two years before the "dividend announcement date,"
within the meaning of Code Section 1059. The amount, if any, by which such
reduction exceeds the corporate shareholder's basis in such shares will be
treated as gain on the subsequent sale or disposition of the stock. With
respect to the Convertible Preferred Stock, an "extraordinary dividend" would
be a dividend that (i) equals or exceeds 5% of the holder's adjusted basis in
the Convertible Preferred Stock or 10% in the Common Stock (treating all
dividends having ex-dividend dates within an 85-day period as a single
dividend) or (ii) exceeds 20% of the holder's adjusted basis in the stock
(treating all dividends having ex-dividend dates within a 365-day period as a
single dividend). If an election is made by the holder, under certain
circumstances the fair market value of the stock as of the day before the
ex-dividend date may be substituted for the holder's basis in applying these
tests. An "extraordinary dividend" would also include any amount treated as a
dividend in the case of a redemption of the Convertible Preferred Stock and
the Common Stock that is non-pro rata as to all shareholders, without regard
to the period the holder held the stock.
Special rules apply with respect to "qualified preferred dividends." A
qualified preferred dividend is any fixed dividend payable with respect to
preferred stock which (i) provides for fixed preferred dividends payable no
less often than annually and (ii) is not in arrears as to dividends when
acquired, provided the actual rate of return as determined under Section
1059(e) (3) of the Code, on such stock does not exceed 15%. Where a qualified
preferred dividend exceeds the 5% or 20% limitation described above, (1) the
extraordinary dividend rules will not apply if the taxpayer holds the stock
for more than five years, and (2) if the taxpayer disposes of the stock
before it has been held for more than five years, the aggregate reduction in
basis will not exceed the excess of the qualified preferred dividends paid on
such stock during the period held by the taxpayer over the qualified
preferred dividends which would have been paid during such period on the
basis of the stated rate of return as determined under Section 1059(e) (3) of
the Code. The length of time that a taxpayer is deemed to have held stock for
purposes of the extraordinary dividend rules is determined under principles
similar to those applicable for purposes of the dividends-received deduction
discussed above.
A corporate holder may be required to include in determining its
alternative minimum taxable income an amount equal to a portion of any
dividends-received deduction allowed in computing regular taxable income.
Under certain circumstances, the operation of the conversion price
adjustment provisions of the Convertible Preferred Stock may result in the
holders being deemed to have received a constructive distribution, which may
be taxable as a dividend, even though the holders do not actually receive
cash or property.
REDEMPTION PREMIUM
If the redemption price of preferred stock that is subject to optional
redemption by the issuer exceeds the issue price and if such excess is not
considered "reasonable," the entire amount of the redemption premium will be
treated as being distributed to the holders of such stock, taxable as
described above, on an economic accrual basis over the period from issuance
of the preferred stock until the date the stock is first redeemable. A
premium is considered to be reasonable if it is in the nature of a penalty
for a premature redemption and if such premium does not exceed the amount
which the issuer would be required to pay for such redemption right under
market conditions existing at the time of issuance of the preferred stock. If
the redemption premium payable on the Convertible Preferred Stock is
considered unreasonable under the foregoing rules, a holder of the
Convertible Preferred Stock would take the amount of such premium into income
over the period during which the stock cannot be called for redemption under
an economic accrual method. The Revenue Reconciliation Act of 1990
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<PAGE>
authorized the Treasury Department to promulgate new regulations regarding
the federal income tax treatment of redemption premiums with respect to
preferred stock. No such regulations have been issued and no assurance can be
given as to the treatment of the redemption premium with respect to the
Convertible Preferred Stock under any such regulations.
CONVERSION
Conversion of the Convertible Preferred Stock into Common Stock will not
result in the recognition of gain or loss (except with respect to cash
received in lieu of fractional shares). The holder's adjusted tax basis in
the Common Stock received upon conversion would be equal to the holder's tax
basis in the shares of Convertible Preferred Stock converted, reduced by the
portion of such basis allocable to the fractional share interest exchanged
for cash. The holding period for the Common Stock received upon conversion
would include the holding period of the Convertible Preferred Stock
converted. The tax basis for the Convertible Preferred Stock will equal its
cost, which is $10.00 per share.
OPTIONAL CASH REDEMPTION
In the event the Company exercises its right to redeem the Convertible
Preferred Stock the surrender of the Convertible Preferred Stock for the
redemption proceeds by the holders will be treated as a sale or exchange and
the surrendering holder will recognize capital gain or loss equal to the
difference between the redemption proceeds (other than proceeds attributable
to declared but unpaid dividends, which will be taxed as dividends as
described above) and the holder's adjusted tax basis in the Convertible
Preferred Stock, provided the redemption (1) results in a "complete
termination" of the holder's stock interest in the Company (inclusive of any
Common Stock owned) under Section 302(b)(3) of the Code, (2) is
"substantially disproportionate" with respect to the holder under Section
302(b) (2) of the Code, (3) is "not essentially equivalent to a dividend"
with respect to the holder under Section 302(b) (1) of the Code, or (4) is
from a noncorporate holder in partial liquidation of the Company under
Section 302(b)(4) of the Code. The constructive ownership rules of the Code
must be taken into consideration in determining whether any of these tests
has been met. If a redemption of the Convertible Preferred Stock does not
meet any of these tests, then the gross proceeds received would be treated as
a distribution taxable to the holder in the manner described under
"Dividends" above.
DISPOSITION
Except as described above, the holder of any of the Convertible Preferred
Stock or Common Stock will recognize gain or loss upon the sale, exchange,
redemption, retirement or other disposition of such securities measured by
the difference between (a) the amount of cash and the fair market value of
property received and (b) the holder's adjusted tax basis in the security
disposed of. Any gain or loss on such sale, exchange, redemption, retirement
or other disposition will be capital gain provided the security disposed of
is held as a capital asset and will be long-term capital gain if the holding
period exceeds one year. For corporate taxpayers, long-term capital gains
are taxed at the same rate as ordinary income. For individual taxpayers, net
capital gains (the excess of the taxpayer's net long-term capital gains over
his net short-term capital losses) are subject to a maximum tax rate of 28%.
The deductibility of capital losses are restricted and, in general, may only
be used to reduce capital gains to the extent thereof. However, individual
taxpayers may deduct $3,000 of capital losses in excess of their capital
gains. Capital losses which cannot be utilized because of the aforementioned
limitation are, for corporate taxpayers carried back three years and, in most
circumstances, carried forward for five years; for individual taxpayers,
capital losses may only be carried forward but without a time limitation.
BACKUP WITHHOLDING
A holder of any of the Convertible Preferred Stock or Common Stock may be
subject to backup withholding at the rate of 31% with respect to dividends
thereon unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides
a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A holder who does not provide
the Company with a
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correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amount paid as backup withholding will be creditable against the
holder's Federal income tax liability. Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining any applicable exemption.
WARRANTS
A holder's basis in the Warrants will be equal to the purchase price paid
therefor. However, there can be no assurance that the Internal Revenue
Service will not allocate the aggregate purchase price for such securities in
a different manner for purposes of determining the respective adjusted bases
for the Convertible Preferred Stock, Common Stock and/or Warrants of a
purchaser, if any or all of such securities are purchased.
Upon a sale or exchange of the Warrants (including the receipt of cash in
lieu of a fractional share of Common Stock issuable upon exercise of the
Warrants), a holder of the Warrants will recognize capital gain or loss equal
to the difference between the amount realized upon such sale or exchange and
the holder's basis in the Warrants (as determined above). Such gain or loss
will be long-term if, at the time of the sale or exchange, the Warrants were
held for more than one year. Adjustments to the exercise price or conversion
ratio, or the failure to make adjustments, may result in the receipt of a
constructive dividend by the holder.
Upon exercise of the Warrants, a holder's tax basis in the Common Stock
acquired upon such exercise will be equal to its tax basis in the Warrants
plus the exercise price of the Warrants. The holding period with respect to
such Common Stock will commence on the date of exercise. If the Warrants
expire without being exercised, a holder will have a capital loss equal to
its tax basis in the Warrants as if the Warrants had been sold on such date
for no consideration.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement (the "Underwriting Agreement"), to purchase
from the Company and the Company has agreed to sell to the Underwriters on a
firm commitment basis, the respective number of shares of Convertible
Preferred Stock, shares of Common Stock and Warrants set forth opposite their
names:
<TABLE>
<CAPTION>
Number of Shares Number of Number
of Convertible Shares of
Underwriters Preferred Stock of Common Stock Warrants
----------------------------------- -------------------- ------------------- -------------
<S> <C> <C> <C>
National Securities
Corporation ................
-------------------- ------------------- -------------
Total. ....................... 1,500,000 1,500,000 3,000,000
==================== =================== =============
</TABLE>
The Underwriters are committed to purchase all the shares of Convertible
Preferred Stock, shares of Common Stock and Warrants offered hereby, if any
of such Securities are purchased. The Underwriting Agreement provides that
the obligations of the several Underwriters are subject to conditions
precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per share of
Convertible Preferred Stock, $ per share of Common Stock and $ per
Warrant. Such dealers may reallow a concession not in excess of $ per share
of Convertible Preferred Stock, $ per share of Common Stock and $ per
Warrant to certain other dealers. After the commencement of the Offering, the
public offering price, concession and reallowance may be changed by the
Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representative a non-accountable expense allowance
equal to 3% of the gross proceeds derived from the sale of the Securities
underwritten.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to 225,000 additional shares of Convertible
Preferred Stock, up to 225,000 additional shares of Common Stock and/or up to
450,000 additional Warrants, at the initial public offering prices per share
of Convertible Preferred Stock, per share of Common Stock and per Warrant,
respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or
in part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate
to its initial commitment.
All officers, directors and stockholders of the Company and all holders of
any options, warrants or other securities convertible, exercisable or
exchangeable for Common Stock have agreed not to, directly or indirectly,
offer, agree or offer to sell, sell, transfer, assign, encumber, grant an
option for the purchase or sale of, pledge or otherwise dispose of any
beneficial interest in such securities for a period of 13 months following
the date of this Prospectus without the prior written consent of the
Representative. An appropriate legend shall be marked on the face of
certificates representing all such securities.
The Company has agreed not to, without the prior written consent of the
Representative, issue, sell, agree or offer to sell, grant an option for the
purchase or sale of, or otherwise transfer or dispose of any of its
securities for a period of 13 months following the effective date of the
Registration Statement of which this Prospectus is a part, except pursuant to
the conversion of the Convertible Preferred Stock, the exercise of the
Warrants and the exercise of those options existing on the date of this
Prospectus.
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In connection with this Offering, the Company has agreed to sell to the
Representative, for $.0001 per warrant, warrants to purchase from the Company
up to 150,000 shares of Convertible Preferred Stock, 150,000 shares of Common
Stock and/or 300,000 Warrants (the "Representative's Warrants"). The
Representative's Warrants are initially exercisable at a price of $12.00 per
share of Convertible Preferred Stock [120% of the initial public offering
price per share of Convertible Preferred Stock], $7.20 per share of Common
Stock [120% of the initial public offering price per share of Common Stock]
and $.12 per Warrant [120% of the initial public offering price per Warrant],
for a period of four years, commencing one year after the date of this
Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the date of this Prospectus,
except to officers of the Representative. The Representative's Warrants
provide for adjustment in the number of securities issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Common
Stock. The Representative's Warrants grant to the holders thereof certain
rights of registration for the securities issuable upon exercise thereof.
Although the Representative has been in business for over 40 years, the
Representative has participated in only 12 public offerings as an underwriter
during the last five years. In evaluating an investment in the Company,
prospective purchasers of the Securities offered hereby should consider the
Representative's limited experience.
Prior to this Offering, there has been no public market for the
Securities. Consequently, the initial public offering prices of the
Securities and the terms of the Convertible Preferred Stock have been
determined by negotiation between the Company and the Representative and do
not necessarily bear any relationship to the Company's asset value, net
worth, or other established criteria of value. The factors considered in such
negotiations (without one factor being materially more important than
another) were prevailing market conditions, the history of and prospects for
the industry in which the Company competes, an assessment of the Company's
management and technology, the prospects of the Company, its capital
structure, Commodore's ownership interest in the Company, the market for
initial public offerings and market prices of similar securities of
comparable publicly-traded companies.
Upon the exercise of any Warrants more than one year after the date of
this Prospectus, which exercise was solicited by the Representative, and to
the extent not inconsistent with the guidelines of the National Association
of Securities Dealers, Inc. and the Rules and Regulations of the Securities
and Exchange Commission (the "Commission"), the Company has agreed to pay the
Representative a commission of 5% of the aggregate exercise price of such
Warrants. However, no compensation will be paid to the Representative in
connection with the exercise of the Warrants if (a) the market price of the
Common Stock is lower than the exercise price, (b) the Warrants are held in a
discretionary account, or (c) the Warrants are exercised in an unsolicited
transaction where the holder of the Warrant has not stated in writing that
the transaction was solicited and has not designated in writing the
Representative as soliciting agent. Unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Representative and any
soliciting broker-dealers will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities for the periods prescribed by exemption (xi) to Rule
10b-6 before the solicitation activity or the termination (by waiver or
otherwise) of any right that the Representative and any soliciting
broker-dealers may have to receive a fee for the exercise of the Warrants
following such solicitation. As a result, the Representative and any
soliciting broker-dealers may be unable to continue to provide a market for
the Convertible Preferred Stock, Common Stock or Warrants during certain
periods while the Warrants are exercisable. If the Representative has engaged
in any of the activities prohibited by Rule 10b-6 during the periods
described above, the Representative has undertaken to waive unconditionally
its rights to receive a commission on the exercise of such Warrants.
The foregoing is a summary of the principal terms of the agreements
described above. Reference is made to a copy of each such agreement which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part for a more complete description thereof. See "Additional Information."
In July 1996, the Representative acted as the managing underwriter in
connection with the initial public offering by Applied, the Company's sole
stockholder, pursuant to which Applied sold to the public 5,000,000 shares of
common stock and 5,000,000 redeemable common stock purchase warrants, at a
price of $6.00 per share and $.10 per warrant. In addition, the
Representative exercised an over-allotment option granted to it by Applied to
purchase an additional 750,000 shares and 750,000 warrants.
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LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by the law firm of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, New York, New York, as counsel to the Company in
connection with this Offering. Orrick, Herrington & Sutcliffe LLP, New York,
New York, has acted as counsel to the Underwriters in connection with this
Offering. A shareholder of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel is the holder of 100,000 shares of Commodore common stock and stock
options to purchase 300,000 shares of Commodore common stock, representing
together less than 1% of Commodore's outstanding common stock.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement of which this Prospectus is a part have been audited
by Tanner + Co., independent certified public accountants, to the extent and
for the period set forth in the report of such firm contained herein and in
the Registration Statement of which this Prospectus is a part. All such
financial statements have been included in reliance upon such report given
upon the authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington D.C., a
Registration Statement under the Securities Act with respect to the
Securities offered hereby. This Prospectus, filed as a part of the
Registration Statement, does not contain certain information set forth in or
annexed as exhibits to the Registration Statement. For further information
regarding the Company and the Securities offered hereby, reference is made to
the Registration Statement and to the exhibits filed as a part thereof, which
may be inspected at the office of the Commission without charge or copies of
which may be obtained therefrom upon request to the Commission and payment of
the prescribed fee. With respect to each contract, agreement or other
document referred to in this Prospectus and filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved.
The Registration Statement and such exhibits and schedules may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048, and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Registration Statement may
also be accessed on the World Wide Web through the Commission's Internet
address at "http://www.sec.gov."
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COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report ................................................................... F-2
Balance Sheet as of June 30, 1996 and September 30, 1996 (unaudited) .......................... F-3
Statements of Operations for the period from November 15, 1995 (date of inception) to
June 30, 1996, the three months ended September 30, 1996 (unaudited) and November 15, 1995
(date of inception) to September 30, 1996 (unaudited) ........................................ F-4
Statement of Stockholders' Deficit for the period from November 15, 1995 (date of inception)
through September 30, 1996 (unaudited) ....................................................... F-5
Statement of Cash Flows for the period from November 15, 1995 (date of inception) to
June 30, 1996, the three months ended September 30, 1996 (unaudited) and November 15, 1995
(date of inception) to September 30, 1996 (unaudited) ........................................ F-6
Notes to Financial Statements. ................................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Commodore Separation Technologies, Inc.
We have audited the accompanying balance sheet of Commodore Separation
Technologies, Inc. (a development stage company) as of June 30, 1996, and the
related statements of operations, stockholders' deficit, and cash flows for
the period from November 15, 1995 (date of inception) to June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commodore Separation
Technologies, Inc. (a development stage company) as of June 30, 1996, and the
results of its operations and its cash flows for the period from November 15,
1995 (date of inception) to June 30, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 4, the
Company's significant operating losses and deficits in working capital and
stockholders' equity raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in note 4. The accompanying financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
TANNER + CO.
Salt Lake City, Utah
August 1, 1996 except notes 2 and 3
which are dated October 14, 1996 and
notes 1, 4, 5 and 7, which are dated January 15, 1997
F-2
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY
BALANCE SHEET
JUNE 30, 1996 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1996 1996
---------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash ............................................................................ $ 2,533 $ 59,008
Accounts receivable ............................................................. -- 7,758
Deferred offering costs ......................................................... -- 74,293
---------- ---------------
Total current assets ....................................................... 2,533 141,059
---------- ---------------
Property and equipment:
Technical equipment ............................................................. 7,498 171,982
Office equipment ................................................................ 3,142 4,879
---------- ---------------
10,640 176,861
Less accumulated depreciation ................................................ 52 6,438
---------- ---------------
Net property and equipment ................................................... 10,588 170,423
---------- ---------------
Intangible assets, net of accumulated amortization of $101 and $367 ............... 10,206 17,711
---------- ---------------
$ 23,327 $ 329,193
========== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ................................................................ $ 18,254 $ 142,104
Accrued liabilities ............................................................. 12,276 114,253
Due to related party ............................................................ 1,033 1,467
Note payable to stockholder ..................................................... 52,600 408,000
---------- ---------------
Total current liabilities .................................................. 84,163 665,824
---------- ---------------
Commitments and contingencies: .................................................... -- --
Stockholders' deficit;
Preferred stock, $.001 par value, 5,000,000 shares authorized, and no shares
issued ....................................................................... -- --
Common stock, $.001 par value, 50,000,000 shares authorized, 10,000,000 shares
issued and outstanding ....................................................... 10,000 10,000
Additional paid in capital ...................................................... 5,000 5,000
Subscription receivable ......................................................... (14,900) --
Deficit accumulated during the development stage ................................ (60,936) (351,631)
---------- ---------------
Total stockholders' deficit ................................................ (60,836) (336,631)
---------- ---------------
$ 23,327 $ 329,193
========== ===============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
PERIOD FROM NOVEMBER 15, 1995 (DATE OF INCEPTION) TO JUNE 30, 1996,
THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND NOVEMBER 15, 1995 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Cumulative
Period from Amounts Since
November 15, November 15,
1995 Three 1995
(Date of Months (Date of
inception) to Ended Inception) to
June 30, September 30, September 30,
1996 1996 1996
-------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue ..................... $ -- $ 7,758 $ 7,758
-------------- --------------- ---------------
Costs and expenses:
Research and development .. 50,080 165,280 215,360
Amortization .............. 101 266 367
General and administrative 9,720 128,307 138,027
-------------- --------------- ---------------
Total costs and expenses 59,901 293,853 353,754
-------------- --------------- ---------------
Loss from operations ........ (59,901) (286,095) (345,996)
Interest expense ............ (1,035) (4,600) (5,635)
-------------- --------------- ---------------
Net loss before income
taxes ................ (60,936) (290,695) (351,631)
Provision for income taxes .. -- -- --
-------------- --------------- ---------------
Net loss ............... $(60,936) $(290,695) $(351,631)
============== =============== ===============
Loss per share ......... $ (.01) $ (.03) $ (.04)
============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM NOVEMBER 15, 1995 (DATE OF
INCEPTION) THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
-------------------------- Subscription Paid in Development Stockholders'
Shares Amount Receivable Capital Stage Deficit
------------- --------- -------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 15, 1995 ....... -- $ -- $ -- $ -- $ --
Common stock issued for cash on
November 15, 1995 at $1 per share 100 100 -- -- 100
Forward stock split of 150,000
shares for one share on September
5, 1996 ......................... 14,999,900 14,900 (14,900) -- --
Reverse stock split of 1.50 shares
for one share on November 26,
1996 ............................ (5,000,000) (5,000) -- $5,000 -- --
Net loss ......................... -- -- -- -- (60,936) (60,936)
------------- --------- -------------- ------------ ------------- ---------------
Balance, June 30, 1996 ........... 10,000,000 $10,000 $(14,900) $5,000 $ (60,936) $ (60,836)
============= ========= ============== ============ ============= ===============
Payment of subscription receivable
(unaudited) ..................... -- -- 14,900 -- -- 14,900
Net loss (unaudited) ............. -- -- -- -- (290,695) (290,695)
------------- --------- -------------- ------------ ------------- ---------------
Balance, September 30, 1996
(unaudited) ..................... 10,000,000 $10,000 $ -- $5,000 $(351,631) $(336,631)
============= ========= ============== ============ ============= ===============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM NOVEMBER 15, 1995 (DATE OF
INCEPTION) TO JUNE 30, 1996, THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND
NOVEMBER 15, 1995 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Period from Period from
November 15, November 15,
1995 Three 1995
(Date of Months (Date of
Inception) to Ended Inception) to
June 30, September 30, September 30,
1996 1996 1996
-------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $(60,936) $(290,695) $(351,631)
Adjustments to reconcile net loss to net cash (used
in) operating activities:
Depreciation and amortization ................... 153 6,652 6,805
(Increase) decrease in:
Accounts receivable ........................... -- (7,758) (7,758)
Increase (decrease) in:
Accounts payable .............................. 18,254 123,850 142,104
Accrued liabilities ........................... 12,276 101,977 114,253
Due to related party .......................... 1,033 434 1,467
-------------- --------------- ---------------
Net cash used in operating activities ...... (29,220) (65,540) (94,760)
-------------- --------------- ---------------
Cash flows from investing activities:
Acquisition of intangible assets ................... (10,307) (7,771) (18,078)
Purchase of property and equipment ................. (3,142) (1,737) (4,879)
Construction of technical equipment ................ (7,498) (164,484) (171,982)
-------------- --------------- ---------------
Net cash used in investing activities ...... (20,947) (173,992) (194,939)
-------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sale of common stock ................. 100 14,900 15,000
Note payable to stockholder ........................ 52,600 355,400 408,000
Increase in deferred offering costs ................ -- (74,293) (74,293)
-------------- --------------- ---------------
Net cash provided by financing activities .. 52,700 296,007 398,707
-------------- --------------- ---------------
Increase in cash ........................... 2,533 56,475 59,008
Cash, beginning of period ............................ -- 2,533 --
-------------- --------------- ---------------
Cash, end of period .................................. $ 2,533 $ 59,008 $ 59,008
============== =============== ===============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ........................................ $ -- $ -- $ --
============== =============== ===============
Income taxes .................................... $ -- $ -- $ --
============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
JUNE 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Development Stage Company
Commodore Separation Technologies, Inc. (a development stage company) (the
"Company") was incorporated on November 15, 1995, under the laws of the state
of Delaware. As part of the capitalization of the Company, Commodore
Environmental Services, Inc. ("Commodore") contributed to the Company
Commodore's rights to the separation technology and assigned to the Company a
royalty payable to Srinivas Kilambi, Ph.D., an officer of the Company, equal
to 2% of future technology revenue that the Company may realize, 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 Note 5.
Effective December 2, 1996, Commodore transferred 100% of the capital
stock of the Company and Company notes aggregating $976,000 to its 69.3%
subsidiary, Commodore Applied Technologies, Inc. ("Applied"), together with
the stock of another Commodore subsidiary. Applied paid Commodore $3,000,000
and, subject to any applicable stockholder approval and notification
requirements, shall issue Commodore a warrant to purchase 7,500,000 shares of
Applied common stock for such stock and note. Applied will capitalize the
$976,000 of Company notes prior to the Company's proposed initial public
offering.
The Company is a process technology company which has developed and
intends to commercialize its separation technology and recovery system, known
as CST. Based on the results of more than 100 laboratory and other tests to
date, the Company believes that CST is capable of effectively separating and
extracting various solubilized materials, including metals, organic
chemicals, biochemicals, radionuclides and other targeted substances, from
liquid and gaseous process streams. The Company has not commenced planned
principal operations. As such, the Company is considered a development stage
company as defined in SFAS No.7.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. Financial
instruments subject to possible material market variations from the recorded
book value are a note payable to a stockholder and a note due to a related
party. There are no material differences in instruments from the recorded
book value as of June 30, 1996.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LOSS PER SHARE
Loss per share is computed based on the average number of shares
outstanding of 10,000,000 shares for the period November 15, 1995 (date of
inception) to June 30, 1996, the three months ended September 30, 1996
(unaudited) and cumulative amounts since November 15, 1995 through September
30, 1996 (unaudited).
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and
improvements are capitalized while minor replacements, maintenance and
repairs which do not increase the useful lives of the assets are expensed as
incurred. Depreciation and amortization have been provided using a
straight-line method over estimated useful lives of the assets, which vary
from three to seven years. Research equipment has been constructed by the
Company and management anticipates it will be placed in service in 1996. In
connection with the construction, the Company has not capitalized interest as
part of the asset cost as it is not material.
F-7
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements - (Continued)
(1) Summary of Significant Accounting Policies - (Continued)
INTANGIBLE ASSETS
The Company has incurred costs associated with applying for certain
patents. These costs are amortized over 17 years. Accumulated amortization
was $101 and $367 at June 30, 1996 and September 30, 1996 (unaudited),
respectively.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are charged to operations as
incurred except for those costs relating to the design or construction of an
asset having an economic useful life which are then capitalized and
depreciated over the estimated life.
INCOME TAXES
Deferred income taxes are provided, when material, in amounts sufficient
to give effect to timing differences between financial and tax reporting.
DEFERRED OFFERING COSTS
The Company is currently in the process of drafting and preparing a
Securities and Exchange Commission registration statement for a public
offering. Costs related to the public offering including legal, accounting,
printing, travel and other related costs are capitalized. Upon completion of
the offering these costs will be netted against the offering proceeds. Should
the offering be aborted or terminated those costs will be charged to
operations.
UNAUDITED FINANCIAL INFORMATION
The unaudited financial statements include the accounts of the Company and
include all adjustments (consisting of normal recurring items) which are, in
the opinion of management, necessary to present fairly the financial position
as of September 30, 1996 and the results of operations and cash flows for the
three months ended September 30, 1996 and the period November 15, 1995 (date
of inception) to September 30, 1996. The results of operations for the three
months ended September 30, 1996 are not necessarily indicative of the results
to be expected for the entire year.
(2) RELATED PARTY TRANSACTIONS
The Company owes unsecured advances of $52,600 and $408,000 as of June 30,
1996 and September 30, 1996, respectively, to its then sole stockholder,
Commodore. The Company owes interest on the advances at the rate of 8 percent
per annum. Accrued interest payable at June 30, 1996 and September 30, 1996
is $1,035 and $5,635, respectively.
The Company has unsecured non-interest bearing advances from a related
entity that has the same principal stockholder as the Company. The amount
owed to the related party at June 30, 1996 and September 30, 1996 is $1,033
and $1,467, respectively.
Through June 30, 1996, the Company had an unwritten agreement in which its
sole stockholder provided space for the Company's New York offices at no
cost, and another company under common control provided the Ohio facility
space to the Company at no cost. Subsequent to June 30, 1996, the Company is
paying a monthly rent of $750 for the Ohio space. Rent expense for the three
month period ended September 30, 1996 was $2,250.
F-8
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements - (Continued)
(3) INCOME TAXES
The difference between the income tax benefit at statutory rates for the
periods ended June 30, 1996 and September 30, 1996, respectively, and the
amount presented in the financial statements are as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
----------- ---------------
(unaudited)
<S> <C> <C>
Tax benefit at statutory rates $(21,000) $ (98,000)
Valuation allowance 21,000 98,000
----------- ------------
$ -- $ --
=========== ============
Deferred tax asset at June 30, 1996 and September
30, 1996 are as follows:
Net operating loss carryforward $(21,000) $(119,000)
Valuation allowance 21,000 119,000
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
</TABLE>
At June 30, 1996 and September 30, 1996, the Company had tax loss
carryforwards of approximately $21,000 and $119,000, respectively. The amount
of and ultimate realization of benefit from the net operating loss for income
tax purposes is dependent, in part, upon the tax laws in effect, future
earnings of the Company, and other future events, the effects of which cannot
be determined. A change in ownership of the Company may reduce the amount of
loss allowable. These net operating carryforwards begin to expire in 2011.
A valuation allowance has been established to reduce any potential tax
benefit as it is not known when or if the Company will realize the benefit of
net operating losses.
(4) GOING CONCERN
The Company has sustained significant operating losses. In addition, the
Company has significant deficits in working capital and stockholders' equity.
These factors create an uncertainty about the Company's ability to continue
as a going concern. The Company has received advances in working capital from
its parent company to fund operations to date. There can be no assurance that
it will continue to receive such assistance.
The Company commenced drafting and preparing a Securities and Exchange
Commission registration statement for a public offering of (i) 1,500,000
Preferred Units, each unit consisting of one share of 10% Senior Convertible
Redeemable Preferred Stock and one Redeemable Common Stock Purchase Warrant,
and (ii) 1,500,000 Common Units, each unit consisting of one share of Common
Stock and one Redeemable Common Stock Purchase Warrant. If the proposed
public offering is consummated, it will provide funds for continuing
operations. There is no assurance that the Company will be successful in
raising the needed working capital and equity through the proposed public
offering. The ability of the Company to continue as a going concern is
dependent on the Company obtaining external funding and attaining future
profitable operations. The financial statements do not include any adjustment
that might be necessary if the Company is unable to continue as a going
concern.
(5) ROYALTY AGREEMENTS
The Company has an agreement with an officer of the Company whereby the
officer is to receive a royalty of 2% of collected revenues from the
Company's membrane separation technology through December 3, 2002, 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).
F-9
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements - (Continued)
(5) Royalty Agreements - (Continued)
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 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 Statements of
Financial Accounting Standard Statement No. 121, "Accounting for Long Lived
Assets" and No. 123, "Accounting and Disclosure of Stock-Based Compensation."
Statement No. 121 is effective for years beginning after December 15, 1995.
The effect of adoption of Statement No. 121 will not have a material effect
on the Company's financial statements. Statement No. 123 is effective for
awards granted after December 31, 1994, and has required financial
presentation for years beginning after December 15, 1995. The effect of
adoption of Statement 123 is not expected to have a material effect on the
Company's financial statements.
(7) SUBSEQUENT EVENTS
Public Stock Offering
Subsequent to June 30, 1996, the Company commenced drafting and preparing
a Securities and Exchange Commission registration statement for a public
offering of (i) 1,500,000 Preferred Units, each unit consisting of one share
of 10% Senior Convertible Redeemable Preferred Stock and one Redeemable
Common Stock Purchase Warrant, and (ii) 1,500,000 Common Units, each unit
consisting of one share of Common Stock and one Redeemable Common Stock
Purchase Warrant.
EMPLOYMENT AGREEMENTS
On August 1 and September 1, 1996, the Company entered into employment
agreements with certain officers of the Company. Commitments under the
employment agreements are as follows:
<TABLE>
<CAPTION>
Annual
Year Compensation
------ --------------
<S> <C>
1997 .............................................. $ 723,000
1998 .............................................. 723,000
1999 .............................................. 723,000
2000 .............................................. 361,000
--------------
$2,530,000
==============
</TABLE>
Stock Option Plan
On September 5, 1996, Commodore (as sole stockholder of the Company)
approved the Company's 1996 Stock Option Plan, as previously adopted by the
Company's Board of Directors (the "Plan"), pursuant to which 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 and December 18, 1996, the Company's Board of Directors
awarded, effective upon completion of this Offering, non-qualified stock
options under the Plan to certain key executive officers entitling them to
purchase an aggregate of 601,000 shares of Common Stock, all of which provide
for an exercise price equal to the initial public offering price of the
Common Stock, are exercisable at the rate of 20% of the number of options
granted in each of calendar 1996 through 2000, inclusive, beginning on the
closing date of this Offering and,
F-10
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company
Notes to Financial Statements - (Continued)
(7) Subsequent Events - (Continued)
unless exercised, expire on December 31, 2001 (subject to prior termination
in accordance with the applicable stock option agreements). In addition,
non-qualified options to purchase an aggregate of 136,689 shares of Common
Stock were awarded, effective upon completion of this Offering, to members of
the Board of Directors who are not employed or otherwise affiliated with the
Company, all of which are exercisable at an exercise price equal to the
initial public offering price of the Common Stock, are exercisable at the
rate of 33 1/3 % of the number of options granted in each of calendar 1996
through 1998, inclusive, beginning on the closing date of this Offering, and,
unless exercised, expire on December 31, 2001 (subject to prior termination
in accordance with the applicable stock option agreements). The exercise
price applicable to all outstanding stock options represents not less than
100% of the fair market value of the underlying Common Stock as of the date
that such options were granted, as determined by the Board of Directors of
the Company on the date that such options were granted. In December 1996,
Applied, as purchaser of 100% of the capital stock of the Company, ratified
the Plan and all issuances thereunder.
As of December 18, 1996, the Company had granted options for 737,689
shares, of which none had been exercised.
BASIS OF PRESENTATION
On September 5, 1996, the Company amended its Certificate of Incorporation
which changed the preferred and common stock to the following:
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, $.001 par value.
Common Stock
The Company is authorized to issue up to 50,000,000 shares of common
stock, $.001 par value.
The Company also effected a forward stock split of 150,000 shares for one
share. This increased the total number of shares of Common Stock issued and
outstanding to 15,000,000 shares, which were all held by Commodore. 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.
CAPITAL CONTRIBUTION
As of September 30, 1996, the Company had received $408,000 of advances
from Commodore, which have been reflected in the financial statements as a
note payable to stockholder. Upon completion of the public offering, $408,000
of the note payable and any advances will be converted to equity. As of
December 2, 1996, the Company had received an additional $568,000 of advances
from Commodore which will be converted to equity upon completion of the
public offering.
OWNERSHIP CHANGE
Effective December 2, 1996, Commodore sold the shares of the Company to
its 69.3%-owned subsidiary, Applied. See Note 1.
F-11
<PAGE>
=============================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any
Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any date subsequent to
the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby by anyone in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so
or to any person to whom it is unlawful to make such offer or solicitation.
---------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ............................... 3
Risk Factors ..................................... 9
Use of Proceeds .................................. 19
Capitalization ................................... 21
Dividend Policy .................................. 22
Dilution ......................................... 23
Selected Financial Data .......................... 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 25
Business ......................................... 28
Management ....................................... 41
Executive Compensation ........................... 43
Principal Stockholders ........................... 48
Certain Relationships and Related Transactions ... 50
Description of Securities ........................ 52
Shares Eligible for Future Sale .................. 57
Certain Federal Income Tax Considerations ........ 58
Underwriting ..................................... 62
Legal Matters .................................... 64
Experts .......................................... 64
Additional Information ........................... 64
Index to Financial Statements .................... F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
COMMODORE SEPARATION
TECHNOLOGIES, INC.
UNITS CONSISTING OF 1,500,000 SHARES OF 10% SENIOR CONVERTIBLE
REDEEMABLE PREFERRED STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS AND
UNITS CONSISTING OF 1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------
PROSPECTUS
------
NATIONAL SECURITIES
CORPORATION
, 1997
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Securities being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq listing
fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ...................................... $ 41,874
NASD filing fee ........................................... 12,644
Nasdaq listing fee ........................................ 50,000
Registrar and Transfer Agent's fees ........................ 10,000
Printing and engraving expenses ........................... 100,000
Blue Sky fees and expenses ................................ 25,000
Legal fees and expenses ................................... 225,000
Accountant's fees and expenses ............................ 60,000
Miscellaneous. ............................................ 8,982
----------
Total ................................................... $533,500
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and By-laws of the registrant provide
that the Company shall indemnify officers and directors to the fullest extent
allowed by the Delaware General Corporation Law, as it now exists and as may
be amended.
The Underwriting Agreement between the Company and National Securities
Corporation, as representative of the several Underwriters (the
"Representative"), provides for indemnification of the officers and directors
of the registrant under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) In November 1995, the registrant issued 100 shares of its Common Stock
to its then corporate parent, Commodore Environmental Services, Inc.
("Commodore"). On September 5, 1996, the Company effected a 150,000-for-one
stock split, and issued a new stock certificate to Commodore representing
15,000,000 shares of the registrant's Common Stock. On November 26, 1996, the
registrant effected a one-for-1.50 reverse stock split, and issued a new
stock certificate to Commodore representing 10,000,000 shares of the
registrant's Common Stock. Effective December 2, 1996 Commodore transferred
100% of the registrant's Common Stock to Commodore Applied Technologies,
Inc., a 69.3%-owned subsidiary of Commodore.
In September and December 1996, the registrant issued to officers and
directors, effective upon completion of this Offering, pursuant to the
registrant's 1996 Stock Option Plan, options to purchase an aggregate of
737,689 shares of the registrant's Common Stock.
(b) There were no underwriters, brokers or finders employed in connection
with any of the transactions set forth in Item 15(a).
(c) The issuances described in Item 15(a) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public
offering. In addition, certain of the issuances described in Item 15(a) were
deemed exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated under the Securities Act. The recipients of securities
in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access, through their relationships with the registrant, to
information about the registrant.
The registrant has not otherwise issued any securities exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
--------------- --------------------------------------------------------------------------------------------
<S> <C>
**1.1 Form of Underwriting Agreement between the Company and the Representative.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
**3.3 Certificate of Designation, Preferences and Rights of 10% Senior Convertible Redeemable Preferred
Stock of the Company.
4.1 Specimen Common Stock Certificate.
**4.2 Form of Warrant Agreement among the Company, the Representative and the Bank of New York.
*4.3 Specimen Warrant Certificate.
**4.4 Form of Representative's Warrant Agreement between the Company and the Representative, including
form of Representative's Warrant therein.
*4.5 Specimen Convertible Preferred Stock Certificate.
*5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel as to the legality of the Securities
being offered.
10.1 Employment Agreement, dated as of August 1, 1996, between the Company and Alan R. Burkart.
10.2 Employment Agreement, dated as of September 1, 1996, between the Company and Carl O. Magnell.
10.3 Employment Agreement, dated as of September 1, 1996, between the Company and James M. DeAngelis.
10.4 Employment Agreement, dated as of September 1, 1996, between the Company and Srinivas Kilambi,
Ph.D.
10.5 Employment Agreement, dated as of September 1, 1996, between the Company and Michael D. Kiehnau.
10.6 1996 Stock Option Plan of the Company.
10.7 Executive Bonus Plan of the Company.
10.8 Memorandum of Understanding, dated August 30, 1996, between the Company and Teledyne Brown Engineering,
a Division of Teledyne Industries, Inc.
10.9 Memorandum of Understanding, dated August 29, 1996, between the Company and Sverdrup Environmental,
Inc.
10.10 Services Agreement, dated August 31, 1996, between the Company and Commodore CFC Technologies,
Inc.
10.11 Assignment of Technology Agreement, dated as of December 4, 1995, by and between the Company (formerly
Commodore Membrane Technologies, Inc.) and Srinivas Kilambi, Ph.D.
*10.12 Employment Agreement, dated as of October 31, 1996, between Commodore and Edwin L. Harper, Ph.D.
*10.13 Undivided Rights (Sole Commercial) License Agreement, dated January 5, 1997, between Lockheed
Martin Energy Research Corporation and the Company.
*10.14 Stock Purchase Agreement, dated as of December 2, 1996, by and between Commodore and Applied.
**10.15 Revolving Credit Agreement, between the Company and Commodore.
22.1 Subsidiaries of the Company.
*23.1 Consent of Tanner + Co.
23.2 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (included in the opinion filed
as Exhibit 5.1).
23.5 Consent of DLZ Laboratories Inc.
23.6 Consent of Artesian Laboratories, Inc.
*23.7 Consent of Kenneth L. Adelman, Ph.D.
*23.8 Consent of David L. Mitchell.
*23.9 Consent of William R. Toller.
25.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
Unless otherwise indicated, exhibits were previously filed.
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules.
None required.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment(s) to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities
Act if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change in such information in the
Registration Statement.
(b) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(d) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(e) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(f) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York on January 22, 1997.
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: /s/ Edwin L. Harper
----------------------------------------
Edwin L. Harper, Ph.D., Chairman of
the Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------- ----------------------------------- -------------------
<S> <C> <C>
/s/ Edwin L. Harper Chairman of the Board, President and January 22, 1997
------------------------ Chief Executive Officer
Edwin L. Harper, Ph.D. (principal executive officer)
/s/ Paul E. Hannesson Vice Chairman of the Board January 22, 1997
------------------------
Paul E. Hannesson
/s/ Andrew P. Oddi Vice President -- Finance January 22, 1997
------------------------ (principal financial and
Andrew P. Oddi accounting officer)
/s/ Bentley J. Blum Director January 22, 1997
------------------------
Bentley J. Blum
</TABLE>
*By: /s/ Paul E. Hannesson
- --------------------------
Paul E. Hannesson
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
--------------- --------------------------------------------------------------------------------------------
<S> <C>
**1.1 Form of Underwriting Agreement between the Company and the Representative.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
**3.3 Certificate of Designation, Preferences and Rights of 10% Senior Convertible Redeemable Preferred
Stock of the Company.
4.1 Specimen Common Stock Certificate.
**4.2 Form of Warrant Agreement among the Company, the Representative and the Bank of New York.
*4.3 Specimen Warrant Certificate.
**4.4 Form of Representative's Warrant Agreement between the Company and the Representative, including
form of Representative's Warrant therein.
*4.5 Specimen Convertible Preferred Stock Certificate.
*5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel as to the legality of the Securities
being offered.
10.1 Employment Agreement, dated as of August 1, 1996, between the Company and Alan R. Burkart.
10.2 Employment Agreement, dated as of September 1, 1996, between the Company and Carl O. Magnell.
10.3 Employment Agreement, dated as of September 1, 1996, between the Company and James M. DeAngelis.
10.4 Employment Agreement, dated as of September 1, 1996, between the Company and Srinivas Kilambi,
Ph.D.
10.5 Employment Agreement, dated as of September 1, 1996, between the Company and Michael D. Kiehnau.
10.6 1996 Stock Option Plan of the Company.
10.7 Executive Bonus Plan of the Company.
10.8 Memorandum of Understanding, dated August 30, 1996, between the Company and Teledyne Brown Engineering,
a Division of Teledyne Industries, Inc.
10.9 Memorandum of Understanding, dated August 29, 1996, between the Company and Sverdrup Environmental,
Inc.
10.10 Services Agreement, dated August 31, 1996, between the Company and Commodore CFC Technologies,
Inc.
10.11 Assignment of Technology Agreement, dated as of December 4, 1995, by and between the Company (formerly
Commodore Membrane Technologies, Inc.) and Srinivas Kilambi, Ph.D.
*10.12 Employment Agreement, dated as of October 31, 1996, between Commodore and Edwin L. Harper, Ph.D.
*10.13 Undivided Rights (Sole Commercial) License Agreement, dated January 5, 1997, between Lockheed
Martin Energy Research Corporation and the Company.
*10.14 Stock Purchase Agreement, dated as of December 2, 1996, by and between Commodore and Applied.
**10.15 Revolving Credit Agreement, between the Company and Commodore.
22.1 Subsidiaries of the Company.
*23.1 Consent of Tanner + Co.
23.2 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (included in the opinion filed
as Exhibit 5.1).
23.5 Consent of DLZ Laboratories Inc.
23.6 Consent of Artesian Laboratories, Inc.
*23.7 Consent of Kenneth L. Adelman, Ph.D.
*23.8 Consent of David L. Mitchell.
*23.9 Consent of William R. Toller.
25.1 Power of Attorney (set forth on signature page of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------
Unless otherwise indicated, exhibits were previously filed.
* Filed herewith.
** To be filed by amendment.
<PAGE>
VOID AFTER _____________, 2002
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
WARRANTS
NUMBER CUSIP 202909 11 5
W
COMMODORE
COMMODORE SEPARATION TECHNOLOGIES, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.001 par
value, of Commodore Separation Technologies, Inc., a Delaware corporation (the
"Company"), at any time between ___________, 1998 (the "Initial Warrant Exercise
Date"), and the Expiration Date (as hereinafter defined) upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of The Bank of New York,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment
of $8.40, subject to the adjustment (the "Purchase Price"), in lawful money of
the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated _________, 1997,
between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant Agreement,
the Purchase Price and the number of shares of Common Stock subject to purchase
upon the exercise of each Warrant represented hereby are subject to modification
or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time) on the date
which is forty-eight (48) months after the Initial Warrant Exercise Date. If
each such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:30 p.m.
(New York time) on the next following day which in the State of New York is not
a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to the
exercise of this Warrant unless a registration statement under the Securities
Act of 1933, as amended (the "Act"), with respect to such securities is
effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state which such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, expect as provided in the Warrant Agreement.
<PAGE>
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing after ______________, 1998, provided that the
average closing sale price for the Common Stock shall have equalled or exceeded
$18.00 per share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the Notice of
Redemption, as defined below (subject to adjustment in the event of any stock
splits or other similar events). Notice of redemption (the "Notice of
Redemption") shall be given not later than the thirtieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to the Warrants except to receive the $.10 per Warrant upon surrender of
this Warrant Certificate.
Under certain circumstances, National Securities Corporation may be entitled
to receive an aggregate of five percent (5%) of the Purchase Price of the
Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the Company and
the Warrant Agent may deem and treat the Registered Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary, except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: COMMODORE SEPARATION TECHNOLOGIES, INC.
COUNTERSIGNED:
THE BANK OF NEW YORK,
as Warrant Agent
By:
Authorized Officer
By:
By:
President
Secretary
COMMODORE SEPARATION TECHNOLOGIES, INC.
CORPORATE
SEAL
1985
DELAWARE
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
________________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
(please print or type name and address)
and be delivered to
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by National Securities
Corporation. [ ]
2. The exercise of this Warrant was solicited by __________________. [ ]
3. The exercise of this Warrant was not solicited. [ ]
Dated: _____________________________ X_____________________________________
_____________________________________
_____________________________________
Address
_____________________________________
Social Security or Taxpayer
Identification Number
_____________________________________
Signature Guaranteed
_____________________________________
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
(please print or type name and address)
________________________________________________________________________________
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
_____________________________________________________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: ___________________________ X ______________________________________
Signature Guaranteed
______________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
NUMBER SHARES
COMMODORE
---------
PS
INCORPORATED UNDER THE LAWS 10% SENIOR
OF THE STATE OF DELAWARE CONVERTIBLE REDEEMABLE
PREFERRED STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMODORE SEPARATION TECHNOLOGIES, INC.
THIS CERTIFIES THAT CUSIP
IS OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF 10% SENIOR CONVERTIBLE REDEEMABLE
PREFERRED STOCK OF THE PAR VALUE OF $.001 PER SHARE OF
Commodore Separation Technologies, Inc. transferable on the books of the
corporation, by the holder hereof in person, or by duly authorized attorney,
upon surrender of this Certificate, properly endorsed. This Certificate is not
valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
COMMODORE SEPARATION TECHNOLOGIES, INC.
CORPORATE
SEAL
1995
DELAWARE
Melissa C. Berkowitz Edwin L. Harper, Ph.D.
Secretary President
Countersigned and Registered:
THE BANK OF NEW YORK
(New York) Transfer Agent
and Registrar
By
Authorized Signature
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
The Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof of the
Corporation, and the qualifications, limitations, or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
transfer agent.
Keep this certificate in a safe place. If it is lost, stolen or destroyed
the Corporation may require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -_____Custodian______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act__________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,_______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
| |
| |
|_______________________________________|
_______________________________________________________________________________
_______________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________________
____________________________Attorney to transfer the said stock on the books of
the within-named Corporation with full power of substitution in the premises.
Dated,__________________________________
______________________________________
SIGNATURE(S) GUARANTEED:_______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
January 23, 1997
Commodore Separation Technologies, Inc.
150 East 58th Street, Suite 3400
New York, New York 10155
Dear Sirs:
We are acting as counsel to Commodore Separation Technologies,
Inc. (the "Company") in connection with (a) the Registration Statement on Form
S-1, filed on September 12, 1996 (as amended, the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Act"), covering 1,500,000
units (the "Preferred Units") consisting of 1,500,000 shares of the Company's
10% Senior Convertible Redeemable Preferred Stock, par value $.001 per share,
with a liquidation preference of $10.00 per share (the "Convertible Preferred
Stock") and 1,500,000 Redeemable Common Stock Purchase Warrants (the
"Warrants"), and 1,500,000 units (the "Common Units") consisting of 1,500,000
shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock") and 1,500,000 Warrants, including an over-allotment option of up to
225,000 of such Preferred Units consisting of 225,000 shares of Convertible
Preferred Stock and 225,000 Warrants, and/or up to 225,000 of such Common Units
consisting of 225,000 shares of Common Stock and 225,000 Warrants, or any
combination thereof, (b) the Underwriting Agreement between the Company and
National Securities Corporation (the "Underwriting Agreement"), relating to the
Preferred Units and the Common Units, and (c) the Warrant Agreement between the
Company and The Bank of New York (the "Warrant Agreement"), relating to the
Warrants.
We have examined the originals, or certified, conformed or
reproduction copies, of all such records, agreements, instruments and documents
as we have deemed relevant or necessary as the basis for the opinion hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to such opinion, we have relied
upon, and assumed the accuracy of, certificates and oral or written statements
and other information of or from public officials, officers or representatives
of the Company, and others.
<PAGE>
Commodore Separation Technologies, Inc.
January 23, 1997
Page 2
Based upon the foregoing, we are of the opinion that (a) the
shares of Convertible Preferred Stock contained in the Preferred Units and the
shares of Common Stock contained in the Common Units, when issued and delivered
in accordance with the terms of the Underwriting Agreement, will be validly
issued, fully paid and non-assessable, and (b) the shares of Common Stock
initially to be reserved for issuance upon exercise of the Warrants pursuant to
the Warrant Agreement, and conversion of the Preferred Stock pursuant to the
terms of the Certificate of Designation, Preferences and Rights (the
"Certificate of Designation"), when so issued, as the case may be, upon exercise
in accordance with the terms and provisions of the Warrants and the Warrant
Agreement, and upon conversion pursuant to the Certificate of Designation, will
be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into
as of the 31st day of October 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 EDWIN L. HARPER, an
individual residing at 1305 Ballantrae Court, McLean, Virginia 22101 (the
"Employee").
W I T N E S S E T H:
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 an executive capacity with the Company; and
WHEREAS, the Employee is ready, willing and able to serve as
an 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 President and
Chief Operating Officer of the Company. In addition, the Employee shall serve in
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such capacity and have such title with such 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 (except for such transitional services which the Employee
may render through February 3, 1997 to the Association of American Railroads),
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 Washington, DC office (as and
when located), 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 be elected
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
President and Chief Operating 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
President and Chief Operating Officer of the Company (except for such
transitional services which the Employee may render through February 3, 1997 to
the Association of American Railroads). 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
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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 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.
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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 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. As compensation for his services during the
Term, the Company shall pay or cause to be paid to the Employee a fixed base
salary at the annual rate of Three Hundred Seventy-Five Thousand Dollars
($375,000).
2. Signing Bonus. As a signing bonus, upon the commencement of
this Agreement, the Employee shall be (a) paid $100,000 in cash and (b) granted
375,000 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 $175,000
of any tax liability that arises out of payments made to the Employee or stock
granted to the Employee under this Section 2 of 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, the Company is, as of the date
hereof, granting to the Employee a stock option (the "Stock Option") to purchase
an aggregate of 2,000,000 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 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 200,000 shares of Common Stock
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commencing on the date hereof (the "Initial Vesting Date") and as to an
additional 360,000 shares of Common Stock commencing on each of the five
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.
4. Subsidiary Stock Options. As additional consideration for
the Employee's entering into this Agreement with the Company, the Company is, as
of the date hereof granting, and will from time to time in the future grant, as
applicable, to the Employee stock options to purchase common stock of each
publicly-traded subsidiary of the Company in the amount of .75% of such
subsidiary's total outstanding shares of common stock on the date of grant and
at an exercise price per share equal to the then-current fair market value per
share on the date of grant.
5. Incentive Compensation. The Employee will be entitled to
receive incentive compensation of up to $175,000 per year for achieving goals
established and determined by the parties within 120 days after the date of this
Agreement.
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. 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
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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.
8. 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. 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 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 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
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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 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
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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 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
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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.
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.
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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 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.
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.
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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.
(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
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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.
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
Chief Executive Officer
/s/ Edwin L. Harper
----------------------------------------
Edwin L. Harper
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UNDIVIDED RIGHTS (SOLE COMMERCIAL) LICENSE AGREEMENT
THIS AGREEMENT, made effective on the 5th day of January, 1997, by and
between LOCKHEED MARTIN ENERGY RESEARCH CORPORATION (hereinafter "LMER"), a
corporation organized and existing under the laws of the State of Delaware and
whose address for notices is Post Office Box 2009, Oak Ridge, Tennessee
37831-8242, AND COMMODORE SEPARATION TECHNOLOGIES, INC., (hereinafter
"Licensee"), a corporation organized and existing under the laws of the State of
Ohio and whose address for notices is 1487 Delashmut Avenue, Columbus, Ohio
43212.
W I T N E S S:
A. LMER, pursuant to Contract No. DE-AC05-96OR22464 (hereinafter
"Prime Contract") with the United States Government as represented by the
Department of Energy (hereinafter "DOE") has developed and/or obtained rights to
Proprietary Rights relating to Products and Processes subject to the DOE
nonexclusive, nontransferable, irrevocable, paid-up license for the United
States Government and certain march-in rights and any other conditions of
waivers granted by the DOE (collectively the "Government Use License"); and
B. Licensee desires to obtain rights under LMER Proprietary Rights.
THEREFORE, in consideration of the foregoing premises, covenants and
agreements contained herein, the parties hereto agree to be bound as follows:
1. Definitions
-----------
1.1 "Proprietary Rights" shall mean LMER's undivided rights as joint owner of
the U.S. patents and patents arising from patent applications listed in Exhibit
A attached hereto and hereby incorporated into this Agreement by reference
including all continuations, continuations-in-part, divisions, reissues,
re-examinations and temporal extensions of any of the foregoing.
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1.2 "Processes or Products" shall mean any and all processes used or sold, or
products manufactured, used, sold or transferred by Licensee covered by one or
more claims of the Proprietary Rights licensed hereunder.
1.3 "Net Sales" shall mean the total amounts invoiced to purchasers during the
accounting period in question for Processes used or Products sold by Licensee,
less allowances for returns of Products, discounts, commissions, freight, and
excise or other taxes on Products. Net Sales in the case of Products used or
transferred by Licensee shall mean the fair market value of Products as if they
were sold to an unrelated third party in similar quantities.
2. Grants
------
2.1 Subject to the terms and conditions of this Agreement, LMER hereby grants to
Licensee wherever U.S. or foreign patent protection is obtained, an exclusive
license, subject to the government use license, to its undivided rights in the
Exhibit A, Proprietary Rights with respect to which LMER is a joint owner.
2.2 LMER hereby agrees not to grant to any other party right and license to
Proprietary Rights in accordance with the grant hereinabove as long as Licensee
abides by the terms and conditions of this Agreement, unless required to so
grant such right and license in accordance with Federal Statutory or Regulatory
enactments conditioning the waiver of rights to LMER by the DOE, particularly as
set forth in 41 CFR 9-9.109-(6)i; 10 CFR Part 781; or 37 CFR Part 404.
2.3 Licensee agrees that any Products for use or sale in the United States shall
be manufactured substantially in the United States.
2.4 Licensee agrees to affix appropriate markings of the applicable LMER
proprietary rights (and the fact that LMER was the source of these rights) upon
or in association with Licensee's Products or licensed services and Licensee
agrees to use its best efforts to follow any guidance from LMER concerning such
markings.
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3. Royalties And Commercialization Plan
------------------------------------
3.1 In consideration of the right and license to the undivided rights in the
Exhibit A, Proprietary Rights granted herein, Licensee agrees to the provisions
of Exhibit B and Exhibit C attached hereto and hereby incorporated by reference.
3.2 No royalties shall be owing on any Processes used or Products produced for
or under any Federal governmental agency contract pursuant to the DOE
nonexclusive license for Federal governmental purposes but only to the extent
that Licensee can show that the Federal government received a discount on
Product or Process sales which discount is equivalent to or greater than the
amount of any such royalty that would otherwise be due. Any sales for Federal
governmental purposes shall be reported under the Records and Reports Section
hereinbelow by providing: (a) a Federal government contract number; (b)
identification of the Federal government agency; and (c) a description as to how
the benefit of the royalty free sale was passed onto the Federal government.
3.3 Upon termination of this Agreement for any reason whatsoever, any royalties
that remain unpaid shall be properly reported and paid to LMER within thirty
(30) days of any such termination.
4. Records and Reports
-------------------
4.1 License agrees to keep adequate records in sufficient detail to enable
royalties payable hereunder to be determined and, upon reasonable notice, to
provide such records for inspection by authorized representatives of LMER at any
time during regular business hours of Licensee. Except as hereinafter provided,
Licensee agrees that any additional records of Licensee, as LMER may reasonably
determine are necessary to verify the above records, shall also be provided to
LMER for inspection. Provided that before Licensee furnishes any additional
records or information to LMER, Licensee may require LMER to execute and deliver
a non-disclosure agreement in form and substance as that attached hereto as
Exhibit "D".
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4.2 Within thirty (30) calendar days after the close of each calendar half-year
during the term of this Agreement (i.e., January 31 and July 31), Licensee will
furnish LMER a written report providing: (a) all domestic Net Sales in U.S.
Dollars during the preceding calendar half-year period including any Federal
governmental agency under section 3.2 hereinabove and all export Net Sales, if
none so indicate; (b) amount of royalties due in U.S. Dollars for the preceding
calendar half-year period pursuant to the provisions hereof; and (c) payment of
the royalties due in U.S. Dollars payable to the order of Lockheed Martin Energy
Research Corporation, pursuant to the report to be transmitted in accordance
with the Notices Section of this Agreement hereinbelow.
4.3 Should Licensee fail to make any payment to LMER within the time period
prescribed for such payment, then the unpaid amount shall bear interest at the
rate of one and one half percent (1.5%) per month from the date when payment was
due until payment in full, with interest, is made.
5. Technical Assistance
--------------------
5.1 LMER agrees, upon the written request of Licensee, to assist Licensee in
obtaining necessary DOE approvals for technical assistance at LMER facilities
under appropriate agreements. The cost of such technical assistance shall be
paid for by the Licensee.
5.2 LMER agrees to permit its employees, within LMER corporate policy guidelines
then in effect and subject to DOE requirements then in effect, to provide
consulting services to Licensee with reference to Licensee's use and commercial
exploitation of the Proprietary Rights as contemplated herein. Licensee shall
make payment directly to the individual consultant(s) for all such services.
6. Infringement by Third Parties
-----------------------------
6.1 Licensee shall give notice of any discovered third party infringement to
LMER. Licensee has the right to take appropriate action to stop and prevent the
infringement, including the right to file suit. During the prosecution of such
suit, LMER hereby agrees to cooperate with Licensee in any such suit.
4.
<PAGE>
6.2 In the event that Licensee files suit to stop infringement or defends any
action against the validity of the patent, and where LMER is joined in such suit
as a necessary party, Licensee shall indemnify and hold LMER harmless against
all liability, expense and costs, including attorney's fees incurred as a result
of any such suit.
6.3 Licensee may, however, apply all such costs as a reduction of any royalties
due and payable to LMER under the terms of this Agreement at such time as
verified bills of costs actually incurred are reported to LMER in accordance
with the Records and Reports Section hereinabove.
6.4 In the event Licensee secures a judgment against any third party infringer,
after accounting for and paying all of Licensee's costs associated with
prosecution of such action as well as paying LMER for any reduction of royalties
pursuant to this section, Licensee shall pay LMER its royalties as set forth
hereinabove on any balance of proceeds actually received and Licensee shall
retain any such remaining balance of proceeds.
6.5 The parties hereby agree to cooperate with each other in the prosecution of
any such legal actions or settlement actions undertaken under this section and
each will provide to the other all pertinent data in its possession which may be
helpful in the prosecution of such actions; provided, however, that the party in
control of such action shall reimburse the other party for any and all costs and
expenses in providing data and other information necessary to the conduct of the
action.
6.6 The party having filed such action shall be in control of such action and
shall have the right to dispose of such action in whatever reasonable manner it
determines to be the best interest of parties hereto, except that any settlement
which affects or admits issues of patent validity shall require the advance
written approval of LMER.
7. Representations and Warranties
------------------------------
7.1 LMER represents and warrants that Exhibit A contains a complete and accurate
listing of all the Proprietary Rights licensed and that LMER has the full right,
power and interest to grant the rights, licenses, and privileges granted herein.
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<PAGE>
7.2 LMER represents and warrants that LMER has no knowledge of any claims of
infringement filed against LMER for practicing the Exhibit A Proprietary Rights
anywhere in the world.
7.3 Except as set forth hereinabove, LMER makes NO REPRESENTATIONS OR
WARRANTIES, express or implied, with regard to the infringement of proprietary
rights of any third party.
7.4 LMER represents and warrants that, to the best of its knowledge, subject to
the Government Use License, it is the exclusive assignee of the undivided rights
of its employees, and the exclusive licensee of the undivided rights of the
employees of the University of Tennessee to such Proprietary Rights and that it
is authorized to make, execute and deliver this License.
7.5 Licensee acknowledges that the export of any of the Proprietary Rights from
the United States or the disclosure of any of the Proprietary Rights to a
foreign national may require some form of license from the U.S. Government.
Failure to obtain any required export licenses by Licensee may result in
Licensee subjecting itself to criminal liability under U.S. laws.
8. Disclaimers
-----------
8.1 Neither LMER, the DOE, nor persons acting on their behalf will be
responsible for any injury to or death of persons or other living things or
damage to or destruction of property or for any other loss, damage, or injury of
any kind whatsoever resulting from Licensee's manufacture, use, or sale of
materials, information, or Proprietary Rights hereunder.
8.2 EXCEPT AS SET FORTH HEREINABOVE, NEITHER LMER, THE DOE, NOR PERSONS ACTING
ON THEIR BEHALF MAKE ANY WARRANTY, EXPRESS OR IMPLIED: (1) WITH RESPECT TO THE
MERCHANTABILITY, ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY SERVICES,
MATERIALS, OR INFORMATION FURNISHED HEREUNDER; (2) THAT THE USE OF ANY SUCH
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SERVICES, MATERIALS, OR INFORMATION WILL NOT INFRINGE PRIVATELY OWNED RIGHTS;
(3) THAT THE SERVICES MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL NOT
RESULT IN INJURY OR DAMAGE WHEN USED FOR ANY PURPOSE; OR (4) THAT THE SERVICES,
MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL ACCOMPLISH THE INTENDED
RESULTS OR ARE SAFE FOR ANY PURPOSE, INCLUDING THE INTENDED OR PARTICULAR
PURPOSE. FURTHERMORE, LMER AND THE DOE HEREBY SPECIFICALLY DISCLAIM ANY AND ALL
WARRANTIES, EXPRESS OR IMPLIED, FOR ANY PROCESSES USED OR PRODUCTS MANUFACTURED,
USED, OR SOLD BY LICENSEE. NEITHER LMER NOR THE DOE SHALL BE LIABLE FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES IN ANY EVENT.
8.3 Licensee agrees to indemnify LMER, the DOE, and persons acting on their
behalf for all damages, costs, and expenses, including attorney's fees, arising
from, but not limited to, Licensee's making, using, selling, or exporting of any
Proprietary Rights, information, or Products, in whatever form furnished
hereunder.
9. Term of Agreement and Early Termination
---------------------------------------
9.1 This Agreement shall run until the expiration of the Proprietary Rights
subject to early termination as set forth hereinbelow and the terms and
conditions set forth in Exhibit B and Exhibit C attached hereto and hereby
incorporated into this Agreement by reference thereto.
9.2 Either party shall have the right to terminate this Agreement without
judicial resolution upon written notice to the other after a material breach of
any provision by the other party has gone uncorrected for sixty (60) days after
the other party has been notified in writing of such breach.
9.3 This Agreement shall terminate automatically upon the extinguishment of all
of the Exhibit A Proprietary Rights, for any reason, but only after the time for
appealing said extinguishment has expired.
7
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9.4 The parties agree that LMER, at its sole discretion, may immediately
terminate this Agreement upon any attempted transfer of Licensee's interest, in
whole or in part, in this Agreement to any party which is not an "Affiliated
Party" as hereinafter defined. Subject to LMER's review and approval, which
approval shall not be unreasonably withheld, Licensee may assign, transfer or
sublicense any Proprietary Rights hereby licensed to an "Affiliated Party". For
purposes of this Agreement, "Affiliated Party" means any business organization
which Licensee owns, directly or indirectly, at least 20% of and any business
organization which, directly or indirectly, owns at least 20% of Licensee.
9.5 Licensee shall provide notice to LMER of its intention to file a voluntary
petition in bankruptcy or of another party's intention to file an involuntary
petition in bankruptcy for Licensee, said notice to be received by LMER at least
thirty (30) days prior to filing such a petition. Licensee's failure to provide
such notice to LMER of such intentions shall be deemed a material, pre-petition,
incurable breach of this Agreement.
9.6 Licensee agrees that this Agreement shall automatically terminate upon any
attempt by Licensee to offer Licensee's rights under this Agreement as
collateral to a third party.
9.7 Except as hereinafter set forth, Licensee may terminate this Agreement upon
sixty (60) days notice to LMER. Termination of this Agreement, and Licensee's
rights hereunder, shall not relieve Licensee's liability for royalties,
including any annual minimum royalty or prorated portion thereof, which accrued,
but were not paid, prior to termination. In the event Licensee terminates this
Agreement and its rights hereunder after the third anniversary date hereof, then
Licensee shall remain liable for the prorated portion (prorated annually) of any
annual minimum royalty which accrues after an anniversary date, but before
termination. For example, if Licensee terminates this license Agreement six (6)
months following any anniversary date after the third anniversary, then Licensee
shall remain liable for one-half of any annual minimum royalty provided in
Exhibit "B" hereto, less the amount of royalty paid for that fiscal year.
8
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10. Rights of Parties After Termination
-----------------------------------
10.1 Neither party shall be relieved of any obligation or liability under this
Agreement arising from any act or omission committed prior to the effective date
of such termination.
10.2 The rights and remedies granted herein, and any other rights or remedies
which the parties may have, either at law or in equity, are cumulative and not
exclusive of others. On any termination, Licensee shall duly account to LMER and
transfer to it all rights to which LMER may be entitled under this Agreement.
11. Force Majeure
-------------
11.1 No failure or omission by LMER or by Licensee in the performance of any
obligation under this Agreement shall be deemed a breach of this Agreement or
create any liability if the same shall arise from acts of God, acts or omissions
of any government or agency thereof, compliance with requests, recommendations,
rules, regulations, or orders of any governmental authority or any office,
department, agency, or instrumentality thereof, fire, storm, flood, earthquake,
accident, acts of the public enemy, war, rebellion, insurrection, riot,
sabotage, invasion, quarantine, restriction, transportation embargoes, or
failures or delays in transportation.
12. Notices
-------
12.1 All notices and reports shall be addressed to the parties hereto as
follows:
If to LMER:
Business Manager, Technology Transfer Telephotocopy No.
Lockheed Martin Energy Research Corp. (423) 576-9465
Post Office Box 2009 Verify No.
Oak Ridge, Tennessee 37831-8242 (423) 241-2353
If to Licensee:
Commodore Separation Technologies, Inc. Telephotocopy No.
1487 Delashmut Avenue (614) 297-7535
Columbus, Ohio 43212 Verify No.
(614) 297-0365
9
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12.2 All minimum and royalty payments due LMER shall be sent to:
Lockheed Martin Energy Research Corp.
Royalty Account
P.O. Box 888071
Knoxville, TN 37995-8071
12.3 Any notice, report or any other communication required or permitted to be
given by one party to the other party by this Agreement shall be in writing and
either (a) served personally on the other party, (b) sent by express, registered
or certified first-class mail, postage prepaid, addressed to the other party at
its address as indicated above, or to such other address as the addressee shall
have previously furnished to the other party by proper notice, (c) delivered by
commercial courier to the other party, or (d) sent by facsimile to the other
party at its facsimile number indicated above or to such other facsimile number
as the party shall have previously furnished to the other party by proper
notice, with machine confirmation of transmission.
13. Waivers
-------
13.1 The failure of LMER at any time to enforce any provisions of this Agreement
or to exercise any right or remedy shall not be construed to be a waiver or such
provisions or of such rights or remedy or the right of LMER thereafter to
enforce each and every provision, right or remedy.
14. Modifications
-------------
14.1 It is expressly understood and agreed by the parties hereto that this
instrument contains the entire agreement between the parties with respect to the
subject matter hereof and that all prior representations, warranties, or
agreements relating hereto have been merged into this document and are thus
superseded in totality by this Agreement. This Agreement may be amended or
modified only by a written instrument signed by the duly authorized
representatives of both of the parties.
10
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15. Headings
--------
15.1 The headings for the sections set forth in this Agreement are strictly for
the convenience of the parties hereto and shall not be used in any way to
restrict the meaning or interpretation of the substantive language of this
Agreement.
16. Law
---
16.1 This Agreement shall be construed according to the laws of the State of
Tennessee and the United States of America.
17. Incorporation of Recitals
-------------------------
17.1 The Parties hereby incorporate by reference recital paragraphs A. and B.
set forth on page 1 of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed in their respective names by their duly authorized representatives.
"LMER"
LOCKHEED MARTIN ENERGY RESEARCH CORP.
By: /s/ William R. Martin
------------------------------------
Name: William R. Martin
------------------------------------
Title: Vice President, Technology Transfer
-----------------------------------
Date: 1-6-97
------------------------------------
"Licensee"
COMMODORE SEPARATION TECHNOLOGIES, INC.
By: /s/ Paul E. Hannesson
------------------------------------
Name: Paul E. Hannesson
------------------------------------
Title: Vice Chairman of the Board
------------------------------------
Date: ____________________________________
11
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EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 2, 1996 (the
"Agreement"), by and between Commodore Environmental Services, Inc., a Delaware
corporation ("Commodore"), and Commodore Applied Technologies, Inc., a Delaware
corporation and 69.3%-owned subsidiary of Commodore ("Applied").
W I T N E S S E T H:
WHEREAS, Commodore is the owner of (i) 10,000,000 shares of
common stock, par value $.001 per share (the "Separation Stock"), of Commodore
Separation Technologies, Inc., a Delaware corporation ("Separation"), and (ii)
100 shares of common stock, par value $.001 per share (the "Refrigerant Stock"),
of Commodore CFC Technologies, Inc., a Delaware corporation ("Refrigerant" and,
together with Separation, the "Subsidiaries");
WHEREAS, Commodore desires to implement a corporate
restructuring to consolidate all of its current environmental technology
businesses within Applied; and
WHEREAS, in order to accomplish said corporate restructuring,
Commodore desires to sell, and Applied desires to purchase, all of the
Separation Stock and the Refrigerant Stock on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby mutually acknowledged, the parties agree as
follows:
1. Purchased Shares and Note
Subject to the terms and conditions herein stated, Commodore
hereby sells, assigns, transfers and delivers to Applied, and Applied hereby
purchases from Commodore, all right, title and interest of Commodore in and to
(a) the Separation Stock and the Refrigerant Stock (together, the "Purchased
Shares"), and (b) the demand promissory note, dated as of September 30, 1996
(the "Note"), issued by Separation to Commodore in the original principal amount
of $408,000 and having a current principal balance of $______ and unpaid accrued
interest thereunder of $_________, for a total purchase price of (i) Three
Million Dollars ($3,000,000) and, (ii) subject to compliance with any applicable
stockholder approval or notice requirements, the issuance of a warrant to
purchase 7,500,000 shares of common stock, par value $.001 per share, of
Applied, at an exercise price of $15.00 per share and expiring on December 1,
2003 (the "Applied Warrant"), a copy of which is attached as Exhibit A hereto.
2. Payment of Consideration
In furtherance of the consummation of the transactions
contemplated hereby, simultaneously with the execution and delivery of this
Agreement, Applied is (i) paying the cash
<PAGE>
portion of the purchase price by delivering to Commodore Applied's check in the
amount of $3,000,000 payable to the order of Commodore, or by wire transferring
such amount in immediately available funds to Commodore's designated account
and, (ii) subject to compliance with any applicable stockholder approval or
notice requirements, delivering to Commodore the Applied Warrant, and (b)
Commodore is delivering to Applied (i) the certificates representing the
Separation Stock and the Refrigerant Stock, and (ii) the original executed Note,
in each case properly endorsed and/or accompanied by instruments of transfer
duly executed in blank.
3. Closing Date
The consummation of the transactions contemplated by this
Agreement (the "Closing") is taking place simultaneously with the execution and
delivery of this Agreement on December 2, 1996 (the "Closing Date") at the
principal executive offices of Commodore in New York, New York.
4. Representations and Warranties
4.1 By Commodore. Commodore represents and warrants as follows
and acknowledges that Applied is relying upon such representations and
warranties in connection with the purchase by Applied of the Purchased Shares:
(a) The Subsidiaries are corporations duly incorporated,
validly existing and in good standing under the laws
of State of Delaware;
(b) The authorized capital stock of (i) Separation
consists of 50,000,000 shares of common stock and
5,000,000 shares of preferred stock, and (ii)
Refrigerant consists of 1,000 shares of common stock;
and of such authorized capital, only the Purchased
Shares have been duly issued and are outstanding and
are fully paid and non-assessable;
(c) No person, corporation or other entity has any
agreement, option or warrant, or any right or
privilege (whether by law, pre-emptive or
contractual, or whether by means of any exercise,
conversion or other right or action) which has the
effect of or is capable of becoming an agreement,
option or warrant, for the purchase from either of
the Subsidiaries of any securities (including
convertible securities) of the Subsidiaries;
(d) All of the Purchased Shares and the Note are owned by
Commodore as the registered and beneficial owner of
record, with good and marketable title thereto, free
and clear of all mortgages, liens, charges, security
interests, adverse claims, pledges, encumbrances,
restrictions and demands whatsoever (other than
restrictions imposed by federal or state securities
laws);
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(e) No person, corporation or other entity (other than
the Applied pursuant to this Agreement) has any
agreement, option or warrant, or any right or
privilege (whether by law, pre-emptive or
contractual, or whether by means of any exercise,
conversion or other right or action) which has the
effect of or is capable of becoming an agreement,
option or warrant, for the purchase of any of the
Purchased Shares or the Note;
(f) Neither Commodore nor the Subsidiaries is party to,
bound or affected by or subject to any indenture,
mortgage, lease, agreement, instrument, charter or
by-law provision, statute, regulation, order,
judgment, decree or law which would be violated,
contravened or breached by, or under which any
default would occur as a result of, the consummation
of the transactions provided for herein;
(g) Commodore has all requisite corporate power and
authority to execute, deliver and perform its
obligations under this Agreement; the execution,
delivery and performance of this Agreement by
Commodore has been duly authorized by all necessary
corporate action on the part of Commodore; and this
Agreement constitutes the legal, valid and binding
obligation of Commodore, enforceable against
Commodore in accordance with its terms; and
(h) The current principal balance of, and unpaid accrued
interest under, the Note are as set forth in Section
1 hereof.
4.2 By Applied. Applied represents and warrants as follows and
acknowledges that Commodore is relying upon such representations and warranties
in connection with the sale by Commodore of the Purchased Shares:
(a) Applied is a corporation duly incorporated, validly
existing and in good standing under the laws of the
State of Delaware;
(b) Applied has all requisite corporate power and
authority to execute, deliver and perform its
obligations under this Agreement; the execution,
delivery and performance of this Agreement by Applied
(except the issuance and delivery of the Applied
Warrant hereunder, which is subject to compliance
with any applicable stockholder approval or notice
requirements) has been duly authorized by all
necessary corporate action on the part of Applied;
and this Agreement and the Applied Warrant constitute
the legal, valid and binding obligations of Applied,
enforceable against Applied in accordance with their
respective terms;
(c) Applied is not a party to, bound or affected by or
subject to any indenture, mortgage, lease, agreement,
instrument, charter or by-law
3
<PAGE>
provision, statute, regulation, order, judgment,
decree or law which would be violated, contravened or
breached by, or under which any default would occur
as a result of, the consummation of the transactions
provided for herein; and
(d) Applied is purchasing the Purchased Shares and the
Note for its own account for investment purposes, and
not with a view to the distribution thereof in
violation of any applicable securities laws.
5. Survival of Representations and Warranties
5.1 Commodore. The representations and warranties of Commodore
contained in this Agreement, or any agreement, certificate or other document
delivered or given pursuant to this Agreement, shall survive the consummation of
the transactions contemplated by this Agreement and, notwithstanding such
completion or any investigation made by or on behalf of Applied, shall continue
in full force and effect for the benefit of Applied and any claim in respect
thereof shall be made in writing:
(a) with respect to representations and warranties of
Commodore, relating to matters other than tax
matters, for a period of three years after the
Closing Date; and
(b) with respect to representations and warranties of
Commodore, relating to tax liability or other tax
matters, within the period commencing on the Closing
Date and expiring on the date on which the last
applicable limitation period (without giving effect
to any voluntary extension(s) hereafter granted by or
on behalf of either of the Subsidiaries) under any
applicable taxation legislation expires with respect
to any fiscal year of the Subsidiaries which is
relevant in determining any relevant tax liability of
the Subsidiaries.
5.2 Applied. The representations and warranties of Applied
contained in this Agreement, or any agreement, certificate or other document
delivered or given pursuant to this Agreement, shall survive the completion of
the transactions contemplated by this Agreement and, notwithstanding such
completion or any investigation made by or on behalf of Commodore, shall
continue in full force and effect for the benefit of Commodore and any claim in
respect thereof shall be made in writing for a period of three years after the
Closing Date.
5.3 General. The provisions of this Section 5 respecting the
expiration of claims periods is expressly subject to Section 8.3 hereof.
4
<PAGE>
6. Transfer and Assumption
6.1 Transfer. This Agreement shall operate as an immediate and
effective transfer and assignment of the Purchased Shares and the Note by
Commodore to Applied as at the date hereof. The parties agree to do all such
other acts and things as may be necessary to give effect to the provisions
hereof, and without limiting the generality of the foregoing, to validly and
effectively transfer the Purchased Shares and the Note from Commodore to Applied
as at the Closing Date, and to validly and effectively issue the Applied Warrant
to Commodore as at the date hereof. Commodore hereby irrevocably constitutes and
appoints the Secretary of each of the Subsidiaries as its attorney to transfer
the Purchased Shares to Applied as at the date hereof on the books of the
Subsidiaries, with full power of substitution in the premises.
6.2 Assumption. In addition to the transfer and assignment of
the Purchased Shares and the Note, this Agreement shall serve to constitute an
immediate assignment by Commodore to Applied, and an assumption by Applied, of
any and all further lending and/or funding obligations (whether written or
verbal) of Commodore in favor of the Subsidiaries; and from and after the date
hereof, Commodore shall have no further obligation to extend any loans, advances
or other financial accommodations to either of the Subsidiaries (any and all of
which obligations are hereby assumed by Applied).
7. Additional Covenants
7.1 Each of Commodore and Applied shall take or cause to be
taken all necessary or desirable actions, steps and corporate proceedings to
approve or authorize the transactions contemplated by this Agreement and the
execution and delivery of this Agreement and other agreements and documents
contemplated hereby, and shall cause all necessary meetings of directors and
stockholders of the Subsidiaries to be held for such purpose.
7.2 In connection with the next annual meeting of Applied's
stockholders, Applied shall cause to be included in management's proxy materials
a proposal, with management's recommendation, for Applied's stockholders to
ratify the Applied Warrant and the issuance thereof to Commodore pursuant to
this Agreement.
8. Indemnification
8.1 Each party hereto agrees to indemnify and hold harmless
the other party from and in respect of any cost, claim, loss, damage, liability
or expense which such other party may suffer or incur, whether at law or in
equity, arising out, resulting from or in connection with the inaccuracy of any
representation or warranty contained herein, for the time periods provided in
Section 4.1 hereof.
8.2 No claim for indemnification will arise until written
notice thereof is given to the party from whom indemnification is sought or
claimed (the "Indemnitor"). Such notice shall be sent within a reasonable time
following the determination by the party seeking
5
<PAGE>
indemnification (the "Indemnitee") that a claim for indemnity may exist. In the
event that any legal proceedings shall be instituted or any claim or demand is
asserted by any third person in respect of which either party may seek any
indemnification from the other party, the Indemnitee shall give or cause to be
given to the Indemnitor written notice thereof and the Indemnitor shall have the
right, at its option and expense, to be present at the defense of such
proceedings, claim or demand, but not to control the defense, negotiation or
settlement thereof, which control shall at all times remain with the Indemnitee,
unless the Indemnitor irrevocably acknowledges full and complete responsibility
for indemnification of the Indemnitee in respect of the subject claim, in which
case the Indemnitor may assume such control through counsel of its choice,
provided however, that no settlement shall be entered into without the
Indemnitee's prior written consent (which shall not be unreasonably withheld).
The parties agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such third party legal proceeding,
claim or demand.
8.3 Notwithstanding anything in this Agreement to the
contrary, the indemnity provided for in this Section 8 shall apply to any loss,
claim, cost, damage, expense or liability, whether or not the actual amount
thereof shall have been ascertained prior to the final day upon which a claim
for indemnity with respect thereto may be made hereunder in accordance with
Section 5 hereof, so long as written notice thereof shall have been given to the
party from whom indemnification is sought prior to said date, setting forth
specifically and in reasonable detail, so far as is known, the matter as to
which indemnification is being sought, but nothing herein shall be construed to
require payment of any claim for indemnity until the actual amount payable shall
have been finally ascertained.
9. Tax Treatment
It is the intention of the parties for the transaction
contemplated by this Agreement to qualify as a tax-free reorganization pursuant
to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended,
thereby resulting in no currently recognized gain or loss to either Commodore or
Applied.
10. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
11. Entire Agreement
This Agreement, together with the Applied Warrant, constitutes
the entire agreement between the parties relating to the subject matter hereof.
There are no verbal statements, representations, warranties, undertakings or
agreements between the parties. This agreement may be amended only by an
instrument in writing signed by both parties.
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<PAGE>
12. Time of the Essence
Time shall be of the essence of this Agreement.
13. Assignment
Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written consent of the other
party, which consent may be withheld in either party's sole and absolute
discretion.
14. Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By: /s/ Paul E. Hannesson
-------------------------------------
Name: Paul E. Hannesson
Title: Chairman of the Board
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ Paul E. Hannesson
-------------------------------------
Name: Paul E. Hannesson
Title: Chairman of the Board
7
<PAGE>
EXHIBIT A
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NEITHER THE
WARRANTS NOR SUCH SHARES MAY BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
COMMODORE APPLIED TECHNOLOGIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1 7,500,000 Shares
THIS CERTIFIES that, for value received, Commodore Environmental
Services, Inc. (the "Holder"), is entitled to subscribe for and purchase from
Commodore Applied Technologies, Inc., a Delaware corporation (the "Company"),
subject to compliance with any applicable stockholder approval or notice
requirements, and upon the terms and conditions set forth herein, at any time or
from time to time after the date hereof, and before 5:00 P.M. on December 1,
2003, New York time (the "Exercise Period"), Seven Million Five Hundred Thousand
(7,500,000) shares, par value $.001 per share, of the Company ("Common Stock"),
at an exercise price of $15.00 per share (the "Exercise Price"). This Warrant is
issued in connection with the sale of 100% of the capital stock of Commodore
Separation Technologies, Inc. and Commodore CFC Technologies, Inc. by the Holder
to the Company pursuant to a Stock Purchase Agreement, dated as of December 1,
1996, by and between the Holder and the Company. As used herein the term "this
Warrant" shall mean and include this Warrant and any Warrant or Warrants
hereafter issued as a consequence of the exercise or transfer of this Warrant in
whole or in part.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period, as to the
whole or any lesser number of the respective whole Warrant Shares, by the
surrender of this Warrant (with the election at the end hereof duly executed) to
the Company at its office as set forth in the form of election attached hereto,
or at such other place as is designated in writing by the Company, together with
a certified or bank cashier's check payable to the order of the Company in an
1
<PAGE>
amount equal to the Exercise Price multiplied by the number of respective
Warrant Shares for which this Warrant is being exercised.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares
and payment of the Exercise Price, the Holder shall be deemed to be the holder
of record of the Warrant Shares issuable upon such exercise, notwithstanding
that the transfer books of the Company shall then be closed or certificates
representing such Warrant Shares shall not then have been actually delivered to
the Holder. As soon as practicable after each such exercise of this Warrant and
payment of the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If the Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a Warrant Register as they
are issued. The Company shall be entitled to treat the registered holder of any
Warrant on the Warrant Register as the Owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases or transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the
2
<PAGE>
Company of the full Exercise Price therefor, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date the
Warrants were first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price, and the number of Warrant Shares
issuable upon exercise of this Warrant, in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that the Holder after
such time shall be entitled to receive the aggregate number and kind of shares
which, if such Warrant had been exercised immediately prior to such time, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for
the issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Exercise Price per share of Common Stock on such
record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
current Exercise Price and the denominator of which shall be the number of
shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock to be offered for subscription or purchase (or
into which the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable). Such adjustment shall become effective
at the close of business on such record date; provided, however, that, to the
extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the Exercise Price
shall be readjusted after the expiration of such rights, options, or warrants
(but only with respect to Warrants exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive
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<PAGE>
absent manifest error. Shares of Common Stock owned by or held for the account
of the Company or any majority-owned subsidiary shall not be deemed outstanding
for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness or assets (other than cash
dividends or distributions and dividends payable in shares of Common Stock), or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for shares of Common Stock
(excluding those with respect to the issuance of which an adjustment of the
Exercise Price is provided pursuant to Section 5(b) hereof), then, in each case,
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction, the numerator of which
shall be the Exercise Price per share of Common Stock on such record date, less
the fair market value (as determined in good faith by the board of directors of
the Company, whose determination shall be conclusive absent manifest error) of
the portion of the evidences of indebtedness or assets so to be distributed, or
of such rights, options, or warrants or convertible or exchangeable securities,
applicable to one share, and the denominator of which shall be such current
Exercise Price per share of Common Stock. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the record date for
the determination of shareholders entitled to receive such distribution.
(d) In case the Company shall issue shares of Common Stock or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for Common Stock (excluding shares,
rights, options, warrants, or convertible or exchangeable securities issued or
issuable (i) in any of the transactions with respect to which an adjustment of
the Exercise Price is provided pursuant to Sections 5(a), 5(b) or 5(c) above,
(ii) upon exercise of the Warrants or (iii) to management or employees of the
Company up to a maximum amount of shares of Common Stock), at a price per share
(determined, in the case of such rights, options, warrants, or convertible or
exchangeable securities, by dividing (x) the total amount received or receivable
by the Company in consideration of the sale and issuance of such rights,
options, warrants, or convertible or exchangeable securities, plus the minimum
aggregate consideration payable to the Company upon exercise, conversion, or
exchange thereof, by (y) the maximum number of shares covered by such rights,
options, warrants, or convertible or exchangeable securities) lower than the
Exercise Price per share of Common Stock in effect immediately prior to such
issuance, then the Exercise Price shall be reduced on the date of such issuance
to a price (calculated to the nearest cent) determined by multiplying the
Exercise Price in effect immediately prior to such issuance by a fraction, (iii)
the numerator of which shall be an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issuance plus (B)
the quotient obtained by dividing the consideration received by the Company upon
such issuance by such current Exercise Price, and (iv) the denominator of which
shall be the total number of shares of Common Stock outstanding
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<PAGE>
immediately after such issuance. For the purposes of such adjustments, the
maximum number of shares which the holders of any such rights, options,
warrants, or convertible or exchangeable securities shall be entitled to
initially subscribe for or purchase or convert or exchange such securities into
shall be deemed to be issued and outstanding as of the date of such issuance,
and the consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate consideration
or premiums stated in such rights, options, warrants, or convertible or
exchangeable securities to be paid for the shares covered thereby. No further
adjustment of the Exercise Price shall be made as a result of the actual
issuance of shares of Common Stock on exercise of such rights, options, or
warrants or on conversion or exchange of such convertible or exchangeable
securities. On the expiration or the termination of such rights, options, or
warrants, or the termination of such right to convert or exchange, the Exercise
Price shall be readjusted (but only with respect to Warrants exercised after
such expiration or termination) to such Exercise Price as would have obtained
had the adjustments made upon the issuance of such rights, options, warrants, or
convertible or exchangeable securities been made upon the basis of the delivery
of only the number of shares of Common Stock actually delivered upon the
exercise of such rights, options, or warrants or upon the conversion or exchange
of any such securities; and on any change of the number of shares of Common
Stock deliverable upon the exercise of any such rights, options, or warrants or
conversion or exchange of such convertible or exchangeable securities or any
change in the consideration to be received by the Company upon such exercise,
conversion, or exchange, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Exercise Price, as then in effect,
shall forthwith be readjusted (but only with respect to Warrants exercised after
such change) to such Exercise Price as would have been obtained had an
adjustment been made upon the issuance of such rights, options, or warrants not
exercised prior to such change, or securities not converted or exchanged prior
to such change, on the basis of such change. In case the Company shall issue
shares of Common Stock or any such rights, options, warrants, or convertible or
exchangeable securities for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then the "price per share" and the
"consideration received by the Company" for purposes of the first sentence of
this Section 5(d) shall be as determined in good faith by the board of directors
of the Company, whose determination shall be conclusive absent manifest error.
Shares of Common Stock owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for the purpose of any
such computation.
(e) No adjustment in the Exercise Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(f) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may
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<PAGE>
elect to defer, until the occurrence of such event, issuing to the Holder, if
the Holder exercised this Warrant after such record date, the shares of Common
Stock, if any, issuable upon such exercise over and above the shares of Common
Stock, if any, issuable upon such exercise on the basis of the Exercise Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to the Holder a due bill or other appropriate instrument evidencing the
Holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(g) Upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 5(b), 5(c) or 5(d) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price by (B) the
Exercise Price in effect after such adjustment of the Exercise Price.
(h) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
6. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant;might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or
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<PAGE>
merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise of
this Warrant solely the kind and amount of shares of stock and other securities,
property, cash, or any combination thereof receivable upon such
reclassification, change, consolidation, or merger by a holder of the number of
shares of Common Stock for which this Warrant might have been exercised
immediately prior to such reclassification, change, consolidation, or merger.
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in a
greater amount per share than the most recent such cash dividend) to
all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional
shares of Common Stock or any other rights, warrants, or other
securities; or
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company; or
(e) to take any other action which would cause an adjustment
to the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale,
7
<PAGE>
lease, conveyance of property, liquidation, dissolution, or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange their
shares for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up, or (iii)
the date of such action which would require an adjustment to the Exercise Price.
8. (a) If at any time prior to the expiration of the Exercise Period,
the Company shall file a registration statement (other than a registration
statement on Form S-4, Form S-8, or any successor form) with the Securities and
Exchange Commission (the "Commission") while any Registrable Securities (as
hereinafter defined) are outstanding, the Company shall give all the then
holders of any Registrable Securities (the "Eligible Holders") at least 30 days
prior written notice of the filing of such registration statement. If requested
by any Eligible Holder in writing within 20 days after receipt of any such
notice, the Company shall, at the Company's sole expense (other than the fees
and disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Registrable Securities sold by any
Eligible Holder), register or qualify all or, at each Eligible Holder's option,
any portion of the Registrable Securities of any Eligible Holders who shall have
made such request, concurrently with the registration of such other securities,
all to the extent requisite to permit the public offering. and sale of the
Registrable Securities through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable. Notwithstanding the
foregoing, if the managing underwriter of any such offering shall advise the
Company in writing that, in its opinion, the distribution of all or a portion of
the Registrable Securities requested to be included in the registration
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company
for its own account, then any Eligible Holder who shall have requested
registration of his or its Registrable Securities shall delay the offering and
sale of such Registrable Securities (or the portions thereof so designated by
such managing underwriter) for such period, not to exceed 90 days (the "Delay
Period"), as the managing underwriter shall request, provided that no such delay
shall be required as to any Registrable Securities if any securities of the
Company are included in such registration statement and eligible for sale during
the Delay Period for the account of any person other than the Company and any
Eligible Holder unless the securities included in such registration statement
and eligible for sale during the Delay Period for such other person shall have
been reduced pro rata to the reduction of the Registrable Securities which were
requested to be included and eligible for sale during the Delay Period in such
registration. As used herein' "Registrable Securities" shall mean the Warrants
and the Warrant Shares which, in each case, have not been previously sold
pursuant to a registration statement or Rule 144 promulgated under the Act.
(b) If, at any time prior to the expiration of the Exercise
Period, the Company shall receive a written request, from Eligible Holders who
in the aggregate own (or upon exercise of all Warrants then outstanding or
issuable would own) 50% of the total number of
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<PAGE>
shares of Common Stock then included (or upon such exercises would be included)
in the Registrable Securities (the "Majority Holders"), to register the sale of
all or part of such Registrable Securities, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Registrable Securities
through the facilities of all appropriate securities exchanges and the
over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable; provided, however, that the Company shall
only be obligated to file one such registration statement for which all expenses
incurred in connection with such registration (other than the fees and
disbursements of counsel for the Eligible Holders and underwriting discounts, if
any, payable in respect of the Registrable Securities sold by the Eligible
Holders) shall be borne by the Company. The Company shall not be obligated to
effect any registration of its securities pursuant to this Section 8(b) within
six months after the effective date of a previous registration statement
prepared and filed in accordance with Sections 8(a) or 8(b). Within three
business days after receiving any request contemplated by this Section 8(b), the
Company shall give written notice to all the other Eligible Holders, advising
each of them that the Company is proceeding with such registration and offering
to include therein all or any portion of any such other Eligible Holder's
Registrable Securities, provided that the Company receives a written request to
do so from such Eligible Holder within 30 days after receipt by him or it of the
Company's notice.
(c) In the event of a registration pursuant to the provisions
of this Section 8, the Company shall use its best efforts to cause the
Registrable Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Eligible
Holder or such holders may reasonably request; provided, however, that the
Company shall not be required to qualify to do business in any state by reason
of this Section 8(c) in which it is not otherwise required to qualify to do
business.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 8 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Registrable Securities covered thereby. The Company shall in no
event be required to keep any such registration or qualification in effect for a
period in excess of nine months from the date on which the Eligible Holders are
first free to sell such Registrable Securities; provided, however, that, if the
Company is required to keep any such registration or qualification in effect
with respect to securities other than the Registrable Securities beyond such
period, the Company shall keep such registration or qualification in effect as
it relates to the Registrable Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities.
(e) In the event of a registration pursuant to the provisions
of this Section 8, the Company shall furnish to each Eligible Holder such number
of copies of the registration
9
<PAGE>
statement and of each amendment and supplement thereto (in each case, including
all exhibits), such reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act and the rules and regulations thereunder, and such other documents, as
any Eligible Holder may reasonably request to facilitate the disposition of the
Registrable Securities included in such registration.
(f) In the event of a registration pursuant to the provisions
of this Section 8, the Company shall furnish each Eligible Holder of any
Registrable Securities so registered with an opinion of its counsel (reasonably
acceptable to the Eligible Holders) to the effect that (i) the registration
statement has become effective under the Act and no order suspending the
effectiveness of the registration statement, preventing or suspending the use of
the registration statement, any preliminary prospectus, any final prospectus, or
any amendment or supplement thereto has been issued, nor has the Commission or
any securities or blue sky authority of any jurisdiction instituted or
threatened to institute any proceedings with respect to such an order, (ii) the
registration statement and each prospectus forming a part thereof (including
each preliminary prospectus), and any amendment or supplement thereto, complies
as to form with the Act and the rules and regulations thereunder, and (iii) such
counsel has no knowledge of any material misstatement or omission in such
registration statement or any prospectus, as amended or supplemented. Such
opinion shall also state the jurisdictions in which the Registrable Securities
have been registered or qualified for sale pursuant to the provisions of Section
8(c).
(g) In the event of a registration pursuant to the provision
of this Section 8, the Company shall enter into a cross-indemnity agreement and
a contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Registrable
Securities.
(h) In the event of a registration pursuant to the provisions
of this Section 8:
(i) Each Eligible Holder shall furnish to the Company in
writing such appropriate information (relating to such Eligible Holder and the
intention of such Eligible Holder as to proposed methods of sale or other
disposition of their shares of Common Stock) and the identity of and
compensation to be paid to any proposed underwriters to be employed in
connection therewith as the Company, any underwriter, or the Commission or any
other regulatory authority may request;
(ii) the Eligible Holders shall enter into the usual and
customary form of underwriting agreement agreed to by the Company and any
underwriter with respect to any such offering, if required, and such
underwriting agreement shall contain the customary rights of indemnity between
the Company, the underwriters, and such Eligible Holders;
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<PAGE>
(iii) each Eligible Holder shall agree that he shall
execute, deliver and/or file with or supply the Company, any underwriters, the
Commission and/or any state or other regulatory authority such information,
documents, representations, undertakings and/or agreements necessary to carry
out the provisions of the registration covenants contained in this Section 8
and/or to effect the registration or qualification of his or its Registrable
Securities under the Act and/or any of the laws and regulations of any state of
governmental instrumentality;
(iv) the Company's obligation to include any Registrable
Securities in a registration statement shall be subject to the written agreement
of each holder thereof to offer such securities in the same manner and on the
same terms and conditions as the other securities of the same class are being
offered pursuant to the registration statement, if such shares are being
underwritten;
(v) in the event that all the Registrable Securities have
not been sold on or prior to the expiration of the period specified in Section
8(d) above, the Company may de-register by post-effective amendment any
Registrable Securities covered by the registration statement, but not sold on or
prior to such date. The Company agrees that it will notify each holder of
Registrable Securities of the filing and effective date of such post-effective
amendment; and
(vi) each Eligible Holder agrees that upon notification by
the Company that the prospectus in respect to any public offering covered by the
provisions hereof is in need of revision, such Eligible Holder shall immediately
upon receipt of such notification (x) cease to offer or sell any securities of
the Company which must be accompanied by such prospectus, (y) return all such
prospectuses in such Eligible Holder's hands to the Company, and (z) not offer
or sell any securities of the Company until such Holder has been provided with a
current prospectus and the Company has given such Eligible Holder notification
permitting such Eligible Holder to resume offers and sales.
(i) The Company agrees that until all the Registrable
Securities have been sold under a registration statement or pursuant to Rule 144
under the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Registrable Securities to sell such securities under Rule 144.
(j) Except for rights granted to holders of the Warrants, the
Company will not, without the written consent of the Majority Holders, grant to
any persons the right to request the Company to register any securities of the
Company, provided that the Company may grant such registration rights to other
persons so long as such rights are subordinate or pari passu to the rights of
the Eligible Holders.
9. (a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents and
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<PAGE>
counsel, and each person, if any, who controls any such person within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage, and expense whatsoever (which shall include,
for all purposes of this Section 9, but not be limited to, attorneys' fees and
any and all reasonable expense whatsoever incurred in investigating, preparing,
or defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with: (i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any registration statement, preliminary prospectus, or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, relating to the sale of any of the Registrable Securities,
or (B) in any application or other document or communication (in this Section 9
collectively called an "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify any of the Registrable
Securities under the securities or blue sky laws thereof or filed with the
Commission or any securities exchange; or (ii) any omission or alleged omission
to state a material fact required to be stated in any document referenced in
clause (A) or (B) above or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect to
such Eligible Holder by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be; or
(iii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Warrant. The foregoing agreement to indemnify shall be
in addition to any liability the Company may otherwise have, including
liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of
its officers, directors, partners, employees, agents, or counsel, or any
controlling persons of such person (an "indemnified party") in respect of which
indemnity may be sought against the Company pursuant to the foregoing paragraph,
such indemnified party or parties shall promptly notify the Company in writing
of the institution of such action (but the failure so to notify shall not
relieve the Company from any liability other than pursuant to this Section 9(a),
except to the extent it may have been prejudiced in any material respect by such
failure) and the Company shall promptly assume the defense of such action,
including the employment of counsel (reasonably satisfactory to such indemnified
party or parties) and payment of expenses. Such indemnified party or parties
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or such indemnified party or parties shall have reasonably
concluded that there may be one or more legal defenses available to it or them
or to other indemnified parties which are different from or additional to those
available to the Company, in any of which events such fees
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<PAGE>
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 10 to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which shall not be unreasonably withheld.
The Company shall not, without the prior written consent of each indemnified
party that is not released as described in this sentence, settle or compromise
any action, or permit a default or consent to the entry of judgment in or
otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party is
a party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the Eligible
Holders of the commencement of any litigation or proceedings against the Company
or any of its officers or directors in connection with the sale of any
Registrable Securities or any preliminary prospectus, prospectus, registration
statement, or amendment or supplement thereto, or any application relating to
any sale of any Registrable Securities.
(b) The Holder agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Registrable Securities held by
the Holder, each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity from
the Company to the Holder in Section 9(a), but only with respect to statements
or omissions, if any, made in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or in any application, in reliance upon
and in conformity with written information furnished to the Company with respect
to the Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 9(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
9(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 9(a) or
9(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the
13
<PAGE>
Company, and its or their respective counsel), as one entity, and the Eligible
Holders of the Registrable Securities included in such registration in the
aggregate (including for this purpose any contribution by or on behalf of an
indemnified party), as a second entity, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, on the basis of relevant equitable considerations such as the
relative fault of the Company and such Eligible Holders in connection with the
facts which resulted in such losses, liabilities, claims, damages, and expenses.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission, or alleged omission
relates to information supplied by the Company or by such Eligible Holders, and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and the Eligible
Holders for contribution were determined by pro rata or per capita allocation of
the aggregate losses, liabilities, claims, damages, and expenses (even if the
Holder and the other indemnified parties were treated as one entity for such
purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 9(c). In no case shall any
Eligible Holder be responsible for a portion of the contribution obligation
imposed on all Eligible Holders in excess of its pro rata share based on the
number of shares of Common Stock owned (or which would be owned upon exercise of
the Registrable Securities) by it and included in such registration as compared
to the number of shares of Common Stock owned (or which would be owned upon
exercise of the Registrable Securities) by all Eligible Holders and included in
such registration. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 9(c), each person, if any, who controls any Eligible Holder
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and each officer, director, partner, employee, agent, and counsel of each such
Eligible Holder or control person shall have the same rights to contribution as
such Eligible Holder or control person and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 9(c). Anything in this
Section 9(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 9(c) is intended to supersede any
right to contribution under the Act, the Exchange Act or otherwise.
10. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
14
<PAGE>
than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
11. Certificates evidencing the Warrant Shares issued upon exercise of
the Warrants shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, OR
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
14. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested or sent by Federal Express, Express Mail, or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex, or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, if sent to the Company, at: 150 East 58th Street, Suite 3400, New
York, New York 10155, Attention: The Chairman or the Chief Executive Officer; or
if sent to the Holder, at the Holder's address as it shall appear on the Warrant
Register; or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 14. Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which will
be deemed given at the time of receipt thereof. Any notice given by other means
permitted by this Section 14 shall be deemed given at the time of receipt
thereof.
15. This Warrant shall be binding upon the Company and its successors
and assigns and shall inure to the benefit of the Holder and its successors and
assigns.
16. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
15
<PAGE>
17. The Company irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process.
Dated: _________________, 1997
COMMODORE APPLIED TECHNOLOGIES, INC.
By: __________________________________
Name:
Title:
[Seal]
- ------------------------------
Secretary
16
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns, and transfers unto _____________________ a Warrant to purchase Shares,
par value $.001 per share, of Commodore Applied Technologies, Inc. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ___________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated: ________________________
Signature____________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
17
<PAGE>
To: Commodore Applied Technologies, Inc.
150 East 58th Street, Suite 3400
New York, New York 10155
ELECTION TO EXERCISE
The undersigned hereby exercises its rights to purchase ______________
Warrant Shares covered by the within warrant and tenders payment herewith in the
amount of $ _____________ in accordance with the terms thereof, and requests
that certificates for such securities be issued in the name of, and delivered
to:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:_________________________ Name_______________________________
(Print)
Address:_______________________________________________________________________
_______________________________
(Signature)
18
<PAGE>
LOGO
CONSENT AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement of our report
dated August 1, 1996, except for notes 2 and 3, which are dated October 14, 1996
and notes 1, 4, 5 and 7, which are dated January 15, 1997 relating to the
financial statements of Commodore Separation Technologies, Inc. (a development
stage company), and to the reference to our Firm under the caption "Experts" in
the prospectus.
TANNER + CO.
Salt Lake City, Utah
January 21, 1997
<PAGE>
EXHIBIT 23.7
CONSENT
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in Amendment No. 3 to the
Registration Statement on Form S-1 of Commodore Separation Technologies, Inc.
(the "Company") as a person about to become a director of the Company.
Dated: January 22, 1997
/s/ Kenneth L. Adelman Ph.D.
-----------------------------------
Kenneth L. Adelman, Ph.D.
<PAGE>
EXHIBIT 23.8
CONSENT
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in Amendment No. 3 to the
Registration Statement on Form S-1 of Commodore Separation Technologies, Inc.
(the "Company") as a person about to become a director of the Company.
Dated: January 22, 1997
/s/ David L. Mitchell
-------------------------
David L. Mitchell
<PAGE>
EXHIBIT 23.9
CONSENT
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in Amendment No. 3 to the
Registration Statement on Form S-1 of Commodore Separation Technologies, Inc.
(the "Company") as a person about to become a director of the Company.
Dated: January 22, 1997
/s/ William R. Toller
--------------------------
William R. Toller
