AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998
REGISTRATION NO. 333-47389
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(Exact Name of Registrant as Specified in Its Charter)
N/A
(Translation of Registrant's Name into English)
<TABLE>
<S> <C> <C>
CYPRUS 4953 52-2081158
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
-----------------
20 EAST 63RD STREET, 1ST FLOOR, NEW YORK, NY 10021
(212) 308-7420
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------
IRA H. KANARICK
20 EAST 63RD STREET, 1ST FLOOR, NEW YORK, NEW YORK 10021
(212) 308-7420
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-----------------
Copies to:
<TABLE>
<S> <C>
JACK LEVY, ESQ. JOSEPH L. CANNELLA, ESQ.
MORRISON COHEN SINGER & WEINSTEIN, LLP FISCHBEIN o BADILLO o WAGNER o HARDING
750 LEXINGTON AVENUE, NEW YORK, NEW YORK 10022 909 THIRD AVENUE, NEW YORK, NEW YORK 10022
(212) 735-8600 (TELEPHONE) (212) 453-3709 (TELEPHONE)
(212) 735-8708 (FACSIMILE) (212) 644-7485 (FACSIMILE)
</TABLE>
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
-----------------
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 registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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. [X]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED UNIT (1) PRICE (1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one Ordinary Share, $.10
par value and one Class A Warrant (2) (3) ......... 2,300,000 $ 5.00 $11,500,000 $ 3,392.50
Ordinary Shares, $.10 par value (4)(5).............. 2,300,000 $ 6.00 $13,800,000 $ 4,071.00
Class A Warrants (6) ............................... 250,000 $ .10 $ 2,500 $ 0.74
Ordinary Shares, $.10 par value (5)(7).............. 250,000 $ 6.00 $ 1,500,000 $ 442.50
Representative's Warrant (8) ....................... 150,000 $ .001 $ 150 --
Units, each consisting of one Ordinary Share,
$.10 par value and one Class A Warrant (9)......... 150,000 $ 8.25 $ 1,237,500 $ 365.06
Ordinary Shares, $.10 par value (5)(10)............. 150,000 $ 6.00 $ 900,000 $ 265.50
Total (11) ........................................................................... $28,940,150 $ 8,537.34 (12)
=========== =============
====================================================================================================================================
</TABLE>
<PAGE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Each Unit offered hereby consists of one Ordinary Share, $.10 par value and
one redeemable Class A Warrant. Each Class A Warrant entitles the holder
thereof to purchase one Ordinary Share.
(3) Includes 300,000 Units issuable upon exercise of the Underwriters'
over-allotment option.
(4) Issuable upon exercise of the Class A Warrants.
(5) Pursuant to Rule 416, this Registration Statement also covers an
indeterminable number of additional Ordinary Shares issuable as a result of
any future anti-dilution adjustments in accordance with the terms of the
Class A Warrants.
(6) Represents the Class A Warrants registered for resale by the selling
securityholders.
(7) Issuable upon exercise of the Class A Warrants registered for resale by the
selling securityholders.
(8) To be issued to the Representative of the Underwriters and its designees.
(9) Issuable upon exercise of the Representative's Warrant.
(10) Issuable upon exercise of the Class A Warrants issuable under the
Representative's Warrant.
(11) Such registration fee is computed pursuant to Rule 457(i) under the
Securities Act of 1933, as amended.
(12) $8,614.74 was paid upon the initial filing of this Registration Statement.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) up to 2,300,000
Units, including Units to cover over-allotments, if any, each Unit consisting of
one Ordinary Share, $.10 par value (the "Ordinary Shares") and one redeemable
Class A Warrant (the "Warrants") of C.W. Chemical Waste Technologies Limited, a
Cyprus corporation (the "Company"), for sale by the Company in an underwritten
public offering and (ii) an additional 250,000 Class A Warrants (the "Selling
Securityholder Warrants") and 250,000 Ordinary Shares (the "Selling
Securityholder Stock") issuable upon exercise of the Selling Securityholder
Warrants, for resale from time to time by the selling securityholders. The
Selling Securityholder Warrants and the Selling Securityholder Stock are
sometimes collectively referred to herein as the "Selling Securityholder
Securities."
The complete prospectus relating to the underwritten offering follows
immediately after this explanatory note. Following the prospectus for the
underwritten offering are pages of the prospectus relating solely to the Selling
Securityholder Securities, including alternative front and back cover pages and
sections entitled "Concurrent Public Offering," "Plan of Distribution" and
"Selling Securityholders" to be used in lieu of the sections entitled
"Concurrent Offering" and "Underwriting" in the prospectus relating to the
underwritten offering. Certain sections of the prospectus for the underwritten
offering will not be used in the prospectus relating to the Selling
Securityholder Securities, such as "Use of Proceeds" and "Dilution."
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 18, 1998
2,000,000 UNITS
PROSPECTUS
[GRAPHIC OMITTED]
All of the 2,000,000 units (collectively, the "Units" and each, a "Unit")
offered hereby (the "Offering") are being sold by C.W. Chemical Waste
Technologies Limited, a company organized and existing under the laws of Cyprus
(the "Company"). Each Unit offered by the Company consists of one Ordinary
Share, $.10 par value (the "Ordinary Shares") and one redeemable Class A Warrant
(collectively, the "Warrants" and each, a "Warrant"). The components of the
Units will be separately transferable immediately upon issuance. Each Warrant
entitles the holder to purchase one Ordinary Share at an exercise price of
$6.00, subject to adjustment, commencing one year after and ending on the fifth
anniversary of the date of this Prospectus. The Warrants are subject to
redemption by the Company at a redemption price of $.05 per Warrant, upon 30
days' written notice, commencing two years from the date hereof, provided that
the closing bid price of the Ordinary Shares as reported by the National
Association of Securities Dealers Automated Quotation System or on any National
Securities Exchange (if the Company's Ordinary Shares are listed thereon) for
any 20 consecutive business days ending ten days prior to the date of the notice
of redemption averages at least $8.25 per share (subject to adjustment). See
"Description of Securities."
Prior to the Offering, there has been no public market for the Units, the
Ordinary Shares or the Warrants and there can be no assurance that such a market
will develop. The Company has applied for listing of the Ordinary Shares and
Warrants for quotation of the Ordinary Shares and the Warrants on the Nasdaq
SmallCap Market ("Nasdaq") under the symbols "CWTLF," and "CWTWF," respectively.
The Units will not be listed on Nasdaq. It is anticipated that the initial
public offering price will be $5.00 per Unit. The initial public offering price
of the Units and the exercise price and other terms of the Warrants were
arbitrarily determined by negotiation between the Company and RAS Securities
Corp., the representative (the "Representative") of the several underwriters
(the "Underwriters"). See "Underwriting" for a discussion of factors considered
in determining the initial public offering price.
--------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (2)
----------------- ------------------------ -----------------
<S> <C> <C> <C>
Per Unit .......... $ 5.00 $ 0.50 $ 4.50
Total (3) ......... $ 10,000,000.00 $ 1,000,000.00 $ 9,000,000.00
</TABLE>
- --------------------------------------------------------------------------------
(1) Does not include additional compensation to be received by the
Representative in the form of (a) a non-accountable expense allowance equal
to 2.15% ($215,000) of the aggregate initial public offering price of the
Units ($247,250 if the over-allotment option is exercised in full); and (b)
a warrant to the Representative to purchase up to 150,000 Units at a
purchase price equal to 165% of the initial public offering price during
the four years commencing one year from the date of this Prospectus (the
"Representative's Warrant"). The Company has also agreed to indemnify the
Underwriters and their respective control persons against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $750,000 ($782,250 if the over-allotment option is exercised in full),
including the Representative's non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option (which may be
exercised by the Representative, individually) to purchase up to 300,000
additional Units on the same terms and conditions as set forth above,
solely to cover over-allotments, if any. If the over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Proceeds to Company will be $11,500,000, $1,150,000 and $10,350,000,
respectively. See "Underwriting."
--------------
The registration statement of which this Prospectus is a part also covers
the offering for resale by certain security holders (the "Selling
Securityholders") of 250,000 Class A Warrants (the "Selling Securityholder
Warrants") and 250,000 Ordinary Shares (the "Selling Securityholder Stock")
issuable upon exercise of the Selling Securityholder Warrants, subject to
adjustment. The Selling Securityholder Warrants and the Selling Securityholder
Stock are sometimes collectively referred to herein as the "Selling
Securityholder Securities." The Selling Securityholder Warrants are issuable to
the Selling Securityholders upon the closing of the Offering upon the automatic
conversion of warrants (the "Bridge Warrants") acquired by them in the Company's
private placement completed in February 1998 (the "Bridge Financing"). See
"Description of Securities."
The Units are offered by the Underwriters on a "firm commitment" basis,
when, as and if delivered to and accepted by the Underwriters and subject to
their right to reject any offer in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
Ordinary Shares and Warrants will be made at the offices of RAS Securities
Corp., 50 Broadway, New York, New York 10004, on or about ____________, 1998.
RAS SECURITIES CORP.
THE DATE OF THIS PROSPECTUS IS __________, 1998.
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 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.
<PAGE>
PHOTOS
The Company intends to furnish to its shareholders and holders of the
Warrants annual reports containing financial statements audited and reported on
by its independent public accountants and will make available such other
periodic reports as may be required by law.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE ORDINARY SHARES
AND THE WARRANTS. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SECURITIES
FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE
ORDINARY SHARES OR THE WARRANTS OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF
THE ORDINARY SHARES OR THE WARRANTS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" AND "PLAN OF DISTRIBUTION."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the Notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes no exercise of (a) the Underwriters' over-allotment
option, (b) the Warrants, or (c) the Representative's Warrant.
THE COMPANY
The Company is an early-stage technology licensing company. Its primary
purpose is to exploit globally a proprietary process that treats phosphogypsum,
an environmentally hazardous waste by-product containing toxic components, that
results from the production of phosphoric acid-based fertilizer, to render it
both non-toxic and a useful product in other industries. This process (the
"Phosphogypsum Treatment Process") converts the toxic phosphogypsum into an
environmentally friendly material ("Processed Phosphogypsum") which can be used
as basic construction material, road bed filler and filler for pigments and
plastics. The Company is in the development stage and has a history of
significant operating losses.
The Company also owns and intends to exploit a second process (the "CLM(TM)
Production Process" and, together with the Phosphogypsum Treatment Process, the
"Processes") which treats Processed Phosphogypsum to create a chemically
reconstructed form of the material which may then be combined with various
synthetic polymer resins and chemical hardeners to produce ceramic-like material
("CLM(TM)") which can be used in such compounds as floor coatings and chemical
and anticorrosive coatings. Since the CLM(TM) forms only after the hardener is
added, it is possible to store the chemically reconstructed form of processed
phosphogypsum, potentially for shipping to satellite finishing plants, for up to
three months.
Phosphoric acid, a main ingredient in the production of fertilizers, is
derived from both apatite and phosphorite ores, which are found in great
abundance in many areas of the world, including Russia, China, South Africa, the
Middle East, the Baltics and the United States. These areas accordingly produce
a substantial portion of the world's fertilizer. When phosphoric acid is
produced as the first step in the production of phosphoric acid-based
fertilizer, a waste by-product called phosphogypsum is created which is
considered toxic by virtue of the residual phosphoric, sulfuric and other acids
which are left in the phosphogypsum. Fertilizer production creates phosphogypsum
at the rate of five metric tons per metric ton of usable fertilizer. The largest
150 phosphoric fertilizer manufacturers worldwide produce approximately 35
million metric tons of phosphoric acid annually, which results in approximately
175 million metric tons of phosphogypsum. Phosphogypsum cannot be used without
being treated to remove its toxic components. Some phosphate bearing ores,
especially a majority of those ores found in the United States, contains an
elevated level of radioactivity. At this time, regulations of the United States
Environmental Protection Agency (the "EPA") prohibit the use and treatment of
phosphogypsum as a result of dangers associated with the radioactive nature of
phosphogypsum produced from ores mined in the United States. Of the 150 largest
phosphoric fertilizer manufacturers by volume, 126 are located outside the
United States, and approximately two-thirds of the world's production of such
fertilizer takes place outside the United States.
Based on discussions with a number of fertilizer producers in various
countries, the Company believes that to date no other economical method of
treating phosphogypsum on a large scale has been available. Fertilizer producers
in most countries, including the United States, store phosphogypsum by creating
artificial mountains in specially prepared landfills. These landfills not only
detract from the landscape, but cause great environmental concern to the local
authorities and population, and cost the fertilizer industry millions of dollars
to prepare and maintain. In certain
3
<PAGE>
countries, phosphogypsum is stacked in mountains while in others phosphogypsum
is dumped into the sea. The Phosphogypsum Treatment Process eliminates the cost
of preparing and maintaining landfills and the cost of transporting the
phosphogypsum for dumping into the sea, because it is designed to occur in a
plant adjacent to or attached to existing fertilizer manufacturing plants.
The Company's objective is to become a worldwide licensor of its
technology, including the Processes and the design specifications for the
construction and operation of phosphogypsum treatment plants and CLM(TM)
production plants. The Company also will conduct research to refine the
production of, and to develop further applications for, CLM(TM). The Company`s
strategy is to focus its initial efforts on marketing the Phosphogypsum
Treatment Process as a low-cost and environmentally sound alternative to both
the storage and dumping of phosphogypsum. The Company has commenced and will
continue targeting geographical areas where apatite-based phosphogypsum
(essentially non-radioactive) is most plentiful and its storage is a serious
economic and environmental concern. The Company intends to customize the
engineering design of phosphogypsum treatment plants for different capacities of
phosphogypsum and to provide technical support to each licensee throughout the
construction and operation of each plant. In consideration therefor, the Company
will receive licensing fees payable in specified increments. The Company
believes that the construction of a phosphogypsum treatment plant to operation
will take approximately 20 to 28 months, depending on the size and location of
the plant. See "Business -- Licensing Arrangements."
Although the Company's business is highly influenced by government
regulations of the countries in which the Company's licensees operate, because
the Company is neither a manufacturer of fertilizer and accordingly is not a
producer of phosphogypsum, nor will it be an operator of a phosphogypsum
treatment plant or a CLM production plant, the Company does not believe it will
be subject to environmental regulations or liability relating to the
manufacture, storage or treatment of phosphogypsum. In addition, the Company's
licenses provide that the licensee has sole responsibility for compliance with
applicable regulations, including environmental regulations. See "Business --
Government Regulation."
Since its inception, the Company has focused its marketing efforts on the
Mediterranean, Central and Eastern Europe, North Africa and the Middle East,
developing engineering solutions for the application of the patents for building
phosphogypsum treatment and CLM(TM) plants, and developing value-added end uses
for the Processed Phosphogypsum. In October 1997, the Company entered into a
licensing agreement with a company that intends to exploit the phosphogypsum
treatment technology in Poland in cooperation with a local fertilizer plant,
with an option to purchase a license for the CLM(TM) production technology also
for use in Poland. The Company granted a further option to this licensee to
construct plants for the Processes in Greece. In November 1997, the Company
entered into an agreement to license the construction of both a phosphogypsum
treatment plant and CLM(TM) production plant in Israel. These initial agreements
provide for licensing fees aggregating $8 million, payable over a two-year
period, of which $800,000 have already been received, in addition to royalties
on Processed Phosphogypsum and CLM(TM) disposed of by the licensees. See
"Business -- Sales and Marketing," "Business -- Licensing Arrangements" and
"Notes to Financial Statements."
The Company was incorporated in Cyprus in April 1995. The Company maintains
offices at 20 East 63rd Street, New York, New York 10021, and its telephone
number is (212) 308-7420. It also maintains offices at 31 Akti Moutsopoulou,
185-34 Piraeus, Greece.
4
<PAGE>
THE OFFERING
SECURITIES OFFERED BY THE
COMPANY................. 2,000,000 Units, each Unit consisting of one
Ordinary Share and one Warrant. Each Warrant is
exercisable at any time commencing one year after
and ending on the fifth anniversary of the date of
this Prospectus to purchase one Ordinary Share for
$6.00, subject to adjustment. Commencing two years
from the date hereof, the Warrants are subject to
redemption by the Company at a redemption price of
$.05 per Warrant, in certain circumstances, upon 30
days' written notice. See "Description of
Securities."
SECURITIES OFFERED
CONCURRENTLY BY SELLING
SECURITYHOLDERS......... 250,000 Selling Securityholder Warrants and 250,000
Ordinary Shares issuable upon the exercise of the
Selling Securityholder Warrants. See "Concurrent
Offering."
ORDINARY SHARES OUTSTANDING (1)
BEFORE THE OFFERING:.... 5,000,000 shares
AFTER THE OFFERING:..... 7,000,000 shares
USE OF PROCEEDS.......... To repay $500,000 principal amount of 12% promissory
notes (the "Bridge Notes") issued in the Bridge
Financing, together with accrued interest; for
marketing, research and development, working capital
and general corporate purposes. See "Use of
Proceeds."
PROPOSED NASDAQ SYMBOLS:
ORDINARY SHARES......... CWTLF
CLASS A WARRANTS........ CWTWF
- -----------
(1) Excludes (i) 2,000,000 Ordinary Shares issuable upon exercise of the
Warrants included in the Units offered hereby, (ii) 600,000 shares issuable
upon the exercise of the Underwriters' over-allotment option and underlying
Warrants, (iii) 300,000 Ordinary Shares issuable upon exercise of the
Representative's Warrant and underlying Warrants, (iv) 250,000 Ordinary
Shares issuable upon exercise of the Selling Securityholder Warrants, and
(v) 500,000 Ordinary Shares reserved for issuance upon the exercise of
options issuable under the Company's 1998 Stock Option Plan (the "1998
Plan"), under which no options have been granted to date. See
"Capitalization" and "Management -- 1998 Stock Option Plan."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CUMULATIVE FROM
APRIL 6, 1995 SIX MONTHS
YEAR ENDED (DATE OF INCEPTION) TO ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED)
--------------- ------------------------ -----------------------------
1997 1997 1998 1997
--------------- ------------------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales ..................................... $ -- $ -- $ 800,000 $ --
Research and development expenses ......... 2,133,695 2,133,695 509,310 465,847
Selling, general and administrative ex-
penses .................................. 370,875 377,375 926,149 97,737
Net loss .................................. (2,504,570) (2,511,070) (642,175) (563,584)
Net loss per share ........................ (125.23) (0.31) (28.18)
Shares used in computing net loss per
share ................................... 20,000 2,099,560 20,000
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
----------------------------------
(UNAUDITED)
ACTUAL AS ADJUSTED (1)
--------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................ $ 54,848 $ 8,304,848
Total assets ......................................... 4,163,332 12,413,332
Total liabilities .................................... 4,172,007 4,172,007
Deficit accumulated during development stage ......... (3,153,245) (3,153,245)
Total shareholders' equity ........................... (8,675) 8,241,325
</TABLE>
- -----------
(1) Adjusted to give effect to the sale of the 2,000,000 Units offered hereby
at an assumed offering price of $5.00 per Unit and the receipt of the net
proceeds therefrom. See "Capitalization," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Certain Transactions."
6
<PAGE>
RISK FACTORS
An investment in the securities being offered hereby involves a high degree
of risk and should only be made by investors who can afford the loss of their
entire investment. This Prospectus contains statements involving known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance or achievements, expressed or implied by
such statements. Accordingly, prospective investors should consider carefully
the following risk factors, as well as all other information contained in this
Prospectus, before purchasing the securities offered hereby.
HISTORY OF OPERATING LOSSES. The Company has experienced significant
operating losses since it commenced operations in November 1996, primarily as a
result of investing in the research and development of the technology that
implements the Processes. As of March 31, 1998, the Company's accumulated
deficit was ($3,153,245). The Company believes that the net proceeds of the
Offering will be sufficient to fund its operations and the expansion of its
business during the next 12 months. There can be no assurance, however, that the
proceeds will be sufficient for such purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
UNCERTAINTY OF MARKET ACCEPTANCE. Although the Company believes that the
Processes are a cost-effective solution to the global problem of phosphogypsum
disposal, the technology embodied in the Processes is relatively new. To date,
the Company has undertaken only limited marketing of the Processes. Successful
development of a significant market for the Processes by the Company will
require education, training and broad acceptance of the Processes by phosphoric
acid-based fertilizer manufacturers and their governments. There can be no
assurance that such market acceptance of the Processes can be developed or, if
developed, that such acceptance can be sustained. See "Business -- Strategy" and
"-- Sales and Marketing."
UNCERTAINTY OF TECHNOLOGY. The Company has not applied its Processes and
technology in full-scale plants. Although the Company believes that its
technology performs the principal functions for which it has been designed, the
Company has only conducted limited production of Processed Phosphogypsum and
CLM(TM)-based products. It has successfully produced five metric tons of
Processed Phosphogypsum per year in a pilot plant, whereas the average size of
the plants to be constructed from the Company's know-how and using the Processes
contemplates the production of 300,000 metric tons per year. In addition, the
Company's marketing and commercialization efforts are subject to all risks
inherent in the development of new technologies, including unanticipated delays,
expenses, technical problems or difficulties, as well as the possible
insufficiency of funds to complete development satisfactorily. Consequently,
there can be no assurance that such technology will perform all of the functions
for which it was designed in a large plant or prove to be sufficiently reliable
for widespread commercial production. See "Business -- Sales and Marketing" and
"-- Research and Development."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS. The Company's
success will substantially depend, on its ability to protect proprietary
technologies by obtaining patents therefor and on its ability to operate without
infringing the proprietary rights of third parties. Patents with respect to
certain of the technologies used in the CLMTM Production Process have been
granted in Poland and elsewhere, and patent applications for such technologies
and for the Phosphogypsum Treatment Process have been or are expected to be
filed in several other countries. Although a search of published patents
conducted by the Company's patent counsel has not revealed any patents that
could have priority over those of the Company or its technologies, there can be
no assurance that the Company's pending patent applications will be granted,
that further searches would not reveal any patent claims in conflict with any
Company technology or that any patents, if granted, will afford adequate
protection or not be challenged, or held invalid or otherwise unenforceable.
Furthermore, no assurance can be given that any rights granted under any patent
will afford the Company competitive advantages or that competing methods of
processing phosphogypsum or producing commercially marketable products from
processed phosphogypsum will not be developed. Nor can any assurance be given
that third parties have not or will not develop
7
<PAGE>
technologies or products for which patent claims are made that overlap or
conflict with claims made in the Company's pending patent applications, and
there can be no assurance that the Company will prevail in any dispute involving
priority of the Company's patent claims. See "Business -- Patents, Proprietary
Technology and Trade Secrets."
COMPETITION AND TECHNOLOGICAL CHANGE. Based on its discussions with
fertilizer producers in various countries, management does not believe that
there is currently being marketed any technology that is competitive with the
Phosphogypsum Treatment Process and is unaware of the development of any such
technology. Because the Company intends to market its technology rather than the
products produced by its technology, such technology may become obsolete if
other companies develop superior technology for phosphogypsum treatment or for
the production of better CLM(TM) products. In order for the Company to compete
successfully in its targeted markets, its technologies will have to be and
remain superior to other technologies that may be developed and will have to
produce CLM(TM) products that exhibit more favorable characteristics than, and
that can be produced and sold at prices competitive with, products currently in
the market or that may be designed for the same purposes. There can be no
assurance that the technology or the CLM(TM) products will prove competitive
either on the basis of performance or price. Finally, there can be no assurance
that other companies will not succeed in developing technologies or products
that are more effective than those of the Company or that will render the
Company's products or technologies noncompetitive or obsolete. See "Business --
Competition."
RISKS APPLICABLE TO FOREIGN OPERATIONS. The Company's intention is to
market and license its processes in countries outside of the United States where
the storage and disposal of phosphogypsum has become a serious problem. Foreign
sales and licensing arrangements will expose the Company to certain risks,
including the difficulty and expense of establishing and maintaining foreign
sales channels, barriers to trade, political and economic instability, accounts
receivable collection and potential fluctuations in foreign currency exchange
rates. The Company may also find it difficult, if not impossible, to enforce its
rights under patents or contracts in certain jurisdictions in which it may
ultimately operate. Furthermore, since substantially all of the Company's assets
and a number of its officers and directors are located outside the United
States, any judgment obtained in the United States against the Company or its
officers or directors, including any judgment obtained by any investor or
prospective investor, may not be collectible in the United States. See "Business
- -- Sales and Marketing" and "Business -- Government Regulation."
NO UNITED STATES MARKETS. At this time, regulations of the United States
Environmental Protection Agency (the "EPA") prohibit the use and treatment of
phosphogypsum in the United States (other than for research and specific soil
application) based upon the radioactive content of the phosphate ores located
primarily in the United States. Accordingly, the Company will not be able, at
this time, either directly or through licensees, to market the Processes in the
United States and must limit its marketing activities to those countries that
either employ low radioactive content ore in their fertilizer production or do
not have regulations similar to those of the EPA. Although the Company believes
that the abundance of phosphogypsum waste in the United States is creating
pressure on the EPA to develop solutions to the problem, there can be no
assurance that the EPA will ever change its current regulations to allow the
processing of phosphogypsum from phosphate ores currently used in the United
States. See "Risk Factors -- Government Regulation and Permits," "Business --
Background" and "-- Government Regulation."
GOVERNMENT REGULATION AND PERMITS. The construction, installation and
operation of the Phosphogypsum Treatment plants and CLM(TM) Production plants
may be subject to regulation by various governmental authorities in countries
where they are to be located, including agencies with powers equivalent to those
of the EPA. Delays in obtaining, or the failure to obtain, government approvals,
including appropriate permits and licenses, by the Company's customers, which
have the sole obligation under the Company's current standard form licensing
agreement to comply with all such laws, may substantially delay or prevent the
construction and installation of such plants. Such delays in obtaining, and
complete failures to obtain, such approvals would impair the Company's ability
to license the Processes and secure royalties for CLM products and, accordingly,
would have a material adverse effect on the business, financial condition and
results of operations of the Company. See "Business -- Government Regulation."
8
<PAGE>
EFFECT OF CURRENCY EXCHANGE RATE FLUCTUATIONS. The Company conducts its
business in, and fees due under the Company's standard licensing agreements are
to be paid in fixed amounts of, U.S. Dollars. However, fluctuations in exchange
rates may affect a licensee's ability to meet its obligations under such
agreements.
GOING CONCERN QUALIFICATION IN INDEPENDENT AUDITORS' REPORT. The Company
has received a report from its independent auditors that contains an explanatory
paragraph with respect to the uncertainty regarding the Company's ability to
continue as a going concern. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the "Report of Independent
Auditors" and "Note 1 to Notes to Financial Statements."
CONTROL BY INSIDERS. Upon completion of the Offering, Drofan Trading Ltd.
will beneficially own 63.0% of the outstanding Ordinary Shares of the Company,
and will be able to elect the Company's directors and thereby direct the
policies of the Company. Drofan is owned 50% by Five Star Financial Corp. ("Five
Star"), a corporation owned 100% by Erwin Herling, a former Chairman of the
Board of the Company. Mr. Herling and Andreas Skentos-Kalligeris, a director of
the Company, are the directors and officers of Drofan. The Company has been
advised that Five Star is negotiating to sell 35% of the outstanding capital of
Drofan, which is to be acquired by a corporation owned 100% by Ioannis
Papaioannou, a director of the Company. Upon the consummation of such
transaction, Mr. Papaioannou will replace Mr. Herling as a director and officer
of Drofan. See "Principal Shareholders" and "Description of Securities."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. A substantial portion of the
net proceeds of the Offering has been allocated for working capital and will be
used for such purposes as management may determine. Accordingly, management will
have broad discretion with respect to the expenditure of significant portions of
the net proceeds of the Offering. As a result of the foregoing, the success of
the Company will be substantially dependent upon the discretion and judgment of
management, and purchasers of Ordinary Shares will be required to entrust their
investment to such discretion and judgment based on only limited information
about specific applications of the proceeds. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Use of Proceeds."
NEED TO ATTRACT AND RETAIN KEY OFFICERS, EMPLOYEES AND CONSULTANTS. The
Company is highly dependent on the services of key officers, employees and
consultants as well as the other principal members of management and scientific
staff of the Company. The Company has applied for "key man" life insurance in
the amount of $1,000,000 for each of Ira Kanarick and Ioannis Papaioannou. The
Company also expects to enter into two-year employment agreements with Messrs.
Kanarick and Papaioannou. The future success of the Company depends in large
part upon its ability to attract and retain highly qualified personnel. The
Company faces intense competition for such highly qualified personnel from other
technology companies, as well as universities and nonprofit research
organizations, and may have to pay higher salaries to attract and retain such
personnel. There can be no assurance that sufficient qualified personnel can be
hired on a timely basis or retained. The loss of such key personnel or failure
to recruit additional key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
IMMEDIATE DILUTION. The purchasers of the Units in the Offering will incur
an immediate dilution of approximately $4.31 or 88% in the pro forma per share
net tangible book value of their Ordinary Shares at March 31, 1998 ($4.15 or 85%
if the Underwriters' over-allotment option is exercised in full). Additional
dilution to public investors, if any, may result to the extent that the Warrants
or the Representative's Warrant is exercised at a time when the net tangible
book value per Ordinary Share exceeds the exercise price of any such securities.
See "Dilution."
STATUS AS A PFIC, A CFC, OR AN FPHC; ABSENCE OF AN OPINION OF COUNSEL.
Under the Internal Revenue Code of 1986, as amended ("Code"), the Company might
be classified as a passive foreign investment company (a "PFIC"), a controlled
foreign corporation (a "CFC") and/or a foreign personal holding company (an
"FPHC").
9
<PAGE>
If the Company were to be characterized as a PFIC, unless an investor were
to make certain tax elections, gain realized by that investor on the disposition
of Ordinary Shares or Warrants and income realized from certain distributions
from the Company would subject the investor to significant adverse U.S. federal
income tax consequences. See "Certain Material United States Tax Considerations
- -- Passive Foreign Investment Companies."
If the Company were to be characterized either as a CFC or an FPHC, certain
kinds of primarily "passive" income earned by the Company (including royalty
income under certain circumstances) could subject certain of the Company's
shareholders to U.S. federal income tax as if such income had been distributed
by the Company to such shareholders, even if such income were not actually so
distributed. See "Certain Material United States Considerations -- Controlled
Foreign Corporations" and "-- Foreign Personal Holding Company."
Whether the Company will be classified as a PFIC will depend primarily upon
the nature of its future income and assets, including whether its expected
royalty income will be considered "passive" income. This, in turn, depends upon
the specific nature of the business activities to be conducted by the Company,
which cannot be predicted with certainty at this time. Whether the Company will
be classified as a CFC or an FPHC will depend primarily upon whether significant
enough amounts of its stock are owned by U.S. shareholders, which is neither
currently predictable nor within the control of the Company. Accordingly,
counsel has not rendered any opinion as to the status of the Company as a PFIC,
a CFC or an FPHC.
NO DIVIDENDS. The Company has not paid any dividends on its Ordinary Shares
and does not expect to declare or pay any cash or other dividends in the
foreseeable future. See "Dividend Policy."
NO PUBLIC MARKET FOR SECURITIES; POSSIBLE VOLATILITY OF MARKET PRICE;
ARBITRARY DETERMINATION OF OFFERING PRICE. Prior to the Offering, there has not
been any market for any of the Company's securities, and there can be no
assurance that an active trading market will develop or be sustained after the
Offering. The initial public offering price of the Units and the exercise price
and other terms of the Warrants have been determined by negotiation between the
Company and the Representative and are not necessarily related to the Company's
asset value, net worth, results of operations or any other criteria of value and
may not be indicative of the prices that may prevail in the public market. The
market prices of the Ordinary Shares and Warrants could also be subject to
significant fluctuations in response to variations in the Company's development
efforts, priority of the Company's intellectual property rights, government
regulations, general trends in the industry and other factors, including extreme
price and volume fluctuations which have been experienced by the securities
markets from time to time. See "Underwriting" and "Shares Eligible for Future
Sale."
OUTSTANDING WARRANTS AND OPTIONS, EXERCISE OF REGISTRATION RIGHTS. Upon
completion of the Offering, the Company will have outstanding (i) 2,550,000
Warrants (including the Warrants subject to the Underwriters' over-allotment
option and the Warrants issuable upon the automatic conversion of the Bridge
Warrants) to purchase an aggregate of 2,550,000 Ordinary Shares; and (ii) the
Representative's Warrant to purchase an aggregate of 400,000 Ordinary Shares,
including shares issuable upon exercise of the underlying Warrants. The Company
also has 500,000 Ordinary Shares reserved for issuance upon exercise of options
under the 1998 Plan, none of which have been granted. Holders of such warrants
and options are likely to exercise them when, in all likelihood, the Company
could obtain additional capital on terms more favorable than those provided by
the Warrants and options. Further, while the Warrants and options are
outstanding, the Company's ability to obtain additional financing on favorable
terms may be adversely affected. The holders of the Representative's Warrant
have certain demand and "piggy-back" registration rights with respect to their
securities. Exercise of such rights could involve substantial expense to the
Company. See "Management -- Stock Option Plan," "Description of Securities" and
"Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. Commencing two years
from the date of this Prospectus, the Warrants may be redeemed by the Company at
a redemption price of $.05 per Warrant upon not less than 30 days' prior written
notice if the closing bid price of the Ordinary Shares shall have
10
<PAGE>
averaged at least $8.25 per share for 20 consecutive trading days ending within
ten days of the notice. Redemption of the Warrants could force the holders (i)
to exercise the Warrants and pay the exercise price therefor at a time when it
may be disadvantageous for the holders to do so, (ii) to sell the Warrants at
the then current market price when they might otherwise wish to hold the
Warrants, or (iii) to accept the nominal redemption price which, at the time the
Warrants are called for redemption, is likely to be substantially less than the
market value of the Warrants. See "Description of Securities -- Warrants."
POTENTIAL ADVERSE EFFECTS OF PREFERRED STOCK. The Company's Articles of
Association authorize the issuance of shares of "blank check" preferred stock,
which will have such designations, rights and preferences as may be determined
from time to time by the Board of Directors. Accordingly, the Board of Directors
will be empowered, without shareholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Ordinary Shares.
In the event of such issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities --
Preferred Stock."
CURRENT PROSPECTUS AND STATE REGISTRATION TO EXERCISE WARRANTS. Holders of
Warrants will be able to exercise the Warrants only if (i) a current prospectus
under the Securities Act relating to the securities underlying the Warrants is
then in effect and (ii) such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company has undertaken and
intends to use its best efforts to maintain a current prospectus covering the
securities underlying the Warrants following completion of the Offering to the
extent required by federal securities laws, there can be no assurance that the
Company will be able to do so. The value of the Warrants may be greatly reduced
if a prospectus covering the securities issuable upon the exercise of the
Warrants is not kept current or if the securities are not qualified or exempt
from qualification in the states in which the holders of Warrants reside.
Persons holding Warrants who reside in jurisdictions in which such securities
are not qualified and in which there is no exemption will be unable to exercise
their Warrants and would either have to sell their Warrants in the open market
or allow them to expire unexercised. If and when the Warrants become redeemable
by the terms thereof, the Company may exercise its redemption right even if it
is unable to qualify the underlying securities for sale under all applicable
state securities laws. See "Description of Securities -- Warrants."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET. While
management anticipates that the Company and the Ordinary Shares and Warrants
will meet the current Nasdaq listing requirements and that the Ordinary Shares
and Warrants will initially be listed on Nasdaq, there can be no assurance that
the Company will meet the criteria for continued listing. Continued listing on
Nasdaq will require that (i) the Company maintain at least $2,000,000 in
tangible assets, a $35,000,000 market capitalization or realize net income of at
least $500,000 in two of the three prior years, (ii) there be at least 500,000
shares in the public float valued at $1,000,000 or more, (iii) there be a
minimum Ordinary Share bid price of $1.00, (iv) there be at least two active
market makers in the Ordinary Shares, and (v) there be at least 300 holders
thereof.
If the Company is unable to satisfy Nasdaq's requirements, its securities
may be delisted from Nasdaq. In such event, trading, if any, in the Ordinary
Shares and Warrants would thereafter be conducted in the over-the-counter market
in the so-called "pink sheets" or the NASD's "Electronic Bulletin Board."
Consequently, the liquidity of the Company's securities could be impaired, not
only in the number of securities which could be bought and sold, but also
through delays in the timing of transactions, reduction in security analysts'
and the news media's coverage of the Company, and lower prices for the Company's
securities than might otherwise be attained.
RISKS OF LOW-PRICED STOCK. If the Company's securities were delisted from
Nasdaq, they could become subject to Rule 15g-9 under the Exchange Act which
imposes additional sales practice requirements on broker-dealers that sell such
securities except in transactions exempted by such Rule, including transactions
meeting the requirements of Rule 505 or 506 of Regulation D under the Securities
Act and
11
<PAGE>
transactions in which the purchaser is an institutional accredited investor (as
defined) or an established customer (as defined) of the broker-dealer. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in the Offering to sell any
of the securities acquired hereby in the secondary market.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or the Company
meets certain minimum net tangible assets or average revenue criteria. There can
be no assurance that the Company's securities will qualify for exemptions from
these restrictions. In any event, even if the Company's securities were exempt
from such restrictions, the Company's securities would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while participating in a
distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were subject to the rules on penny stocks, the market liquidity of the Company's
securities could be severely adversely affected.
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of the Ordinary Shares by
existing shareholders pursuant to Regulation S or Rule 144 under the Securities
Act and pursuant to the offering by the Selling Securityholders (the "Concurrent
Offering") or otherwise could have an adverse effect on the price of the
Company's securities. Pursuant to the Concurrent Offering, 250,000 Selling
Securityholder Warrants and the underlying 250,000 Ordinary Shares have been
registered for resale concurrently with the Offering of which 100,000 Selling
Stockholder Warrants will be restricted from sale, transfer or other
distribution until one year following the closing of the Offering. Upon the sale
of the 2,000,000 Units offered hereby, the Company will have outstanding
7,000,000 Ordinary Shares (7,300,000 if the Underwriters' over-allotment is
exercised in full) and 2,250,000 Warrants (2,550,000 Warrants if the
Underwriters' over-allotment option is exercised in full). The Ordinary Shares
and Warrants sold in the Offering will be freely tradeable without restriction
under the Securities Act, unless acquired by "affiliates" of the Company as that
term is defined in the Securities Act. Of the remaining 5,000,000 Ordinary
Shares, 4,975,000 were issued to "non U.S. persons," as such term is defined in
Regulation S under the Securities Act, in transactions that come within the
exemption from registration under the Securities Act provided by Regulation S.
Such Shares are subject to sale in any U.S. market that may develop in
accordance with the provisions of Regulation S. The remaining 25,000 Ordinary
Shares were issued in a transaction exempt from the registration requirements of
the Securities Act pursuant to Rule 701 promulgated thereunder, and,
accordingly, will be freely tradeable in any U.S. market that may develop
commencing 90 days after the date hereof. However, persons holding the Ordinary
Shares outstanding prior to the Offering have agreed not to sell or otherwise
dispose of any securities of the Company for a period of 18 months from the date
of this Prospectus without the prior written consent of the Representative. In
addition, the holders of the Representative's Warrant have certain demand and
"piggy-back" registration rights with respect to their securities. The exercise
of such rights could involve significant expense to the Company. Sales of
Ordinary Shares, or the possibility of such sales, in the public market may
adversely affect the market price of the securities offered hereby. See
"Concurrent Offering," "Description of Securities," "Shares Eligible for Future
Sale," and "Underwriting."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 Units
offered hereby, after deducting underwriting discounts and commissions and other
expenses of the Offering, are estimated to be approximately $8,250,000
($9,555,000 if the Underwriters' over-allotment option is exercised in full).
The Company expects the net proceeds to be utilized as follows:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT APPROXIMATE PERCENTAGE
APPLICATION OF NET PROCEEDS OF NET PROCEEDS
- ------------------------------------------------------ -------------------- -----------------------
<S> <C> <C>
Repayment of Bridge Notes (1) ..................... $ 525,000 6.4%
Additional Payments for the Processes (2) ......... 3,450,000 42.1%
Research and Development .......................... 1,000,000 12.2%
Marketing and Sales (3) ........................... 1,000,000 12.2%
Working Capital (4) ............................... 2,275,000 27.1%
---------- -----
Total .......................................... $8,250,000 100.0%
========== =====
</TABLE>
- ----------
(1) Represents the principal amount and accrued interest at the rate of 12% per
annum (estimated through June 30, 1998) of Bridge Notes issued in the
Bridge Financing completed in February 1998. The net proceeds of the Bridge
Financing were and are being used primarily for working capital purposes,
including the miscellaneous expenses of the Offering. See "Capitalization
-- Bridge Financing," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions."
(2) Includes $1.4 million to be paid as partial payment for the acquisition of
the Phosphogypsum Treatment Process and $2.05 million to be paid as partial
payment for the CLM(TM) Production Process to Herling Applied Technologies,
Ltd., a company owned by Erwin Herling, a former Chairman of the Board of
the Company. See "Business -- The Processes -- Technology Acquisition,"
"Principal Shareholder" and "Certain Transactions."
(3) Includes the costs associated with hiring personnel for and establishing
the sales and marketing facilities in the United States, Greece, and
Poland.
(4) Includes general and administrative expenses, including approximately
$500,000 for salaries of the current executive officers during the next 12
months.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering during the next 12 months. This estimate is
based on certain assumptions, including that no events occur which would cause
the Company to abandon any particular efforts, that competitive conditions
remain stable, that the success of the Company's research and development
activities will occur as projected, and that the Company will not enter into
collaborations or joint ventures. The amounts actually expended for each purpose
may vary significantly in the event any of these assumptions proves inaccurate.
The Company reserves the right to change its use of proceeds, as unanticipated
events may cause the Company to redirect its priorities and reallocate the
proceeds accordingly.
Any additional proceeds received upon exercise of the Underwriters'
over-allotment option, Warrants or the Selling Securityholder Warrants will be
added to working capital. Pending utilization, the net proceeds of the Offering
will be invested in short-term, interest-bearing investments.
DIVIDEND POLICY
The Company has never paid cash or other dividends on its Ordinary Shares
and does not anticipate paying any such dividends in the foreseeable future. The
Company currently intends to retain all earnings, if any, for use in the
expansion of the Company's business. The declaration and payment of future
dividends, if any, will be at the sole discretion of the Board of Directors and
will depend upon the Company's profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by the Board of
Directors. Under Cyprus foreign exchange regulations, the Company will be able
to freely remit dividends in cash or other forms to United States and foreign
shareholders, and there are no limitations whatsoever on United States or
foreign ownership of the Company's equity or other securities.
13
<PAGE>
CAPITALIZATION
The following table sets forth the Capitalization of the Company as of
March 31, 1998, and as adjusted to reflect the sale of the Units offered hereby.
This table should be read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------
(UNAUDITED)
ACTUAL AS ADJUSTED
--------------- ---------------
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $.10 par value; 5,000,000 shares authorized, no
shares issued and outstanding, actual and as adjusted .......... -- --
Ordinary Shares, $.10 par value, 20,000,000 shares authorized;
5,000,000 shares issued and outstanding; 7,000,000 shares issued
and outstanding as adjusted (1) ................................ 500,000 700,000
Additional paid-in capital ..................................... 2,644,570 10,694,570
Deficit accumulated during development stage ................... (3,153,245) (3,153,245)
---------- ----------
Total shareholders' equity ..................................... (8,675) 8,191,325
Total capitalization .......................................... $ (8,675) $ 8,241,325
============ ============
</TABLE>
- ----------
(1) Excludes (i) up to 600,000 shares issuable upon exercise of the
Underwriters' over-allotment option and the underlying Warrants; (ii)
2,000,000 shares issuable upon exercise of the Warrants included in the
Units offered hereby; (iii) 250,000 shares issuable upon exercise of the
Selling Securityholder Warrants; (iv) 400,000 shares issuable upon exercise
of the Representative's Warrant and the underlying warrants; and (v)
300,000 shares reserved for issuance under the 1998 Plan, pursuant to which
there are no options currently outstanding. See "Management -- Stock Option
Plan," "Certain Transactions," "Description of Securities," "Underwriting"
and "Concurrent Offering."
BRIDGE FINANCING
In February 1998, the Company completed the Bridge Financing of an
aggregate of $500,000 principal amount of Bridge Notes and 250,000 Bridge
Warrants. The Company paid the placement agent a fee of $50,000 and a
non-accountable expense allowance of $15,000 in connection with the Bridge
Financing. The Bridge Notes issued in the Bridge Financing are payable, together
with accrued interest at the rate of 12% per annum, on the earlier of the date
of issuance or the closing of the Offering. See "Use of Proceeds."
In connection with the Bridge Financing, the Company issued an aggregate of
250,000 Bridge Warrants. The Bridge Warrants entitle the holders thereof to
purchase one Ordinary Share commencing in February 1999 but will be exchanged
automatically on the closing of the Offering for Class A Warrants, each of which
will be identical to the Class A Warrants included in the Units offered hereby.
The Selling Securityholder Securities have been registered for resale in the
Registration Statement of which this Prospectus is a part. One of the Selling
Stockholders is a registered representative of the Representative. The 100,000
Class A Warrants that he is to receive upon automatic conversion of the Bridge
Warrants will be restricted from sale, transfer or other disposition until one
year following the closing of the Offering. See "Concurrent Offering."
14
<PAGE>
DILUTION
Dilution represents the difference between the initial public offering
price paid by the purchasers in the Offering and the net tangible book value per
share immediately after completion of the Offering. Net tangible book value per
share represents the amount of the Company's total assets minus the amount of
its intangible assets and liabilities, divided by the number of Ordinary Shares
outstanding. At March 31, 1998, the Company had a net tangible book value of
$(4,063,675) or $(0.81) per share. After giving retroactive effect to the sale
of 2,000,000 Units offered hereby, and the Company's receipt of the net proceeds
therefrom, less underwriting discounts, commissions and other estimated offering
expenses (anticipated to aggregate $1,750,000), and allocating $0.10 to the
Warrants contained in the Units, the net tangible book value of the Company, as
adjusted at March 31, 1998, would have been $4,186,325 or $0.60 per share. This
would result in an immediate dilution to the public investors of $4.30 per
share, or 88% and an aggregate increase in the pro forma net tangible book value
to present shareholders of $1.41 per share, or 124%. The following table
illustrates this pro forma per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per Ordinary Share ............................. $ 4.90
Pro forma net tangible book value per share before the Offering ...... $ (0.81)
Increase attributable to new investors ............................... 1.41
Adjusted pro forma net tangible book value per share after the Of-
fering ............................................................. 0.60
-------
Dilution to new investors (1) ........................................ $ 4.30
=======
</TABLE>
- ----------
(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value after the Offering would be approximately $0.75 per
share, resulting in dilution to new investors in the Offering of $4.15 per
share, or 85%.
The following table summarizes the differences between existing
shareholders and new investors with respect to the number of Ordinary Shares
purchased from the Company, the total consideration paid to the Company and the
average price per share paid by existing shareholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ......... 5,000,000 71.4% $ 3,144,570 23.9% $ 0.63
New investors ................. 2,000,000 28.6% $10,000,000 76.1% $ 4.90
--------- ----- ----------- ----- ------
Total ...................... 7,000,000 100.0% $13,144,570 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table does not give effect to the exercise of the Warrants,
the Representative's Warrant or the Bridge Warrants, as they are not currently
exercisable. To the extent such warrants are exercised, or stock options are
granted and exercised under the Company's 1998 Stock Option Plan, there will be
further dilution to new investors. See "Capitalization -- Bridge Financing,"
"Management -- Stock Option Plan"and "Description of Securities."
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the year ended September
30, 1997, and the six months ended March 31, 1998 and 1997, and the balance
sheet data at September 30, 1997 and March 31, 1998 have been derived from the
Financial Statements of the Company. The Financial Statements of the Company,
together with the notes thereto, and the report of Coopers & Lybrand,
independent auditors, are included elsewhere in this Prospectus. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
CUMULATIVE FROM SIX MONTHS ENDED
APRIL 6, 1995 MARCH 31,
YEAR ENDED (DATE OF INCEPTION) --------------------------------
SEPTEMBER 30, 1997 TO SEPTEMBER 30, 1997 1998 1997
-------------------- ----------------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales ................................. $ -- -- $ 800,000 $ --
Research and development expenses...... 2,133,695 2,133,695 509,310 465,847
Selling, general and administrative ex-
penses ............................... 370,875 377,375 926,149 97,737
Net loss .............................. (2,504,570) (2,511,070) (642,175) (563,584)
Net loss per share .................... (125.23) (0.31) (28.18)
Shares used in computing net loss per
share ................................ 20,000 2,099,560 20,000
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997 AT MARCH 31, 1998
----------------------- ------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................ $ -- $ 54,848
Total assets ......................................... 4,055,000 4,163,332
Total liabilities .................................... 3,861,500 4,172,007
Deficit accumulated during development stage ......... (2,511,070) (3,153,245)
Total shareholders' equity ........................... 193,500 (8,675)
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
The Company is a development stage company which intends to develop its
business primarily as a licensor of technology. The Company's activities to date
have been limited to the acquisition of the technology underlying the Processes
and research and development activities relating thereto, and to the development
of CLM products. The Company has also entered into two licensing agreements
pursuant to which it has derived limited revenue. The Company's activities to
date have been primarily funded by capital made available by a principal
shareholder and by funds raised in a bridge financing completed in February
1998. The Company anticipates that its future operations will be funded from
licensing fees and royalties from the existing and new agreements. See also "Use
of Proceeds."
RESULTS OF OPERATIONS
Since the Company's inception in April 1995, it has had limited operations
and, accordingly, limited sales and expenses. The Company has spent
substantially all of its capital on the acquisition of technology and since such
acquisition, on research and development. The Company's only sales have occurred
in the three months ended December 31, 1997 during which the Company received
$800,000, constituting the initial payments made under two licensing agreements.
The Company's expenses, in addition to its organizational expenses, have
mainly consisted of research and development expenditures and technology
acquisition costs. During its first full year of operations ending September 30,
1997, the Company spent $2,133,695 on the research and development relating to
the technology that implements the Processes. The Company also spent an
additional $509,310 for research and development in the six months ended March
31, 1998, compared to $465,847 during the six months ended March 31, 1997. See
also, "Business -- Strategy" and "Business -- Licensing Arrangements" for
details concerning the expected future operations of the Company.
The Company conducts its business and maintains its cash balances in U.S.
dollars and, therefore, does not believe that its results of operations will be
materially affected by fluctuations in foreign currencies.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its activities to date primarily through loans and
capital contributions from principal shareholders. As of March 31, 1998, the
Company had a working capital deficit of ($4,069,159). In February 1998, the
Company completed the Bridge Financing which consisted of $500,000 principal
amount of Bridge Notes bearing interest at an annual rate of 12% and Bridge
Warrants to purchase an aggregate of 250,000 Ordinary Shares. The proceeds of
the Bridge Financing, which were approximately $435,000 (net of $50,000 in
commissions and a $15,000 expense allowance paid to the Representative for
acting as placement agent and other expenses of the Bridge Financing) have been
utilized by the Company for working capital purposes, including general and
administrative expenses and expenses of the Offering. The Company intends to
repay the principal and accrued interest on the Bridge Notes issued in the
Bridge Financing with a portion of the proceeds of the Offering. See "Use of
Proceeds," "Capitalization -- Bridge Financing" and "Certain Transactions."
Except for the Company's obligation to pay an aggregate of $3,450,000 out
of the proceeds of the Offering to pay the balance of the purchase price for the
technology underlying the Processes, the Company has no commitments for capital
expenditures. Under employment agreements expected to be executed, the Company
will be obligated to pay two executive officers an aggregate of $270,000 over
the 12 month period following the Offering under recently executed employment
agreements. These funds are expected to be paid out of working capital,
including working capital provided by the Offering. See "Management --
Employment Agreements" and "Certain Transactions."
17
<PAGE>
The report of the independent auditors on the Company's financial
statements as of September 30, 1997 contains an explanatory paragraph regarding
an uncertainty with respect to the ability of the Company to continue as a going
concern. However, the Company believes that the proceeds of the Offering,
together with available cash, will provide the necessary liquidity and capital
resources to sustain its planned operations for approximately 12 to 18 months
following the Offering. Under the Company's existing licensing agreements, the
licensees are required to pay an aggregate of $3.2 million in November 1998. In
the event that the Company's internal estimates relating to its planned
expenditures prove materially inaccurate, the Company may be required to
reallocate funds among its planned activities and curtail certain planned
expenditures. In any event, the Company anticipates that it will require
substantial additional financing after such time. There can be no assurance as
to the availability or terms of any required additional financing, when and if
needed. In the event that the Company fails to raise any funds it requires, it
may be necessary for the Company to significantly curtail its activities or
cease operations. See "Use of Proceeds."
18
<PAGE>
BUSINESS
The Company is an early-stage technology licensing company. Its primary
purpose is to exploit globally two proprietary processes that treat
phosphogypsum, a toxic, environmentally hazardous waste by-product resulting
from the production of phosphoric acid-based fertilizer, to render it both
non-toxic and a useful product in other industries.
BACKGROUND
Phosphoric acid, a main ingredient in the production of fertilizers, is
derived from both apatite and phosphorite ores, minerals found in great
abundance in many areas of the world, including Russia, China, South Africa, the
Middle East, the Baltics and the United States. These areas produce a
substantial portion of the world's fertilizer. When phosphoric acid is produced
as the first step in the production of phosphoric acid-based fertilizer, a waste
by-product called phosphogypsum is created which is considered toxic by virtue
of the phosphoric, sulfuric and other acids that are left in the phosphogypsum.
Phosphate ores and phosphoric acid derived from them, also vary as to their
level of radioactive content depending on the geological formation. Some of the
phosphogypsum produced from phosphate bearing ores, especially in the United
States, contains an elevated level of radioactivity. Because of its other toxic
components, phosphogypsum cannot be used without being treated to remove them.
To date, the Company believes that no other economical method of treating
phosphogypsum on a large scale has been available.
Approximately five metric tons of phosphogypsum is produced per metric ton
of phosphoric acid-based fertilizer. Fertilizer producers in most countries,
including most of the countries that comprise the Company's market, as well as
the United States, store phosphogypsum by creating artificial mountains in
specially prepared landfills. These landfills not only detract from the
landscape, but cause great environmental concern to the local authorities and
population, and cost the fertilizer industry millions of dollars to prepare and
maintain. The cost of preparing a site for phosphogypsum dumping is substantial,
estimated to be in excess of $45 million for a landfill accommodating ten
million metric tons of phosphogypsum. In certain other countries, phosphogypsum
is disposed of by dumping it into the sea. The cost of this method of disposal
is also expensive, as fertilizer manufacturers must provide transportation for
the phosphogypsum from their plants to the dump sites, including to railroads,
from railroads to seaports and from seaports to dumping sites. Whether
phosphogypsum is transported to landfill sites or to sea sites, the costs of
such transportation are significant and increases the cost of fertilizer
production by an amount estimated to be at least $15 per ton. The Company's
phosphogypsum treatment and CLM(TM) production technology, on the other hand, do
not involve transportation costs, as the technology is designed for use adjacent
to fertilizer manufacturing plants.
The largest 150 phosphoric fertilizer manufacturers produce an annual total
of approximately 35,000,000 metric tons of phosphoric acid, which results in
approximately 175,000,000 metric tons of phosphogypsum. For reference purposes,
if an average-sized Phosphogypsum Treatment plant of the Company treats 300,000
metric tons of such waste per year, 583 plants would be needed worldwide to
process the phosphogypsum of such manufacturers. Consequently, the Company
believes that the potential fees to the Company from the worldwide licensing of
the Phosphogypsum Treatment Process alone could be substantial.
To date, the Company uses its processes to treat waste phosphogypsum
derived only from low radioactive content ore and expects to continue to do so
for the foreseeable future. Neither Processed Phosphogypsum nor CLM(TM) products
derived from such ore contain any significant level of radioactivity. However,
the Company is aware that phosphogypsum derived from the majority of phosphate
ores which are a principal component of fertilizer produced in a number of
countries including the United States, contain levels of radium which exceed the
levels deemed permissible for usage by the U.S. Environmental Protection Agency
(the "EPA"). Although, the Phosphogypsum Treatment Process removes the toxic
components of phosphogypsum derived from phosphate ores with higher levels of
radioactivity to the same extent as phosphogypsum derived from ores containing
lower levels of radio-
19
<PAGE>
activity, it does not remove or reduce the level of radioactivity. The Company
believes that it is possible to produce Processed Phosphogypsum and CLM(TM)
containing levels of radioactivity that the EPA would deem acceptable, and the
Company's research and development activities in this area are currently
ongoing. While some success has been achieved to date, additional development
and testing activities are needed to determine whether products with acceptable
levels of radioactivity can be produced from phosphorite-based phosphogypsum. In
view of the perceived dangers from radioactivity, current regulations in the
United States prohibit any use of this waste product.
The markets for the Company's technology are limited primarily to those
countries that either use phosphoric acid derived from an ore containing low
radioactivity in their fertilizer production or do not have regulations relating
to materials containing slightly elevated levels of radioactivity. Such
countries account for sixty-six percent (66%) of the world's production of
phosphoric acid-based fertilizer and are home to 126 of the 150 largest
phosphoric fertilizer manufacturers worldwide. (Sources: World Fertilizer Plant
List & Atlas -- Annex 3, 11th Edition, British Sulfur Publishing and Phosphate
deposits of the world -- Volume 2, Cambridge University Press). See "Government
Regulation."
THE PROCESSES
Chemical Processes
The Company's primary purpose is to exploit two proprietary processes that
treat waste phosphogypsum to render it both non-toxic, by distilling off the
residual phosphoric, sulfuric and other acids, and a useful product in other
industries. The first such process (the "Phosphogypsum Treatment Process")
converts the toxic phosphogypsum into an environmentally friendly material
("Processed Phosphogypsum") which can be used as basic construction material,
road bed filler and filler for pigments and plastics. The raw phosphogypsum,
which is a wet, sludge-like material, is fed into a rotating kiln. Complex
chemical reactions take place in the kiln which neutralize the phosphogypsum and
distill off all acidic components (including fluorine compounds) which are
subsequently passed through a scrubber system that returns the acids to their
liquid state. These acids are then reused by the fertilizer production plant.
The Processed Phosphogypsum is discharged at the end of the process in a
water-free powder form and is collected in special air-cooled tanks. A diagram
of the Phosphogypsum Treatment Process appears on the inside front cover of this
Prospectus.
The second process (the "CLM(TM) Production Process" and, together with the
Phosphogypsum Treatment Process, the "Processes") is a proprietary process
discovered by Erwin Herling, former Chairman of the Company's Board of
Directors, and two chemists through six years of scientific research conducted
in Poland. The CLM(TM) Production Process involves treating Processed
Phosphogypsum to create a chemically reconstructed form of the material which is
then combined with particular synthetic polymer resins. Chemical hardeners are
then added to initiate the polymerization to produce ceramic-like material
("CLM(TM)") which can be used in such compounds as floor coatings and chemical
and anticorrosive coatings. Depending on the amount of hardener used and the
product being created, the CLM(TM) is fully cured in five to 48 hours. Since the
CLM(TM) forms only after the hardener is added, it is possible to store the
chemically reconstructed form of Processed Phosphogypsum, potentially for
shipping to satellite finishing plants, for up to three months. A diagram of the
CLM(TM) Production Process appears on the inside front cover of this Prospectus.
Technology Acquisition
In September 1997, the Company acquired the patents and rights to market
the Phosphogypsum Treatment Process from a group of Polish inventors. Pursuant
to the purchase agreement, the Company paid the inventors a down payment of
$100,000 and an aggregate of 500,000 Ordinary Shares (the "Inventor Shares").
The Company is obligated to pay the inventors a further payment of $1.4 million
upon completion of the Offering and intends to do so from the proceeds of the
Offering. If the Company does not complete the Offering or any other initial
public offering by June 30, 1998, the Company will be obligated to pay the
inventors fifteen percent (15%) of the Company's annual pre-tax profits until
such $1.4 million has been paid.
20
<PAGE>
In September 1997, the Company also acquired the patents to the CLM(TM)
Production Process from Herling Applied Technologies, Ltd. ("HAT"), a company
owned by Erwin Herling, the former Chairman of the Board of the Company.
Pursuant to the terms of the acquisition agreement, the Company paid HAT a down
payment of $200,000 and is obligated to pay a further payment of $2.05 million
upon the completion of the Offering. The Company intends to use a portion of the
proceeds of the Offering for such further payment. If the Company does not
complete the Offering or any other initial public offering by June 30, 1998, the
Company will be obligated to pay HAT twenty percent (20%) of the Company's
annual pre-tax profits until such $2.05 million has been paid. Ownership of HAT
is expected to be transferred to Pacific Oaks Investment Ltd., a corporation
owned 100% by Ioannis Papaioannou, a director of the Company. See "Principal
Shareholders" and "Certain Transactions."
STRATEGY
The Company's objective is to become a worldwide licensor of its
technology. The Company offers a complete package of technology to its
prospective customers, including the Processes, basic design specifications for
the phosphogypsum treatment and CLM(TM) production plants, and the methodology
to adapt to local physical conditions. The Company also intends to refine the
production of, as well as to research and develop further applications for,
CLM(TM). The Company`s strategy is to focus its initial efforts on marketing the
Phosphogypsum Treatment Process as a low-cost and environmentally sound
alternative to the current methods used to deal with waste phosphogypsum,
including storing, stacking and dumping. The Company has commenced and will
continue targeting geographical areas where apatite-based (essentially
non-radioactive) phosphogypsum is most plentiful and its storage is a serious
economic and environmental concern.
LICENSING ARRANGEMENTS
The Company will customize the engineering and design of phosphogypsum
treatment plants for different capacities and locations and will provide
technical support to the licensee throughout the construction and operation of
each plant. In consideration therefor, the Company will receive a licensing fee
payable in specified increments. The Company believes that the construction of a
phosphogypsum treatment plant to operation will take approximately 20 to 28
months depending on the size and location of the plant.
The current terms of the Company's standard licensing arrangements with its
customers for the Phosphogypsum Treatment Process technology require the
customer to pay a licensing fee consisting of a ten percent (10%) down payment,
a further payment of forty percent (40%) one year after signing the agreement,
and a final payment of fifty percent (50%) upon completion of the plant. In
addition, the licensee is required to pay a running royalty of three percent
(3%) of the net sales price of any Processed Phosphogypsum sold or disposed of.
Royalties will be due and payable by the licensee for the life of any
Phosphogypsum Treatment Process patent in the country where the plant is
located. Such fees may vary based on the size and location of the plant. The
term of the Company's standard licensing arrangement commences on the effective
date of the license and terminates upon expiration of the last patent (in the
applicable country) covering any aspect of the Phosphogypsum Treatment Process.
Should a customer initially decide not to license the Company's CLM(TM)
Production Process technology, the Company will include in the Phosphogypsum
Treatment Process licensing agreement an option to acquire the CLM(TM)
technology license at the price prevailing at the time such agreement is signed.
Should both licenses be obtained at the same time, the licensee will receive a
thirty-three percent (33%) incentive reduction in the cost of the CLM(TM)
technology license.
The payment structure of the CLM(TM) licensing agreement is expected to
parallel that of the Phosphogypsum Treatment Process license agreement. In
addition, the Company's licensees will be required to make royalty payments
equal to three percent (3%) of the cost of the CLM(TM) products sold from each
operational plant. Royalties will be due and payable by the licensee for the
life of any CLM(TM) Production Process patent in the applicable country where
the plant is located. Under such license
21
<PAGE>
agreement, the Company will be responsible for providing and custom designing
the engineering plans for the plants and for providing technical support. The
Company believes that the construction of a CLM(TM) production plant to
operation will take an additional 6 to 9 months. The term of the Company's
standard licensing arrangement commences on the effective date of the license
and terminates upon the expiration of the last patent (in the applicable
country) covering any aspect of the CLM(TM) Production Process. See "--
Licensing Arrangements."
Under the current terms of the Company's standard licensing agreements for
the Processes, the obligation to comply with government regulations, including
environmental regulations, is assumed solely by the licensees.
The Company has entered into a license agreement with Hellenico Viomihania
Epexergasias Phosphoricou Gypsou E.P.E. ("Hellenico"), a company that intends to
exploit the Phosphogypsum Treatment Process and technology in Poland in
cooperation with a local fertilizer plant. Under the agreement, Hellenico also
has a 12-month option to license the CLM(TM) Production Process technology, also
for use in Poland. The Company granted a further option to Hellenico to
construct plants for the implementation of the Processes in Greece. The Company
has also entered into a licensing agreement with Snunit Levana Gimel ("Snunit"),
an Israeli fertilizer manufacturer, for the construction of a plant for both
phosphogypsum treatment and CLM(TM) production in Israel. These initial
agreements provide for licensing fees aggregating $8 million, payable over a
two-year period, of which $800,000 has already been received, in addition to
royalties on Processed Phosphogypsum and CLM(TM) disposed of by the licensees.
See "Business -- Sales and Marketing," "Business -- Licensing Arrangements" and
"Note 3 to Notes to Financial Statements."
CURRENT APPLICATIONS OF CLM(TM)
Altering the proportion of Processed Phosphogypsum and resins used enables
the licensee to vary the final mechanical, electrical and chemical properties of
the CLM(TM). Therefore, CLM(TM) can be produced in a hard solid form, in
elasticized rubber-like form and in pourable liquid form. CLM(TM)-based products
are characterized by highly desirable physical, chemical, mechanical and
strength-related properties that enable them to be used in a wide variety of
potential applications. The following products are among the numerous potential
applications identified to date for CLM(TM):
o Anticorrosive and Chemoresistant Floor, Wall and Ceiling Surfaces --
CLM(TM) can be made in almost any color enabling the production of
pre-fabricated, pre-colored wall, floor and ceiling tiles and other
surface materials. Since CLM(TM) has been shown to withstand UV rays,
such tiles should not be prone to color fading.
o Non-Corrosive Paint -- The Company can produce an anti-corrosive paint
of colored CLM(TM). Laboratory testing has shown such paint to be
anti-corrosive to acids and rust proof as a coating to metal surfaces.
o Molded "Rubber" -- The Company has a formula which reduces the
hardening agents, changes the resins and increases the phosphogypsum
resulting in a pliable, rubberlike compound at a lower cost than
rubber or synthetic rubber. By utilizing prefabricated molds, this
formulation of CLM(TM) could be made into automobile bumpers, tires
that are unlikely to abrade or puncture and engine hoses that are able
to withstand heat and pressure.
The Company has allocated some of the proceeds of the Offering for research
and development of new applications for CLM(TM).
SALES AND MARKETING
To date, the Company has conducted limited sales and marketing activities.
These efforts have targeted potential plant operators and investors in regions
where a large percentage of the world's fertilizer is produced including the
Mediterranean, Central and Eastern Europe, North Africa and the Middle East.
Although the Company has targeted potential manufacturers in the United States,
at this time, regulations of
22
<PAGE>
the EPA prohibit the use of phosphogypsum as a result of dangers associated with
the radioactive nature of phosphogypsum produced from phosphate ores with higher
levels of radioactivity, which are much more prevalent in the United States.
Although the Phosphogypsum Treatment Process removes the toxic components of
phosphogypsum derived from phosphate ores with higher levels of radioactivity to
the same extent as phosphogypsum derived from ores with low radioactivity
content, it does not remove or reduce the level of radioactivity. See "Risk
Factors -- No United States Market" and "-- Government Regulation." Currently,
the Company has a license agreement with Hellenico, a company that intends to
exploit the Phosphogypsum Treatment Process and construct a plant in Poland in
cooperation with a local fertilizer plant, with an option to purchase the
CLM(TM) Production Process technology for use in Poland as well. The Company
granted a further option to Hellenico to construct plants for implementation of
the Processes in Greece. The Company has also entered into a licensing agreement
with Snunit, an Israeli fertilizer manufacturer, for the construction of a plant
for both phosphogypsum treatment and CLM(TM) production. See "-- Licensing
Arrangements."
The Company will conduct its marketing and technology support from its
United States headquarters and from regional centers located in Greece and to be
located in Poland. The Greek center will promote the technology and perform
sales and technical support to the Middle East, the eastern part of North Africa
and the Balkan States. The Polish center will target Eastern and Central Europe
and the countries of the Former Soviet Union. In addition, the Polish center
will be responsible for small-scale research and development work. In the near
future, the Company also intends to have a regional sales center in Singapore to
cover Southeast Asia, China and the Indian Sub-Continent and a regional sales
center in South America to cover the South American sub-continent.
The success of the Company's sales and marketing efforts will depend upon
the Company's ability to foster acceptance of the Processes as a low-cost
alternative to stacking, storing and dumping phosphogypsum. The Company intends
to educate customers as to the advantages and cost-effectiveness of the
Processes, including the availability in many countries of government subsidies
for participants in environmental protection projects. In Europe, there are
generally three types of such incentives: Technical Assistance Programs (TA),
which cover up to 100% of costs related to the pre-investment stage, including
feasibility studies; a subsidy for investment projects that covers between 20%
and 40% of the total investment costs depending on the country and the location
of the plant; and soft loans, which cover between 20% and 40% of the total
investment, with respect to which up to 50% of the interest is subsidized and
longer interest-free periods may be arranged. Under certain conditions,
manufacturers in many countries can take advantage of all three incentives.
Consequently, such incentives can dramatically reduce the cost of plant
construction and equipment installation.
RESEARCH AND DEVELOPMENT
Since its inception, the Company's research and development activities have
consisted of refining the Processes, developing the design and specifications of
phosphogypsum treatment plants based on the Company's proprietary technology and
developing new CLM(TM)-based products. The Company has successfully produced a
limited amount of Processed Phosphogypsum and CLM(TM) in a plant located in
Poland. The Company continues to use this plant for limited production of
Processed Phosphogypsum and CLM(TM) for its research and development activities
and sales efforts, for which the Company pays a nominal per diem fee.
During the year ended September 30, 1997 and the six months ended March 31,
1998, expenditures for research and development aggregated $2,133,695 and
$509,310, respectively.
The Company's strategy is to conduct ongoing research and development
activities aimed at refining the Processes and identifying new applications for
CLM(TM)-based products, as well as to develop new products derived from
phosphogypsum. In addition, the Company intends to continue its research and
development of methods of producing Processed Phosphogypsum and CLM(TM)
containing acceptable levels of radioactivity for use in the United States, from
phosphogypsum derived from United States phosphate ores. The Company has
allocated a substantial portion of the proceeds of the Offering to its research
and development efforts. See "Use of Proceeds."
23
<PAGE>
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
The Company's success will depend, in part, on its ability to obtain patent
protection for its products and technologies under foreign patent laws to
preserve its trade secrets, and to operate without infringing the proprietary
rights of third parties. The Company filed a patent application covering the
Phosphogypsum Treatment Process in the Polish National Patent Office in June
1997. The three patent applications covering the essential aspects of the
CLM(TM) Production Process were filed in the Polish National Patent Office prior
to their acquisition by the Company in September 1997. Two such patent
applications were filed in August 1993, and one was was filed in March 1995.
Foreign counterpart applications of the CLM(TM) Polish patent applications were
filed in the national patent offices of various other countries, including the
countries in North America, most of Europe, South America, Asia and selected
African countries. Patents covering the CLM(TM) Production Process have issued
in certain countries, including Poland, Morocco, Tangiers, Taiwan and Pakistan.
The Company's strategy is to pursue patent protection for several of its CLM(TM)
technologies and for the Phosphogypsum Treatment Process in at least those
countries worldwide that subscribe to the provisions of the Paris Convention
Treaty (the "Paris Treaty") or the Patent Cooperation Treaty (the "Cooperation
Treaty"). The great majority of the industrialized and developing countries of
the world subscribe to one or both of these treaties. The Paris Treaty accords
the benefit of the filing date of the Company's Polish patent applications (the
earliest filed applications) to any patent application for such patents filed
within one year of such filing date in any participating country. The
Cooperation Treaty accords the benefit of such filing date to any patent
application filed initially under the Cooperation Treaty within one year of such
filing date, if such patent application is filed in any participating country
within 18 months thereafter.
A patent search of published applications or issued patents conducted by
patent counsel to the Company has discovered no patents or patent applications
in conflict with those filed by the Company which could have priority over the
technology covered by the Company's patents and patent applications. There can
be no assurance, however, that any additional searches or review of patents
identified in prior searches will not reveal outstanding patents which are in
conflict with those filed by the Company, that the patent applications relating
to the Company's potential technologies, including those that it may license in
the future, will result in patents being issued, that any issued patents will
afford adequate protection or not be challenged, opposed, held invalid or
unenforceable, infringed, or circumvented, or that any rights granted thereunder
will afford competitive advantages to the Company, or that competing
non-infringing methods of processing phosphogypsum and producing commercially
marketable products from phosphogypsum are not under development or will not be
developed. Furthermore, there can be no assurance that others have not
independently developed, or will not independently develop, similar products
and/or technologies, for which patent claims may overlap and/or conflict with
the claims pending in the Company's patent applications. In such an event, there
can be no assurance that the Company can prevail over a dispute involving
priority of invention or entitlement to the earliest priority date. See "Risk
Factors -- Risks Applicable to Foreign Operations."
There can be no assurance, moveover, that the validity of any of the
patents ultimately held by or licensed to the Company would be upheld if
challenged by others in litigation or that the Company's activities would not
infringe patents owned by others. The Company could incur substantial costs in
defending itself in suits brought against it, or in suits in which the Company
may assert, against others, patent claims in which the Company has rights.
Should the Company's technologies be found to infringe patents issued to third
parties, the use of the Company's technology could be enjoined and the Company
could be required to pay substantial damages. In addition, the Company could be
required to obtain licenses to patents or other proprietary rights of third
parties in connection with the development and use of its products and
technologies. No assurance can be given that any licenses required under any
such patents or proprietary rights would be made available on acceptable terms,
if at all.
The Company will also rely on trade secrets and proprietary know-how which
the Company seeks to protect, in part, by confidentiality agreements with
employees, consultants, advisors, and others. There can be no assurance that
such employees, consultants, advisors, or others, will maintain the
24
<PAGE>
confidentiality of such trade secrets or proprietary information, or that the
trade secrets or proprietary know-how of the Company will not otherwise become
known or be independently developed by competitors in such a manner that the
Company will have no practical legal recourse.
The Company may also rely on trademarks or service marks covering its
products or services, respectively. The Company intends to select and seek the
registration of certain marks with which the Company hopes its products will be
identified. There can be no assurance that such applications for registration
will not be refused by the various trademark offices around the world, or if
allowed, will not be opposed by others. Further, there can be no assurance that
a Company's registered mark will not be canceled as a consequence of a
cancellation procedure initiated by others or that the use of any Company mark
will not infringe the trademark rights of others. The Company may need to defend
itself against third party claims or enforce its own rights against accused
infringers at substantial expense with no guarantee that the Company will
prevail or retain its right to use a given mark.
COMPETITION
Management does not believe that there is currently being marketed any
technology for the treatment of phosphogypsum competitive with the Processes and
is unaware of any such technology being developed. The Company may face
competition from companies that are developing or in the future may seek to
develop and market other types of phosphogypsum treatment technology. Some of
these entities may have significantly greater research and development
capabilities, and manufacturing, marketing, financial and managerial resources
than the Company. The Company believes that the cost-effectiveness of each of
the Processes, combined with the fact that both Processes have the potential to
turn what is otherwise a waste by-product into a revenue producing product, will
enable the Company to compete with these other companies. The Company believes
that the market for basic construction and filler material for which Processed
Phosphogypsum can be substituted is substantial. The Company also believes that
the "environmentally friendly" basis of its technology will encourage certain
industrial concerns, including, but not limited to, those in the fertilizer
industry, to promote the use of CLM(TM)-based products. However, there can be no
assurance that the Company's technology will compete successfully with
technologies that may be developed.
The Company also competes with universities and other research institutions
in the development of phosphogypsum treatment and conversion processes. There
can be no assurance that others will not succeed in developing technologies that
are more desirable or useful than those of the Company or that will render the
Company's technologies non-competitive or obsolete.
GOVERNMENT REGULATION
The Company's ability to market its Processes in any country may be
influenced by government regulations regarding the handling and use of
phosphogypsum and the ability of prospective customers to obtain construction
and other permits and approvals where required. Governmental regulation in any
country in which the Company may conduct business in the future could prevent or
substantially delay the marketing of the Company's Processes, cause it to
undertake costly procedures and furnish a competitive advantage to more
substantially capitalized companies with which it expects to compete. In
addition, the extent of potentially adverse government regulations, which might
arise from future administrative action or legislation, cannot be predicted.
Currently, regulations of the EPA prohibit the use of phosphogypsum as a
result of dangers associated with the radioactive nature of phosphogypsum
produced from ores mined in the United States. Such radioactive ores are much
more prevalent in the United States than some ores located elsewhere in the
world. Accordingly, the Company will not be able, at this time, either directly
or through licensees, to market the Processes in the United States. The Company
does not believe, however, that such regulations prohibit the importation of
CLM(TM)-based products manufactured using either phosphorite or apatite ore into
the United States. Although the Company believes that the abundance of
phosphogypsum waste in the United States is creating pressure on the EPA to
create solutions to the problem, there can be no assurance that the EPA will
ever change its current regulations to enable the Company to conduct
manufacturing operations in the United States.
25
<PAGE>
The Company believes that none of the governments of Greece, Poland or
Israel, the locations of operations of the fertilizer manufacturers with which
the Company has existing agreements, has any laws or regulations that would
prohibit or hinder the construction or operation of a Phosphogypsum Treatment
plant or CLM(TM) Production plant in such country. Under the Company's standard
licensing agreement, the licensee alone is obligated to comply with governmental
regulations, including environmental regulations.
EMPLOYEES
As of May 31, 1998, the Company had 12 full-time employees. One such
employee is located in London, six are located in New York and five are located
in Athens. The Company's future success depends, in significant part, upon the
continued service of its executive officers and key personnel and its ability to
attract and retain additional key personnel and a skilled sales force.
Competition for such personnel is intense, and there can be no assurance that
key employees can be retained or that other highly qualified sales and technical
personnel can be retained in the future.
None of the Company's employees is represented by a labor union. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.
FACILITIES
The Company's executive offices are located in a building owned by an
entity controlled by Erwin Herling, a former Chairman of the Board of the
Company, at 20 East 63rd Street, New York, New York. The Company leases 1,200
square feet of office space in such building at a monthly rent of $5,000, which
lease is on a month to month basis. See "Certain Transactions" and "Principal
Shareholders."
The Company also maintains an office at 31 Akti Moutsopoulou, 185-34
Piraeus, Greece, which consists of approximately 1400 square feet of office
space at a monthly rent of $4,500, which lease is on a month-to-month basis.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
26
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as of May 31, 1998:
NAME AGE POSITION
- ------------------------------- ----- -------------------------------------
Coy Eklund (1)(3) 82 Chairman of the Board of Directors
Ira H. Kanarick 55 Director and Chief Executive Officer
Michael Kentas (3) 42 Director and Chief Financial Officer
Ioannis Papaioannou (3) 42 Director and Chief Operating Officer
Thirteenels Services Ltd. (2) N/A Secretary
Andreas Skentzos-Kalligeris 37 Director
Joseph Baretincic (3) 67 Director
- ----------
(1) Member of the Audit Committee.
(2) Pursuant to the laws of the Republic of Cyprus, a corporation is permitted
to be the secretary of another corporation.
(3) Not currently a director. Expected to be elected a director prior to the
effective date of the registration statement of which this Prospectus is a
part.
Coy Eklund was elected Chairman of the Board of Directors in 1998. He spent
his entire active career, a period of 45 years, with Equitable Life Assurance
Society of U.S. ("Equitable"). During such time, Mr. Eklund received numerous
promotions, ultimately rising to become Equitable's President from 1973 to 1975
and then its Chairman of the Board and Chief Executive Officer from 1975 until
his retirement from Equitable in 1983. Mr. Eklund continued to serve on
Equitable's Board of Directors until 1987. He has been a director of Life
Medical Sciences, a public company engaged in the research and development of
specific types of medical and surgical pharmaceutical products, since 1994, and
was a director of Insight, Inc., a public company that was engaged in the
ownership and operation of television stations, from 1995 to 1996. During Mr.
Eklund's career, he also served on the Board of Directors of The Bendix
Companies, Burroughs and Chase Manhattan Bank. Mr. Eklund received a B.A. degree
in police administration from Michigan State University.
Ira H. Kanarick has been a director since January 15, 1998 and Chief
Executive Officer since February 27, 1998. He has been employed by the Company
since September 1997. From June 1994 through September 1997, Mr. Kanarick worked
for various companies controlled by Erwin Herling, formerly Chairman of the
Company's Board of Directors. These companies included Euroamerica Marketing
Ltd., a company which buys and supplies merchandise for the home shopping
television industry, and for which Mr. Kanarick served as the Head of Finance,
and Herling Applied Technologies, Ltd., a company involved in the development
and production of CLM(TM), for which Mr. Kanarick served as Vice President. Mr.
Kanarick was a partner for more than ten years in his own accounting firm,
Kanarick & Moscowitz, which he sold in 1994. Mr. Kanarick received his B.S. in
accounting from New York University and is a certified public accountant.
Mr. Kanarick was a defendant in a lawsuit brought in 1990 by his
brother-in-law in which allegations of, among other things, securities fraud
were asserted in connection with investments by the brother-in-law in four
private companies during the period 1975 to 1981 allegedly made at the
recommendation of Mr. Kanarick. In 1993, the case was ultimately settled by the
parties, while the jury verdict in favor of the brother-in-law was being
appealed by both parties, in which the allegations of securities fraud were
withdrawn and the judgment vacated.
Michael Kentas was elected a director of the Company and appointed its
Chief Financial Officer in 1998. He has also been a consultant to the Company
since September 1997 in connection with accounting matters and the preparation
of its financial statements. Mr. Kentas has been a partner at
27
<PAGE>
FSPG, a UK firm of chartered accountants, since August 1989. Mr. Kentas received
an accounting diploma from The University of North London. Mr. Kentas was
admitted as a Member of the Institute of Chartered Accountants in England and
Wales in May 1986 and received his Practicing Certificate in May 1988.
Ioannis Papaioannou has been the Chief Operating Officer, Executive Vice
President and director of the Company since 1998. Dr. Papaioannou was the
General Manager of Energo Group S.A., an energy and engineering consulting firm,
from 1994-1997. From 1991-1993, Dr. Papaioannou was an independent consultant
working in collaboration with Linnhoff March LTD (UK), an engineering company,
and from 1989-1990, he was the Chief Executive Officer of General Mining and
Metallurgical Company LARCO S.A., an iron mining company. Dr. Papaioannou
received a degree in engineering from the National Technical University of
Athens, and both an M.Sc. in advanced chemical engineering and a Ph.D. in
chemical engineering from The University of Manchester Institute of Science and
Technology.
Andreas Skentzos-Kalligeris has been a director of the Company since
September 1, 1996 and has also been a consultant to the Company on a continuous
basis to develop its information systems since such date. Dr.
Skentzos-Kalligeris has been a director of and the Head of the Consultancy and
Research Department of the Athens Technology Center S.A., a Greek company that
designs and develops information systems technology for Greece and the European
Community, since 1989. Dr. Skentzos-Kalligeris has also been a private systems
management consultant for various companies since 1991. Dr. Skentzos-Kalligeris
received a B.Sc. in Systems Engineering, an M.Sc. in Systems Engineering, and a
Ph.D. in Chemical/Systems Engineering from the University of Manchester
Institute of Science and Technology.
Joseph Baretincic was elected a director of the Company in 1998. He served
as Director of Environmental Services for IMC-Agrico's Florida chemical
operations (formerly, IMC Fertilizer, Inc.) from 1978 until his retirement in
August 1996. Mr. Baretincic is a Certified Environmental Auditor & Registered
Environmental Manager, and, in August 1996, he testified before the EPA on
behalf of The Fertilizer Institute regarding easing restrictions on the amount
of phosphogypsum that may be used for research without approval from the EPA. In
October 1992, the EPA's Office of Pollution Prevention and Toxics appointed Mr.
Baretincic to a TSCA Dialogue Committee on Phosphoric Acid Production Wastes.
Mr. Baretincic received a B.S. degree in Chemistry from the University of
Pittsburgh and a Bachelor of Laws Degree from La Salle Extension University.
Directors serve until the next annual meeting of shareholders or until
their successors are elected and qualify. Officers serve at the discretion of
the Board of Directors, subject to rights, if any, under contracts of
employment. See "Management -- Employment Agreements."
BOARD COMMITTEES AND DESIGNATED DIRECTORS
The Board of Directors will have an Audit Committee, one of the members of
which is expected to be Coy Eklund. The Audit Committee is responsible for
recommending to the Board of Directors the appointment of the Company's
independent auditors, examining the results of audits, reviewing internal
accounting controls and reviewing related party transactions.
The Representative has the right to nominate a director to the Company's
Board of Directors or to send a representative to board meetings at the
Company's expense for a period of three years from the date of this Prospectus.
See "Underwriting."
DIRECTOR COMPENSATION
After completion of the Offering, non-employee directors will receive
$1,000 for each Board meeting or committee meeting attended and will be
reimbursed for their expenses in attending such meetings. Directors are not
precluded from serving the Company in any other capacity and receiving
compensation therefor.
28
<PAGE>
EXECUTIVE COMPENSATION
No executive officer of the Company received cash compensation in excess of
$100,000 during the fiscal year ended September 30, 1997.
STOCK OPTION PLAN
The 1998 Stock Option Plan
The Company expects to adopt its 1998 Stock Option Plan (the "1998 Plan")
prior to the date of this Prospectus. The maximum number of Ordinary Shares that
will be subject to options under the 1998 Plan is 500,000.
The 1998 Plan will be administered by the Board of Directors or a Committee
of the Board, which will have the power and authority under the 1998 Plan to
determine which of the Company's employees, consultants and directors will
receive awards, the time or times at which awards will be made, the nature and
amount of the awards, the exercise or purchase price, if any, of such awards,
and such other terms and conditions applicable to awards as it determines to be
appropriate or advisable.
Options granted under the 1998 Plan will be either non-qualified stock
options or options intended to qualify as incentive stock options under Section
422 of the Code. The term of incentive stock options granted under the 1998 Plan
will not extend beyond ten years from the date of grant (or five years in the
case of a holder of more than 10% of the total combined voting power of all
classes of stock of the Company on the date of grant).
Under the 1998 Plan, the Board of Directors will be able to establish, with
respect to each option awarded, such vesting provisions as it determines to be
appropriate or advisable. Unvested options will automatically terminate within a
specified period of time following the termination of the holder's relationship
with the Company and in no event beyond the expiration of the term of the
option. All options granted under the 1998 Plan to employees of the Company may,
in the discretion of the Board of Directors, become fully vested upon the
occurrence of certain corporate transactions if the holders thereof are
terminated in connection therewith.
The exercise price of options granted under the 1998 Plan will be
determined by the Board of Directors, but may not, (i) in the case of incentive
stock options, be less than the fair market value of the Ordinary Shares on the
date of grant (or, in the case of incentive stock options granted to a holder of
more than 10% of the total combined voting power of all classes of stock of the
Company on the date of grant, 110% of such fair market value), as determined by
the Board of Directors and (ii) in the case of non-qualified stock options, be
less than 75% of the fair market value of the Ordinary Shares on the date of
grant.
The Board of Directors will also be able to grant, in combination with
non-qualified stock options and incentive stock options, stock appreciation
rights ("Tandem SARs"), or will be able to grant Tandem SARs as an addition to
outstanding non-qualified stock options. A Tandem SAR will permit the
participant, in lieu of exercising the corresponding option, to elect to receive
any appreciation in the value of the shares subject to such option directly from
the Company in Ordinary Shares. The amount payable by the Company upon the
exercise of a Tandem SAR will be measured by the difference between the market
value of such shares at the time of exercise and the option exercise price.
Generally, Tandem SARs will be exercisable at any time after the underlying
option vests. Upon the exercise of a Tandem SAR, the corresponding portion of
the related option will have to be surrendered and will not thereafter be
exercised. Conversely, upon exercise of an option to which a Tandem SAR is
attached, the Tandem SAR will no longer be exercisable to the extent that the
corresponding option has been exercised. Nontandem stock appreciation rights
("Nontandem SARs") will also be awardable by the Board of Directors. A Nontandem
SAR will permit the participant to elect to receive from the Company that number
of Ordinary Shares having an aggregate market value equal to the excess of the
market value of the shares covered by the Nontandem SAR on the date of exercise
over the aggregate base price of such
29
<PAGE>
shares as determined by the Board of Directors. With respect to both Tandem and
Nontandem SARs, the Board of Directors will be able to cause the Company to
settle its obligations arising out of the exercise of such rights in cash or a
combination of cash and shares, in lieu of issuing shares only.
The number and class of shares available under the 1998 Plan will be
adjustable by the Board of Directors to prevent dilution or enlargement of
rights in the event of various changes in the capitalization of the Company. At
the time of grant of any award, the Board of Directors will be able to provide
that the number and class of shares issuable in connection with such award be
adjusted in certain circumstances to prevent dilution or enlargement of rights.
The Board of Directors will be able to suspend, amend, modify or terminate
the 1998 Plan. However, the Company's shareholders will be required to approve
any amendment that would (i) materially increase the aggregate number of shares
issuable under the 1998 Plan, (ii) materially increase the benefits accruing to
employees under the 1998 Plan or (iii) materially modify the requirements for
eligibility to participate in the 1998 Plan. Awards made prior to the
termination of the 1998 Plan shall continue in accordance with their terms
following such termination. No amendment, suspension or termination of the 1998
Plan shall adversely affect the rights of an employee or consultant in awards
previously granted without such employee's or consultant's consent.
As of the date hereof, no stock options have been granted under the 1998
Plan.
OPTION GRANTS
During the fiscal year ended September 30, 1997, no options were granted to
any executive officer.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company intends to enter into indemnification agreements with each of
its directors and officers after the Offering. Each such indemnification
agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any civil or criminal action or administrative proceeding arising out of
his performance of his duties as a director or officer, other than an action
instituted by the director or officer. Such indemnification will be available if
the indemnitee acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful.
Each indemnification agreement will permit the director or officer that is a
party thereto to bring suit to seek recovery or amounts due under the
indemnification agreement and to recover the expenses of such a suit if he is
successful.
The Company's Articles of Association provide that every director and
officer of the Company shall be indemnified against all costs, charges,
expenses, losses and liabilities which he may incur or sustain in, about or in
relation to the execution of his office and, in particular without limiting the
foregoing, against any liability incurred by him in defending any proceedings in
relation to the affairs of the Company in which judgment is given in his favor
or in which he is acquitted or in connection with any application under the law
in which relief is granted to him by the court from liability in relation to the
affairs of the Company. The Company's Articles of Association also provide that
the Company may purchase and maintain for any director or officer of the Company
insurance against any liability which would otherwise attach to him in respect
of any negligence, default, breach of duty or breach of trust of which he may be
guilty in relation to the Company. The Company is applying to purchase directors
and officers liability insurance in the amount of $5,000,000.
KEY MAN LIFE INSURANCE
The Company has obtained key man life insurance, of which the Company is
the sole beneficiary, in the amount of $1,000,000 for each of Ira Kanarick and
Ioannis Papaioannou. The policy commences on the effective date of the
Registration Statement of which this Prospectus is a part.
30
<PAGE>
EMPLOYMENT AGREEMENTS
The Company will enter into a two (2) year employment agreement with each
of Messrs. Ira Kanarick and Ioannis Papaioannou effective as of May 1, 1998.
Such agreements provide for base annual compensation equal to $150,000 for Mr.
Kanarick and $120,000 for Mr. Papaioannou. Each such agreement also provides
salary increases in the second year based on increases in the United States
consumer price index and for bonus compensation based on a percentage of the
Company's net income before taxes. Each agreement contains customary provisions
regarding benefits and restrictions on competition.
CERTAIN TRANSACTIONS
Of the Company's 5,000,000 Ordinary Shares outstanding, 4,410,000 ordinary
shares are owned by Drofan Trading Ltd. ("Drofan"). Drofan is currently owned
50% by Five Star Financial Corp. ("Five Star"), a corporation owned 100% by
Erwin Herling, and 50% by Eastern Capital (Holdings) Limited, a corporation
owned by George Samios. The Company has been advised that Five Star is
negotiating to sell 35% of the outstanding capital of Drofan which it currently
owns to Eastern which in turn has agreed to sell such interest to Pacific Oaks
Investments, Ltd. ("Pacific Oaks"), a corporation owned 100% by Ioannis
Papioannou. Mr. Herling is also expected to sell all of the outstanding capital
stock of HAT to Eastern, which in turn has agreed to sell the HAT capital stock
to Pacific Oaks. Under the terms of the transaction as represented to the
Company, the consideration is to be paid over a twelve month period and record
ownership of the Drofan shares and of HAT is to be transferred as payments are
made. The Company is advised that the agreements provide that Drofan shares and
HAT capital stock being sold will be held in escrow pending payment, and that
subject to performance under the agreements, Pacific Oaks will have all rights
to vote such Drofan shares.
The Company maintains offices located in a building currently owned by an
entity controlled by Erwin Herling. The Company pays rent of $5,000 per month to
such entity. See "Business -- Properties."
In September 1997, the Company acquired the patents to the CLM(TM)
Production Process from HAT, a company of which Mr. Herling is a principal.
Under the terms of the transactions described above ownership of HAT will be
transferred to Pacific Oaks. Mr. Kanarick was also an officer of HAT from June
1995 through September 1997. Pursuant to the terms of acquisition agreement, the
Company paid HAT a down payment of $200,000 and is obligated to pay a further
payment of $2.05 million upon the completion of the Offering. See "Use of
Proceeds" and "Business -- The Processes." The Company has been advised by HAT
that the money to be received from the Company out of the proceeds of the
Offering will be used to pay obligations of HAT, including obligations to repay
amounts loaned to HAT by various investors. The Company has been further advised
that none of such proceeds will be paid to Erwin Herling or any other affiliate
of the Company.
In January 1998, the Company issued 25,000 Ordinary Shares to each of (a)
Ioannis Papaioannou for his services to the Company in connection with
engineering matters relating to the Company's technology and (b) Andreas
Skentzos-Kalligeris for his consulting services to the Company in connection
with management information systems and computer programming.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that all future
transactions, including loans, between the Company and its officers, directors,
principal shareholders or any of their respective affiliates will be approved by
a majority of the Board of Directors, and a majority of the independent and
disinterested outside directors on the Board of Directors, and will continue to
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
31
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Ordinary Shares as of May 31, 1998 and as adjusted to reflect the
sale of the Ordinary Shares offered hereby, with respect to (i) each person
known by the Company to be the beneficial owner of more than 5% of the Ordinary
Shares (ii) each of the Company's directors and nominees to become a director,
(iii) each of the Named Executive Officers and (iv) all directors and officers
as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
-----------------------------------
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ----------------------------------------------- ------------------------- ----------------- ---------------
<S> <C> <C> <C>
Coy Eklund .................................... 0 -- --
Ira H. Kanarick ............................... 0 -- --
Michael Kentas ................................ 0 -- --
Ioannis Papaioannou ........................... 25,000 (2)(3)(4) * *
Andreas Skentzos-Kalligeris ................... 25,000 (2)(3)(4)(5) * *
Joseph Baretincic ............................. 0 -- --
Drofan Trading Ltd. (3) ....................... 4,410,000 88.2% 63.0%
20, Clanwilliam Terrace
Dublin 2, Ireland
Erwin Herling ................................. 2,205,000 (2)(3)(6) 44.1% 31.5%
Carlton Tower Place
London SW1, England ..........................
George Samios ................................. 2,205,000 (2)(6) 44.1% 31.5%
43, Vas Pavlou Street
Palco Psychiko
Athens, Greece ..............................
All executive officers and directors as a group
(6 persons) .................................. 50,000 (5) 31.9% 22.8%
</TABLE>
- ----------
* Less than one percent
** Director nominee
(1) Except as otherwise indicated above, the address of each shareholder
identified above is c/o the Company, 20 East 63rd Street, New York, NY
10021. Except as otherwise indicated in the footnotes to this table, the
persons named in this table have sole voting and investment power with
respect to all Ordinary Shares.
(2) Drofan Trading Ltd. ("Drofan") is owned (i) 50% by Five Star Financial
Corp., a corporation owned 100% by Erwin Herling, and (ii) 50% by Eastern
Capital (Holdings) Limited ("Eastern"), a corporation owned 100% by George
Samios. The Company has been advised that Five Start is negotiating to sell
35% of the outstanding capital of Drofan which it currently owns to
Eastern, which in turn has agreed to sell such interest to Pacific Oaks, a
corporation owned 100% by Ioannis Papaioannou. See "Certain Transactions."
If such transaction is completed as expected the beneficial ownership of
Messrs. Papaioannou and Herling and of All executive officers and directors
as a group will be as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
-----------------------------------
NUMBER OF SHARES
BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ----------------- ---------------
<S> <C> <C> <C>
Ioannis Papaioannou ........................... 1,568,500 (2)(3)(4)(6) 31.4% 22.4%
Erwin Herling ................................. 661,500 (2)(6) 13.2% 9.4%
All executive officers and directors as a group
(6 persons) .................................. 1,593,500 (7) 31.9% 22.8%
</TABLE>
(3) Mr. Herling and Mr. Skentos-Kalligeris are currently the directors and
officers of Drofan. If the transaction referred to in Note 2 is
consummated, it is expected that Mr. Herling will resign from such
positions and Mr. Papaioannou will become a director and officer of Drofan.
Mr. Skentzos-Kalligeris is also a director of Eastern. Mr.
Skentzos-Kalligeris disclaims any beneficial interest in the Ordinary
Shares held by Drofan.
(4) Includes 25,000 Ordinary Shares issued for services rendered to the
Company. See "Certain Transactions."
(5) Does not include any Ordinary Shares owned by Drofan.
(6) Includes a pro rata portion of the shares owned by Drofan.
(7) Includes shares owned by Drofan included as beneficially owned by Mr.
Papaioannou
32
<PAGE>
CONCURRENT OFFERING
The registration statement of which this Prospectus is a part also includes
a prospectus with respect to an offering by the Selling Securityholders. The
Selling Securityholders' Warrants are being issued to the Selling
Securityholders as of the closing date of the Offering upon the automatic
conversion of all of the Company's outstanding Bridge Warrants. These Class A
Warrants are identical to the Class A Warrants included in the Units offered
hereby. All of the Selling Securityholder Warrants issued upon conversion of the
Bridge Warrants and the Ordinary Shares issuable upon exercise of such Class A
Warrants will be registered, at the Company's expense, under the Securities Act,
and the Selling Securityholder Warrants are expected to become tradeable on or
about the effective date of the Offering. However, 100,000 Class A Warrants to
be issued to one of the Selling Securityholders, who is a registered
representative with the Representative, will be restricted from sale, transfer
or others disposition until one year following the closing of the Offering. The
Company will not receive any proceeds from the sale of the Selling
Securityholder Warrants. Sales of Selling Securityholder Warrants issued upon
conversion of the Bridge Warrants or the securities underlying such Class A
Warrants or even the potential of such sales could have an adverse effect on the
market prices of the Units, the Ordinary Shares and the Warrants.
There are no material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years. The Company has been informed by the
Representative that there are no agreements between the Representative or the
Underwriters and any Selling Securityholder regarding the distribution of the
Selling Securityholder Warrants or the Selling Securityholder Shares.
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices or in negotiated transactions, a combination of such methods of sale or
otherwise.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers for whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholder Warrants may not
simultaneously engage in market-making activities with respect to any securities
of the Company during the applicable "cooling-off " period (at least two and
possibly nine business days) prior to the commencement of such distribution.
Accordingly, in the event the Representative is engaged in a distribution of the
Selling Securityholder Warrants, it will not be able to make a market in the
Company's securities during the applicable restrictive period. However, the
Representative has not agreed to nor is it obligated to act as broker-dealer in
the sale of the Selling Securityholder Warrants, and the Selling Securityholders
may be required to sell such securities through another broker-dealer. In
addition, each Selling Securityholder desiring to sell Warrants will be subject
to the applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of the purchases and sales of the Company's securities by such
Selling Securityholder.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(l 1) of the Securities Act, and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
33
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 20,000,000 Ordinary
Shares, $.10 par value and 5,000,000 shares of "blank check" preferred stock,
$.10 par value (the "Preferred Stock"). All of the outstanding Ordinary Shares
and Warrants of the Company are held by a small number of shareholders, and
there is currently no public market for either security.
ORDINARY SHARES
Holders of Ordinary Shares are entitled to dividends, pro rata based on the
number of shares held, when, as and if declared by the Board of Directors, from
funds legally available therefor subject to the rights of holders of Preferred
Stock when, and if, issued. In the case of dividends or other distributions
payable in stock of the Company, including distributions pursuant to stock
splits or divisions of stock of the Company, only Ordinary Shares will be
distributed with respect to Ordinary Shares. In the event of liquidation,
dissolution or winding up of the affairs of the Company, all assets and funds of
the Company remaining after the payment to creditors and to holders of preferred
stock shall be distributed, pro rata, among the holders of the Ordinary Shares.
Holders of Ordinary Shares are not entitled to preemptive, subscription,
cumulative voting or conversion rights, and there are no redemption or sinking
fund provisions applicable to the Ordinary Shares. All Ordinary Shares to be
offered by the Company hereby, when issued, will be fully paid and
non-assessable and no personal liability will attach thereto.
There are no governmental laws, decrees or regulations in Cyprus that
restrict the export or import of capital, including, but not limited to, foreign
exchange controls, or that affect the remittance of dividends, interest or other
payments to non-resident holders of the Ordinary Shares.
There are no limitations on the right of non-resident or foreign owners to
hold or vote the Ordinary Shares imposed by law or by the charter or other
constituent documents of the Company.
WARRANTS
Each Warrant entitles the holder to purchase for $6.00 one Ordinary Share,
subject to adjustment, at any time commencing one year after and ending on the
fifth anniversary of the date of this Prospectus. The Warrants are subject to
redemption by the Company at a redemption price of $.05 per Warrant, upon 30
days' written notice, commencing two years from the date hereof, provided that
the closing bid price of the Ordinary Shares in the over-the-counter market as
reported by National Association of Securities Dealers Automated Quotation
System or the closing bid price on any National Stock Exchange (if the Company's
Ordinary Shares are listed thereon) for any 20 consecutive business days ending
10 days prior to the date of the notice of redemption averages at least $8.25
per share (subject to adjustment). All Warrants must be redeemed if any are
redeemed.
REPRESENTATIVE'S WARRANT
The Company has agreed to grant to the Representative and/or its designees,
upon the closing of the Offering, the Representative's Warrant to purchase up to
150,000 Units. These Units will be identical to the Units offered hereby. The
Representative's Warrant is exercisable for a four (4) year period commencing
one year after the date of this Prospectus at an exercise price of $8.25 per
Unit (165% of the Offering price) subject to adjustment in certain events to
protect against dilution. The holders of the Representative's Warrant will have
certain demand and piggyback registration rights. See "Underwriting."
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock (the "Preferred Stock"). The Board of Directors has the authority to issue
Preferred Stock in one or more series and to fix the number of shares and the
relative rights, conversion rights, voting rights and terms of redemption
34
<PAGE>
(including sinking fund provisions) and liquidation preferences, without further
vote or action by the shareholders. If shares of Preferred Stock with voting
rights are issued, such issuance could affect the voting rights of the holders
of the Company's Ordinary Shares by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights. If
the Board of Directors authorizes the issuance of shares of Preferred Stock with
conversion rights, the number of Ordinary Shares outstanding could potentially
be increased by up to the authorized amount. Issuance of Preferred Stock could,
under certain circumstances, have the effect of delaying or preventing a change
in control of the Company and may adversely affect the rights of holders of
Ordinary Shares. Also, Preferred Stock could have preferences over the Ordinary
Shares (and other series of preferred stock) with respect to dividend and
liquidation rights. The Company currently has no plans to issue any Preferred
Stock.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, New York, NY, serves as
Transfer Agent for the Ordinary Shares and Warrant Agent for the Warrants.
CERTAIN CYPRUS TAX CONSIDERATIONS
Cyprus does not impose any taxation, including withholding taxes, on United
States holders of the Ordinary Shares or Warrants.
An income tax treaty is currently in effect between Cyprus and the United
States (the "Treaty"). Among other things, the Treaty would, under many
circumstances, reduce the U.S. rate of tax on U.S. source interest paid to
Cyprus residents from 30% to 10%; would reduce the rate on U.S. source dividends
paid to Cyprus residents from 30% to 15% (or 5% if the recipient were a Cyprus
corporation owning at least 10% of the voting stock of the payor, and certain
other requirements were met); and would exempt from U.S. tax the industrial or
commercial profits of a Cyprus resident except to the extent such industrial or
commercial profits were attributable to a permanent establishment maintained by
it in the U.S. However, the taxation relief provisions of the Treaty do not
apply to a Cyprus corporation unless (a) more than 75% of the corporation's
shares (of each class) are owned directly or indirectly by individuals resident
in Cyprus (the "Resident Ownership Test"), and (b) its gross income is not used
in substantial part to meet liabilities (including those for interest and
royalties) to persons who are not residents of either Cyprus or the U.S. and who
are not citizens of the U.S. The Resident Ownership Test could, alternatively,
be satisfied if there were substantial trading of the Cyprus corporation stock
on a recognized Cyprus stock exchange. Because the Company does not expect to be
able to meet the Resident Ownership Test, it does not expect to derive any tax
reduction benefits under the Treaty on any U.S. source income that the Company
might generate. The Treaty also contains provisions which authorize the U.S. and
Cyprus to exchange information relating to taxes, and to assist each other in
the collection of taxes to ensure that any tax benefits conferred by the Treaty
will be enjoyed only by persons entitled to such benefits.
CERTAIN MATERIAL UNITED STATES TAX CONSIDERATIONS
The following is a summary of, and expresses the opinion of Morrison Cohen
Singer & Weinstein, LLP as to, certain material United States federal tax
consequences of the acquisition and ownership of the Units, Ordinary Shares and
Warrants (collectively, the "Securities"). This summary does not address all of
the material tax consequences of the ownership of the Securities, and does not
take into account the specific circumstances of any particular category of
investor (such as U.S. expatriates, regulated investment companies, financial
institutions, tax-exempt entities, insurance companies, broker-dealers,
investors subject to the alternative minimum tax, investors that actually or
constructively own 10% or more of the voting stock of the Company, investors
that hold Ordinary Shares as part of a straddle or hedging or conversion
transaction, or investors whose functional currency is not the United States
dollar), some of which may be subject to special rules. This summary is based on
the tax laws of the United
35
<PAGE>
States (including the Internal Revenue Code of 1986, as amended (the "Code")),
its legislative history, final, temporary and proposed regulations thereunder,
published rulings and court decisions, all as in effect at the date hereof and
all of which are subject to change (or changes in interpretation), possibly with
retroactive effect.
For purposes of this discussion, a "U.S. Holder" is any beneficial owner of
Securities that is (i) a citizen or resident of the United States, (ii) a
corporation or partnership organized under the laws of the United States or of
any political subdivision thereof; or (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of the source, or a trust
that meets the following two tests: (A) a U.S. court is able to exercise primary
supervision over the administration of the trust, and (B) one or more U.S.
fiduciaries have authority to control all substantial decisions of the trust. A
"non-U.S. Holder" is any beneficial owner of Securities that is not a U.S.
Holder. THIS DISCUSSION IS NOT EXHAUSTIVE OF ALL POSSIBLE TAX CONSIDERATIONS,
AND PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS TO
SATISFY THEMSELVES AS TO THE OVERALL TAX CONSEQUENCES, INCLUDING, SPECIFICALLY,
THE CONSEQUENCES UNDER U.S. FEDERAL, STATE, LOCAL AND OTHER LAWS, OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE SECURITIES.
TAXATION OF UNITS
A U.S. Holder of a Unit will not recognize gain or loss upon his separation
of the Units into Ordinary Shares and Warrants. The respective holding period of
each such constituent part of a Unit following such separation will include the
holding period for the Unit prior to such separation.
For purposes of determining the separate adjusted cost basis of the
Ordinary Shares and the Warrants comprising the Units, a holder who purchases a
Unit will be required to allocate the purchase price for the Unit between such
constituent parts based on their respective fair market values at the time of
purchase.
No gain or loss will be recognized for U.S. federal income tax purposes on
the exercise of a Warrant. A U.S. Holder's tax basis in the Ordinary Shares
received on exercise of a Warrant will include the amount paid on exercise of
such Warrant, but its holding period for such Ordinary Shares acquired by reason
of such exercise will not include its holding period for the Warrant. If a
Warrant expires unexercised, a U.S. Holder will recognize a capital loss equal
to such holder's tax basis in the Warrant.
Adjustment to the exercise price of a Warrant pursuant to the anti-dilution
provisions of the Warrant Agreement or the failure to make adjustments to the
exercise price upon the occurrence of certain events may result in constructive
dividends to the holders of the Warrants under Section 305 of the Code,
regardless of whether there is a distribution of cash or property.
Gain recognized on the sale or other disposition of a Warrant will be
subject to the same rules that apply to a sale of Ordinary Shares, discussed
below.
TAXATION OF DIVIDENDS
Except as may be required under the rules discussed under the headings
"Passive Foreign Investment Companies," "Controlled Foreign Corporations," or
"Foreign Personal Holding Companies" below, under the U.S. federal income tax
laws, U.S. Holders will include in gross income the gross amount of any dividend
paid (before reduction for any foreign country withholding taxes) by the Company
out of its current or accumulated earnings and profits (as determined under U.S.
federal income tax principles) as ordinary income when the dividend is actually
or constructively received by the U.S. Holder. Distributions in excess of the
Company's earnings and profits will be treated, for U.S. federal income tax
purposes, first as a non-taxable return of capital to the extent of the U.S.
Holder's adjusted tax basis in the Ordinary Shares, and then as gain from the
sale or exchange of such Ordinary Shares. The dividend will not be eligible for
the dividends-received deduction generally allowed to United States corporations
in respect of dividends received from other United States corporations. The
amount of the dividend
36
<PAGE>
distribution includible in the income of a U.S. Holder will be the U.S. dollar
amount of the distribution, or the dollar value of the Cyprus Pound payments
made as determined at the spot Cyprus Pound/U.S. Dollar rate on the date such
dividend distribution is includible in the income of a U.S. Holder, regardless
of whether that payment is in fact converted into dollars. Generally, any gain
or loss resulting from currency exchange fluctuations during the period from the
date the dividend payment is includible in income to the date such payment is
converted into dollars will be treated as ordinary income or loss. Such gain or
loss will generally be income from sources within the United States for foreign
tax credit limitation purposes.
Dividends paid to a non-U.S. Holder in respect of Ordinary Shares will not
be subject to U.S. federal income tax unless such dividends are effectively
connected with the conduct of a trade or business within the United States by
such non-U.S. Holder (and are attributable to an office or other fixed place of
business in the United States or a permanent establishment maintained in the
United States by such non-U.S. Holder, if an applicable income tax treaty
between the United States and the country in which the non-U.S. Holder is
resident so requires as a condition for such non-U.S. Holder to be subject to
United States taxation on a net income basis in respect of income from Ordinary
Shares), in which case the non-U.S. Holder generally will be subject to tax in
respect of such dividends in the same manner as a U.S. Holder. Any such
effectively connected dividends received by a non-U.S. Holder which is a
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
TAXATION OF CAPITAL GAINS
Except as may be required under the Passive Foreign Investment Company and
Controlled Foreign Corporation rules discussed below, a U.S. Holder will, upon
the sale or exchange of any Securities, recognize a gain or loss for federal
income tax purposes in an amount equal to the difference between the amount
realized (or the U.S. dollar value thereof determined at the spot rate on the
date of disposition if the amount realized is denominated in a foreign currency)
and the U.S. Holder's adjusted tax basis in the Securities sold or exchanged.
Such gain or loss will generally be a capital gain or loss. In the case of an
individual U.S. Holder, any such capital gain will be subject to a maximum U.S.
federal income tax rate of (i) 20% if the U.S. Holder's holding period in such
Securities is more than 18 months, and (ii) 28% if the individual U.S. Holder's
holding period in such Securities is more than one year but no more than 18
months. Certain limitations exist on the deductibility of capital losses by both
corporate and individual taxpayers. Under most circumstances, gain or loss from
the sale or exchange of any Securities will be treated as U.S. source gain or
loss for foreign tax credit purposes. A non-U.S. Holder will not be subject to
U.S. federal income tax in respect of gain recognized on a disposition of
Securities unless (i) the gain is effectively connected with a trade or business
of the non-U.S. Holder in the United States, or (ii) in the case of a non-U.S.
Holder who is an individual, such holder is present in the United States for 183
or more days in the taxable year of the sale and certain other conditions apply.
Effectively connected gains realized by a corporate non-U.S. Holder may also,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or lower rate as may be specified by an applicable income tax treaty.
PASSIVE FOREIGN INVESTMENT COMPANIES
Sections 1291 through 1298 of the Code contain special rules applicable to
foreign corporations that are "passive foreign investment companies" ("PFICs").
In general, a foreign corporation will be a PFIC for any taxable year in which
75% or more of its gross income constitutes "passive income," or 50% or more of
its assets produce "passive income." If the Company were to be characterized as
a PFIC, U.S. Holders of Securities would be subject to a penalty tax at the time
of sale of their Ordinary Shares or Warrants, or at the time of their receipt of
any "excess distribution" with respect to their Ordinary Shares. In general, a
U.S. Holder would be considered to have received an "excess distribution" if the
amount of the distribution were more than 125% of the average distribution with
respect to the Ordinary Shares during the three preceding taxable years (or
shorter period during which the U.S. Holder
37
<PAGE>
held the Ordinary Shares). In general, the penalty tax would be equivalent to
the taxes that would be deemed due during the period of the U.S. shareholder's
ownership of Ordinary Shares or Warrants, computed by assuming that the excess
distribution with respect to such Ordinary Shares, or the gain on the
disposition of the Ordinary Shares or Warrants, had been taxed ratably
throughout the U.S. Holder's period of ownership at the maximum ordinary income
tax rates prevailing during such ownership period (whether or not the Company
generated any earnings and profits or was a PFIC throughout all of such
ownership period), plus an interest charge thereon. The interest charge is equal
to the applicable rate imposed on underpayment of U.S. federal income tax for
such period. If the Company were a PFIC, a U.S. Holder's pledge of appreciated
Securities, or other use of Securities to secure a direct or indirect obligation
of such U.S. Holder, would be taxed under the above rules as if such Securities
had been disposed of for their fair market values (or, if less than the amount
of their fair market values, the amount of the loan).
Income considered "passive income" for purposes of the PFIC rules generally
is income which constitutes "foreign personal holding company income" under Code
Section 954 and the Treasury Regulations thereunder applicable to "Controlled
Foreign Corporations" (described below). Although royalty income would generally
be considered passive income under such rules, royalty income can nevertheless
avoid characterization as "passive income" for these purposes if it is
considered to be derived in the "active conduct of a trade or business" and is
not received from a related party. Royalties will be considered to be derived in
the "active conduct of a trade or business" if either (i) the licensor has
developed, created or produced, or has acquired and added substantial value to,
the licensed property which produces the royalties, but only so long as the
licensor is regularly engaged in the development, creation or production of, or
in the acquisition of and addition of substantial value to, the licensed
property; or (ii) the licensed property is licensed as a result of the
performance of marketing functions by such licensor if the licensor, through its
own officers or staff of employees located in a foreign country, maintains and
operates an organization in such country that is regularly engaged in the
business of marketing, or of marketing and servicing, the licensed property, and
such business is "substantial" in relation to the amount of royalties derived
from the licensing of such property. Whether an organization's marketing and
servicing activities in a foreign country are "substantial" is determined based
on all of the facts and circumstances of a particular case. The Treasury
Regulations, however, provide a safe harbor based on certain mathematical tests
as to the relationship of the licensor's "active licensing expenses" to the
licensor's "adjusted licensing profits," as such terms are defined in such
Treasury Regulations, for such activities be considered "substantial," and the
royalties thus non-passive.
The Company believes that, based upon an analysis of current law and the
Company's past and prospective development activities and marketing operations,
including expectations as to its "active licensing expenses," that it is not,
and should in the foreseeable future not become, a PFIC for United States
federal income tax purposes. However, because such question is essentially one
of fact, no assurance can be given as to this, and Morrison Cohen Singer &
Weinstein, LLP is unable to express any opinion as to whether the Company is, or
will in the future become, a PFIC.
If the Company were to be classified as a PFIC, a U.S. Holder would be
subject to an increased tax liability upon the sale or other disposition of its
Securities, or upon the receipt of "excess distributions" with respect to its
Ordinary Shares, as described above, unless either: (1) such U.S. Holder elected
(a "QEF Election") to be taxed currently on its pro rata portion of the
Company's income whether or not such income was distributed in the form of
dividends or otherwise; or (2) such U.S. Holder makes a "mark-to-market"
election with respect to its Securities, under which it includes in its U.S.
income (as ordinary income) any annual appreciation in value of its Securities
(if publicly traded), and deducts as an ordinary loss any annual depreciation in
value of its Securities (or, if less, the "unreversed inclusions" with respect
to the Securities, which generally constitute the excess of the cumulative
mark-to-market gains previously so included by the holder, over the cumulative
mark-to-market losses previously so deducted).
The Company intends to monitor its status under the PFIC rules and, in the
event that the Company makes a determination that it is a PFIC for any taxable
year, it will promptly notify its U.S. Holders of such determination and will
provide its U.S. Holders with the information needed to make the QEF Election.
38
<PAGE>
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING
THE APPLICATION OF THE U.S. FEDERAL INCOME TAX RULES GOVERNING PFICS IN THEIR
PARTICULAR CIRCUMSTANCES.
CONTROLLED FOREIGN CORPORATIONS
Under Subpart F of the Code, a "Controlled Foreign Corporation" (a "CFC")
is a foreign corporation that on any day of its taxable year is owned, directly,
indirectly or by attribution, more than 50%, by vote or value, by "U.S.
Shareholders." For this purpose, a "U.S. Shareholder" is a U.S. person (as
defined in Section 957(c) of the Code) who owns, directly, indirectly or by
attribution, at least 10% of the total combined voting power of all shares
entitled to vote of the foreign corporation.
If a foreign corporation has been a CFC for an uninterrupted period of at
least 30 days during a CFC's taxable year, the U.S. Shareholder who owns stock
in the CFC on the last day of such year must include in income for his taxable
year in which the taxable year of the CFC ends, the total of (i) his pro rata
share of the CFC's Subpart F income for such taxable year (which includes
"foreign personal holding company income", such as "passive" royalty income, as
discussed above in the context of PFICs), (ii) his pro rata share of the CFC's
previously excluded Subpart F income withdrawn from investment in less developed
countries for such year, (iii) his pro rata share of the CFC's previously
excluded Subpart F income from foreign base shipping company operations for such
year, and (iv) his pro rata share of the CFC's increase in earnings invested in
U.S. property for such year. Amounts distributed by a CFC to U.S. Shareholders
are tax free to the extent such amounts have been previously taken into income
by such U.S. Shareholders.
A U.S. person who owns less than 10% of the total combined voting power of
all classes of voting stock of the Company directly, indirectly or by
attribution would not be taxed on the undistributed income of the Company even
if the Company were a CFC. Distributions to shareholders that are not U.S.
Shareholders (but are U.S. Holders) will be taxed under the ordinary rules
relating to taxation of distributions discussed above.
Under Section 1248 of the Code, if a U.S. person sells or exchanges stock
in a foreign corporation, or receives a distribution from a foreign corporation
which for U.S. tax purposes is treated as an exchange of stock, and such person
owns, or is considered as owning by applying certain rules of constructive
ownership, 10% or more of the total combined voting power of all classes of
stock entitled to vote of such foreign corporation at any time during the
five-year period ending on the date of the sale or exchange when such foreign
corporation was a CFC, then the gain recognized on the sale or exchange of such
stock shall be included in the gross income of such person as a dividend, to the
extent of the earnings and profits of the foreign corporation accumulated during
the period in which the stock sold or exchanged was held by such person while
such foreign corporation was a CFC.
The Company expects that ownership of its Ordinary Shares will be such that
it will not meet the requirements for treatment as a CFC, although there can be
no assurance that the Company will not be, or in the future become, a CFC. The
Company's status as a CFC depends on the extent to which its U.S. Shareholders
(as defined under these rules) own, in the aggregate, more than 50% of the
Company (by vote or value) and, therefore, the Company's classification as a CFC
is not within the control of the Company. Accordingly, Morrison Cohen Singer &
Weinstein, LLP is unable to express any opinion as to whether the Company will
be classified as a CFC.
The Company will attempt to monitor its status, particularly the identity
of its U.S. Shareholders, and will, promptly following the end of any taxable
year in which it has determined that it is a CFC, notify all of its U.S.
Shareholders that it is a CFC. If the Company becomes a CFC, it will comply with
all reporting requirements applicable to such classification.
FOREIGN PERSONAL HOLDING COMPANY
In general, the Company (and any non-U.S. subsidiaries) may be classified
as a "foreign personal holding company" ("FPHC") if, in any taxable year, five
or fewer U.S. Holders own directly or indirectly or by attribution more than 50%
(by vote or value) of the Company's stock (the "Ownership
39
<PAGE>
Test") and at least 60% (or, in certain circumstances, at least 50%) of the
gross income of the Company (or any non-U.S. subsidiaries of the Company)
consists of certain passive income for purposes of the FPHC provisions (the
"Income Test").
If the Company becomes a FPHC, each U.S. Holder of Securities who held such
Securities on the last day of the taxable year of the Company or, if earlier, on
the last day of its taxable year in which the Ownership Test was met, would be
required to include in gross income as a deemed dividend such U.S. Holder's pro
rata share of the undistributed "passive" income of the Company, even if no cash
dividend were actually paid. In such case, a U.S. Holder would generally be
entitled to increase its tax basis in the Securities of the Company by the
amount of the deemed dividend. Although royalty income is generally considered
"passive" income for these purposes irrespective of the Company's development
activities or active licensing expenses, the Company nonetheless expects that,
following the completion of the Offering, it will not meet the Ownership Test.
Thus, the Company believes that its U.S. Holders will not be subject to the FPHC
rules. However, because such question is essentially one of fact and depends
upon whether the Ownership Test will be met in any year, no assurance can be
given that the Company is not now, nor will in the future become subject to, the
FPHC rules. Accordingly, Morrison Cohen Singer & Weinstein, LLP is unable to
express any opinion as to such question.
If the Company determines that it is a FPHC, it will provide appropriate
notification to the Company's U.S. Holders. Prospective investors are urged to
consult with their tax advisors concerning the application of the U.S. federal
income tax rules governing FPHCs and their particular circumstances.
UNITED STATES FEDERAL GIFT AND ESTATE TAX
In general, an individual U.S. Holder will be subject to U.S. gift and
estate taxes with respect to his or her ownership of Securities in the same
manner and to the same extent as with respect to other types of personal
property. Holders that are not individual citizens or residents of the United
States will generally not be subject to U.S. federal gift and estate tax with
respect to their ownership of the Securities. Prospective individual investors
are urged to consult with their tax advisors concerning the application of U.S.
federal gift and estate taxation in their particular circumstances.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to dividend
payments (or other taxable distributions) in respect of the Securities made
within the United States to a non-corporate U.S. Holder, and "backup
withholding" at the rate of 31% will apply to such payments (i) if the U.S.
Holder or beneficial owner fails to provide an accurate taxpayer identification
number, (ii) if there has been notification from the Internal Revenue Service of
a failure by the U.S. Holder or beneficial owner to report all interest or
dividends required to be shown on its U.S. federal income tax returns, or (iii)
in certain circumstances, if the U.S. Holder or beneficial owner fails to comply
with applicable certification requirements. Certain corporations and persons
that are not U.S. persons may be required to establish their exemption from
information reporting or backup withholding by certifying their status on
Internal Revenue Service Forms W-8 or W-9.
In general, payment of the proceeds from the sale of Securities through any
U.S. office of a broker is subject to both backup withholding and information
reporting, unless the U.S. Holder or beneficial owner certifies its non-U.S.
status under penalties of perjury or otherwise establishes an exemption. U.S.
information reporting and backup withholding generally will not apply to a
payment made with respect to a transaction effected by a foreign office of a
foreign broker unless (i) the foreign broker is a CFC or (ii) 50% or more of the
gross income of the foreign broker for the three-year period ending with the
close of its taxable year preceding the payment was effectively connected with
the conduct of a trade or business in the United States, with certain
exceptions.
Recently, the Treasury Department promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification pro-
40
<PAGE>
cedures and forms and clarify reliance standards. Under the final regulations,
special rules apply which permit the shifting of primary responsibility for
withholding to certain financial intermediaries acting on behalf of beneficial
owners. The final regulations are generally effective for payments made after
December 31, 1998, subject to certain transition rules. Non-U.S. Holders are
urged to consult their tax advisors with respect to the application of these
final regulations.
Amounts withheld under the backup withholding rules may be credited against
a holder's tax liability, and a holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Internal Revenue Service.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
7,000,000 Ordinary Shares. Of these shares, the 2,000,000 Ordinary Shares
offered hereby will be freely transferable without restriction or further
registration under the Securities Act, unless purchased by affiliates of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. Of the remaining 5,000,000, 4,975,000 were issued to "non
U.S. persons," as such term is defined in Regulation S under the Securities Act
in transactions that come within the exemption from registration under the
Securities Act provided by Regulation S. Accordingly, such shares may be sold in
any U.S. market that may develop in accordance with the provisions of Regulation
S. The remaining 25,000 shares were issued in a transaction exempt from the
registration requirements of the Securities Act pursuant to Rule 701 promulgated
thereunder, and, accordingly, will be freely tradeable in any U.S. market that
may develop commencing 90 days after the date hereof. Holders of the remaining
4,975,000 outstanding Ordinary Shares have agreed not to sell or otherwise
dispose of any shares of Ordinary Shares without the Representative's prior
written consent for a period of 18 months after the date of this Prospectus.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least one year that does not exceed the greater of (i) 1% of the then
outstanding Ordinary Shares or (ii) an amount equal to the average weekly
trading volume in the Ordinary Shares during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain requirements as to
the manner of sale, notice and the availability of current public information
about the Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least two years is entitled to sell such
shares without regard to the volume or other resale requirements.
Pursuant to registration rights acquired by investors in the Bridge
Financing, the Company has, concurrently with the Offering, registered the
Selling Securityholder Securities on behalf of the Selling Securityholders. One
of the Selling Securityholders is a registered representative of the
Representative. The 100,000 Warrants that he is to receive upon automatic
conversion of the Bridge Warrants upon the closing of the Offering will be
restricted from sale, transfer or other disposition until one year following
such closing.
The Representative has demand and "piggy-back" registration rights with
respect to the securities underlying the Representative's Warrant. See
"Underwriting."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Ordinary Shares or the availability of the Ordinary Shares for sale will have on
the market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Ordinary Shares in the public market could
adversely affect prevailing market prices.
41
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below, for whom RAS Securities Corp. is acting as
representative (the "Representative"), has severally agreed to purchase from the
Company, and the Company has agreed to sell to such Underwriter, the respective
number of Units set forth opposite the name of such Underwriter:
<TABLE>
<CAPTION>
NAME NUMBER OF UNITS
- -------------------------------------- ----------------
<S> <C>
RAS Securities Corp. ..........
------
..............................
------
..............................
------
..............................
------
..............................
------
Total ........................ 2,000,000
=========
</TABLE>
It is expected that the Representative, as a syndicate member, will distribute a
substantial portion (not to exceed %, including the over-allotment option) of
the Units offered hereby.
The nature of the Underwriters' obligations is such that they are committed
to purchase and pay for all of the Units in the Offering if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Units to the public at the public offering price set forth on the cover page of
this Prospectus and to certain dealers who are members of the NASD, at such
price less a concession of not in excess of $ per Unit, of which a sum not in
excess of $ per Unit, may in turn be re-allowed to other dealers who are members
of the NASD. After the initial public offering of Units, the public offering
price, the concession and the re-allowance may be changed by the Representative.
No change in any such terms shall change the amount of proceeds to be received
by the Company as set forth on the cover page to this Prospectus or by the
Selling Securityholders as set forth on the cover page the Selling
Securityholders' Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period commencing on the effective date of this Prospectus, to
purchase from the Company at the public offering price, less underwriting
discounts, up to 300,000 additional Units for the purpose of covering
over-allotments, if any, subject to the right of the Representative to elect, in
its sole discretion, to exercise such option individually, and not as
Representative of the several Underwriters.
The Company has agreed to indemnify the Underwriters and their controlling
persons 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 2.15% of the gross proceeds derived from the sale of
Units offered hereby, including any Units purchased pursuant to the
Underwriters' over-allotment option, $ of which has been paid to date. To the
extent that the expenses of the Representative are less than the non-accountable
expense allowance, the excess may be deemed to be compensation to the
Representative.
All of the Company's current shareholders, officers and directors have
agreed not to sell, assign, transfer or otherwise dispose of any of their
Ordinary Shares, and the Company has agreed not to offer any securities or
rights to purchase any securities, in each case, for a period of 18 months from
the effective date of this Prospectus, without the prior written consent of the
Representative, which may not be unreasonably withheld.
The Representative has the right to designate an individual for nomination
to the Company's Board of Directors or to attend its meetings for a period of
three years commencing on the effective date of this Prospectus, although the
Representative has not yet selected any such designee. Such designee may be a
director, officer, partner, employee or affiliate of the Representative, and
will receive compensation
42
<PAGE>
customary for outside directors if nominated and elected to serve on the
Company's Board of Directors, or reimbursement of expenses of attending
meetings, if designated to attend meetings. See "Management -- Board Committees
and Designated Directors."
The Company has agreed to enter into a consulting agreement with the
Representative pursuant to which the Representative will provide certain
financial advisory services to the Company for a period of 12 months commencing
on the closing of the offering for monthly consideration of $5,000. The Company
has also agreed to enter into an exclusive financial consulting agreement with
the Representative if, at any time through the end of the first 12 months of the
consultancy, the Company or any subsidiary thereof embarks upon any financing,
merger, sale, acquisition or joint venture to which the Company or any
subsidiary is a party or involving any substantial asset of the Company or any
subsidiary (a "Covered Transaction"), the Representative will be entitled to
receive a fee, upon closing of such transaction, equal to a percentage of the
consideration paid in the transaction ranging from 10% of the first $2,000,000
to 2% of any consideration in excess of $8,000,000.
The Company has agreed not to solicit Warrant exercises (and Selling
Securityholder Warrants exercises) other than through the Representative, unless
the Representative declines to make such solicitation. Upon any exercise of the
warrants after the first anniversary of the effective date of this Prospectus,
the Company will pay the Representative a fee of 5% of the aggregate exercise
price of the Warrants, if (i) the market price of the Company's Common Stock on
the date the Warrants are exercised is greater than the then exercise price of
the Warrants; (ii) the exercise of the Warrants was solicited by a member of the
NASD; (iii) the warrantholder designates that the exercise of the Warrants was
solicited by a member of the NASD and the broker-dealer to receive compensation
for such exercise; (iv) the Warrants are not held in a discretionary account;
(v) disclosure of compensation arrangements was made both at the time of the
Offering and at the time of exercise of the Warrants; and (vi) the solicitation
of exercise of the Warrants was not in violation of Regulation M, which was
recently adopted to replace Rule 10b-6, and certain other rules promulgated
under the Exchange Act.
Regulation M may prohibit the Representative or any other soliciting
broker-dealer from engaging in any market making activities with regard to the
Company's securities for the period from five business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by the
Representative of the exercise of the Warrants until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Representative may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, the
Representative may be unable to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.
The Company has agreed to sell to the Representative and its designees, for
nominal consideration, a warrant to purchase up to 150,000 units (the
"Representative's Warrant"), which will be substantially identical to the Units
offered hereby, except that the warrants included in the Representative's
Warrant are not subject to redemption until the Representative's Warrant has
been exercised and the underlying warrants are outstanding. The Representative's
Warrant is exercisable for a period of four years commencing one year from the
effective date of this Prospectus at an exercise price per Unit of $8.25 (165%
of the Offering price), subject to adjustment in certain events to protect
against dilution. The holders of the Representative's Warrant will have no
voting, dividend or other rights of shareholders until the Representative's
Warrant is exercised. The holders of a majority of the securities underlying the
Representative's Warrant will have the right to demand registration thereof, at
the Company's expense, and the holder(s) of any such securities have the right
to demand such registration, at such holder or holders' expense, in each case,
on one occasion for a period of five years from the effective date of the
Offering. The five-year period will be extended for the period of time of any
delay in registration by the Company. The Company has also granted certain
"piggy-back" registration rights to holders of the securities underlying the
Representative's Warrant.
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the public offering price of the Units
offered hereby and the terms of the Warrants have been determined by negotiation
between the Company and the Representative and are not necessarily
43
<PAGE>
related to the Company's asset value, net worth or other established criteria of
value. Factors considered in determining such prices and terms, in addition to
prevailing market and economic conditions, include the history of and the
prospects for the industry in which the Company competes, the present state of
the Company's development and operations, estimates of the business potential
and prospects of the Company, an assessment of the Company's management, the
Company's capital structure, consideration of these factors in relation to the
market valuation of comparable companies and such other factors as were deemed
relevant.
The Representative acted as the placement agent for the Bridge Financing in
January and February 1998 for which the Representative received a fee of $50,000
and a non-accountable expense allowance of $15,000. One of the Selling
Securityholders is a registered representative of the Representative. The
100,000 Warrants that he is to receive upon automatic conversion of the Bridge
Warrants upon the closing of the Offering will be restricted from sale, transfer
or other disposition until one year following such closing.
The Underwriters have informed the Company that they do not expect to make
sales of the Units offered hereby to discretionary accounts.
In connection with the Offering, the Underwriters and certain selling group
members may engage in certain transactions that stabilize, maintain or otherwise
affect the market price of the Ordinary Shares and the Warrants. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
the Ordinary Shares and the Warrants for the purpose of pegging, fixing or
maintaining the market price of such securities. The Underwriters may also
create a short position in the Units by selling more Units in connection with
the Offering than the Underwriters are committed to purchase from the Company,
and in such case the Underwriters may reduce all or a portion of that short
position by purchasing the Ordinary Shares and the Warrants in the open market.
The Representative also may elect to reduce any short position by exercising all
or any portion of the over-allotment option described herein. In addition, the
Representative may impose "penalty bids" on certain Underwriters and selling
group members, whereby, if the Representative purchases Ordinary Shares or
Warrants in the open market to reduce the Underwriters' short position or to
stabilize the price of the of the Ordinary Shares or the Warrants, the
Representative may reclaim the amount of the selling concession from the
Underwriters who sold those Ordinary Shares or Warrants as part of the Offering.
Any of the transactions described in this paragraph may stabilize or maintain
the market price of the Ordinary Shares or the Warrants at a level above that
which might otherwise prevail in the open market.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Units, the Ordinary Shares or the
Warrants. In addition, neither the Company nor the Underwriters make any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
44
<PAGE>
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by Morrison
Cohen Singer & Weinstein, LLP, New York, New York. The validity of the
securities offered hereby has been passed upon for the Company by Pelaghias,
Christodoulou & Vrachas, Cyprus counsel for the Company. The statements relating
to patent matters have been passed upon by Pepper Hamilton LLP, Washington, D.C.
Certain legal matters have been passed upon for the Underwriters by
FischbeinoBadillooWagneroHarding, New York, New York.
EXPERTS
The financial statements of the Company at September 30, 1997 and for the
period from April 5, 1995 (date of inception) to September 30, 1997, appearing
in this Prospectus and Registration Statement have been audited by Coopers &
Lybrand, independent auditors, as set forth in their report thereon (which
contains an explanatory paragraph with respect to the uncertainty regarding the
Company's ability to continue as a going concern) appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
Certain of the Company's officers and directors are not residents of the
United States, and substantially all of the assets of such non-resident persons
and the Company are located outside the United States. As a result, it may not
be possible for investors to effect service of process within the United States
upon the Company or such persons or to enforce against the Company or such
persons in courts inside or outside the United States judgments of courts inside
the United States predicated upon the civil liability provisions of United
States securities laws or to enforce, in an original action brought outside the
United States, rights predicated on such provisions.
Notwithstanding the foregoing, the Company has irrevocably agreed that it
may be served with process at its address in the United States from time to
time, currently located at 20 East 63rd Street, New York, New York 10021, with
respect to suits, actions or proceedings with respect to the Ordinary Shares and
Warrants offered hereby and for actions under the United States federal or state
securities laws brought in any United States federal or state court located in
New York, New York, and the Company will submit to such jurisdiction.
ADDITIONAL INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following Regional Office: Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. Such reports and other information can also be reviewed
through the Commission's Web site (http://www.sec.gov).
Additional information regarding the Company and the securities offered
hereby is contained in the Registration Statement on Form F-1 and the exhibits
thereto filed with the Commission under the Securities Act. This Prospectus does
not contain all of the information contained in such Registration
45
<PAGE>
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus regarding the contents of any documents or contract are qualified in
their entirety by reference to the copy of such contract or document filed as an
exhibit to the Registration Statement. For further information pertaining to the
Company and the securities, reference is made to the Registration Statement and
the exhibits thereto, which may be inspected without charge at, and copies
thereof may be obtained at prescribed rates from, the office of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
46
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
PAGES
------
Report of Independent Auditors .......................................... F-2
Balance Sheets as of September 30, 1997 and March 31, 1998 (unaudited)... F-3
Statement of Operations for the Fiscal Year ended September 30, 1997,
cumulative from April 6, 1995 (date of inception) to September 30,
1997, and the Six Months ended March 31, 1998 (unaudited) and 1997
(unaudited) ........................................................... F-4
Statements of Cash Flow for the Fiscal Year ended September 30, 1997,
cumulative from April 6, 1995 (date of inception) to September 30,
1997, and the Six Months ended March 31, 1998 (unaudited) and 1997
(unaudited) ........................................................... F-5
Notes to the Financial Statements ....................................... F-6
F-1
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
INDEPENDENT AUDITOR'S REPORT
Report of the Independent Accountants to the directors and the members of
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(a development stage enterprise)
We have audited the accompanying balance sheet of C.W. Chemical Waste
Technologies Limited (a development stage enterprise) as of September 30, 1997,
the related Statement of Operations, shareholders' equity and cash flows for the
year ended September 30, 1997 and the cumulative Statement of Operations and
Cash Flows from the Company's inception on April 6, 1995 to September 30, 1997.
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 in the United Kingdom which are substantially the same as auditing
standards in the United States. 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 C.W. Chemical Waste
Technologies Limited, as of September 30, 1997, and the results of its
operations and its cash flows for the period from April 6, 1995 (inception) to
September 30, 1997 and for the year ended September 30, 1997, in conformity with
generally accepted accounting principles in the United States.
As discussed in Note 1 to the financial statements, the Company experienced
a net loss in the year ended September 30, 1997 and is dependent upon the
finance to be raised under the proposed Initial Public Offering. Until such
finance is obtained, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
COOPERS & LYBRAND
Chartered Accountants
London
England
February 25, 1998
F-2
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998
SEPTEMBER 30, 1997 (UNAUDITED)
-------------------- ---------------
<S> <C> <C>
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................................... $ -- $ 54,848
Prepaid expenses and other assets ............................. -- 48,000
------------ ------------
TOTAL CURRENT ASSETS .......................................... -- 102,848
------------ ------------
FIXED ASSETS
Intellectual property and technology patents .................. 4,055,000 4,055,000
Computer equipment ............................................ -- 5,484
------------ ------------
TOTAL ASSETS .................................................. 4,055,000 4,163,332
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bridge loan ................................................... -- 500,000
Contracts payable ............................................. 3,755,000 3,450,000
Accrued expenses .............................................. 106,500 222,007
------------ ------------
TOTAL LIABILITIES ............................................. 3,861,500 4,172,007
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $0.10 par value, 5,000,000 shares authorized,
no shares issued and outstanding ............................. -- --
Ordinary shares, CY\P1 par value translated at CY\P1:$2 shares
authorised, issued and outstanding ........................... 2,000 --
Ordinary shares, $0.10 par value, 20,000,000 shares authorized,
5,000,000 shares issued and outstanding ...................... -- 500,000
Additional paid-in capital .................................... -- 2,644,570
Shareholder's contributions ................................... 2,702,570 --
Deficit accumulated during development stage .................. (2,511,070) (3,153,245)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY .................................... 193,500 (8,675)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... 4,055,000 4,163,332
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 6, 1995 SIX MONTHS TO SIX MONTHS TO
YEAR ENDED (DATE OF INCEPTION) TO MARCH 31, 1998 MARCH 31, 1997
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 (UNAUDITED) (UNAUDITED)
-------------------- ------------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Sales .................................. $ -- -- $ 800,000 --
Research and development costs ......... (2,133,695) (2,133,695) (509,310) (465,847)
Selling, general and administrative
expenses .............................. (370,875) (377,375) (926,149) (97,737)
------------ ---------- ---------- --------
Interest received ...................... -- -- 1,284 --
Interest paid .......................... -- -- (8,000) --
Net Loss ............................... (2,504,570) (2,511,070) (642,175) (563,584)
============ ========== ========== ========
Net loss per share ..................... (125.23) (0.31) (28.18)
------------ ---------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 6, 1995 SIX MONTHS SIX MONTHS
YEAR ENDED (DATE OF INCEPTION) TO MARCH 31, 1998 TO MARCH 31, 1997
SEPTEMBER 30, 1997 TO SEPTEMBER 30, 1997 (UNAUDITED) (UNAUDITED)
-------------------- ----------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...................................... $ (2,504,570) $ (2,511,070) $ (642,175) $ (563,584)
Prepaid expenses .............................. -- -- (48,000) --
Intellectual property and technology
patents ...................................... (300,000) (300,000) -- --
Accrued expenses .............................. 100,000 106,500 115,507 --
------------ ------------ ---------- ----------
Compensation expenses satisfied by
share issue .................................. -- -- 135,000 --
------------ ------------ ---------- ----------
Net cash used by operating activities ......... (2,704,570) (2,704,570) (439,668) (563,584)
------------ ------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets ...................... -- -- (5,484) --
------------ ------------ ---------- ----------
Net cash used by investing activities ......... -- -- (5,484) --
------------ ------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Shareholder's contributions ................... 2,704,570 2,704,570 -- 563,584
------------ ------------ ---------- ----------
Bridge loan ................................... -- -- 500,000 --
Net cash provided by financing activities. 2,704,570 2,704,570 500,000 563,584
------------ ------------ ---------- ----------
Net increase in cash and cash equivalents -- -- 54,848 --
Cash and cash equivalents at beginning
of the period ................................ -- -- -- --
------------ ------------ ---------- ----------
Cash and cash equivalents at end of the
period ....................................... -- -- 54,848 --
============ ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1997
1 ORGANIZATION AND BUSINESS OF THE COMPANY
C.W. Chemical Waste Technologies Limited (the "Company"), formerly known as
Kadoma Trading Limited, was incorporated in Cyprus on April 6, 1995. The company
incurred a total of $6,500 in legal and formation expenses between inception on
April 6, 1995 and September 30, 1996. The company commenced operations on
November 16, 1996, at which time its capitalisation was $2,000 (CY\P1,000 at
CY\P1=US$2), net equity was $(4,500) and accrued liabilities were $6,500. The
Company is a development stage enterprise and has experienced significant
operating losses since its inception, primarily as a result of investing in the
research and development of the technology implementing the processes described
below. The Company is dependent on the proceeds of the proposed Initial Public
Offering ("IPO"). Until such financing is obtained, there is substantial doubt
about the Company's ability to continue as a going concern.
The Company's primary purpose is to globally exploit two proprietary processes
that treat phosphogypsum, a toxic, environmentally hazardous waste product
resulting from the production of phosphoric acid-based fertilizer and phosphoric
acid, to render it both non-toxic and a useful product in other industries.
2 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The Company's functional
currency is the U.S. Dollar. 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 operating revenues and
expenses during the reporting periods. Accounting estimates have been employed
in the financial statements with respect to accrued expenses. Actual results
could differ from those estimates.
The unaudited information included with these financial statements has been
prepared on a consistent basis.
INTELLECTUAL PROPERTY AND TECHNOLOGY PATENTS
Acquired intellectual property and technology patents and the obligations
arising therefrom are capitalized. Amortization of these assets will commence
with the start of the licensing of the Company's technology over a period not
longer than the life of the patent, such amortization being over a maximum of
eight years on a straight line basis. In addition, these assets are reviewed
annually for impairment or whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
future net undiscounted cash flows expected to result from the use of the asset
and its eventual disposition is less than the carrying amount of the asset, an
impairment loss is recognized. All costs associated with research and
development are expensed as incurred.
FIXED ASSETS
The cost of acquired fixed assets includes the purchase cost, together with any
incidental expenses of acquisition. Depreciation rates have been established to
expense the cost of fixed assets, less their estimated residual values, over
their expected useful lives. Depreciation is calculated at the following annual
rates:
Computer equipment 33% per annum on a straight line basis.
F-6
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
REVENUE RECOGNITION
(a) License fees
Upon the signing of a license agreement and the payment by the licensee of 10%
of the contract value the Company provides the licensee with the know-how and
the process specifications required to construct a plant.
A further 40% is payable twelve months after the date of the license agreement
with the remaining 50% due after a further twelve months or upon the completion
of the plant if earlier.
As the initial 10% of the contract value is non-recoverable, such amount is
recognised as revenue upon receipt.
The remaining 90% is not recognised until the licensee has demonstrated a
substantial commitment to the contract as evidenced by the payment of the second
tranche of 40% after twelve months. At this point, the remaining 90% of the
contract value is recognised as revenue income, the balance of 50% being shown
as a receivable from that date.
(b) Royalty revenue
Royalty revenue is recognised in the period in which it is earned.
3 INCOME
On October 27, 1997, the Company signed a Process Technology License Agreement
with Hellenico Viomihania Epexergasias Phosphoricou Gypsou E.P.E. (Hellenico
Industry of Phosphogypsum Treatment Ltd) ("Hellenico") whereby Hellenico
obtained a license to use the know-how for the treatment of waste phosphogypsum
and for its conversion. Hellenico is contracted to pay the Company $3,000,000
over a maximum period of 24 months. Additionally, Hellenico agrees to pay the
Company a running royalty of 3% of the net sales price of any waste
phosphogypsum that is sold or otherwise disposed of. On November 5, 1997, the
Company received $300,000 being the first installment due under this contract.
On November 14, 1997, the Company signed a Process Technology License Agreement
with Snunit Levana Gimel ("Snunit"), a company incorporated in Israel, whereby
Snunit obtained a license to use the know-how to plan, construct, operate,
repair and maintain the necessary installations for the treatment of waste
phosphogypsum to produce a non-toxic product and for the production of Ceramic
Like Material ("CLM"). Snunit is contracted to pay the Company $5,000,000 over a
maximum period of 24 months. Snunit is further contracted to pay the Company a
running royalty of 3% of the net sales price of any waste phosphogypsum or CLM
sold or otherwise disposed of. On November 20, 1997, the Company received
$500,000 being the first installment under this agreement.
F-7
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
4 SHAREHOLDERS' EQUITY
The following table sets forth the changes in Shareholders' Equity for the
period from April 6, 1995 to March 31, 1998.
<TABLE>
<CAPTION>
STOCK ADDITIONAL SHAREHOLDER'S
SUB-NOTE NO. OF UNITS AMOUNT PAID IN CAPITAL CONTRIBUTIONS RESERVES
---------- -------------- ----------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
At April 6, 1995 ............................ 1,000 $ 2,000 $ 0 $ (2,000) $ 0
Formation expenses .......................... 0 0 0 0 (6,500)
At September 30, 1996 ....................... 1,000 2,000 0 (2,000) (6,500)
Cash expenditure financing part of loss for
year ....................................... 0 0 0 2,404,570 (2,404,570)
Accrued expenses ............................ 0 0 0 0 (100,000)
Cash expenditure financing asset acquisitions 0 0 0 300,000 0
----- --------- ----------- ------------- -------------
At September 30, 1997 ....................... 1,000 2,000 0 2,702,570 (2,511,070)
Conversion of stock into US$1 shares......... (i) 1,000 0 0 -- --
10 for 1 Split of stock ..................... 18,000 0 0 -- --
Capitalisation of shareholder's contributions (ii) 4,390,000 439,000 2,263,570 (2,702,570) --
Share issue to Polish Scientists ............ (iii) 500,000 50,000 255,000 -- --
Share issue to directors and employees ...... (iv) 90,000 9,000 126,000 -- --
Loss for the period (unaudited) ............. -- -- -- -- -- (642,175)
----- --------- --------- ----------- ------------- -------------
At March 31, 1998 (unaudited) ............... 5,000,000 500,000 2,644,570 -- (3,153,245)
========= ========= =========== ============= =============
</TABLE>
- ----------
(i) Converted at the rate of CY\P1=US$2.
(ii) Issue of 4,390,000 ordinary shares of $0.10 at a fair value of $0.61 each
to the sole shareholder for the purpose of capitalising the shareholder
loan which had arisen as a result of expenses incurred and assets purchased
in the period to September 30, 1997.
(iii)Issue of 500,000 ordinary shares of $0.10 in accordance with the Technology
Assignment Agreement, signed September 1997, with three Polish Scientists
(see note 5 to the Financial Statements) at a fair value price of $0.61
each.
(iv) Issue of 90,000 ordinary shares of $0.10 to certain directors and employees
at a fair value price of $1.50 each in lieu of services rendered. This
expense is included in the company's unaudited financial statements for the
six month period ended March 31, 1998.
5 COMMITMENTS AND CONTINGENCIES
COMMITMENTS UNDER DEVELOPMENT CONTRACTS
The Company has signed three contracts with Energo Group SA, a company of
process engineering consultants based in Greece, for a total of $1,450,000 to:
1. Undertake a preliminary study of the phosphogypsum waste treatment project
covering technological evaluation, preliminary engineering design and
technological deployment. $405,000 has been paid and expensed in the year ended
September 30, 1997. $45,000 has been paid and expensed in the six month period
ended March 31, 1998 following the completion of the contract.
2. Prepare the basic engineering for a reference waste phosphogypsum treatment
plant at a sufficient level for the detailed engineering to follow. $540,000 has
been paid and expensed in year ended September 30, 1997. $60,000 has been paid
and expensed in the six month period ended March 31, 1998 following the
completion of the contract.
3. Customize the engineering design for two different plant capacities and for a
plant expansion to cover production of higher added-value phosphogypsum-based
products. Under this contract, $400,000 has been paid and expensed in the six
month period ended March 31, 1998 following the completion of the contract.
F-8
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
COMMITMENTS UNDER THE TECHNOLOGY ASSIGNMENT AGREEMENTS
In September 1997, the Company signed two Technology Assignment Agreements:
1. $ 100,000 was paid to three Polish scientists as a deposit for all rights,
title and interest in the methods and improvements relating to processing waste
phosphogypsum (the "Invention"), the Patent Application, all Intellectual
Property therein and the Assignors' entire right to work the Invention for the
purpose of gain or in the course of trade in Poland and throughout the world.
Under this agreement the Company was committed to the following:
(a) the issue and allotment of 500,000 ordinary shares as further
consideration (See Note 4);
(b) a final payment of $1,400,000 upon successful completion of an
initial public offering.
If the Company does not complete the IPO or any other initial public offering by
June 30, 1998, the Company is obligated to pay the Assignors fifteen percent
(15%) of the Company's annual pre-tax profits until such $1,400,000 has been
paid.
The total amounts paid or committed under this agreement, totalling $1,805,000,
have been capitalised as at September 30, 1997 under Intellectual property and
technology patents.
2. $200,000 was paid to Herling Applied Technologies Ltd. as a deposit for the
purchase of intellectual property and technology patents. Under this agreement,
the Company is further committed to make a final payment of $2,050,000 upon
successful completion of an initial public offering. If the Company does not
complete the IPO or any other initial public offering by June 30, 1998, the
Company is obligated to pay HAT twenty percent (20%) of the Company's annual
pre-tax profits until such $2,050,000 has been paid.
The total amounts paid or committed under this agreement, totalling $2,250,000,
have been capitalised as at September 30, 1997 under Intellectual property and
technology patents.
6 RELATED PARTY TRANSACTIONS
The Company paid $200,000 in the year ended September 30, 1997 to Herling
Applied Technologies Inc., a company in which one of the directors has an
interest, as a deposit for the purchase of intellectual property and technology
patents. The Company also paid $27,000 in the year ended September 30, 1997 to
Eastern Capital (Holdings) Limited, a company of which A.S. Kalligeris is a
director, for telecommunications expenses.
The Company maintains offices located in a building owned by an entity
controlled by Erwin Herling, a former Chairman of the Company's Board of
Directors. The Company pays rent of $5,000 per month to this entity.
7 SUBSEQUENT EVENTS
ORDINARY SHARES
See Note 4, Shareholders' Equity, for the increase and issue of ordinary shares
subsequent to the year end.
INCOME
Subsequent to the year ended September 30, 1997, the Company signed two process
technology license agreements which are detailed in Note 3 to these Financial
Statements.
F-9
<PAGE>
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
LETTER OF INTENT
The Company has signed a letter of intent with RAS Securities Corp. ("RAS"),
dated December 10, 1997. This letter confirms RAS's intent to act as
representative of the underwriters in connection with the proposed IPO by the
Company. It is contemplated that the underwriters will underwrite the securities
on a firm commitment basis. The offering is intended to consist of 2,000,000
ordinary shares at an initial public offering price of $4.90 per share, and
2,000,000 warrants at an initial public offering price of $0.10 per warrant.
BRIDGE FINANCING
In February 1998, RAS completed a private placement of $500,000 principal amount
of 12% notes and 250,000 detachable warrants for the Company as a bridge
financing to be repaid from the proceeds of the IPO. The Company paid RAS a
placement agent fee of $50,000 and a non-accountable expense allowance of
$15,000. Interest is payable at a rate of 12% per annum on the bridge notes.
8. LOSS PER SHARE
Basic loss per share (EPS) is computed in accordance with FAS 128, "Earnings per
Share," which is effective for fiscal periods ending after December 15, 1997.
Prior periods have been restated to conform with the provisions of this
standard.
Diluted earnings per share are not given due to the losses incurred in all
periods up to and including period ended March 31, 1998.
The numerators and denominators of the basic per share computations are
reconciled below:
<TABLE>
<CAPTION>
LOSS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- --------------- ------------
<S> <C> <C> <C>
Six months to March 31, 1997 .......... $ (563,584) 20,000 $ (28.18)
Year ended September 30, 1997 ......... (2,504,570) 20,000 (125.23)
Six months to March 31, 1998 .......... (642,175) 2,099,560 ( 0.31)
</TABLE>
F-10
<PAGE>
======================================== =======================================
NO DEALER, SALESMAN OR OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON 2,000,000 UNIT
AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE REPRESENTATIVE. 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 ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER, OR SOLICITATION. [GRAPHIC OMITTED]
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN
CONTAINED IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
------------------------------------
TABLE OF CONTENTS
PAGE
---- CONSISTING OF 2,000,000 ORDINARY SHARES
Prospectus Summary .............. 3
Risk Factors .................... 7 AND
Use of Proceeds ................. 13
Dividend Policy ................. 13 2,000,000 REDEEMABLE CLASS A WARRANTS
Capitalization .................. 14
Dilution ........................ 15
Selected Financial Data ......... 16
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 17
Business ........................ 19
Management ...................... 27
Certain Transactions ............ 31 -----------------------------------
Principal Shareholders .......... 32 PROSPECTUS
Concurrent Offering ............. 33 -----------------------------------
Description of Securities ....... 34
Certain Cyprus Tax Considerations 35
Certain United States Federal
Income Tax Considerations... 35
Shares Eligible for Future Sale . 41
Underwriting .................... 42
Legal Matters ................... 45
Experts ......................... 45
Additional Information .......... 45
Index to Financial Statements ... F-1 RAS SECURITIES CORP.
------------------------------------
UNTIL 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS , 1998
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================== =======================================
<PAGE>
ALTERNATE PROSPECTUS COVER PAGE
SUBJECT TO COMPLETION, DATED JUNE 18, 1998
[GRAPHIC OMITTED]
250,000 REDEEMABLE CLASS A WARRANTS
AND
250,000 ORDINARY SHARES
ISSUABLE UPON EXERCISE OF THE
250,000 REDEEMABLE CLASS A WARRANTS
PROSPECTUS
This Prospectus relates to 250,000 Redeemable Class A Warrants (the
"Selling Securityholder Warrants" or the "Warrants") of C.W. Chemical Waste
Technologies Limited, a Cyprus corporation (the "Company"), held by holders (the
"Selling Securityholders") and the 250,000 Ordinary Shares, $.10 par value
("Ordinary Shares") issuable upon the exercise of the Selling Securityholder
Warrants. The Selling Securityholder Warrants, together with the Ordinary
Shares, are sometimes collectively referred to herein as the "Selling
Securityholder Securities." The Selling Securityholder Warrants were issued to
the Selling Securityholders upon automatic conversion of warrants they received
in a private placement by the Company completed in February 1998 (the "Bridge
Financing") and are identical to the Warrants included in the Units being sold
in the Company's initial public offering pursuant to a prospectus of even date
herewith. See "Selling Securityholders" and "Plan of Distribution." Each Selling
Securityholder Warrant entitles the holder to purchase, at an exercise price of
$6.00, subject to adjustment, one Ordinary Share at any time after the first
anniversary through the fifth anniversary of the date of this Prospectus. See
"Plan of Distribution." Commencing two years from the date hereof, the Warrants
are subject to redemption by the Company for $.05 per Warrant, upon 30 days'
written notice, if the average closing bid price of the Ordinary Shares averages
at least $8.25 per share (subject to adjustment) for 20 consecutive business
days ending ten days prior to the date of the notice of redemption. See
"Description of Securities."
The securities offered by this Prospectus may be sold from time to time by
the Selling Securityholders or by their transferees. The distribution by the
Selling Securityholders of the Class A Warrants and the Ordinary Shares offered
hereby by the Selling Securityholders may be effected in one or more
transactions that may take place on the over-the-counter market, including
ordinary brokers' transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such securities as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders.
The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
The Company will not receive any of the proceeds from the sale of the
Selling Securityholder Securities by the Selling Securityholders. In the event
the Selling Securityholder Warrants are exercised, the Company will receive
gross proceeds of $1,500,000. See "Selling Securityholders" and "Plan of
Distribution."
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
(the "Concurrent Public Offering") of 2,000,000 Units, each Unit consisting of
one Ordinary Share and one Class A Warrant, was declared effective by the
Securities and Exchange Commission (the "Commission"). The Company will receive
approximately $8,200,000 in net proceeds from the Concurrent Public Offering
(assuming no exercise of the Underwriters' over-allotment option) after payment
of underwriting discounts and commissions and estimated expenses of the
Concurrent Public Offering.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 7.
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.
The date of this Prospectus is ___________________, 1998
<PAGE>
ADDITIONAL PAGE FOR ALTERNATE PROSPECTUS
SELLING SECURITYHOLDERS
An aggregate of up to 250,000 Class A Warrants may be offered for resale by
investors who received their Class A Warrants in exchange for warrants received
in the Bridge Financing.
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering Selling
Securityholder Securities for resale to the public. The Company will not receive
any of the proceeds from the sale of such securities. To the Company's
knowledge, there are no material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF ORDINARY NUMBER OF WARRANTS AND ORDINARY NUMBER OF SHARES/
SHARES OWNED SHARES UNDERLYING WARRANTS OFFERED PERCENTAGE OF SHARES
SELLING SECURITYHOLDER PRIOR TO OFFERING FOR ACCOUNT OF SELLING STOCKHOLDER OWNED AFTER OFFERING
<S> <C> <C> <C>
100,000 Warrants(1)
Marc R. Wein .............. 0 100,000 Shares 0 / 0%
150,000 Warrants
Grigoris Charisis ......... 0 150,000 Shares 0 / 0%
</TABLE>
- ----------
(1) These Selling Securityholder Warrants may not be sold, transferred or
otherwise disposed of until one year following the closing of the
Concurrent Public Offering.
- --------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
Sale of the securities by the Selling Securityholders may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Securityholders) in the over-the-counter market or in
negotiated transactions, through the writing of options on the securities, a
combination of such methods of sale or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale or
at negotiated prices.
The Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the over
the-counter market in negotiated transactions or otherwise. Such broker-dealers,
if any, may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders or the purchasers for whom such
broker-dealers may act as agents or to whom they may sell as principals or
otherwise (which compensation as to a particular broker-dealer may exceed
customary commissions).
Under applicable rules and regulations under the Securities Exchange Act of
1934 (the "Exchange Act"), any person engaged in the distribution of the Selling
Securityholder Warrants may not simultaneously engage in market making
activities with respect to any securities of the Company during the applicable
"cooling-off' period (at least two, and possibly nine, business days) prior to
the commencement of such distribution. Accordingly, any of the Underwriters or
selling group members with respect to the Concurrent Public Offering is engaged
in a distribution of the Selling Securityholder Warrants, will not be able to
make a market in the Company's securities during the applicable restrictive
period. However, the Representative has not agreed to nor is it obliged to act
as a broker-dealer in the sale of the Selling Securityholder Warrants, and the
Selling Securityholders may be required to sell such securities through another
broker-dealer. In addition, each Selling Securityholder desiring to sell
Warrants will be subject to the applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of the purchases and sales of the
Company's securities by such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act, and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
<PAGE>
ADDITIONAL PAGE FOR ALTERNATE PROSPECTUS
The Company has agreed not to solicit exercises of the Selling
Securityholder Warrants other than through the Representative, unless the
Representative declines to make such solicitation. Upon any exercise of the
Selling Securityholder Warrants after the first anniversary of the effective
date of this Prospectus, the Company will pay the Representative a fee of 5% of
the aggregate exercise price of the Selling Securityholder Warrants, if (i) the
market price of the company's Common Stock on the date such Warrants are
exercised is greater than the exercise price of such Warrants; (ii) the exercise
of the Selling Securityholder Warrants was solicited by a member of the NASD;
(iii) the warrantholder designates the NASD member that solicited such exercise
and the broker-dealer to receive compensation for such exercise; (iv) the
Selling Securityholder Warrants are not held in a discretionary account; (v)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Selling Securityholder Warrants; and
(vi) the solicitation of exercise of the Selling Securityholder Warrants was not
in violation of Regulation M and certain other rules promulgated under the
Exchange Act. If the Representative elects to solicit exercises of the Selling
Securityholder Warrants and the soliciting broker-dealer is not the
Representative, the Representative will be obligated to pay the compensation due
to the soliciting broker-dealer.
Regulation M may prohibit the Representative or any other soliciting
broker-dealer from engaging in any market making activities with regard to the
Company's securities for the period from five business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by the
Representative or such other soliciting broker-dealer of the exercise of the
Selling Securityholder Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
that the Representative or such other soliciting broker-dealer may have to
receive a fee for soliciting the exercise of the Selling Securityholder Warrants
following such solicitation. As a result, the Representative and other
broker-dealers may be unable to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an underwritten public
offering by the Company of 2,000,000 Units by the Company and up to 300,000
additional Units to cover over-allotments, if any.
<PAGE>
ADDITIONAL PAGE FOR ALTERNATE PROSPECTUS
======================================== ======================================
---------------------------------
TABLE OF CONTENTS
PAGE
---- 250,000 CLASS A WARRANTS
Prospectus Summary ................ 3
Risk Factors ...................... 7 AND
Use of Proceeds ................... 13
Dividend Policy ................... 13 250,000 ORDINARY SHARES
Capitalization .................... 14
Dilution .......................... 15
Selected Financial Data ........... 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations. 17
Business .......................... 19 [GRAPHIC OMITTED]
Management ........................ 27
Certain Transactions .............. 31
Principal Shareholders ............ 32
Concurrent Offering ............... 33
Description of Securities ......... 34
Certain Cyprus Tax Considerations . 35
Certain United States Federal
Income Tax Considerations. 35
Shares Eligible for Future Sale ... 41
Underwriting ...................... 42 ----------------------------------
Legal Matters ..................... 45 PROSPECTUS
Experts ........................... 45 ---------------------------------
Additional Information ............ 45
Index to Financial Statements ..... F-1
---------------------------------
UNTIL 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR , 1998
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be incurred by the
Registrant in connection with the sale and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. All
amounts are estimated, except the Securities and Exchange Commission
registration fee and the National Association of Securities Dealers, Inc.
filing fee:
SEC registration fee ........................... $ 8,614.74
National Association of Securities Dealers, Inc.
filing fee .................................... $ 3,420.27
Blue Sky fees and expenses ..................... $ 25,000.00
Boston Stock Exchange listing fee .............. $ 15,000.00
Nasdaq listing fee ............................. $ 10,000.00
Accounting fees and expenses ................... $ 100,000.00
Legal fees and expenses ........................ $ 250,000.00
Printing and engraving expenses ................ $ 75,000.00
Registrar and Transfer Agent's fees ............ $ 5,000.00
Miscellaneous .................................. $ 42,964.99
------------
Total ....................................... $ 535,000.00
============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Cyprus law and the Company's Articles of Association both provide that
every director and officer of the Company shall be indemnified against all
costs, charges, expenses, losses and liabilities which he may incur or sustain
in, about or in relation to the execution of his office and, in particular
without limiting the foregoing, against any liability incurred by him in
defending any proceedings in relation to the affairs of the Company in which
judgment is given in his favor or in which he is acquitted or in connection with
any application under the law in which relief is granted to him by the court
from liability in relation to the affairs of the Company. The Company's Articles
of Association also provide that the Company may purchase and maintain for any
director or officer of the Company insurance against any liability which would
otherwise attach to him in respect of any negligence, default, breach of duty or
breach of trust of which he may be guilty in relation to the Company.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant and its directors and officers for certain liabilities,
including liabilities arising under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Company has issued and sold the following
securities that were not registered under the Securities Act of 1933, as amended
(the "Act"), in each case in reliance on an exemption from required registration
pursuant to Section 4(2) or Rule 701 of the Act or Regulation S promulgated
under the Act:
The Company has issued 4,410,000 Ordinary Shares to Drofan Trading, Ltd,
including nominees holding shares for the benefit of Drofan Trading, Ltd.), of
which 1,000 Ordinary Shares were issued in [September] 1996, and the balance
were issued in January 1998 See "Note 4 to Notes to Financial Statements." This
issuance was exempt from the registration requirements of the Act pursuant to
Regulation S.
II-1
<PAGE>
The Company issued an aggregate of 500,000 Ordinary Shares to three Polish
scientists in January 1998. These shares were issued pursuant to a Technology
Assignment Agreement between the Company and the aforementioned persons, dated
September 30, 1997. The issuance of these shares was exempt from the
registration requirements of the Act pursuant to Regulation S.
The Company issued an aggregate of 50,000 Ordinary Shares to Ioannis
Papaioannou (25,000 Ordinary Shares), and Andreas Skentzos-Kalligeris (25,000
Ordinary Shares), which shares were issued on January 15, 1998 in consideration
for services rendered and to be rendered. The issuance of these shares was
exempt from the registration requirements of the Act pursuant to Regulation S.
The Company issued an aggregate of 40,000 Ordinary Shares to three
non-officer employees of the Company on January 15, 1998 in consideration for
employment services rendered and to be rendered. The issuance of 25,000 of these
shares was exempt from the registration requirements of the Act pursuant to Rule
701 and the issuance of 15,000 of these shares was exempt from such registration
requirements pursuant to Regulation S.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- -------------- -----------------------------------------------------------------
1.1* Form of Underwriting Agreement between the Company and the
Representative.
3.1*, 3.2* Memorandum and Articles of Association of the Company, as amended.
4.1* Form of Common Stock Purchase Warrant Agreement relating to
Warrants issued by the Company in a private placement, concluded
February 27, 1998 (the "Bridge Financing").
4.2* Form of Representative's Warrant.
4.3* Form of Class A Warrant Agreement.
4.4 Form of Lock-up Agreement between the Company's Affiliates and the
Representative.
4.5** Specimen Ordinary Share Certificate.
4.6** Specimen Class A Warrant Certificate.
5.1* Opinion of Pelaghias, Christodoulou & Vrachas.
8.1* Tax Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1* Technology Assignment Agreement between the Company and Herling
Applied Technolo- gies, Inc., dated September 27, 1997.
10.2* Technology Assignment Agreement between the Company and Zielinski,
Kosicka and Ksiazek, dated September 30, 1997.
10.3* Form of 12% Promissory Note issued in the Company's Bridge
Financing.
10.4* Form of Process Technology License Agreement for the Company's
Phosphogypsum Treat- ment Technology with option to license the
CLM Production Technology.
10.5* Form of Process Technology License Agreement for the Company's
Phosphogypsum Treat- ment Technology and the CLM Production
Technology. 10.6* Form of 1998 Stock Option Plan of the Company.
10.7** Employment Agreement between the Company and Ira Kanarick.
10.8** Employment Agreement between the Company and Ioannis Papaioannou.
23.1* Consent of Pelaghias, Christodoulou & Vrachas (included in Exhibit
5.1).
23.2* Consent of Morrison Cohen Singer & Weinstein, LLP (included in
Exhibit 8.1).
23.3* Consent of Coopers & Lybrand, independent auditors.
23.4* Consent of Pepper Hamilton LLP.
24* Power of Attorney (filed as part of the signature page to initial
filing of this Registration Statement).
27 Financial Data Schedule.
II-2
<PAGE>
- ----------
* Previously filed.
** To be filed upon amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers of sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(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 the 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 and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent 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 to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) 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.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is a least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(5) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
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 foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
II-3
<PAGE>
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 registrants
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 registrants will, unless in the opinion of their counsel the
matter has been settled by the controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 17, 1998.
C.W. CHEMICAL WASTE TECHNOLOGIES LIMITED
By: /s/ Ira H. Kanarick
------------------------------------------
Ira H. Kanarick
Chief Executive Officer
Pursuant to the Requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
Company and in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------ ------------------------------------------- --------------
<S> <C> <C>
/s/ Ira H. Kanarick Director and Chief Executive Officer June 17, 1998
- --------------------------- (Principal Executive Officer and Principal
Ira H. Kanarick Finance Officer)
* Director June 17, 1998
- ---------------------------
Andreas Skentzos-Kalligeris
*By: /s/ Ira H. Kanarick
- ---------------------------
Ira H. Kanarick
as attorney in-fact pursuant
to power of attorney filed as
part of signature page to
initial filing of this
registration statement
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE
- ----------- ---------------------------------------------------------------------------- -----
<S> <C> <C>
1.1* Form of Underwriting Agreement between the Company and the
Representative.
3.1*, 3.2* Memorandum and Articles of Association of the Company, as amended.
4.1* Form of Common Stock Purchase Warrant Agreement relating to
Warrants issued by the Company in a private placement, concluded
February 27, 1998 (the "Bridge Financing").
4.2* Form of Representative's Warrant.
4.3* Form of Class A Warrant Agreement.
4.4 Form of Lock-up Agreement between the Company's Affiliates and the
Representative.
4.5** Specimen Ordinary Share Certificate.
4.6** Specimen Class A Warrant Certificate.
5.1* Opinion of Pelaghias, Christodoulou & Vrachas.
8.1* Tax Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1* Technology Assignment Agreement between the Company and Herling
Applied Technolo- gies, Inc., dated September 27, 1997.
10.2* Technology Assignment Agreement between the Company and Zielinski,
Kosicka and Ksiazek, dated September 30, 1997.
10.3* Form of 12% Promissory Note issued in the Company's Bridge
Financing.
10.4* Form of Process Technology License Agreement for the Company's
Phosphogypsum Treat- ment Technology with option to license the
CLM Production Technology.
10.5* Form of Process Technology License Agreement for the Company's
Phosphogypsum Treat- ment Technology and the CLM Production
Technology. 10.6* Form of 1998 Stock Option Plan of the Company.
10.7** Employment Agreement between the Company and Ira Kanarick.
10.8** Employment Agreement between the Company and Ioannis Papaioannou.
23.1* Consent of Pelaghias, Christodoulou & Vrachas (included in Exhibit
5.1).
23.2* Consent of Morrison Cohen Singer & Weinstein, LLP (included in
Exhibit 8.1).
23.3* Consent of Coopers & Lybrand, independent auditors.
23.4* Consent of Pepper Hamilton LLP.
24* Power of Attorney (filed as part of the signature page to initial
filing of this Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ----------
* Previously filed.
** To be filed upon amendment.
RAS Securities Corp.
50 Broadway
New York, NY 10004-1607
Re: C.W. Chemical Waste Technologies Limited
---------------------------------------
Gentlemen:
The undersigned understands that RAS Securities Corp., as
representative (the "Representative")of the several Underwriters (the
"Underwriters"), proposes to enter into an underwriting agreement (the
"Underwriting Agreement") with C. W. Chemical Waste Technologies Limited (the
"Company") providing for the public offering (the "Offering") by the
Underwriters of units (the "Units") of ordinary shares ("Shares") and warrants
to purchase Shares of the Company pursuant to the Company's Registration
Statement initially filed by the Company with the Securities and Exchange
Commission (the "Commission") on March 5, 1998 (File No. 333-47389) (the
"Registration Statement").
In consideration of the Underwriters' agreement to purchase and
undertake the Offering of the Units, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the undersigned
agrees, represents and warrants that:
1. The undersigned will not offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights with
respect to (collectively, a "Disposition"), any securities of the
Company, including any securities convertible into or exercisable for
Shares and any securities beneficially owned by the undersigned in
accordance with the rules and regulations of the Commission
(collectively, the "Securities") now beneficially owned or hereafter
acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power or disposition, without the express
prior written consent of the Representative, for a period of eighteen
(18) months following the effective date of the Registration Statement
(the "Lock-Up Period").
2. The undersigned does not have any pre-emptive,
anti-dilution or registration rights with respect to any of securities
of the Company held by the undersigned or any rights to acquire any
such securities other than as disclosed in the prospectus contained in
the Registration Statement.
<PAGE>
The undersigned further agrees and consents to the entry, with the
Company's transfer agent, of stop transfer instructions against the transfer of
the Securities held by the undersigned except in compliance with this Lock-Up
Agreement.
The undersigned understands that the Company and the Underwriters will
proceed with the Offering in reliance on this Lock-Up Agreement.
Sincerely yours,
Dated: ----------------------------
Signature
, 1998
- ------------------
----------------------------
Name (Please Print)
----------------------------
Title
Address:
----------------------------
----------------------------
----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 54,848
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102,848
<PP&E> 5,484
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,163,332
<CURRENT-LIABILITIES> 4,172,007
<BONDS> 0
0
0
<COMMON> 500,000
<OTHER-SE> (508,675)
<TOTAL-LIABILITY-AND-EQUITY> 4,163,332
<SALES> 0
<TOTAL-REVENUES> 800,000
<CGS> 0
<TOTAL-COSTS> (926,149)
<OTHER-EXPENSES> (509,310)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,716)
<INCOME-PRETAX> (642,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (642,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (642,175)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> 0
</TABLE>
