<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_________________to_______________
Commission File No. 000-21724
FUEL-TECH N.V.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Netherlands Antilles N/A
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification Number)
Fuel-Tech N.V. Fuel Tech, Inc.
- --------------------------------- ---------------------------
(Registrant) (U.S. Operating Subsidiary)
Castorweg 22-24 Suite 703, 300 Atlantic Street
Curacao, Netherlands Antilles Stamford, CT 06901
(599) 9-461-3754 (203) 425-9830
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01
par value per share The Nasdaq Stock Market, Inc.
------------------- ---------------------------------------
(Title of Class) (Name of Exchange on Which Registered)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value of the voting stock held by non-affiliates of the
registrant based on the average bid and asked prices of March 15, 2000:
$33,108,319
Indicate number of shares outstanding of each of the registered classes of
Common Stock at March 15, 2000: 18,470,673 shares Common Stock, $0.01 par value.
Documents incorporated by reference:
Certain portions of the Proxy Statement for the annual meeting of stockholders
to be held in 2000 described in Parts II, III, and IV hereof are incorporated by
reference in this report.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants and
Financial Disclosure 28
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 29
Signatures 31
i
<PAGE>
TABLE OF DEFINED TERMS
Term Definition
- ---- ----------
AEFLGR(TM) Amine Enhanced Fuel Lean Gas Reburn
ABC American Bailey Corporation
AES Advanced Engineering Services
CAAA Clean Air Act Amendments of 1990
CDT Clean Diesel Technologies, Inc.
CFD Computational Fluid Dynamics
Common Shares Shares of the common stock of the Company
Company Fuel-Tech N.V. and its subsidiaries and affiliates
EPRI Electric Power Research Institute
FTI Fuel Tech, Inc.
FUEL CHEM(R) FTI's fuel and flue gas treatment processes, including its
Targeted In-Furnace Injection programs for slagging, fouling
and corrosion control and plume abatement
FLGR(TM) Fuel Lean Gas Reburn
Investors The purchasers of Company securities pursuant to a
Securities Purchase Agreement of March 23, 1998
Loan Notes Nil Coupon Non-redeemable Convertible Unsecured Loan Notes
of the Company
NOx Oxides of nitrogen
NOxOUT CASCADE(R) Catalyst added to the NOxOUT Process
NOxOUT(R)Process The Company's SNCR process for the reduction of NOx
NOxOUT SCR(R) Urea used as a catalyst reagent
SCR Selective Catalytic Reduction
SIP Call State Implementation Plan Rulemaking Procedure
SNCR Selective Non-Catalytic Reduction
SO(2) Sulfur dioxide
SOxOUT CASCADE(R) The Company's process for the reduction of SO(2)
ii
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Fuel-Tech N.V. Subsidiaries and Affiliates
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
---------------
| |
| FINV |
| Netherlands | ----------------------------------------------
| Antilles | | 100% | 21.8%
| | | |
--------------- ------------ ------------
| 100% | | | |
| | PPI | | CDT |
--------------- | Delaware | | Delaware |
| | | | | |
| FII | ------------ ------------
--------------------------------------|Massachusetts|
| 100% | 100% | 100% | |
| | | ---------------
----------- ---------- ---------- | 100%
| | | | | | |
| FTJL | | FIL | | Sp.zo.o| ---------------
| Jamaica | | Canada | | Poland | | |
| | | | | | | HOLDINGS |
----------- ---------- ---------- | Netherlands |
| Antilles |
| |
---------------
| 100%
|
---------------
| | ---------------------------------------------------
| BV | | |
----------------------------------| Netherlands | | FINV - Fuel-Tech N.V. |
| 100% | 100% | | | FII - Fuel Tech, Inc. |
| | --------------- | HOLDINGS - Fuel Tech Holdings N.V. |
------------ ------------- | 100% | BV - Fuel Tech BV |
| | | | | | GmbH - Fuel Tech GmbH |
| Italian | | Taiwan | --------------- | FIL - Fuel Tech Targeted Injection |
| Branch | | Branch | | | | Chemicals Limited |
| | | | | GmbH | | FTJL - Fuel Tech Jamaica Limited |
------------ ------------- | Germany | | Sp.zo.o - Fuel Tech Sp.zo.o |
| | | PPI - Platinum Plus, Inc. |
--------------- | CDT - Clean Diesel Technologies, Inc. |
| |
---------------------------------------------------
</TABLE>
iii
<PAGE>
PART I
Forward Looking Statements
Statements in this Form 10-K which are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities and Exchange
Commission. See "Risk Factors of the Business" in Item 1 and also Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 1. BUSINESS
The Company
Fuel-Tech N.V., including its subsidiaries (the "Company"), is a technology
company active in the business of air pollution control through its wholly owned
subsidiary Fuel Tech, Inc. ("FTI") and its affiliate Clean Diesel Technologies,
Inc. ("CDT"). Fuel-Tech N.V., incorporated in 1987 under the laws of the
Netherlands Antilles, is registered at Castorweg 22-24 in Curacao under No.
1334/N.V.
Fuel Tech, Inc.
FTI's special focus is the worldwide marketing of its oxides of nitrogen
("NOx") reduction and FUEL CHEM(R) products. The NOx reduction technologies,
which include the NOxOUT(R), NOxOUT CASCADE(R), NOxOUT SCR(R) and AEFLGR(TM) and
FLGR(TM) Processes, reduce NOx emissions in flue gas from boilers, incinerators,
furnaces and other stationary combustion sources. The FUEL CHEM business uses
chemical processes for slagging, fouling, and corrosion control and plume
abatement in furnaces and boilers through the addition of chemicals into the
fuel or by Targeted In-Furnace Injection. FTI has a number of other
technologies, both commercial and in the development stage, for the most part
add-ons to the NOxOUT Process or similar in their technological base. FTI's
business is materially dependent on the continued existence and enforcement of
worldwide air quality regulations.
Clean Diesel Technologies, Inc.
CDT, a Delaware corporation, is a specialty chemical company supplying fuel
additives and systems that reduce harmful emissions from internal combustion
engines while improving fuel economy. CDT's two main technology areas are
Platinum Fuel Catalysts ("PFC's") for emission control and fuel economy
improvement in diesel and gasoline-fueled engines and NOx reduction systems and
chemicals for control of NOx emissions from diesel engines. CDT was formed in
1994 as a wholly owned subsidiary of the Company, which had conducted
fundamental work regarding the Company's technologies. CDT was spun off by the
Company in a 1995 rights offering. At December 31, 1999, the Company held 21.8%
of the equity of CDT in the form of CDT common stock and Series A Convertible
preferred stock. CDT is a public company registered under the Securities Act of
1934. CDT's technology was in part acquired by assignment from the Company,
which assignment obligates CDT until 2008 to pay to the Company royalties of
2.5% of gross revenues derived from sale of the PFC's.
American Bailey Corporation
American Bailey Corporation ("ABC") performs management services for the
Company under an Agreement dated April 30, 1998, as amended. Ralph E. Bailey,
Chairman, Chief Executive Officer and Managing Director of the Company, and
Douglas G. Bailey, Managing Director of the Company, are shareholders of ABC.
See the more detailed information relating to this subject under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement to be distributed in connection with the Company's 2000 Annual General
Meeting of Shareholders, which information is incorporated by reference. Also,
refer to Note 2 to the consolidated financial statements.
NOx Reduction
Regulations and Markets
The global air pollution control market is estimated by management at more
than $18 billion, of which the estimated global stationary equipment market is
$3.4 billion. The domestic U.S. air pollution control market is the primary
driver in the Company's business. This domestic market is estimated to be $320
million per year. This market is dependant on air pollution regulations and
their continued enforcement. These regulations are based on the Clean Air Act
Amendments of 1990 (the "CAAA") which require reductions in NOx emissions on
varying timetables with respect to various sources of emissions. Under Title I -
Ozone Non-Attainment (Ozone Transport) of the CAAA, over 1000 utility and large
industrial boilers in 19 states must achieve certain NOx reduction targets from
2003 to 2005. Under Title III - Air Toxics of the CAAA, 80 municipal solid waste
facilities in the U.S. must achieve certain NOx reduction targets by December
2000. Also, in Europe under European Union Directives, over 100 industrial units
must achieve NOx reductions by 2005.
1
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In 1994, governors of eleven Northeastern states, known collectively as the
Ozone Transport Region, signed a Memorandum of Understanding requiring utilities
to reduce their NOx emissions by 55% to 65% from 1990 levels by May 1999. Also,
in 1998, the EPA announced more stringent regulations. The Ozone Transport State
Implementation Plan (SIP) Call regulation, designed to mitigate the effects of
wind-aided ozone transported from the Midwestern and Southeastern U.S. into the
Northeastern non-attainment areas, requires, following the litigation described
below, 19 states to make even deeper reductions of 85% from 1990 levels by the
summer of 2003. Over 1,000 utility and large industrial boilers are affected by
these mandates. Additionally, most other states with non-attainment areas are
also required to meet ambient air quality standards for ozone by 2007.
On May 14, 1999, the U.S. Circuit Court of Appeals for the District of
Columbia Circuit issued a decision and opinion in American Trucking Association,
Inc. et al v. Environmental Protection Agency et al (No. 97-1440), in which the
Court found that the 1997 EPA adoption of primary and secondary national ambient
air quality standards for particulate matter and ozone involved an
unconstitutional delegation of Congressional power and remanded the case to the
EPA for action. Also, on May 25, 1999 in a separate case, State of Michigan et
al v. Environmental Protection Agency (No. 98-1497), the same Court ordered a
partial stay of implementation of the SIP Call regulation until further order of
the Court. This order was in response to a motion of the plaintiffs to delay
implementation of the SIP Call regulation until resolution of their suit
challenging that regulation. On March 3, 2000, a three-judge panel issued a
ruling in the above stated Michigan case upholding the SIP Call regulation as it
applies to 19 of the 22 states involved, but did not lift the stay, which
continues in effect.
Products
The Company's NOxOUT Process is a Selective Non-Catalytic Reduction
("SNCR") process that uses non-hazardous urea as the reagent rather than
ammonia. The NOxOUT Process on its own is capable of reducing NOx by up to 40%
for utilities and by potentially significantly greater amounts for industrial
units on many types of plants with capital costs ranging from $6 - $20/kw for
utility boilers and with annualized operating costs ranging from $400 -
$1,500/ton of NOx removed.
The Company's NOxOUT CASCADE Process provides for the addition of catalyst
as an add-on to the NOxOUT Process to achieve performance similar to Selective
Catalytic Reduction ("SCR"). Based on recent demonstrations, NOxOUT CASCADE's
capital cost is less than that of SCR, while operating costs are competitive
with those experienced by SCR.
The Company's NOxOUT SCR Process utilizes urea as a catalyst reagent to
achieve NOx reductions of up to 90% from stationary combustion sources with
capital and operating costs competitive with equivalently sized, standard SCR
systems.
Fuel Lean Gas Reburn (FLGR), licensed from the Gas Research Institute on a
co-exclusive basis, utilizes injection of natural gas to react with and reduce
NOx by 25-40%. Amine Enhanced Fuel Lean Gas Reburn (AEFLGR), which the Company
licensed from the Gas Research Institute on an exclusive basis, combines FLGR
with the injection of urea to obtain NOx reductions in the 60% range with
capital and operating costs of $15 - $30/kw and $1200 - $2000/ton of NOx
removed, respectively.
Sales of the NOx reduction technologies were $27.5 million and $19.9
million for the years ended December 31, 1999 and 1998, respectively.
2
<PAGE>
NOx Reduction Competition
Processes competitive with the Company's NOx reduction products may be
expected from combustion modifications, SCR and ammonia SNCR, among others.
Combustion modifications, including low NOx burners, can be fitted to most
types of boilers with cost and effectiveness varying with specific boilers.
Combustion modifications may effect 20-50% NOx reduction economically with
capital costs ranging from $5 - $40/kw and annualized operating costs ranging
from $300 - $1,000/ton of NOx removed. Such companies as ABB Ltd., Foster
Wheeler Corporation, The Babcock & Wilcox Company, Steam Sales Corporation, and
Todd Combustion Ltd. are active competitors in the low-NOx burner business.
SCR is an effective and proven method of control for the removal of up to
90% of NOx. SCR has a high capital cost ranging from $55 - $150/kw on retrofit
coal applications. Such companies as ABB Ltd., The Babcock & Wilcox Company,
Cormetech, Inc., Engelhard Corporation, Foster Wheeler Corporation, Peerless
Manufacturing Company, and the Siemens Westinghouse Power Corporation are active
SCR competitors.
The use of ammonia as the reagent for the SNCR process was developed by the
Exxon Mobil Corporation. The Company understands that the Exxon Mobil patents
on this process have expired. This process can reduce NOx by 30% to 70% on
incinerators, but has limited applicability in the utility industry. Ammonia
system capital costs range from $15 - $22/kw for utility applications;
annualized operating costs range from $1,000 - $3,000/ton of NOx removed. These
systems require the use of stored ammonia, a hazardous substance.
In addition to or in lieu of using the foregoing processes, certain
customers will elect to close or derate plants, purchase electricity from third
party sources, switch from higher to lower NOx emitting fuels or purchase NOx
emission allowances.
3
<PAGE>
FUEL CHEM
Product and Markets
The Company's fireside and fuel additive programs, FUEL CHEM, help improve
unit performance and reduce customer-operating costs. Through the program,
customers have enjoyed returns on their investments up to 500%. The Targeted
In-Furnace Injection program, a key FUEL CHEM technology on which two patents
have already been issued, is a uniquely engineered and economical solution to
furnace fouling and corrosion problems. Electric utilities, the pulp and paper
industry and municipal solid waste incinerator facilities make up the principal
markets for the program.
Sales of the FUEL CHEM products were $5.8 million and $6.0 million for the
years ended December 31, 1999 and 1998, respectively.
Competition
In 1999, oil prices nearly tripled having a significant effect on
oil-fired electric utilities and the pulp and paper market. This price increase
caused many customers operating in these markets to switch to natural gas, a
less costly fuel, and reduce the capital expenditures and equipment purchases
required to participate in FUEL CHEM programs.
Competition for the Company's FUEL CHEM product line include chemicals
sold by specialty chemical companies, such as Nalco Chemical Company and
Hercules Incorporated, primarily in the traditional heavy-fuel-oil treatment
area. No substantive competition currently exists for the Company's technology
for Targeted In-Furnace Injection of additives for control of slagging, fouling,
and corrosion and for plume abatement, but there can be no assurance that such
lack of substantive competition will continue.
Advanced Engineering Services
The Company's Advanced Engineering Services ("AES") continued in 1999 to
support the sale of the Company's NOx reduction systems, particularly through
the use of computational fluid dynamics ("CFD") tools. These CFD tools assist in
the prediction of the behavior of gas flows, thereby enhancing the
implementation of the Company's NOx reduction systems and the application of its
FUEL CHEM slag and corrosion control processes. Also, in 1999 the Company
significantly augmented its AES staff and equipment with a view toward not only
better serving the Company's customers but also to seek other applications for
its services. The Company anticipates that it will apply AES to other
applications in the future.
Intellectual Property
See Item 2 "Description of Property" for information on the Company's
intellectual property and proprietary position, which are material to its
business.
Employees
The Company has 70 full-time employees, 62 in North America and 8 in
Europe and Asia. The Company enjoys good relations with its employees and is not
a party to any labor management agreements.
Risk Factors of the Business
Investors in the Company should be mindful of the following risk factors
relative to the Company's business.
(i) Lack of Diversification
The Company is engaged in only one principal business, involving the
marketing of products to reduce air pollution. An adverse development in the
Company's business as a result of competition, technological change, government
regulation, or any other factor could have a significantly greater impact than
if the Company maintained diverse operations.
(ii) Common Shareholders Subordinate to Loan Note Holders
In the event of a liquidation of the Company, the holders of the common
shares of the Company will be subordinate to the prior claims of the holders of
the Company's Loan Notes in principal amount at the date of this report of
approximately $4.0 million.
(iii) No Dividends
The Company has not to date paid dividends on its common stock and does
not intend to pay any dividends in the foreseeable future.
4
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(iv) Possible Volatility of Stock Price
There has been significant volatility in the market prices of publicly
traded shares of emerging growth technology companies. Economic trends and
factors such as announcements of technical developments, establishment of
strategic alliances, changes in governmental regulations, and developments in
patent or proprietary rights may have a significant effect on the market price
of the Company's common shares.
(v) Competition - Pricing - Participation in Title I, Phase Two Market
Competition in the NOx control market will come from processes utilizing
low-NOx burners, over-fired air, flue gas recirculation, ammonia SNCR, SCR and,
with respect to particular uses of urea not infringing the Company's patents,
urea (see Item 2 "Description of Property"). Competition will also come from
business practices such as the purchase rather than the generation of
electricity, fuel switching, closure or derating of units, and sale or trade of
pollution credits. Utilization by customers of such processes or business
practices or combinations thereof may adversely affect the Company's pricing and
participation in the Title I, Phase Two NOx Control market if customers elect to
comply with regulations by methods other than the Company's NOxOUT and NOxOUT
CASCADE or FLGR and AEFLGR processes. See above under this Item I the text under
the captions "Products" and "NOx Reduction Competition."
(vi) Dependence on Regulations and Enforcement
The Company's business is primarily regulatory driven. That business will
be adversely impacted to the extent that regulations are repealed or amended to
significantly reduce the level of required NOx reduction, or to the extent that
regulatory authorities minimize enforcement. See also the text above under the
caption "Regulations and Markets."
(vii) Protection of Patents and Proprietary Rights
The Company holds licenses to or owns a number of patents and has patents
pending. There can be no assurance that pending patent applications will be
granted or that outstanding patents will not be challenged or circumvented by
competitors. Certain critical technology relating to the Company's products is
protected by trademark and trade secret laws and confidentiality and licensing
agreements. There can be no assurance that such protection will prove adequate
or that the Company will have adequate remedies for disclosure of its trade
secrets or violations of its intellectual property rights. See Item 2
"Description of Property".
ITEM 2. DESCRIPTION OF PROPERTY
The Company's NOxOUT Process was based originally on the Electric Power
Research Institute ("EPRI") urea technology embodied in two patents licensed to
the Company ("EPRI Patents"), of which one expired in 1997 and the other in
1999. The Company now owns 160 patents worldwide and has 5 patents pending,
covering some 50 inventions, 39 related to the NOxOUT Process. The Company's
FLGR and AEFLGR technologies are held under licenses from the Gas Research
Institute expiring in November and December 2003, with seven-year optional terms
thereafter.
The NOxOUT process was originally based on the EPRI urea technology
embodied in two patents licensed to the Company by EPRI. These EPRI patents and
license have expired. The Company believes that the protection provided by the
numerous claims in the above referenced patents or patent applications of the
Company is substantial and, regardless of the expired EPRI urea patents, affords
the Company a significant competitive advantage in the SNCR field. Accordingly,
any significant reduction in the protection afforded by these patents or any
significant development in competing technologies could have a material adverse
effect on the Company's business.
Apart from its intellectual property, the property of the Company is not
material.
The Company and its subsidiaries operate from short-term leased office and
engineering facilities in Curacao, Netherlands Antilles; Batavia, Illinois;
Stamford, Connecticut; Essen, Germany; and Milan, Italy.
ITEM 3. LEGAL PROCEEDINGS
The Company has no pending litigation material to its business.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matters were submitted to a vote of
security holders.
5
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
The Company's common shares have been traded since September 1993 on The
NASDAQ Stock Market, Inc. (Small Capitalization) and the Berlin Stock Exchange.
Prices
The table below sets forth the high and low sales prices during each
calendar quarter since January, 1998.
High Low
1999 ------ -----
----
Fourth Quarter 3 5/8 1 3/4
Third Quarter 3 3/4 1 29/32
Second Quarter 2 3/16 0 7/8
First Quarter 2 3/8 1 3/8
1998
----
Fourth Quarter 2 15/32 0 7/8
Third Quarter 2 9/16 1 1/16
Second Quarter 2 1/16 1 1/32
First Quarter 1 13/16 1 5/16
Dividends
The Company has not to date paid dividends on its common shares and is not
expected to do so in the foreseeable future.
Holders
Based on information from the Company's Transfer Agent, as of February 22,
2000, there were 431 registered holders of the Company's common stock.
Management believes that, on such date, there were approximately 1,800
beneficial holders of the Company's common stock.
Transfer Agent
The Transfer Agent and Registrar for the common shares is Chase Mellon
Shareholder Services, L.L.C., 85 Challenger Road, Overpeck Centre, Ridgefield
Park, New Jersey 07660.
Exchange Controls
The Company received a license of unlimited duration from the Central Bank
of the Netherlands Antilles to exempt it from foreign exchange controls in
dealings with parties outside of the Netherlands Antilles or with parties in the
Netherlands Antilles holding a similar license. The Company also received a
business license of unlimited duration that allows the securities of the Company
to be held by non-residents of the Netherlands Antilles. There are no other
restrictions on the rights of such non-residents as shareholders. The books of
the Company are maintained in United States dollars, however, there are
occasional transactions in other currencies.
Taxation
Under the Netherlands Antilles tax code applicable to the Company until at
least the fiscal year 2019, the Company's income taxes in the Netherlands
Antilles, which are based on profits exclusive of Dutch dividends received, are
computed at a rate of 2.4% on the first 100,000 Netherlands Antilles Guilders
(approximately $60,000) and 3% on the excess. Also, capital gains and losses are
not included in the taxable profit of the Company. Based on a tax ruling
received by the Company, Dutch dividends received will be taxed to the Company
at a rate of 5.5%. Fuel-Tech N.V. is not now liable for tax in any jurisdiction
other than the Netherlands Antilles. The subsidiaries of the Company are
generally subject to the tax regimes of the jurisdictions where they are
incorporated and conduct operations but not in the Netherlands Antilles.
Dividends paid by the Company to United States persons who are not engaged
in a trade or business through a permanent establishment in the Netherlands
Antilles are currently not subject to tax in the Netherlands Antilles. Gain or
loss derived by a United States person from the sale or exchange of the
Company's common shares are exempt from Netherlands Antilles income tax. The tax
treaty between the United States and the Netherlands Antilles was terminated
effective December 31, 1987.
6
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ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is presented below as of the end of and for each of the
fiscal years in the five-year period ended December 31, 1999. The selected
financial data should be read in conjunction with the audited consolidated
financial statements as of and for the year ended December 31, 1999, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations. "(1)
<TABLE>
<CAPTION>
For the years ended December 31
-------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(in thousands of U.S. dollars, except for per share data)
Net sales $ 33,325 $ 25,864 $ - $ - $ -
Royalty income from NFT - - 148 245 210
Loss (income) from equity interest in joint venture - - 853 128 (273)
Selling, general and administrative and other costs
and expenses 9,691 8,927 2,064 2,216 3,661
Net income (loss) 3,008 539 (2,571) (1,845) (2,857)
----------- ----------- ----------- ----------- -----------
Basic income (loss) per common share $ 0.17 $ 0.03 $ (0.21) $ (0.15) $ (0.23)
Diluted income (loss) per common share $ 0.16 $ 0.03 $ (0.21) $ (0.15) $ (0.23)
Weighted-average basic shares outstanding 17,752,000 15,680,000 12,387,000 12,380,000 12,350,000
Weighted-average diluted shares outstanding 19,335,000 17,437,000 12,387,000 12,380,000 12,350,000
December 31
-------------------------------------------------------------------
BALANCE SHEET DATA 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(in thousands of U.S. dollars, except for per share data)
Working capital $ 12,126 $ 9,047 $ 1,766 $ 3,951 $ 4,842
Total assets 24,464 19,153 5,947 8,472 10,294
Total liabilities 10,773 8,837 701 481 400
Shareholders' equity (2) 13,691 10,316 5,246 7,991 9,894
Net tangible book value per share (3) $ 0.52 $ 0.45 $ 0.37 $ 0.56 $ 0.70
</TABLE>
- -------------------
(1) Effective April 30, 1998, Fuel Tech, Inc., a wholly owned subsidiary of
Fuel-Tech N.V. (the "Company"), purchased Nalco Chemical Company's 50%
interest in the Nalco Fuel Tech (NFT) joint venture. As a result of this
transaction, the Company now owns 100% of the assets and liabilities of
NFT. The 1998 operations of NFT have been consolidated with those of the
Company for the entire year. The Company's operating results for 1995-1997
reflect the Company's 50% share of operating results on the equity basis of
accounting. Refer to Note 2 to the consolidated financial statements.
(2) Shareholders' equity includes outstanding nominal nil coupon non-redeemable
perpetual loan notes. See Note 5 to the consolidated financial statements.
(3) Assumes full conversion of the Company's nil coupon non-redeemable
perpetual loan notes into shares of the Company's common stock.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Effective April 30, 1998, Fuel Tech, Inc. (FTI), a wholly owned subsidiary
of Fuel-Tech N.V. (the "Company"), purchased Nalco Chemical Company's 50%
interest in the Nalco Fuel Tech (NFT) joint venture. As a result of this
transaction, the Company now owns 100% of the assets and liabilities of NFT. The
1998 operations of NFT have been consolidated with those of the Company for the
entire year with Nalco's 50% share of NFT's operating results prior to April 30,
1998, included in minority interest. The Company's operating results for 1997
reflect the Company's 50% share of NFT's operating results on the equity basis
of accounting.
The purchase price for Nalco's 50% interest in NFT was $1.1 million cash,
the issuance of a $3.0 million note and up to $5.5 million in contingent
payments based upon the achievement of gross margin targets for 1998 through
2001. Simultaneously with this transaction, principals of American Bailey
Corporation, an investment and management company, invested $3.35 million in the
Company in exchange for 4.75 million shares of the Company's common stock, and
warrants to purchase an additional 3.0 million common shares at an exercise
price of $1.75 per share. The Company recorded approximately $1.03 million in
goodwill from this transaction, including the contingent payment obligation for
1998 of $113,000.
On September 1, 1999, the Company satisfied its remaining obligations to
Nalco by paying Nalco approximately $4.5 million, representing the $2.5 million
remaining balance on the note plus accrued interest, and a buyout of the balance
of the contingent payment obligation for approximately $2.0 million. At the time
of the transaction, a maximum of approximately $5.4 million remained outstanding
under the contingent payment obligation. This transaction was financed by a $4.5
million term loan from the Company's existing bank (see Note 8 to the
consolidated financial statements). As a result of this transaction, the Company
recorded approximately $2.0 million of additional goodwill.
The following table includes proforma information for the Company for 1997,
assuming NFT's operating results for that year had been consolidated with those
of the Company rather than being reflected on the equity basis. The Company
believes this presentation allows for a more meaningful discussion of its
operating results.
<TABLE>
<CAPTION>
Proforma
1999 1998 1997
For the years ended December 31 -------- -------- --------
(amounts in thousands of U.S. dollars)
<S> <C> <C> <C>
Net revenues $ 33,325 $ 25,864 $ 20,066
Costs and expenses:
Cost of sales 18,805 14,334 11,266
Selling, general and administrative 8,887 7,897 10,344
Research and development 804 1,030 1,046
-------- --------- --------
28,496 23,261 22,656
-------- --------- --------
Operating income (loss) 4,829 2,603 (2,590)
Loss from equity interest in affiliate - (500) (495)
Interest expense (309) (206) (44)
Other (expense) income, net (213) 117 200
-------- --------- --------
Income (loss) before minority interest and taxes 4,307 2,014 (2,929)
Less: Minority interest in NFT - (112) 358
-------- --------- --------
Income (loss) before income taxes 4,307 1,902 (2,571)
Income tax expense (1,299) (1,363) -
-------- --------- --------
Net income (loss) $ 3,008 $ 539 $ (2,571)
======== ========= ========
</TABLE>
8
<PAGE>
1999 versus 1998
The Company operates primarily in the air pollution control business. It
distributes its products through its direct sales force, licensees and agents.
Principal markets for its products are stationary combustion sources that
produce nitrogen oxide (NOx) and other emissions. The Company sells its fuel
treatment chemicals through its direct sales force and agents to industrial and
utility power-generation facilities.
Net sales in 1999 totaled $33,325,000 versus net sales of $25,864,000 in
1998, an increase of 29%. The increase primarily represents a $4,872,000
increase in domestic NOx project revenue and a $2,746,000 increase in Asian
pollution control revenue. The gains were marginally offset by a decline in the
domestic fuel treatment chemical business.
The domestic NOx increase is due to the substantial increase in utility
industry air pollution control project revenue caused, in part, by Phase II of
Title I of the Clean Air Act Amendments of 1990 (CAAA). The federal mandate to
further reduce NOx in 22 states by May 2003, the "SIP Call," also contributed to
record revenues even though the decision on implementation was not yet clear.
However, on March 3, 2000, an appellate court of the D.C. Circuit upheld the
validity of the SIP Call for 19 of the 22 states, which is expected to
significantly increase NOx control project revenues during the next several
years, once the partial stay of the SIP Call is lifted.
The increase in Asian revenue is the direct result of one large contract at
a Korean utility. Asian revenues in 2000 are expected to decrease from the 1999
level. However, excluding the one-time utility contract in Korea, Asian revenues
are expected to increase from historical levels from both NOx project and fuel
treatment chemical sales.
The decline in domestic fuel treatment chemical sales is tied directly to
the increased market price for fuel oil. As the price of fuel oil has increased,
customers have switched fuels to natural gas. Revenues in this market in the
year 2000 will be dependent upon this market driver, as well as the Company's
ability to obtain non-fuel-oil-dependent business. In the year 2000, the Company
is directing its sales and marketing efforts toward the proliferation of its
patented Targeted In-Furnace Injection technology for the segments of the market
that are not dependent on commodity pricing. Examples of these market segments
are the pulp and paper industry, municipal solid waste facilities and other
solid-fuel-fired units.
Gross margin percentages were 43.6% in 1999 compared with 44.6% in 1998.
The slight decline in margin percentage was due primarily to the impact of
low-margin air pollution control projects in Europe in 1999, which were driven
by a heavily competitive marketplace. When excluding this factor, the gross
margin on air pollution control revenues as a whole remained relatively flat
year on year.
Selling, general and administrative costs increased $990,000 from 1998 due
predominantly to selling expenses from accelerated business activity.
The Company has a 21.8% common stock ownership interest in Clean Diesel
Technologies, Inc. (CDT), as of December 31, 1999. In 1995, the Company loaned
CDT $745,000; the outstanding balance of this note as of December 31, 1997, was
$495,000. In February 1998, the Company made an additional $500,000 loan to CDT.
The Company converted both of these loans and interest thereon of $20,000 into
2,029 shares of Series A Convertible preferred stock in CDT in November 1998.
The Company has accounted for its investment in CDT using the equity method and
recorded a loss of $500,000 in 1998 and $495,000 in 1997 related to its share of
CDT's operating results in those years. The CDT common and preferred stock have
no carrying value in the Company's balance sheets as of December 31, 1999 and
1998.
Interest expense increased by $103,000 from 1998. The increase was due to
the financing required to satisfy the contingent obligation due to Nalco as part
of the Company's purchase of Nalco's 50% share of NFT. The $4.5 million term
loan financing was received on September 1, 1999, and was used to retire a note
held by Nalco with a remaining principal balance of $2.5 million, and to pay off
the aforementioned contingent payment obligation.
The Company recorded $1.3 million of income tax expense in 1999 versus $1.4
million in 1998. The Company has $47.4 million in U.S. federal income tax loss
carryforwards (the deferred tax benefit of which has been offset by a valuation
allowance in the Company's balance sheet). Because the Company effected a
quasi-reorganization on March 31, 1985, and reduced the value of certain assets,
tax benefits resulting from the utilization of tax loss carryforwards existing
as of the date of the quasi-reorganization are required to be excluded from the
Company's results of operations and recorded as an increase to additional
paid-in capital when realized. Consequently, additional paid-in capital was
increased by $.7 million and $1.4 million in 1999 and 1998, respectively. At
December 31, 1999, all tax loss carryforwards existing at the time of the
quasi-reorganization have been fully utilized.
9
<PAGE>
In the opinion of management, the Company's revenue growth in the short
term is directly related to the implementation of the requirements of the CAAA.
Each state has responsibility for implementing the requirements of this Act
under its own program. There will, therefore, be wide variations in the level of
control and the timing of regulations by states. The Company's implementor
strategy will enable the Company to provide the NOxOUT Process to an increasing
number of customers without significantly adding technical and support staff.
Customers purchase the NOxOUT Process and related technologies from either the
Company or its implementors. If customers purchase the NOxOUT Process from
implementors, the per contract revenues to the Company may be lower, but more
installations may be handled.
1998 versus 1997
Net sales in 1998 totaled $25,864,000 versus proforma net sales of
$20,066,000 in 1997, an increase of 29%. The increase primarily represents an
$8,237,000 increase in domestic NOx project revenue, partially offset by a
$1,677,000 decrease in Asian air pollution control project revenue and a
$722,000 decline in international fuel treatment chemical sales. The domestic
increase is primarily the result of increased utility industry revenue caused,
in part, by Phase II of Title I of the CAAA.
The decline in revenue in Asia is the result of fewer bookings in 1998 than
1997. The decline in international fuel treatment chemical sales is the result
of a significant customer ceasing treatment of its fuel oil; whether it will use
Fuel Tech products in the future is uncertain.
Gross margin percentages were 44.6% in 1998 compared with 43.9% (proforma)
in 1997. Gross margin percentage improved because most of the losses recorded on
NFT's SOxOUT CASCADE Project in Poland occurred in 1997. Gross margins on air
pollution control projects increased 4.2 percentage points, largely the result
of favorable changes in customer mix in 1998.
Selling, general and administrative costs decreased $2,447,000 from
proforma 1997. The decrease was primarily due to a substantial reduction in
Polish administrative costs between 1997 and 1998, costs incurred in 1997
related to the closing of the Company's offices in the United Kingdom and Taiwan
and reduced commissions on international fuel treatment chemical sales. The
Company's research and development expenses were $1,030,000 and $1,046,000
(proforma) in 1998 and 1997, respectively.
The Company had a 27.6% common stock ownership interest in CDT as of
December 31, 1998. In 1995, the Company loaned CDT $745,000; the outstanding
balance of this note as of December 31, 1997, was $495,000. In February 1998,
the Company made an additional $500,000 loan to CDT. The Company converted both
of these loans and interest thereon of $20,000 into 2,029 shares of Series A
Convertible preferred stock in CDT in November 1998. The Company accounted for
its investment in CDT using the equity method and recorded a loss of $500,000 in
1998 and $495,000 in 1997 related to its share of CDT's operating results in
those years. The CDT common and preferred stock had no carrying value in the
Company's balance sheets as of December 31, 1998 and 1997.
Interest expense increased by $162,000 from proforma 1997. The increase was
largely the result of interest accrued on the $3.0 million note payable to Nalco
resulting from the purchase of its 50% interest in NFT. Minority interest
includes half of the net income of NFT prior to April 30, 1998. For 1998, this
was $112,000. For 1997, half of NFT's loss was $358,000.
The Company recorded $1.4 million of income tax expense in 1998; no income
tax expense was recorded in 1997. The income tax expense is largely a non-cash
charge given that the Company had $53.0 million in U.S. federal income tax loss
carryforwards (the deferred tax benefit of which has been offset by a valuation
allowance in the Company's balance sheet). Because the Company effected a
quasi-reorganization on March 31, 1985, and reduced the value of certain assets,
tax benefits resulting from the utilization of tax loss carryforwards existing
as of the date of the quasi-reorganization are required to be excluded from the
Company's results of operations and recorded as an increase to additional
paid-in capital when realized. Consequently, additional paid-in capital was
increased by $1.4 million and the total equity position of the Company was
unaffected by the income tax charge in the statement of operations for the
period ended December 31, 1998. The Company utilized approximately $4.0 million
of the $6.0 million of tax loss carryforwards that existed at the date of the
quasi-reorganization.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased by $3.2 million in 1999.
Operating activities provided $5.0 million of cash in 1999, primarily due to the
Company's operating profits coupled with improved working capital management.
Investing activities used cash of ($2,753,000) during the year, comprising the
contingent payment obligation to Nalco ($1,958,000) and the continued investment
in equipment and intellectual property ($795,000). Financing activities provided
$997,000 of cash flow during the year, primarily driven by the proceeds from
borrowings during the year net of debt repayments of $1,275,000, and the
purchase and retirement of nil coupon loan notes ($444,000), which are discussed
further below.
Historically, the Company has financed its operations principally through
the private placement of its common shares and the private placement of nil
coupon non-redeemable convertible unsecured loan notes (the "Loan Notes"). The
Loan Notes are convertible at any time into the Company's common stock. They
bear no interest, have no maturity date and are repayable generally only in the
event of the winding up of the Company. The Company has therefore classified the
Loan Notes within shareholders' equity in its balance sheet.
At December 31, 1999, the Company had $8,959,000 in cash and cash
equivalents. Working capital at December 31, 1999, was $12,126,000.
Effective April 30, 1998, FTI purchased Nalco's 50% interest in NFT for
$1.1 million cash, the issuance of a $3.0 million note and up to $5.5 million in
contingent payments based upon FTI's future performance. The acquisition of the
aforementioned 50% interest in NFT was accounted for as a purchase. The notes
bore interest at 10% per annum, payable quarterly, with principal payments of
$250,000, payable quarterly, beginning on March 31, 1999. One-half of the
contingent payments ($2.75 million) were based on the achievement of annual
gross margin targets for the years 1998-2001, with the other half payable upon
the achievement of a cumulative gross margin target for the years 1998-2001. The
notes and contingent payment obligation were secured by materially all of the
Company's assets. At December 31, 1998, the financial statements include an
accrual of $113,000 for the contingent payment earned by Nalco in 1998. Such
amount is included in goodwill in the Company's balance sheet.
Simultaneously with this transaction, principals of American Bailey
Corporation (ABC) invested $3.35 million in the Company in exchange for 4.75
million shares of the Company's common stock, and warrants to purchase an
additional 3.0 million shares of the Company's common stock at an exercise price
of $1.75 (a 12% premium over Fuel Tech's share price at the time the transaction
was negotiated with ABC). Such shares (and shares underlying the warrants) are
restricted from sale for a period of three years from the date of the
transaction, and give the holder certain registration rights.
On September 1, 1999, the Company satisfied its remaining obligations to
Nalco by paying Nalco approximately $4.5 million, representing the $2.5 million
remaining balance on the note, plus accrued interest, and a buyout of the
balance of the contingent payment obligation for approximately $2.0 million. At
the time of the transaction, a maximum of approximately $5.4 million remained
outstanding under the contingent payment obligation. This transaction was
financed by a $4.5 million term loan from the Company's existing bank (see Note
8 to the consolidated financial statements). As a result of this transaction,
the Company recorded approximately $2.0 million of additional goodwill.
In 1999, the Company established with a bank a $3.0 million revolving
credit facility that expires August 31, 2002. The facility can be used for both
cash advances and letters of credit. At December 31, 1999, there were no
borrowings under the facility, however, approximately $489,000 in standby
letters of credit were outstanding.
As a result of the aforementioned transactions, the pending regulatory
deadlines in the U.S. and the current cash and working capital positions, the
Company believes that it will have sufficient resources to fund its growth and
operations going forward.
The Company's NOxOUT Process is based on the Electric Power Research
Institute (EPRI) urea technology embodied in two patents licensed to the Company
("EPRI patents"). One of these patents expired in 1997 and the other expired in
1999. In addition to these, the Company owns 160 patents worldwide, with 5
patent applications pending in the U.S., covering some 50 inventions, 39 related
to the NOxOUT Process. These inventions represent significant enhancements of
the application and performance of the technologies. The Company does not
believe that the expiration of the EPRI patents will have a material adverse
impact on the Company's business, results of operations, liquidity or financial
condition. The Company also offers other NOx reduction technologies that provide
its customers with a wide range of NOx reduction opportunities. The Company's
most recent NOx reduction technologies are Fuel Lean Gas Reburn (FLGR) and Amine
Enhanced Fuel Lean Gas Reburn (AEFLGR), both of which are licensed from the Gas
Research Institute in Chicago, Illinois.
11
<PAGE>
MARKET RISK
Refer to Item 7A "Quantitative and Qualitative Disclosures About Market
Risk."
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission-critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company spent
approximately $400,000 in total during 1999 and 1998 in connection with
remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems
or the products and services of third parties. The Company will continue to
monitor its mission-critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Annual Report) may contain statements that
are not historical facts, so-called "forward-looking statements." These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The Company's actual
future results may differ significantly from those stated in any forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties, including, but not limited to, product demand, pricing, market
acceptance, litigation, risk of dependence on significant customers, third-party
suppliers and intellectual property rights, risks in product and technology
development and other risk factors detailed in this Annual Report and in the
Company's Securities and Exchange Commission filings.
12
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. The Company does not enter into
foreign currency forward contracts or into foreign currency option contracts to
manage this risk due to the immaterial nature of the transactions involved.
The Company is also exposed to changes in interest rates primarily due to
its long-term debt arrangement (refer to Note 8 to the consolidated financial
statements). The Company uses interest rate derivative instruments (an interest
rate swap) to manage exposure to interest rate changes. The Company has entered
into an interest rate swap transaction that fixes the rate of interest at 8.91%
on approximately 50% of the outstanding principal balance during the term of the
loan. A hypothetical 100 basis point adverse move in interest rates along the
entire interest rate yield curve would not have a materially adverse effect on
interest expense during the upcoming year ended December 31, 2000.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS OF FUEL-TECH N.V.
We have audited the accompanying consolidated balance sheets of Fuel-Tech N.V.
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fuel-Tech N.V. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended Decemeber 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Chicago, Illinois
March 1, 2000
14
<PAGE>
Consolidated Balance Sheets
(in thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
December 31
ASSETS
Current Assets:
Cash and cash equivalents $8,959 $5,792
Accounts receivable, net of allowances for doubtful
accounts of $114 and $42, respectively 9,636 9,011
Inventories 227 123
Prepaid expenses and other current assets 471 717
-------- --------
Total current assets 19,293 15,643
Equipment, net of accumulated depreciation of $3,948 and
$3,637, respectively 1,428 1,406
Goodwill, net of accumulated amortization of $256 and $57,
respectively 2,784 1,025
Other intangibles, net of accumulated amortization of $826
and $865, respectively 579 702
Other 380 377
-------- --------
Total Assets $24,464 $19,153
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of note payable $ 900 $1,000
Accounts payable 4,077 3,094
Accrued liabilities:
Employee compensation 922 755
Other accrued liabilities 1,268 1,747
-------- --------
Total current liabilities 7,167 6,596
Note payable 3,375 2,000
Other liabilities 231 241
-------- --------
Total liabilities 10,773 8,837
Shareholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized,
18,328,673 and 17,235,996 shares issued, respectively 182 172
Additional paid-in capital 85,693 71,898
Accumulated deficit (74,989) (77,997)
Accumulated other comprehensive (loss) income (25) 52
Treasury stock (1,058) (1,058)
Nil coupon perpetual loan notes 3,888 17,249
-------- --------
Total shareholders' equity 13,691 10,316
-------- --------
Total liabilities and shareholders' equity $24,464 $19,153
======== ========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
Consolidated Statements of Operations
(in thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
For the years ended December 31
Net revenues
Net sales $ 33,325 $ 25,864 $ -
Royalty income from NFT - - 148
------------ ------------ ------------
$ 33,325 $ 25,864 $ 148
------------ ------------ ------------
Cost and expenses:
Cost of sales 18,805 14,334 -
Selling, general and administrative 8,887 7,897 2,064
Research and development 804 1,030 -
------------ ------------ ------------
28,496 23,261 2,064
------------ ------------ ------------
Operating income (loss) 4,829 2,603 (1,916)
Loss from equity interest in affiliates - (500) (853)
Interest expense (309) (206) -
Other (expense) income, net (213) 117 198
------------ ------------ ------------
Income (loss) before minority interest and taxes 4,307 2,014 (2,571)
Less: Minority interest in NFT - (112) -
------------ ------------ ------------
Income (loss) before taxes 4,307 1,902 (2,571)
Income tax expense (1,299) (1,363) -
------------ ------------ ------------
Net income (loss) $ 3,008 $ 539 $ (2,571)
============ ============ ============
Net income (loss) per common share:
Basic $ 0.17 $ 0.03 $ (0.21)
Diluted 0.16 0.03 (0.21)
Average number of common shares outstanding:
Basic 17,752,000 15,680,000 12,387,000
Diluted 19,335,000 17,437,000 12,387,000
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
Consolidated Statements of Shareholders' Equity
(in thousands of U.S. dollars, except share data in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Treasury Stock Nil Coupon
----------------- Paid-in Accumulated Comprehensive -------------- Perpetual
Shares Amount Capital Deficit Income (Loss) Shares Amount Loan Notes Total
------ ------ ---------- ----------- ------------- ------ ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 12,478 $ 125 $ 67,415 $ (75,965) $ 140 94 $ (1,058) $17,334 $ 7,991
Comprehensive loss:
Net loss (2,571) (2,571)
Foreign currency
translation
adjustment (174) (174)
-------
Comprehensive loss (2,745)
-------
Conversion of nil coupon
perpetual loan notes
into common stock 6 - 72 (72) -
----------------------------------------------------------------------------------------------------
Balance at December 31, 1997 12,484 $ 125 $ 67,487 $ (78,536) $ (34) 94 $ (1,058) $ 17,262 $ 5,246
Comprehensive income:
Net income 539 539
Foreign currency
translation
adjustment 86 86
-------
Comprehensive income 625
-------
Conversion of nil coupon
perpetual loan notes
into common stock 2 - 13 (13) -
Tax benefit from years prior
to quasi-reorganization 1,363 1,363
Issuance of new shares 4,750 47 3,035 3,082
----------------------------------------------------------------------------------------------------
Balance at December 31, 1998 17,236 $172 $ 71,898 $ (77,997) $ 52 94 $ (1,058) $ 17,249 $ 10,316
Comprehensive income:
Net income 3,008 3,008
Foreign currency
translation
adjustment (77) (77)
-------
Comprehensive income 2,931
-------
Conversion of nil coupon
perpetual loan notes
into common stock 963 10 10,372 (10,382) -
Purchase of nil coupon
perpetual loan notes 2,535 (2,979) (444)
Tax benefit from years prior
to quasi-reorganization 722 722
Exercise of stock options 129 - 211 211
Other (45) (45)
----------------------------------------------------------------------------------------------------
Balance at December 31, 1999 18,328 $182 $85,693 $ (74,989) $ (25) 94 $ (1,058) $3,888 $ 13,691
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
For the years ended December 31
OPERATING ACTIVITIES
Net income (loss) $ 3,008 $ 539 $(2,571)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 519 317 25
Amortization 261 57 -
Loss on equipment disposals 246 52 13
Loss from equity interest in affiliates - 388 853
Income taxes 722 1,363 -
Changes in operating assets and liabilities:
Accounts receivable (625) (4,156) -
Receivable from NFT - - 273
Inventories, prepaid expenses, other current assets
and other noncurrent assets 139 403 -
Accounts payable, accrued liabilities and other
noncurrent liabilities 661 411 220
Other 69 90 -
------- ------- -------
Net cash provided by (used in) operating activities 5,000 (536) (1,187)
INVESTING ACTIVITIES
Sale of short-term securities - - 1,563
Repayments by (advances to) CDT - (500) 250
Purchase of 50% in NFT, net of cash acquired (1,958) 514 -
Consolidation of opening NFT cash balance - 1,595 -
Purchases of equipment and patents (795) (396) -
------- ------- -------
Net cash (used in) provided by investing activities (2,753) 1,213 1,813
FINANCING ACTIVITIES
Issuance of common shares (45) 3,082 -
Exercise of stock options 211 - -
Purchase and retirement of nil coupon loan notes (444) - -
Repayment of borrowings (3,225) - -
Proceeds from borrowings 4,500 - -
------- ------- -------
Net cash provided by financing activities 997 3,082 -
Effect of exchange rate fluctuations on cash (77) 86 16
------- ------- -------
Net increase in cash and cash equivalents 3,167 3,845 642
Cash and cash equivalents at beginning of year 5,792 1,947 1,305
------- ------- -------
Cash and cash equivalents at end of year $ 8,959 $ 5,792 $ 1,947
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Fuel-Tech N.V. (the "Company") is a holding company active in the business
of air pollution control. The Company's primary focus, through its wholly owned
subsidiary, Fuel Tech, Inc. (FTI), is on selling, worldwide, its NOxOUT(R)
Process and related technologies for the reduction of oxides of nitrogen (NOx)
and other emissions from boilers, furnaces and other stationary combustion
sources. The Company's business is materially dependent on the continued
existence and enforcement of air quality regulations, particularly in the United
States. The Company has expended significant resources in the research and
development of new technologies in building its proprietary portfolio of air
pollution control, fuel treatment chemicals, computer modeling and advanced
visualization technologies.
For the years ended December 31, 1999, 1998 and 1997, 25%, 20% and 38% of
the Company's revenues, respectively, were derived from international markets,
principally in Europe and Asia.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany transactions have been
eliminated. As more fully discussed in Note 2, on April 30, 1998, FTI purchased
Nalco Chemical Company's (Nalco's) 50% share in the Nalco Fuel Tech (NFT) joint
venture, increasing FTI's ownership of the joint venture's assets and
liabilities to 100%. The accompanying financial statements consolidate the
results of NFT from January 1, 1998, and reflect Nalco's 50% interest in the
joint venture for the period from January 1, 1998, through April 30, 1998, as a
minority interest. Prior to 1998, the Company accounted for its 50% interest in
NFT using the equity method of accounting.
Reclassifications
Certain amounts included in prior year financial statements have been
reclassified to conform to the current year presentation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency for the Company and its subsidiaries is the
currency of the country in which each entity transacts its business. In
accordance with SFAS No. 52, "Foreign Currency Translation," assets and
liabilities denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at current exchange rates, and revenues and expenses are
translated using average rates of exchange prevailing during the year.
Adjustments resulting from translation of financial statements denominated in
currencies other than the U.S. dollar are included in accumulated other
comprehensive income or loss. Foreign currency transaction gains and losses are
included in the determination of net income.
Cash Equivalents and Financial Instruments
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At December 31,
1999, substantially all of the Company's cash and cash equivalents are on
deposit with three financial institutions. All financial instruments are
reflected in the accompanying balance sheets at amounts that approximate fair
market value.
Derivative Financial Instruments
The Company uses derivative financial instruments to manage the economic
impact of fluctuations in interest rates. To achieve this the Company enters
into interest rate swaps. The Company uses an interest rate swap to manage the
duration and interest rate characteristics of its outstanding debt. The interest
differential paid or received is recognized as an adjustment to interest expense
on an ongoing basis.
19
<PAGE>
Accounts Receivable
Accounts receivable includes unbilled receivables, representing costs and
estimated earnings in excess of billings on contracts under the percentage of
completion method. At December 31, 1999 and 1998, unbilled receivables were
approximately $4,413,000 and $4,305,000, respectively.
Goodwill and Other Intangibles
Goodwill recognized as a result of the transactions described in Note 2 is
being amortized by the straight-line method over periods of nine and ten years,
which represent the estimated remaining useful life of the Company's
intellectual property. Other intangibles consist principally of third-party
costs related to the development of patent rights. These costs are being
amortized by the straight-line method over a period of 10 years from the date of
patent issuance. Patent maintenance fees are charged to operations as incurred.
Equipment
Equipment is stated on the basis of cost. Provisions for depreciation are
computed by the straight-line method, using estimated useful lives as follows:
Laboratory equipment.................................... 5-10 years
Furniture and fixtures.................................. 3-10 years
Computer equipment and software......................... 3-5 years
Field equipment......................................... 3-4 years
Vehicles................................................ 3 years
Accounting for the Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain intangible assets for
impairment when events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. In the event the sum of the expected
undiscounted future cash flows resulting from the use of the asset is less than
the carrying amount of the asset, an impairment loss equal to the excess of the
asset's carrying value over its fair value is recorded. The impact of such
losses was immaterial to the financial results of the Company for the year ended
December 31, 1999.
Revenue Recognition
The Company uses the percentage of completion method of accounting for
certain long-term equipment construction and license contracts. Under the
percentage of completion method, sales and gross profit are recognized as work
is performed based on the relationship between actual engineering hours and
equipment construction costs incurred and total estimated hours and costs at
completion. Sales and gross profit are adjusted prospectively for revisions in
completion estimates and contract values.
Royalty income represents royalties from NFT for sales of the NOxOUT
Process, and is recognized in the period of the underlying sale.
Stock-Based Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the Company's current plans, options may be granted at not
less than the fair market value on the date of grant, and therefore, no
compensation expense is recognized for the stock options granted.
20
<PAGE>
Basic and Diluted Earnings (Loss) Per Common Share
Basic earnings (loss) per share excludes the dilutive effects of stock
options and of the nil coupon non-redeemable convertible unsecured loan notes
(see Note 5). Diluted earnings (loss) per share includes the dilutive effect of
the nil coupon non-redeemable convertible unsecured loan notes and of stock
options and warrants. The following table sets forth the weighted-average shares
used in calculating earnings (loss) per share (in thousands):
1999 1998
------ ------
Basic weighted-average shares 17,752 15,680
Conversion of unsecured loan notes 591 1,715
Unexercised options and warrants 992 42
------ ------
Diluted weighted-average shares 19,335 17,437
====== ======
Diluted weighted-average shares were the same as basic weighted-average
shares in 1997 because the conversion of the loan notes and exercise of the
options and warrants would be antidilutive.
2. The Nalco and American Bailey Corporation Transactions
Effective April 30, 1998, FTI purchased Nalco's 50% interest in NFT for
$1.1 million cash, the issuance of a $3.0 million note, and up to $5.5 million
in contingent payments based upon FTI's future earnings. The acquisition was
accounted for as a purchase. The notes bear interest at 10% per annum, payable
quarterly, with principal payments of $250,000, payable quarterly, beginning on
March 31, 1999. One-half of the contingent payments ($2.75 million) was based on
the achievement of annual gross margin targets for the years 1998-2001, with the
other half payable upon the achievement of a cumulative gross margin target for
the years 1998-2001. The note and contingent payment obligations were secured by
substantially all of the Company's assets. The 1998 financial statements include
an accrual of $113,000 for the contingent payment earned by Nalco based on 1998
gross margins. Goodwill, net of amortization, resulting from this acquisition
totaled $1,025,000, including the contingent payment obligation, at December 31,
1998.
Simultaneously with this transaction, principals of American Bailey
Corporation (ABC) invested $3.35 million in the Company in exchange for 4.75
million shares of the Company's common stock, and warrants to purchase an
additional 3.0 million shares of the Company's common stock at an exercise price
of $1.75 (a 12% premium over the Company's share price at the time the
transaction was negotiated with ABC). The warrants expire on April 30, 2008.
Such shares (and shares underlying the warrants) are restricted from sale by the
holders for a period of three years from the date of transaction, and give the
holders certain registration rights.
On September 1, 1999, the Company satisfied its remaining obligations to
Nalco by paying Nalco approximately $4.5 million, representing the $2.5 million
remaining balance on the note, plus accrued interest, and a buyout of the
balance of the contingent payment obligation for approximately $2.0 million. At
the time of the transaction, a maximum of approximately $5.4 million remained
outstanding under the contingent payment obligation. This transaction was
financed by a $4.5 million term loan from the Company's existing bank (see Note
8 to the consolidated financial statements). As a result of this transaction,
the Company recorded approximately $2.0 million of additional goodwill.
The following unaudited proforma financial information gives effect to the
NFT acquisition as if it had occurred as of January 1, 1997. The proforma
information is presented for informational purposes only and is not necessarily
indicative of the results of operations that actually would have been achieved
had the acquisition been consummated as of that date.
1998 1997
----------- -----------
Net revenues $25,864,000 $20,066,000
Net income (loss) 515,000 (3,337,000)
Basic earnings (loss) per common share $.03 $ (.27)
Diluted earnings (loss) per common share $.03 $ (.27)
Proforma income includes interest expense on the $3.0 million Nalco note
beginning January 1, 1997, but does not include certain operating benefits
resulting from the Nalco transaction.
21
<PAGE>
3. TAXATION
At December 31, 1999, FTI had tax losses available for offset against
future years' earnings of approximately $47.4 million in the United States. For
financial statement purposes, a valuation allowance has been recorded to offset
the tax benefit of these carryforwards. Under the provisions of the U.S. Tax
Reform Act of 1986, utilization of the Company's U.S. federal income tax loss
carryforwards may be limited should ownership changes exceed 50% within a
three-year period. The U.S. federal tax loss carryforwards expire as follows (in
thousands):
2000 $ 1,387
2001 6,231
2002 7,520
2003 14,925
2004 4,639
2005 5,467
2006 1,987
2007 2,325
2008 1,480
2009 220
2010 309
2011 884
2012 40
-------
$47,414
=======
The components of income (loss) before taxes for the years ended December
31 are as follows (in thousands):
1999 1998 1997
---- ---- ----
Domestic $5,167 $3,190 $ (418)
Foreign (860) (1,288) (2,153)
------ ------ -------
Income (loss) before taxes $4,307 $1,902 $(2,571)
====== ====== =======
A reconciliation between the provision for income taxes calculated at the
U.S. federal statutory income tax rate and the consolidated provision in the
consolidated statements of operations for the years ended December 31 is as
follows (in thousands):
1999 1998 1997
------- ------- -------
Provision (benefit) at the U.S. federal
statutory rate $ 1,507 $ 666 $ (900)
Foreign losses without tax benefit 301 446 640
Valuation allowance adjustment (1,052) 220 198
State income taxes 576 -- --
Other (33) 31 62
------- ------- -------
Provision for income taxes $ 1,299 $ 1,363 $ --
======= ======= =======
The reduction in the valuation allowance in 1999 results primarily from the
utilization of tax loss carryforwards from where a valuation allowance had
previously been provided.
Temporary differences arising from treating income and expense items for
financial reporting purposes differently than for tax return purposes are not
material.
Effective March 31, 1985, FTI effected a quasi-reorganization and reduced
the value of certain of its assets. Tax benefits resulting from the utilization
of the U.S. federal tax loss carryforwards existing as of the date of the
quasi-reorganization have been excluded from the results of operations and
credited to additional paid-in capital when realized. Tax benefits of $722,000
and $1,363,000 were realized in 1999 and 1998, respectively. As such, a non-cash
charge was recorded as deferred income tax expense, and additional paid-in
capital was increased accordingly for the amounts noted above in both years.
There are no remaining tax loss carryforwards from years prior to the date of
the quasi-reorganization.
At December 31, 1999, the Company's international subsidiaries have tax
loss carryforwards of approximately $5,050,000 (primarily in Germany), which can
be carried forward indefinitely. A valuation allowance has been recorded to
offset the tax benefit of these loss carryforwards.
22
<PAGE>
4. COMMON STOCK
At December 31, 1999, the Company had 18,328,673 common shares outstanding,
with an additional 477,023 shares reserved for issuance upon conversion of the
nil coupon non-redeemable convertible unsecured loan notes (see Note 5) and
1,874,500 shares reserved for issuance upon the exercise of stock options,
802,000 of which are currently exercisable (see Note 6).
5. NIL COUPON NON-REDEEMABLE CONVERTIBLE UNSECURED LOAN NOTES
At December 31, 1999 and 1998, the Company had $4,030,500 and $18,180,000
principal amount of nil coupon non-redeemable convertible unsecured perpetual
loan notes (the "Loan Notes") outstanding, respectively. The Loan Notes are
convertible at any time into shares of the Company's common stock generally at
rates that vary from $6.50 to $11.43 per share. The Loan Notes bear no interest
and have no maturity date. They are generally repayable only in the event of the
Company's dissolution and, accordingly, have been classified within
shareholders' equity in the accompanying balance sheet. In 1989 and 1993, the
Company incurred approximately $1.1 million and $100,000, respectively, in
expenses related to Loan Note issuances. The Loan Notes are shown net of the
residual portion of these expenses, which approximates $141,000 and $931,000 at
December 31, 1999 and 1998, respectively.
During 1999 and 1998, approximately $11,012,500 and $12,500 principal
amount of Loan Notes were converted into 963,600 and 1,922 shares of the
Company's common stock, respectively. Also, during 1999, the Company purchased
and retired approximately $3,137,000 principal amount of Loan Notes.
6. STOCK OPTIONS AND WARRANTS
The Company has granted stock options under the 1993 Incentive Plan ("1993
Plan"). Under the 1993 Plan, awards may be granted to participants in the form
of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Awards, Bonuses or other forms of
share-based or non-share-based awards or combinations thereof. Participants in
the 1993 Plan may be such of the Company's directors, officers, employees,
consultants or advisors (except consultants or advisors in capital-raising
transactions) as the directors determine are key to the success of the Company's
business. The amount of shares that may be issued or reserved for awards to
participants under a 1998 amendment to the 1993 Plan is 12.5% of outstanding
shares. In 1999 and 1998, 513,500 and 767,500 options were granted,
respectively. In 1997, no options were granted.
If compensation expense for the Company's plans had been determined based
on the fair value at the grant dates for awards under its plans, consistent with
the method described in SFAS No. 123, the Company's net income (loss) and income
(loss) per share would have been adjusted as follows for the years ended
December 31:
1999 1998 1997
------------------------------
Net income (loss) (in thousands):
As reported $3,008 $539 $(2,571)
As adjusted 2,714 (39) (2,733)
Basic and diluted income (loss) per share:
Basic--
As reported $ .17 $.03 $ (.21)
As adjusted .15 .00 (.22)
Diluted--
As reported $ .16 $.03 $ (.21)
As adjusted .14 .00 (.22)
23
<PAGE>
In accordance with the provisions of SFAS No. 123, the "As adjusted"
disclosures include only the effect of stock options granted after 1994. The
application of the "As adjusted" disclosures presented above are not
representative of the effects SFAS No. 123 may have on such operating results in
future years due to the timing of stock option grants and considering that
options vest over a period of immediately to five years.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
The fair value of each option grant, for "As adjusted" disclosure purposes,
was estimated on the date of grant using the modified Black-Scholes option
pricing model with the following weighted-average assumptions:
1999 1998 1997
-------------------------------------
Expected dividend yield 0.00% 0.00% N/A
Risk-free interest rate 6.68% 5.03% N/A
Expected volatility 108.4% 43.7% N/A
Expected life of option 4 years 4 years N/A
The following table presents a summary of the Company's stock option
activity and related information for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,728,493 $ 3.18 1,057,728 $ 6.81 1,114,228 $ 6.77
Granted 513,500 2.13 767,500 1.74 - -
Exercised (129,085) 1.63 - - - -
Expired or forfeited (238,408) 7.48 (96,735) 2.31 (56,500) 4.52
------------------------------------------------------------------------------------
Outstanding at end of year 1,874,500 $ 2.39 1,728,493 $ 3.18 1,057,728 $ 6.81
------------------------------------------------------------------------------------
Exercisable at end of year 802,000 $ 3.05 989,160 $ 4.27 886,895 $ 7.47
Weighted-average fair value of
options granted during the year $ 1.59 $ 0.56 $ -
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------- ------------------------------
Weighted-Average Weighted- Weighted-
Range of Number of Remaining Average Number of Average
Exercise Prices Options Contractual Life Exercise Price Options Exercise Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.375 - $3.38 1,712,000 6.61 years $ 1.92 639,500 $ 1.97
$4.75 - $12.06 162,500 2.15 years $ 7.27 162,500 $ 7.27
------------- -------------
$1.375 - $12.06 1,874,500 6.22 years $ 2.38 802,000 $ 3.05
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company also has outstanding warrants to purchase 140,000 common shares
for $4.00 per share. The warrants are exercisable at any time, at the holder's
option, in whole or in part prior to the expiration date of March 1, 2001.
Lastly, as mentioned in Note 2, ABC has warrants to purchase an additional 3.0
million shares of the Company's common stock at an exercise price of $1.75 (a
12% premium over the Company's share price at the time the transaction was
negotiated with ABC). The warrants expire April 30, 2008. Such shares (and
shares underlying the warrants) are restricted from sale by the holders for a
period of three years from the date of the transaction and give the holders
certain registration rights.
24
<PAGE>
7. COMMITMENTS
Operating Leases
The Company leases office space, autos and certain equipment under
agreements expiring on various dates through 2009. Future minimum lease payments
at December 31, 1999, are as follows (in thousands):
2000 $324
2001 284
2002 284
2003 291
2004 205
Thereafter 676
For the years ended December 31, 1999, 1998 and 1997, rent expense
approximated $493,000, $455,000 and $70,000, respectively.
Performance Guarantees
The Company's long-term equipment construction and license contracts
typically contain performance guarantees. The Company has outstanding
performance guarantees of $634,000 for projects that have not completed their
final acceptance test or that are still operating under a warranty period.
Management of the Company believes that these projects will be successfully
completed and that there will not be a materially adverse impact on the
Company's operations from these guarantees.
8. DEBT FINANCING
In 1999, the Company entered into a $3.0 million revolving credit facility
expiring August 31, 2002, which is collateralized by all personal property owned
by the Company. The Company can use this facility for cash advances and standby
letters of credit. The interest rate to be borne on cash advances is the bank's
reference rate, or an optional rate that can be selected by the Company, and is
based on the bank's Interbank Offering Rate plus 2.25%.
At December 31, 1999, the bank had provided standby letters of credit to
customers totaling approximately $489,000. In connection with contracts in
process, the Company is committed to reimbursing the issuing bank for any
payments made by the bank under these letters of credit. At December 31, 1999,
there were no cash borrowings against this facility and a credit balance of
approximately $2.5 million was available.
On September 1, 1999, the Company entered into a term loan agreement with a
bank for a total principal balance of $4.5 million. The principal balance is to
be repaid in quarterly installments of $225,000 commencing on December 31, 1999,
with a final principal payment of $2,025,000 due on August 31, 2002. The Company
has entered into an interest rate swap transaction that fixes the rate of
interest at 8.91% on approximately 50% of the outstanding principal balance
during the term of the loan. The remaining principal balance bears interest at
the prevailing rates available in the marketplace, which is based on the bank's
Interbank Offering Rate plus 2.25%. The borrowings under this facility are
collateralized by all personal property owned by the Company.
The fair value of debt is the carrying value at December 31, 1999. The fair
value of the interest rate swap, based on quoted market prices, is ($1,000) at
December 31, 1999. The notional value of the swap is $2,250,000 at December 31,
1999.
9. RELATED PARTY TRANSACTIONS
The Company has a 21.8% common stock ownership interest in Clean Diesel
Technologies, Inc. (CDT), at December 31, 1999. The Company is precluded from
selling its interest in CDT except pursuant to a registration statement or
within the limitations of Rule 144 of the Securities and Exchange Commission.
On August 3, 1995, the Company signed a Management and Services Agreement
with CDT. According to the agreement, CDT is to reimburse the Company for
management, services and administrative expenses incurred by the Company on
behalf of CDT. Additionally, the Company charges CDT an additional 3%-10% of
such costs annually, depending upon the nature of the cost.
For the years ended December 31, 1999, 1998 and 1997, $106,000, $168,000
and $403,000, respectively, was charged to CDT as a management fee.
On July 1, 1995, CDT entered into a $745,000 demand note with the Company,
bearing interest at 8% per annum (the "Demand Note"). In 1997, $250,000 of such
amount was repaid. During 1997, the Company restructured the unpaid balance of
the Demand Note whereby the Demand Note was due in three annual installments of
$100,000 each on July 1 of each of the years 1998 through 2000 and a final
installment of $195,000 on July 7, 2001. Interest of 8% per annum was due on the
unpaid balance on each principal payment date.
25
<PAGE>
In February 1998, the Company provided CDT a $500,000 bridge loan. On
November 11, 1998, the $495,000 demand note, the $500,000 bridge loan and
interest thereon of $20,000 was converted into 2,029 shares of Series A
Convertible preferred stock in CDT. Each preferred share is convertible into
333.33 shares of CDT common stock. The Company accounts for its investment in
CDT using the equity method, and recorded a loss of $500,000 in 1998 and
$495,000 in 1997 related to its share of CDT's operating results in those years.
The CDT common and preferred stock has no carrying value in the Company's
balance sheet as of December 31, 1999 and 1998.
Pursuant to an assignment agreement of certain technology to CDT, the
Company is due royalties from CDT of 2.5% of CDT's annual revenue from sales of
CDT's Platinum Fuel Catalyst, commencing in 1998. The royalty obligation expires
in 2008. CDT may terminate the royalty obligation to the Company by payment of
$12 million commencing in 1998 and declining annually to $1,090,910 in 2008. CDT
as assignee and owner will maintain the technology at its own expense. To date,
no royalties from CDT have been received by the Company. The report of
independent auditors pertaining to CDT's financial statements for the years
ended December 31, 1999 and 1998, contained a going concern qualification. The
Company intends to record royalties from CDT on a cash basis.
During 1997, the Company decided to close its offices in the United
Kingdom, and such offices were officially closed in January 1998. In connection
therewith, the accompanying consolidated statement of operations for the year
ended December 31, 1997, includes a provision of $281,000 to close such
facility. All amounts were paid in 1998.
On April 30, 1998, the Company entered into an agreement with American
Bailey Corporation for it to provide certain management and consulting services
to the Company. ABC currently owns 26% of the Company's common shares and also
owns warrants to purchase an additional 3.0 million shares, which expire on
April 30, 2008. No fees were to be payable under the agreement for the first 24
months. This agreement was amended in 1999 to extend its term to April 30, 2002,
and provide for the payment of a management fee of $10,417 per month commencing
September 1, 1999, through May 1, 2000, and $20,833 per month until the
termination of the agreement.
NFT paid fees to FTI as compensation for selected sales and other specified
services. In addition, NFT reimbursed FTI for payroll, rent and other
expenditures incurred on its behalf. Through April 30, 1998, and in 1997, these
billings were $1,001,000 and $2,013,000, respectively.
10. DEFINED CONTRIBUTION PLAN
The Company has a retirement savings plan available for all U.S. employees
who have met minimum length-of-service requirements. The Company's contributions
are determined based upon amounts contributed by the Company's employees with
additional contributions made at the discretion of the Company's Board of
Directors. Costs related to this plan were $276,000, $148,000 and $23,000 in
1999, 1998 and 1997, respectively.
26
<PAGE>
11. BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA
The Company's business is organized into one operating segment providing
air pollution control chemicals and equipment.
Information concerning the Company's operations by geographic area is
provided below. Operating earnings represent sales less cost of products sold
and operating expenses. Foreign operating expenses include direct expenses
incurred outside of the United States of foreign corporations controlled by the
Company plus an allocation of domestic selling and general expenses directly
related to the foreign operations. Assets are those directly associated with
operations of the geographic area.
For the years ended December 31 1999 1998 1997
------------ ------------ ------------
Revenues:
Domestic $ 25,127,000 $ 20,638,000 $ 148,000
Foreign 8,198,000 5,226,000 --
------------ ------------ ------------
$ 33,325,000 $ 25,864,000 $ 148,000
============ ============ ============
Operating Earnings:
Domestic $ 4,017,000 $ 3,204,000 $ (1,575,000)
Foreign 812,000 (601,000) (341,000)
------------ ------------ ------------
$ 4,829,000 $ 2,603,000 $ (1,916,000)
============ ============ ============
December 31 1999 1998 1997
------------ ------------ ------------
Assets:
Domestic $ 22,020,000 $ 16,307,000 $ 5,272,000
Foreign 2,444,000 2,846,000 675,000
------------ ------------ ------------
$ 24,464,000 $ 19,153,000 $ 5,947,000
============ ============ ============
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item will be set forth under the captions
"Election of Directors" and "Directors and Executive Officers of the Company" in
the Company's Proxy Statement related to the 2000 Annual General Meeting of
Shareholders (the `Proxy Statement") and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated by reference
excluding, however, the information under the captions "Report of the Board of
Directors on Executive Compensation" and "Performance Graph," which is not
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be set forth under the caption
"Principal Shareholders and Stock Ownership of Management" in the Proxy
Statement and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be set forth under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated by reference.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements identified below and required by Part II, Item 8
of this Form 10-K are set forth above.
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for Years Ended December 31,
1999, 1998 and 1997 Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedules have been omitted because of the absence of the conditions under
which they are required or because the required information where material is
shown in the financial statements or the notes thereto.
(3) Exhibits
+ 1.0 Articles of Association of Fuel-Tech N.V. (in Dutch and English) as
amended through April 27, 1998
* 2.1 Instrument Constituting US $19,200,000 Nil
Coupon Non-Redeemable Convertible Unsecured Loan Notes of Fuel-Tech
N.V., dated December 21, 1989
* 2.2 First Supplemental Instrument Constituting US $3,000,000 Nil Coupon
Non-Redeemable Convertible Unsecured Loan Notes of Fuel-Tech N.V.,
dated July 10, 1990
* 2.3 Instrument Constituting US $3,000,000 Nil Coupon Non-Redeemable
Convertible Unsecured Loan Notes of Fuel-Tech N.V., dated
May 9, 1991
* 2.4 Instrument Constituting US $6,000,000 Nil Coupon Non-Redeemable
Convertible Unsecured Loan Notes of Fuel-Tech N.V., dated
March 12, 1993
** 2.5 Form of Warrants issued April 30, 1998 evidencing right to purchase
3 million shares of Fuel-Tech N.V. common stock.
* 3.1 Form of Indemnity Agreement between Fuel-Tech N.V. and directors and
officers
* 3.2 Fuel Tech, Inc. 1984 Incentive Stock Option Plan
* 3.3 Fuel-Tech N.V. 1988 Stock Option Plan
* 3.4 Fuel Tech, Inc. Form of 1984 Stock Option Agreement
* 3.5 Fuel Tech, Inc. Form of 1987 Stock Option Agreement
* 3.6 Fuel Tech, Inc. Form of 1992 Substitute Stock Option Agreement
* 3.7 Fuel-Tech N.V. Form of 1992 Substitute Stock Option Agreement
* 3.8 Fuel-Tech N.V. Form of 1993 Stock Option Agreement
* 3.10 Master License Agreement dated December 30, 1987 between Fuel Tech,
Inc. and Fuel-Tech N.V.
* 3.10.1 Master License Agreement dated April 8, 1987 between Fuel Tech. Inc.
and Fuel Tech GmbH
* 3.10.2 Assignment dated December 30, 1987 from Fuel Tech, Inc. to Fuel-Tech
N.V. of Master License Agreement dated April 8, 1987 between Fuel
Tech, Inc. and Fuel Tech GmbH
* 3.10.4 Master License Agreement dated December 30, 1987 between Fuel-Tech
N.V. and Fuel Tech B.V.
* 3.12 License Implementation Agreement dated April 22, 1991 among NFT,
Fuel Tech International, B.V., and Flakt Canada Ltd.
* 3.13 License Implementation Agreement dated June 10, 1991 among NFT,
Nalco Fuel Tech, B.V., and Foster Wheeler Energy Corporation
* 3.14 License Implementation Agreement dated April 23, 1991 among NFT,
Nalco Fuel Tech, B.V., and R-C Environmental Services &
Technologies, a division of Research Cottrell, Inc.
* 3.15 License Implementation Agreement dated December 20, 1990 between NFT
and RJM Corporation
* 3.16 License Implementation Agreement dated December 20, 1990 between NFT
and Todd Combustion, Inc.
* 3.17 License Implementation Agreement dated May 22, 1991 among NFT, Nalco
Fuel Tech, B.V., and Wheelabrator Air Pollution Control, Inc.
* 3.18 Agreement dated July 3, 1990 between NFT and Arcadian Corporation
* 3.19 License Agreement dated September 12, 1991 between NFT and BP
Chemicals Inc.,
* 3.20 Agreement dated November 5, 1990 between NFT and Cargill,
Incorporated
* 3.21 Agreement dated August 30, 1990 between NFT and Nitrocbem, Inc.
* 3.22 License Agreement dated December 27, 1990 between NFT and Union Oil
Company of California dba Unocal
* 3.23 Agreement dated September 30, 1990 between NFT and W.H. Shurtleff
Company
* 3.24 Cooperative Agreement dated November 26, 1991 between Vitkovice City
Enterprise and Fuel Tech GmbH
** 3.25 Securities Purchase Agreement dated as of March 23, 1998, between
Fuel-Tech N.V., and the several Investors signatory thereto,
including exhibits
29
<PAGE>
** 3.26 Purchase Agreement dated as of March 23, 1998, between Nalco FT,
Inc., Nalco Chemical Company and Fuel Tech, Inc., including exhibits.
o 3.27 The 1993 Incentive Plan of Fuel-Tech N.V. as amended through
August 3, 1999
#o 3.28 License Agreement dated November 18, 1998 between The Gas Research
Institute and Fuel Tech, Inc. relating to the FLGR Process
#o 3.29 License Agreement dated December 8, 1998 between The Gas research
Institute and Fuel Tech, Inc. relating to the AEFLGR Process
#o 3.30 Amendment No. 1, dated February 28, 2000, to License Agreement of
November 18, 1998 between The Gas Research Institute and Fuel Tech,
Inc.
oo 19.2 Those portions of the Proxy Statement to be distributed to
Shareholders of the Company for the 2000 Annual General Meeting
of Shareholders of Fuel-Tech N.V. specifically incorporated by
reference into this Annual Report on Form 10-K
o 23.1 Consent of Ernst & Young LLP
- ------------
* Filed with Registration Statement on Form 20-F, No. 000-21724 of August
26, 1993, as amended
** Filed with Registrant's Report on Form 6-K for the month of March 1998
+ Filed with Registrant's Report on Form 20-F for the year 1997
o Filed herewith
oo To be filed with the Registrant's definitive proxy material for its 2000
Annual General Meeting
# Confidential information removed and filed separately
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1999.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Fuel -Tech N.V. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FUEL-TECH N.V.
Dated: March 29, 2000 By: /Ralph E. Bailey
-------------------------------
Ralph E. Bailey
Chairman, Managing Director and
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf of
Fuel-Tech N.V. and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Ralph E. Bailey Chairman, Managing Director and Chief Executive Officer
-------------------------- (Principal Executive Officer)
Ralph E. Bailey
/s/ Scott M. Schecter Chief Financial Officer, Vice President and Treasurer
-------------------------- (Principal Financial and Accounting Officer)
Scott M. Schecter
/s/ Douglas G. Bailey Managing Director
--------------------------
Douglas G. Bailey
/s/ John A. de Havilland Managing Director
--------------------------
John A. de Havilland
/s/ Charles W. Grinnell Managing Director, Vice President, General Counsel and Corporate Secretary
--------------------------
Charles W. Grinnell
/s/ Jeremy D. Peter-Hoblyn Managing Director
--------------------------
Jeremy D. Peter-Hoblyn
/s/ John R. Selby Managing Director
--------------------------
John R. Selby
Tarma Trust Management N.V. Managing Director
By: /s/ Robert W. Huyzen Managing Director
--------------------------
Robert W. Huyzen
/s/ James M. Valentine Managing Director
--------------------------
James M. Valentine
</TABLE>
31
<PAGE>
THE 1993 INCENTIVE PLAN OF FUEL-TECH N.V.
(As amended through August 3, 1999)
1. Purpose and Effective Date
The purpose of this 1993 Incentive Plan of Fuel-Tech N.V., a Netherlands
Antilles corporation ("the Corporation") is to further the interests of the
Corporation and its shareholders by providing incentives in the form of awards
to such directors, officers, employees, consultants or advisors to the
Corporation or any of its Subsidiaries as the directors shall determine are key
to the continued success and profitability of the Corporation. The Plan is
intended to retain Participants with significant training, experience and
ability; to attract new Participants whose services are considered valuable; and
to encourage such Participants to acquire a proprietary interest in the
Corporation. So that the maximum incentive can be provided each Participant in
the Plan by granting to such participant an Award best suited to the
circumstances, the Plan provides for granting, Non-Qualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted Shares,
Performance Awards, Bonuses, Other Awards, or any combination of the foregoing.
This Plan, as amended, shall become effective upon its adoption by the
Board, subject to approval within one (1) year of such adoption by the
Corporation's shareholders, and shall remain effective until terminated by
resolution of the Board.
2. Definitions
As used in this Plan:
(1) "Award" means the grant hereunder of any form of Option, Stock
Appreciation Right, Restricted Share, Performance Award, Other Award, Bonus, or
any other form of Share based or non-Share based Award.
(2) "Award Agreement" means a written agreement between the Corporation and
a Participant that sets forth the terms, conditions and limitations applicable
to an Award.
(3) "Beneficiary" means, where a Participant is with respect to any Award
not forfeitable by its terms on the death of the Participant entitled to any
unpaid portion thereof, such person or persons entitled thereto under the
Participant's will or under the laws of descent and distribution.
(4) "Board" means the Board of Directors of the Corporation.
<PAGE>
(5) "Bonus" means any payment under Section 6.5.
(6) "Change in Control" has the meaning set forth in Section 8.
(7) "Code" means the United States Internal Revenue Code of 1986, as
amended and in effect from time to time, or any successor statute.
(8) "Committee" means the Committee of the Board or any successor committee
as described in Section 3.1, or, if there shall be no such Committee, the Board.
(9) "Corporation" means Fuel-Tech N.V., a Netherlands Antilles corporation.
(10) "Director Option" means an Option granted pursuant to Section 6.1(i).
(11) "Employee" means any individual who is a salaried employee on the
payroll of the Corporation or any of its Subsidiaries.
(12) "Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
(13) "Fair Market Value Per Share" in reference to the common stock of the
Corporation means on any date the average of the high and low sales prices of
the Shares on such date on the principal national securities exchange on which
such Shares are listed or admitted to trading, or, if such Shares are not so
listed or admitted to trading, the average of the per Share closing bid price
and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or such other
market in which such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such date, the Fair
Market Value Per Share shall be the value established by the Board or Committee
in good faith and, in the case of an Incentive Stock Option, in accordance with
Section 422 of the Code.
(14) "Incentive Stock Option" means a stock option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
(15) "Nonemployee Director" means a director of the Corporation or of Fuel
Tech, Inc.who is a "nonemployee director" within the meaning of Rule 16b-3.
(16) "Non-Qualified Stock Option" means a stock option which is not an
Incentive Stock Option within the meaning of Section 422 of the Code.
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<PAGE>
(17) "Option" means an Award to purchase Shares granted pursuant to Section
6.1.
(18) "Participant" means any director, officer, employee, consultant or
advisor of the Corporation or any of its Subsidiaries who is granted an Award
under this Plan. Except that consultants and advisors shall not include those
rendering services in connection with the offer or sale of the Corporation's
securities in a capital raising transaction.
(19) "Performance Award" has the meaning described in Section 6.4.
(20) "Plan" means this 1993 Incentive Plan of Fuel-Tech N.V., as amended
from time to time.
(21) "Restricted Shares" means Shares which have certain restrictions
attached to the ownership thereof, which may be issued under Section 6.3.
(22) "Retirement" or "Retires" means termination of a Participant's
employment with the Corporation and its Subsidiaries by retirement under the
normal, mandatory, early and applicable age plus service or other provision of
the applicable retirement plan of the Corporation or a Subsidiary, or, if there
shall be no such plan or plans, then under such procedures as the Corporation or
its Subsidiaries may from time to time establish.
(23) "Rule 16b-3" means such rule as promulgated by the Securities and
Exchange Commission under the Exchange Act as now in force or as such regulation
or successor regulation shall be hereafter amended.
(24) "Shares" mean shares of common stock of the Corporation.
(25) "Share Unit" means the right to receive a payment equivalent in value
to one Share on the date of payment.
(26) "Stock Appreciation Right" means a right which may be issued under
Section 6.2, the value of which is determined relative to the appreciation in
value of Shares.
(27) "Subsidiary" means any entity, incorporated or otherwise, of which the
Corporation owns directly or indirectly at least fifty percent (50%) of the
stock or interests therein.
(28) "Ten-Percent Stockholder" means a Participant, who, at the time an
Incentive Stock Option is to be granted to him or her, owns (within the meaning
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<PAGE>
of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%)
of the total combined voting power of all classes of the stock of the
Corporation.
(29) "Totally Disabled" means a condition of a Participant found by a
qualified physician selected by the Corporation to be that as described in
Section 22(e)(3) of the Code or as such Section or successor section shall be
hereafter amended.
3. Administration
3.1 Committee
(a) The Plan shall be administered by either the Board or by a
Committee, which shall consist of at least two (2) directors of the
Corporation; provided, however, that in the case of a Committee of less than
the entire Board, each member shall be a Nonemployee Director. The Board may
remove members from or add members to the Committee. Vacancies on the
Committee shall be filled by the Board.
(b) To the extent permitted by Section 13.3 and subject to Section
6.1(i), the Board or Committee is authorized to (i) determine the persons
who shall be Participants in the Plan and which Awards shall be granted to
Participants, (ii) establish, amend and rescind rules, regulations and
guidelines relating to the Plan as it deems appropriate, (iii) interpret and
administer the Plan, Awards and Award Agreements, (iv) establish, modify and
terminate terms and conditions of Award Agreements, (v) grant waivers and
accelerations of Plan, Award and Award Agreement restrictions and (vi) take
any other action necessary for the proper administration and operation of
the Plan.
(c) The Board or Committee may designate persons and entities other
than its members, including but not limited to, any successor committee, the
Chief Executive officer, and the Corporate Secretary, to carry out any of
its responsibilities under and described in this Plan, under such conditions
or limitations as the Board or Committee may establish, other than its
authority with regard to participants who are subject to Section 16 of the
Exchange Act.
3.2 Effect of Determinations
Determinations of the Board or Committee and its designees shall be final,
binding and conclusive on the Corporation, its stockholders, Employees and
Participants. No member of the Board or Committee or any of its designees shall
be personally liable for any action or determination made in good faith with
respect to this Plan, any award, or any Award Agreement.
-4-
<PAGE>
4. Eligibility
Persons eligible for Awards under this Plan shall consist of key, managerial
and other directors, officers, employees, consultants or agents of the
Corporation or its Subsidiaries who possess valuable experience and skills and
have contributed, or can be expected to contribute, materially to the success
and profitability of the Corporation. The Board or Committee shall determine
which persons shall be Participants, the types of Awards to be made to
Participants and the terms, conditions and limitations applicable to the Awards.
5. Shares Subject to This Plan
5.1 Maximum Number of Shares
The maximum number of Shares available for Awards under this Plan at any
time shall be twelve and one-half percent (12.5%) of the total number of then
issued and outstanding Shares, less the sum of that number of Shares as shall
then be subject to outstanding Awards by the Corporation hereunder or under
other plans or arrangements of the Corporation or of Fuel Tech, Inc. Any and all
such Shares may be issued in respect of any of the types of Awards. The maximum
number of Shares that may be the subject of Incentive Stock Options granted
under the Plan may not exceed one million (1,000,000) Shares. Upon a change in
capitalization, the maximum number of Shares referred to in this Section 5.1
shall be adjusted in number and kind pursuant to Section 7. The Corporation
shall reserve for the purposes of the Plan, out of its authorized but unissued
Shares or out of Shares held in the Corporation's treasury, or partly out of
each, such number of Shares as shall be determined by the Board.
5.2 Share Accounting
Shares related to Awards that are forfeited, terminate, expire unexercised,
exchanged, settled in cash in lieu of Shares or settled in such other manner so
that a portion or all of the Shares included in an Award are not issued to a
Participant shall be available for other Awards. Any Shares not so used shall be
available for further Awards. Shares issued under this Plan shall be authorized
and unissued Shares or Shares reacquired by the Corporation, as determined by
the Committee. No fractional Shares shall be issued under this Plan.
6. Awards
Awards may include, but are not limited to, those described in this Section
6. Awards may be granted singly, in combination, or in tandem with other
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<PAGE>
Awards. Subject to the other provisions of this Plan, Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under this Plan and any other plan of the Corporation, including any
plan of any acquired entity and for the benefit of any present or former
director, officer, consultant or agent of such acquired entity. Subject to the
terms of the Awards described in this Section 6 and the related Award Agreement,
the form of payment for Awards may be in cash, in Shares, in Share Units, or
such other form as determined by the Board or the Committee, and may be made
partly in one form and partly in one or more other forms, all as determined by
the Committee. Except as otherwise provided in this Plan, Awards shall be
evidenced by Award Agreements, the terms of which other than a Director Option
may be amended or accelerated by the Board or Committee following the grant of
any Award and need not be uniform among Participants. Except as otherwise
provided in this Plan, Awards shall be granted for such minimum consideration as
is required by applicable law, rules and regulations, including without
limitation, the then applicable Rule 16b-3, and such additional consideration,
if any, as may be determined by the Committee.
6.1 Options
Non-Qualified and Incentive Stock Options may be granted under this Plan
from time to time. Director Options shall be granted under this Plan only at
such times as provided below. Subject to Sections 6.1(h) and 6.1(i), Options
shall be granted upon the following terms and conditions with such additional
terms and conditions, not inconsistent with the provisions of this Plan, as the
Board or Committee in its discretion shall deem desirable:
(a) No Option shall be exercisable after the expiration of ten (10)
years from the date it is granted (five (5) years in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder).
(b) The option price per Share for all Options shall be not less than
one hundred per cent (100%) of the Fair Market Value Per Share on the date
the Option is granted (one hundred ten percent (110%) in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder).
(c) Award Agreements for Options shall conform to the requirements of
this Plan, and other than with respect to Director Options may contain such
other provisions as the Committee shall deem advisable.
(d) Award Agreements for Options shall specify when an Option may be
exercisable. An Option may be exercised, in whole or in part, by giving
written notice of exercise to the Corporation specifying the
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<PAGE>
number of Shares to be purchased. Shares purchased upon exercise of an
Option shall be paid for in full at the time the Option is exercised in cash
or in Shares. Payment may also be made in any other manner or form approved
by the Board or Committee, consistent with applicable law, regulations and
rules.
(e) A holder of an Option shall have no rights as a stockholder with
respect to any Shares covered by such Option unless and until the date of
the issuance of the stock certificate for such Shares.
(f) (i) If, after completion of any required period of continuous
employment in order to exercise an Option as provided in an Award Agreement,
a Participant dies while employed by the Corporation or its Subsidiaries,
such Option shall be exercisable by the Beneficiary thereof, but after the
date of death of the Participant only within the period specified in the
Award Agreement which shall not be later than the expiration date of the
Option.
(ii) Following the death of a Participant, the Board or Committee
may at its discretion, upon the request of such Participant's Beneficiary
who holds an exercisable Option and in consideration of the surrender of
such Option, pay the amount by which the Fair Market Value Per Share on the
date of such request shall exceed the Option price per Share multiplied by
the number of Shares as to which the request was made.
(g) If, after completion of any required period of continuous
employment in order to exercise an Option as provided in an Award Agreement,
a Participant is Totally Disabled or Retires, such Option shall be
exercisable by the Participant, but only within the period specified in the
Award Agreement.
(h) Incentive Stock Options.
(i) Each Incentive Stock Option shall not have an aggregate Fair
Market Value Per Share (determined for each Incentive Stock Option at its
grant date) of Shares with respect to which Incentive Stock Options are
exercisable for the first time by a Participant during any calendar year
(under the Plan and any other employee stock option plan of the Corporation
or any of its Subsidiaries ("Other Plans")), determined in accordance with
the provisions of Section 422 of the Code, which exceeds $100,000;
(ii) To the extent that the aggregate Fair Market Value Per Share
of stock with respect to which Incentive Stock Options granted
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<PAGE>
under the Plan and any Other Plans are exercisable by a Participant for the
first time during any calendar year exceeds $100,000, such Incentive Stock
Options shall be treated as Non-Qualified Stock Options to the extent
necessary so that such aggregate Fair Market Value Per Share of stock does
not exceed $100,000. For purposes of the foregoing sentence, Incentive Stock
Options shall be treated as Non-Qualified Stock Options according to the
order in which they were granted such that the most recently granted
Incentive Stock Options are first treated as Non-Qualified Stock Options.
(iii) Each Incentive Stock Option shall require the Participant to
notify the Board or Committee of any disposition of any Shares issued
pursuant to the exercise of the Incentive Stock Option under the
circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions), within ten (10) days of such disposition.
(i) Director Options. The following provisions shall apply to each
Director Option granted under the Plan:
(i) Each individual who is a director of the Corporation and who is
not an employee of the Corporation or any of its Subsidiaries shall be
granted a Director Option in respect of 10,000 Shares on the first business
day after the annual meeting of the stockholders of the Corporation in each
year that the Plan is in effect, provided that the individual is a director
of the Corporation on such date.
(ii) Each Director Option shall become fully vested and exercisable
with respect to one hundred percent (100%) of the Shares subject thereto
upon grant.
(iii) Subject to Section 8.2, each Director Option shall terminate
on the date which is the tenth anniversary of the date of grant, unless
terminated earlier as follows:
(A) If a Participant's service as a director terminates for
any reason other than death or being Totally Disabled, the Participant may
for a period of three (3) months after such termination exercise his or her
Option to the extent, and only to the extent, that such Option or portion
thereof was vested and exercisable as of the date the Participant's service
as a director terminated, after which time the Option shall automatically
terminate in full.
(B) If a Participant's service as a director terminates by
reason of the Participant being Totally Disabled, the Participant
-8-
<PAGE>
may, for a period of one (1) year after such termination, exercise his or
her Option to the extent, and only to the extent, that such Option or
portion thereof was vested and exercisable, as of the date the Participant's
service as director terminated, after which time the Option shall
automatically terminate in full.
(C) If a Participant dies while a director or within three
(3) months after termination of service as a director as described in clause
(A) of this Section 6.1(i)(iii) or within twelve (12) months after
termination of service as a director as described in clause (B) of this
Section 6.1(i)(iii), the Option granted to the Participant may be exercised
at any time within twelve (12) months after the Participant's death by the
Participant's Beneficiary, after which time the Option shall terminate in
full; provided, however, that an Option may be exercised to the extent, and
only to the extent, that the Option or portion thereof was exercisable on
the date of death or earlier termination of the Participant`s services as a
director.
6.2 Stock Appreciation Rights
Stock Appreciation Rights may be granted under this Plan from time to time.
If Stock Appreciation Rights are granted they shall be upon the following terms
and conditions, and such additional terms and conditions, not inconsistent with
the provisions of this Plan, as the Board or Committee in its discretion shall
deem desirable:
(a) A Stock Appreciation Right may be granted in tandem with part or
all of, in addition to, or completely independent of, an Option or any other
Award under this Plan. A Stock Appreciation Right issued in tandem with an
Option may be granted at the time of grant of the related Option or at any
time thereafter during the term of the Option.
(b) Award Agreements for Stock Appreciation Rights shall conform to the
requirements of this Plan and may contain such other provisions (including
but not limited to, the permitted form of payment for the exercise of the
Stock Appreciation Right, the requirement of employment for designated
periods of time prior to exercise and the ability of the Board or Committee
to revoke Stock Appreciation Rights which are issued in tandem with Options
without compensation to the Participant) as the Board or Committee shall
deem advisable.
(c) Stock Appreciation Rights issued in tandem with Options shall be
subject to the following:
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<PAGE>
(i) Stock Appreciation Rights shall be exercisable at such time or
times and to the extent, but only to the extent, that the Option to which
they relate shall be exercisable.
(ii) Upon exercise of Stock Appreciation Rights the holder thereof
shall be entitled to receive a number of Shares equal in aggregate value to
the amount by which the Fair Market Value Per Share on the date of such
exercise shall exceed the Option price per Share of the related Option,
multiplied by the number of Shares in respect of which the Stock
Appreciation Rights shall have been exercised.
(iii) All or any part of the obligation arising out of an exercise
of Stock Appreciation Rights may, at the discretion of the Board or
Committee, be settled by the payment of cash equal to the aggregate value of
the Shares (or a fraction of a Share) that would otherwise be delivered
under Section 6.2(c)(ii).
(iv) Upon exercise of Stock Appreciation Rights the unexercised
tandem Options of the Participant shall automatically terminate upon the
exercise of such Stock Appreciation Rights.
(v) Stock Appreciation Rights issued in tandem with Options shall
automatically terminate upon the exercise of such Options.
6.3 Restricted Shares
Awards of Restricted Shares may be granted under this Plan from time to
time. If Awards of Restricted Shares are granted they shall be upon the
following terms and conditions and such additional terms and conditions, not
inconsistent with the express provisions of this Plan, as the Committee in its
discretion shall deem desirable:
(a) Restricted Shares are Shares which are subject to such terms,
conditions and restrictions as the Board or Committee deems appropriate,
which may include restrictions upon the sale, assignment, transfer or other
disposition of the Restricted Shares and the requirement of forfeiture of
the Restricted Shares upon termination of employment under certain specified
conditions. The Board or Committee may condition the lapsing of restrictions
on part or all of an Award of Restricted Shares upon the attainment of
specific performance goals or such other factors as the Board or Committee
may determine. Awards of Restricted Shares may be granted for no cash
consideration or for such minimum consideration as may be required by
applicable law.
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<PAGE>
(b) Award Agreements for Restricted Shares shall conform to the
requirements of this Plan, and may contain such other terms and conditions
(including but not limited to, a description of a period during which the
Participant may not transfer the Restricted Shares and limits on encumbering
the Restricted Shares during such period) as the Board or Committee shall
deem desirable. To the extent permitted by Section 13.3 hereof, the Board or
Committee may provide for the lapse of any such term or condition in
installments and may accelerate or waive any such term or condition in whole
or in part, based on service, performance and/or such other factors or
criteria as the Board or Committee may determine.
(c) Award Agreements for Restricted Shares shall provide that the stock
certificates representing Restricted Shares shall be legended, that the
stock certificates shall be held by a custodian, or that there be other
mechanisms for maintaining control by the Corporation of the Restricted
Shares until the restrictions thereon are no longer in effect. After the
lapse, waiver or release of the restrictions imposed pursuant to the Award
Agreement on any Restricted Shares, the Corporation shall cause to be issued
in the Participant's name a stock certificate evidencing the Restricted
Shares with respect to which the restrictions have lapsed or been waived or
released, free of any legend, and shall cause such stock certificate to be
delivered to the Participant.
(d) Except as otherwise provided in this Plan or in the Award
Agreement, the Participant shall have, with respect to Awards of Restricted
Shares, all of the rights of a shareholder of the Corporation, including the
right to vote the Restricted Shares and the right to receive any cash or
stock dividends on such Restricted Shares. The Board or Committee may
provide that the payment of cash dividends shall or may be deferred. Any
reinvestment of deferred cash dividends shall be as determined by the Board
or Committee. Stock dividends issued with respect to Restricted Shares shall
be Restricted Shares and shall be subject to the same terms, conditions and
restrictions that apply to the Restricted Shares with respect to which such
dividends are issued. Any additional Shares issued with respect to cash or
stock dividends shall not be counted against the maximum number of Shares
for which Awards may be granted under this Plan as set forth in Section 5.
(e) If the employment of a Participant is terminated prior to the lapse
of restrictions on Restricted Shares because the Participant dies or becomes
Totally Disabled, the restrictions on all Restricted Shares awarded to a
Participant shall lapse on the date of such termination.
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<PAGE>
6.4 Performance Awards
Performance Awards may be granted under this Plan from time to time. If
Performance Awards are granted they shall be upon the following terms and
conditions and such additional terms and conditions, not inconsistent with the
express provisions of this Plan, as the Board or Committee in its discretion
shall deem advisable:
(a) Performance Awards are Awards which are based upon the long-term
performance of all or a portion of the Corporation or which are based upon
the long-term individual performance of a Participant. Performance Awards
may be in the form of performance units, performance shares and such other
forms of Performance Awards which the Board or Committee shall determine to
be desirable. Performance Awards are Awards which are granted to
participants contingent upon (i) the future performance of all or a portion
of the Corporation which may include, without limitation, performance
relative to a group of companies in the same or related industries,
achievement of specific business objectives, growth rates or profitability
or earnings goals (in respect of, for example, Share price, return on equity
or return on assets) and such other measurements as the Board or Committee
determines to be appropriate, (ii) the future performance of a Participant,
which may include, without limitation, attainment of specified goals and
objectives and such other measurements as the Board or Committee determines
to be appropriate, (iii) the future performance of a combination of all or a
portion of the Corporation and a Participant, or (iv) such other
measurements and criteria as may be considered appropriate by the Board or
Committee. Performance Awards may contain multiple performance measurements.
(b) Award Agreements for Performance Awards shall conform to the
requirements of this Plan and may contain such other terms and conditions as
the Board or Committee shall deem desirable, including but not limited to,
applicable performance measurements, a description of whether performance
measurements are to be used singly or in combination, a description of
whether different performance measurements may be used for different
performance periods, the length of performance periods, the ability of the
Board or Committee to amend and adjust measurements, payouts and performance
periods of performance Awards and any requirements of employment during
performance periods.
(c) Award Agreements for Performance Awards shall provide for a
required minimum period of continuous employment during a performance period
of a Performance Award. If such minimum period of continuous employment
shall have elapsed, the Award Agreement may provide, or the
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Board or Committee may determine, the portion of the payment of the
Performance Award which Participant or the Participant's beneficiary, as
applicable, is to receive at the end of the performance period.
6.5 Bonuses
Bonuses may be granted under this Plan from time to time on an annual or
one-time basis. The amount of Bonuses which may be awarded shall be as
determined by the Board or Committee. The Board or Committee may establish a
basis upon which aggregate Bonus expenditures for any year shall be determined,
which may include measurements of financial performance of the Corporation or of
a unit or department thereof, relative performance of the Corporation or of a
department thereof within the same or related industries, competitive
compensation considerations and other measurements and criteria.
(a) Each Bonus may be made at the discretion of the Board or Committee
either in cash, in Shares, in Share Units, or in another form as determined
by the Board or Committee and may be made partly in one form and partly in
one or more other forms. In the case of an Award of a Bonus in Shares or
Share Units, the number shall be determined by using the Fair Market Value
Per Share on the date of the Award of the Bonus.
(b) The payment of any Bonus shall be subject to such obligations or
conditions as the Board or Committee may specify in making or recommending
the Award of the Bonus, but Bonuses need not be evidenced by Award
Agreements.
(c) When payment of all or part of a Bonus is deferred in the form of
Shares or Share Units, the account of the Participant to whom the Bonus was
made will be credited with an amount per Share equal to the dividends
payable on each issued and outstanding Share ("dividend equivalents").
Amounts thus credited shall, in the discretion of the Board or Committee,
either:
(i) be paid in cash as and when each such credit shall be made, or
(ii) be credited in Shares or Share Units, with the number
determined by using the Fair Market Value Per Share on the date of the
dividend payment and delivered in such form and at such time or times as may
be determined by the Committee.
(d) When payment of all or part of a Bonus is deferred in cash, the
Committee may provide that the account of the Participant to whom the Bonus
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was made shall be credited with amounts equivalent to interest ("interest
equivalents"). Amounts thus credited shall be at the rate determined by the
Committee.
(e) Any Bonus payable in Shares may, in the discretion of the Board or
Committee, be paid in cash, on each date on which payment in Shares would
otherwise have been made, in an amount equal to the Fair Market Value Per
Share on each such date, multiplied by the number of Shares which would
otherwise have been paid on such date.
(f) Bonuses may be awarded in Share Units in accordance with the
following terms and conditions and such other terms and conditions as the
Board or Committee may impose:
(i) The number of Share Units awarded with respect to any Bonus
shall be the number determined by using the Fair Market Value Per Share on
the date of the Award of the Bonus.
(ii) Any Bonus made in Share Units may, in the discretion or on the
recommendation of the Board or Committee, be paid in Shares on each date on
which payment in cash would otherwise be made.
(g) In lieu of the foregoing forms of payment of Bonuses, the Board or
Committee may specify or recommend any other form of payment which it
determines to be of substantially equivalent economic value to the cash
value of the Bonus including, without limitation, forms involving payments
to a trust or trusts for the benefit of one or more Participants.
(h) Each payment of a Bonus that is to be made in cash shall be from
the general funds of the Corporation or its respective subsidiary or
affiliate, as the case may be.
(i) In the event of the death of a Participant to whom a Bonus is to be
or shall have been made, the Bonus or any portion thereof remaining unpaid
shall be paid to such Participant's Beneficiary under the Participant's will
or pursuant to the relevant laws of descent and distribution.
6.6 Other Awards
(a) The Board or Committee may grant other Share based Awards under
this Plan, including without limitation, those Awards pursuant to which
Shares are or may in the future be acquired, Awards denominated in Share
Units, securities convertible into Shares and dividend equivalents. The
Board or Committee shall determine the terms and conditions of such other
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Share based Awards. Shares issued in connection with such other Share based
Awards shall be issued for such minimum consideration as shall be required
by applicable law, rules and regulations, including the then applicable Rule
16b-3, and such additional consideration, if any, as may be determined by
the Board or Committee.
(b) The Board or Committee may also grant other non-Share based Awards
under this Plan and shall determine the terms and conditions of such other
non-Share based Awards in tandem or combination with other Awards or each
other, in exchange of other Awards, or in tandem or combination with, or as
alternatives to grants or rights under any other employee plan of the
Corporation, including any plan of any acquired entity. The Board or
Committee shall have the authority to determine the Participants for such
Awards and all other terms and conditions of such other Awards. No amendment
of this Plan is required for the creation of another type of Award.
7. Adjustments Upon Changes in Capitalization
(a) Subject to any required action by the Corporation's stockholders,
in the event of a reorganization, recapitalization, stock split, stock
dividend, exchange of Shares, combination of Shares, merger, consolidation
or any other change in corporate structure of the Corporation affecting the
Shares, or in the event of a sale by the Corporation of all or a significant
part of its assets, or any distribution to its shareholders other than a
normal cash dividend, the Board or Committee may make appropriate adjustment
in the number, kind, price and value of Shares authorized by this Plan and
any adjustments to outstanding Awards as it determines appropriate so as to
prevent dilution or enlargement of rights.
(b) The existence of an Award under this Plan shall not affect in any
way the right or power of the Corporation or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issue of bonds,
debentures, preferred or prior preference stocks, or loan notes ahead of or
affecting the Stock or rights thereunder or convertible thereto, or the
dissolution or liquidation of the Corporation, or any sale or transfer of
all or any part of its assets or business or any other corporate act or
proceeding, whether of a similar character or otherwise.
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8. Change in Control
8.1 Definition of Change in Control
A "Change in Control" shall be deemed to have occurred if any one or
more of the events described in paragraphs (a), (b) or (c) below occurs.
(a) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (including any group of persons with which any person or
its affiliates or associates, as such terms are defined in Rule 12b-2 under
the Exchange Act has any agreement, arrangement or understanding, oral or
written, regarding the acquiring, holding, voting or disposing of any of the
Corporation's securities, but excluding a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation) (i) becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing fifty
one percent (51%) or more of the combined voting power of the Corporation's
then outstanding securities (hereinafter referred to as an "Acquiring
Person"); or
(b) In any two (2) year period persons being a majority of the Board
shall cease to be so unless the nomination of the new directors during such
period was approved by at least a majority of the directors then still in
office who were directors at the beginning of the period; or
(c) A consolidation or merger or "Business Combination," as that term
is defined as of the effective date of this Plan in Section 203(c)(3) of The
General Corporation Law of Delaware, of the Corporation shall occur (with
the term "interested shareholder" as used in that Section being deemed to
refer to an Acquiring Person) in which the Corporation is not the surviving
Corporation and pursuant to which the Corporation's Shares are converted to
cash, securities or other property but not a consolidation or merger or
Business Combination where shareholders of the Corporation prior to the
Business Combination have substantially the same proportionate ownership in
a business entity after the consolidation or merger or Business Combination;
or
(d) The shareholders of the Corporation shall approve any plan for
liquidation or dissolution of the Corporation not otherwise involving a
transaction where shareholders of the Corporation prior to the transaction
have substantially the same proportionate ownership of a business entity
after the transaction.
(e) In no event, however, shall a Change in Control be deemed to have
occurred with respect to a Participant, if that Participant is part of an
Acquiring Person which consummates the Change in Control transaction. A
Participant shall be deemed "part of an Acquiring Person" for purposes of
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the preceding sentence if the Participant is an equity participant or has
agreed to become an equity participant in the Acquiring Person (except for
(i) passive ownership of less than three percent (3%) of the securities of
the Acquiring Person; or (ii) ownership of equity participation in the
Acquiring Person which is otherwise not deemed to be significant, as
determined prior to the Change in Control by a majority of the disinterested
"Continuing Directors"). For purposes of this Section 8.1, "Continuing
Directors" means those directors (x) who were directors of the Board
immediately prior to the Change in Control transaction ("Incumbent
Directors") and (y) whose election, or nomination for election by the
Corporation's stockholders, was approved by a vote of at least a majority of
the Incumbent Directors.
8.2 Effect of Change in Control
Upon the occurrence of an event of Change in Control, unless otherwise with
respect to any Award specifically prohibited by the terms of the second
paragraph of Section 6:
(a) Any and all Options and Stock Appreciation Rights shall become
immediately exercisable.
(b) Any restriction periods and restrictions imposed on Restricted
Shares (except such as may be required by relevant securities laws) shall
lapse, and within ten (10) business days after the occurrence of a Change in
Control, the stock certificates representing Restricted Shares, without any
restrictions or legend thereon (except a legend as may be required by
relevant securities laws), shall be delivered to the applicable
Participants;
(c) The goal, objective, target value or the like, attainable under all
Performance Awards shall be deemed to have been fully earned for the entire
performance period as of the effective date of the Change in Control, except
that all Performance Awards which shall have been outstanding less than six
(6) months on the effective date of the Change in Control shall not be
deemed to have earned the goal, objective, target value, or the like; and
(d) Subject to Section 14.3 hereof, all such other actions and
modifications to the Awards as determined by the Board or Committee to be
appropriate before the Change in Control of the Corporation shall become
effective.
9. Relationship of the Plan to Benefit Plans
The amount of Bonuses to any Participant under this Plan shall be eligible
for inclusion in the Participant's earnings base for the purpose of determining
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the benefits to which the Participant is entitled under retirement, pension,
excess benefit, thrift, savings, profit-sharing, insurance, long-term disability
and other benefit plans, if any, of the Corporation or its Subsidiaries as
determined by the Board or Committee. No other income of a Participant
attributable to this Plan shall be included in the Participant's earnings for
purposes of any benefit plan in which the Participant may be eligible to
participate.
10. Effect of the Plan On Right to Continued Employment and Interest in
Particular Property
(a) None of the existence of this Plan, any Awards granted pursuant
hereto or any Award Agreement shall create any right to continued employment
of any Participant by the Corporation or its Subsidiaries. No Participant
shall have, under any circumstances, any interest whatsoever, vested or
contingent, in any particular property or asset of the Corporation or in any
particular Share or Shares of the Corporation that may be held by the
Corporation (other than Restricted Shares held by a custodian) by virtue of
any Award. A Participant may be granted additional Awards under this Plan
under such circumstances and at such times as the Board or Committee may
determine; provided, however, that no participant shall be entitled to any
Award in the absence of a specific grant by the Board or Committee of an
Award, notwithstanding the prior grant of an Award to such Participant.
(b) This Plan shall not be deemed a substitute for, and shall not
preclude the establishment or continuation of any other plan, practice or
arrangement that may now or hereafter be provided for the payment of
compensation, special awards or benefits to directors, officer, employees,
consultant and agents of the Corporation and its Subsidiaries generally, or
to any class or group of employees, including without limitation, any
retirement, pension, excess benefit, thrift, savings, profit-sharing,
insurance, long-term disability, health care plans or other employee benefit
plans. Any such arrangements may be authorized by the Corporation and
payment thereunder made independently of this Plan.
11. Withholding Taxes and Deferrals
11.1 Cash Withholding
The Corporation and its participating subsidiaries shall have the right
to deduct from any cash payment made under Awards under this Plan any federal,
state, provincial or local income, or other taxes required by law to be withheld
with respect to such payment or to take such other action as may be necessary in
the opinion of the Corporation to satisfy all obligations for the payment of
such taxes.
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11.2 Share Withholding
Any Share based Award may provide by the grant thereof that the
recipient of such Award may elect, in accordance with any applicable laws, rules
and regulations, to pay a portion or all of the amount of such minimum required
withholding taxes in Shares. In such event, the Participant shall authorize the
Corporation to withhold, or shall agree to deliver to the Corporation, Shares
owned by such Participant or a portion of the Shares that otherwise would be
distributed to such Participant, having a Fair Market Value equal to the amount
of withholding tax liability.
11.3 Deferrals
The Board or Committee may require or permit a Participant to defer
such Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise, the
satisfaction of any requirements or goals or lapse or waiver of restrictions of
an Award made under this Plan. If any such deferment election is required or
permitted, the Board or Committee shall establish rules and procedures for such
payment deferrals.
12. Compliance With Applicable Legal Requirements
No certificate for Shares distributable pursuant to this Plan shall be
issued and delivered unless the issuance of such certificate complies with all
applicable legal requirements including, without limitation, compliance with the
provisions of applicable state securities laws, the Securities Act of 1933, as
amended from time to time or any successor statute, the Exchange Act and the
requirements of the exchanges on which Shares may, at the time, be listed, and
the provisions of any foreign securities laws or the rules of foreign securities
exchanges, where applicable.
13. Amendments
13.1 Plan Amendments
The Board may, insofar as permitted by law, from time to time, with
respect to any Shares at the time not subject to Awards, suspend or discontinue
this Plan or revise or amend it in any respect whatsoever, provided, however,
unless the Committee or the Board, as appropriate, specifically otherwise
provides, any revision or amendment that would cause this Plan to fail to comply
with any requirement of applicable law, regulation or rule if such amendment
were not approved by the stockholders of the Corporation shall not be effective
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unless and until the approval of the stockholders of the Corporation is
obtained.
13.2 Award Amendments
Subject to the terms and conditions and within the limitations of this
Plan, the Board or Committee may amend, cancel, modify, or extend outstanding
Awards granted under this Plan.
13.3 Rights of Participants
No amendment, suspension or termination of this Plan nor any amendment,
cancellation or modification of any outstanding Award or Award Agreement that
would adversely affect the right of any Participant with respect to an Award
previously granted under this Plan will be effective without the written consent
of the affected Participant. Such written consent may be obtained simultaneously
with the grant of any Award.
13.4 Rule 16b-3
This Plan is intended to comply with Rule 16b-3 with respect to
Participants, if any, who are subject to Section 16 of the Exchange Act. Should
the requirements of Rule 16b-3 change, the Board or the Committee, as
appropriate, may amend the Plan to comply with the requirements of the amended
Rule 16b-3 or its successor provision or provisions.
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14. Miscellaneous Provisions
14.1 Awards in Various Countries
The Board or Committee shall have the authority to adopt such
modifications, procedures and subplans as may be necessary or desirable to
comply with provisions of the laws of various countries in which the Corporation
or its Subsidiaries may operate to assure the viability of the benefits of
Awards made to Participants employed in such countries and to meet the
objectives of this Plan.
14.2 Transferability
Awards may not be pledged or assigned and may otherwise be transferred
only to the extent provided herein or in an Award Agreement not inconsistent
herewith, provided, however, that an Option or Stock Appreciation Right or any
other benefit or Award hereunder deemed to be a derivative security shall not be
transferable other than by will or the laws of descent and distribution and
shall be exercisable during a Participant's lifetime only by him or by his
guardian or legal representative or pursuant to a "qualified domestic relations
order" as defined by the Code, or such order under the laws of other
jurisdictions as shall be similar in effect to a qualified domestic relations
order.
14.4 Cancellation of Awards
Except as otherwise provided in this Plan or in applicable Award
Agreements, the terms of which need not be uniform among Participants, if a
Participant to whom an Award is granted ceases to be employed by the Corporation
all of such Participant's unexercised Awards and Awards on which there are
restrictions shall be immediately canceled.
14.5 Arbitration; Governing Law
(a) The Shares are registered in the United States under the Exchange
Act and are listed for trading on the United States stock exchange known as The
NASDAQ Stock Market. Any and all disputes whatsoever between a Participant and
the Corporation concerning the administration of this Plan, the interpretation
and effect of an Award Agreement or of this Plan or the rights of a Participant
under an Award Agreement shall be finally determined before one neutral
arbitrator in the City of New York, New York U.S.A. under the rules of
commercial arbitration of the American Arbitration Association then in effect
and judgment upon any award by such arbitrator may be entered in any Court
having jurisdiction or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may be.
(b) This Plan, its administration and all Awards granted hereunder, the
terms and provisions of any related Award Agreements and the rights of all
Participants shall be governed and interpreted in accordance with the laws of
New York, New York U.S.A.
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LICENSE AGREEMENT
This agreement ("Agreement") is between GAS RESEARCH INSTITUTE, an
Illinois Not-For Profit Corporation having an office at 8600 West Bryn Mawr
Avenue, Chicago, Illinois 60631 ("GRI"), and FUEL TECH, INC., a Massachusetts
corporation, having a principal place of business at 1001 Frontenac Road,
Naperville, Illinois 60563-1746 ("LICENSEE").
1 Background of Agreement.
1.1 Whereas, GRI is the owner, assignee, or licensee of certain
intellectual property rights related to the FLGR(TM) Technology;
1.2 Whereas, LICENSEE desires to acquire a license for the FLGR(TM)
Technology pursuant to the terms and conditions of this Agreement;
1.3 Whereas, GRI desires commercial exploitation of such intellectual
property rights and is willing to grant a co-exclusive license to
LICENSEE pursuant to the terms and conditions of this Agreement.
Now, therefore, in consideration of the promises and covenants set
forth below, GRI and LICENSEE (collectively the "Parties") agree as
follows:
2 Definitions.
For the purpose of this Agreement, the following terms shall have the
meanings set forth below:
2.1 "GRI Patents" means those patent registrations and licensable patent
applications, identified in Schedule A to which all right, title and
interest has been assigned to GRI, including, where appropriate, all
divisions, continuations, continuations-in-part, reissues,
reexaminations, renewals and extensions thereof.
2.2 "GRI Technical Information" means the unpublished research and
development information, unpatented manufacturing processes,
specifications, operating procedures, unpatented commercial or
industrial techniques, know-how and technical data, related to the
FLGR(TM) Technology which are in GRI's possession and which are
currently being evaluated for patentability.
2.3 "FLGR Technology" means a system of controlling Nitrogen Oxide
emissions from coal fired boilers by the injection of natural gas in
fuel-lean conditions as described in or that would infringe a claim of
the GRI Patents and/or which embodies or incorporates GRI Technical
Information.
2.4 "Effective Date" means the last date of signature of this Agreement by
the Parties.
2.5 "Commercial Sale" means any sale, lease, or other transfer of a
FLGR(TM) Technology system to an unaffiliated third party but excludes
Demonstration Sales by LICENSEE.
<PAGE>
2.6 "Demonstration Sale" means any sale, lease, or other transfer of a
FLGR(TM) Technology system to an unaffiliated third party which is
intended by joint agreement between GRI and LICENSEE to demonstrate the
commercial capability of FLGR(TM) Technology on different types of
combustion units.
2.7 "Improvements" means all improvements, enhancements, and modifications
of the GRI Patents, GRI Technical Information, and/or FLGR
Technology made or conceived by LICENSEE during the life of this
Agreement.
2.8 "Customer/Sublicense" means any sublicense which includes the right to
perform and use FLGR(TM) Technology, including the GRI Patents and GRI
Technical Information, but which grants no rights to sublicense or
further distribute, copy, or create derivative works. A
"Customer/Sublicensee" is any entity to whom LICENSEE grants a
sublicense pursuant to this Agreement.
2.9 "Site License" means a Customer/Sublicense granted by LICENSEE to a
Customer/Sublicensee which grants the right to use FLGR(TM) Technology
only on the boiler specifically identified in the sublicense and which
cannot be assigned or transferred to any other boiler.
2.10 "AEFLGR" means a systems of controlling Nitrogen Oxide emissions
from coal fired boilers by the injection of natural gas in fuel-lean
conditions in combination with amine as described in or that would
infringe a claim of the GRI patents and patent applications and/or
which embodies or incorporates GRI trade secrets or proprietary
information, the licensing of which is subject to a separate agreement.
3 License Grant.
3.1 License. For the Term of this Agreement, GRI grants to LICENSEE a
worldwide, royalty-bearing, revocable, co-exclusive license under GRI
Patents and GRI Technical Information to make, use, offer to sell,
sell, lease, otherwise dispose of, or import FLGR(TM) Technology and to
grant Site Licenses to their Customer/Sublicensees.
3.2 This license shall be co-exclusive to FUEL TECH, INC. and one other
Licensee. GRI agrees that it will not grant any other license for the
GRI Patents, the GRI Technical Information, or the FLGR(TM) Technology
to any entity other than FUEL TECH, INC. and one other Licensee unless
LICENSEE fails to meet the minimum Royalty requirements set out in
Schedule B to this Agreement or this Agreement is terminated by
Licensee or terminated for cause by GRI. GRI may require, however, that
LICENSEE or the other Licensee grant a sublicense under the GRI Patents
and GRI Technical Information to at most one other entity.
3.3 LICENSEE may implement the sale and installation of the FLGR(TM)
Technology through sublicensees under sublicense agreements which shall
give sublicensees the right to license the FLGR(TM) Technology under
the same terms and conditions, except for the Minimum Cumulative
Megawatt requirement, as LICENSEE has agreed to with GRI in this
Agreement. LICENSEE shall ensure that all sublicense agreements granted
under this Agreement do not contain provisions which would conflict
with any of the other provisions of this Agreement and do include a
provision requiring the sublicensee to indemnify GRI to the same extent
as required of LICENSEE in this Agreement.
3.4 Any sublicense granted under Paragraph 3.3 above will require prior GRI
approval. LICENSEE shall send the request for approval, including the
proposed sublicense agreement, directly to GRI's Manager of Contract
and License Management. Notwithstanding any such consent or
concurrence, (1) GRI shall not bear any liability to LICENSEE or to any
Sublicensee arising out of any act or omission of LICENSEE or any
Sublicensee, and (2) any sublicensing by LICENSEE shall not relieve
LICENSEE of any responsibility for the performance of the terms of this
Agreement. Notwithstanding this Paragraph 3.4, LICENSEE does not need
GRI approval to grant a Site License to a Customer/Sublicensee.
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3.5 GRI agrees that the license granted to the other co-exclusive Licensee
will be on the same terms as are specified in this Agreement. GRI
agrees that it will not enter into another agreement granting a license
to another party for the GRI Patents, the GRI Technical Information, or
the FLGR(TM) Technology on more favorable terms than those specified in
this Agreement. If, at any time during the Term of this Agreement, GRI
enters into another agreement granting a license to another party for
the GRI Patents, the GRI Technical Information, or the FLGR(TM)
Technology on more favorable terms than those specified in this
Agreement, then GRI shall promptly notify LICENSEE of the grant of such
other license in writing, and LICENSEE shall have the option,
exercisable by written election to GRI within sixty (60) days of such
written notice, to adopt the more favorable terms of such other
Agreement; provided, however, that such new terms shall be effective
only after LICENSEE's written election to adopt such new agreement
terms.
3.6 LICENSEE agrees that this license is limited to the rights expressly
granted herein, and any rights not expressly granted herein are
expressly reserved to GRI. Nothing contained within this section or
elsewhere in this Agreement shall be construed as granting by
implication, estoppel, or otherwise, any licenses or rights under
patents of GRI other than GRI Patents and GRI Technical Information,
except as expressly granted in this Agreement.
4 Confidentiality.
4.1 LICENSEE agrees that all GRI Patents and GRI Technical Information
shall remain the property of GRI. LICENSEE agrees to keep all GRI
patent applications and GRI Technical Information confidential.
LICENSEE will advise each employee to whom it discloses GRI patent
applications and GRI Technical Information as to the confidential
nature of the GRI patent applications and GRI Technical Information.
4.2 LICENSEE agrees that all GRI Patents and GRI Technical Information
shall not be disclosed to anyone outside of LICENSEE without the prior
written consent of GRI, except to the extent necessary to
Customer/Sublicensees of LICENSEE and/or third parties under written
obligations of confidentiality. Upon a reasonable request by LICENSEE,
GRI will not unreasonably withhold its consent to such disclosure.
4.3 The obligations of Paragraphs 4.1 and 4.2 above shall not apply to GRI
Patents and GRI Technical Information which:
(a) otherwise is or becomes publicly known through no fault of
LICENSEE; or
(b) was in LICENSEE's possession prior to its disclosure by GRI and not
subject to an obligation of confidentiality; or
(c) comes into LICENSEE's possession, without covenants of secrecy,
from another party who is under no confidentiality obligation to
GRI;
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(d) is independently developed by LICENSEE, including application
research data owned by FUEL TECH, INC.;
(e) is furnished to a third party by GRI without any obligation of
confidentiality;
(f) is explicitly approved for release by written authorization of GRI;
or
(g) is ordered to be disclosed by a court, government agency, or other
entity of competent jurisdiction, provided LICENSEE gives timely
written notice to GRI of such order.
4.4 GRI Patents or GRI Technical Information shall not be deemed to be
within the foregoing exceptions merely because (1) it is specific and
embraced by more general information in the public domain or in
LICENSEE's possession; or (2) it is a combination which can be pieced
together to reconstruct the GRI Patents or GRI Technical Information
from multiple sources of information in the public domain, none of
which shows the whole combination, its principle of operation, or its
method of use.
5 Royalties.
5.1 In consideration for the license rights granted to LICENSEE by GRI
pursuant to this Agreement, LICENSEE shall pay GRI a Royalty on all
Commercial Sales (but not on Demonstration Sales) in accordance with
Schedule B of this Agreement.
5.2 It is in the best interests of the Parties to maximize the commercial
exploitation of the GRI Patents and GRI Technical Information licensed
to LICENSEE pursuant to Section 3 of this Agreement. GRI agrees to
cooperate with LICENSEE in the promotion of FLGR(TM) Technology at
industry meetings, conventions, and individual customer visits, as well
as in the preparation of brochures, pamphlets and other advertising
materials, including web site references. In particular, GRI agrees
that it will assist LICENSEE in the identification and choosing of
sites suitable for implementation of the FLGR(TM) Technology and that
it will share with LICENSEE its expertise in projecting fuel prices.
GRI further agrees that it will designate John Pratapas to provide
technical assistance to LICENSEE for so long as John Pratapas works for
GRI and that if John Pratapas ceases to work for GRI, then GRI will
designate a person with equivalent credentials to provide technical
assistance to LICENSEE.
6 Patent Procurement, Maintenance and Improvements.
6.1 GRI shall have the initial right, with respect to domestic patent
filings, to file, prosecute, control and maintain all of the GRI
Patents and shall have the initial right to determine whether or not,
and where, to file a patent application, to abandon the prosecution of
any patent or patent application, file reissue or reexamination
applications or to discontinue the maintenance of any patent or patent
applications. GRI agrees that it will advise and consult with LICENSEE
on and keep LICENSEE fully informed of the status of all of the GRI
Patents and any and all patent applications filed by GRI on the GRI
Technical Information and that it will give LICENSEE reasonable
opportunity to make suggestions with regard to the filing, prosecution,
and maintenance of patents and patent applications. If GRI elects not
to file, prosecute, or maintain any patent or patent application, then
GRI will give timely written notice to LICENSEE of its decision;
LICENSEE and the other co-exclusive Licensee will then consult with one
another and agree between themselves on which one will have the right
to file, prosecute, and maintain any such patent or patent application
or whether they will jointly file, prosecute, and maintain any such
patent or patent application. If LICENSEE and the other co-exclusive
Licensee cannot agree as to which one will have the right to file,
prosecute, and maintain any such patent or patent application, then
they shall have the right to jointly file, prosecute and maintain any
such patent or patent application. GRI will cooperate with LICENSEE in
the filing, prosecution, and maintenance of any such patents or patent
applications.
4
<PAGE>
6.2 LICENSEE and the other co-exclusive Licensee have the right to file
patent applications in the European Patent Office for select countries
within NATO Europe. LICENSEE and the other co-exclusive Licensee will
consult with one another and agree between themselves as to which one
will have the right to file, prosecute, maintain, and control those
foreign patent applications. If LICENSEE and the other co-exclusive
Licensee cannot agree as to which one will have the right to file,
prosecute, maintain, and control any such foreign patent application,
then they shall have the right to jointly file, prosecute, maintain,
and control any such foreign patent application. LICENSEE will advise
GRI within ninety days of the Effective Date of this Agreement for
which countries it will file patent applications.
6.3 GRI agrees that any improvements, enhancements, and modifications of
the GRI Patents, GRI Technical information, and/or FLGR(TM) Technology
that it makes after the Effective Date of this Agreement, whether
patented or unpatented, will be deemed automatically included within
the license granted to LICENSEE by this Agreement. GRI and LICENSEE
agree to consider an additional royalty to provide GRI a commercially
reasonable return on its additional investment in any such improvement,
enhancement, or modification to the extent that the same demonstrably
adds commercial value to the rights licensed under this Agreement.
6.4 LICENSEE shall retain all of the right and title in and interest to any
Improvements made by LICENSEE, and LICENSEE shall have the sole right
to file, prosecute, maintain, and control any patent or patent
applications on such Improvements. LICENSEE hereby grants a
non-exclusive license to GRI and the other co-exclusive Licensee under
any Improvements made by LICENSEE. The co-exclusive Licensee shall have
the right to sublicense any Improvements licensed to it under this
provision to its Customer/Sublicensees in its Site Licenses for a
royalty that would provide LICENSEE a reasonable return on its
additional investment in such Improvement to the extent that the same
demonstrably adds commercial value to the rights licensed under this
Agreement. GRI shall have the right to sublicense any Improvements
licensed to GRI under this provision for a royalty that would provide
LICENSEE a reasonable return on its additional investment in such
Improvement to the extent that the same demonstrably adds commercial
value to the rights licensed under this Agreement. As long as this
License Agreement remains co-exclusive or exclusive, GRI shall not
sublicense any such LICENSEE Improvements.
7 Acknowledgment of GRI, Patent Marking, Publicity.
7.1 Acknowledgement. LICENSEE shall include the following acknowledgment,
or its functional equivalent, in its FLGR(TM)Technology literature,
and/or marketing , and/or specification sheets: "This (insert name of
product and/or process, etc.) was developed with the assistance of Gas
Research Institute."
7.2 Patent Marking. LICENSEE shall identify the applicable patent number(s)
of all GRI Patents on all FLGR(TM) Technology literature and
specification sheets immediately upon issuance of the patent. If any
patent applications are pending, LICENSEE shall place "Patent Pending"
on all FLGR(TM) Technology literature and specification sheets until
the last currently pending GRI patent applications have issued or are
abandoned.
5
<PAGE>
7.3 Publicity. LICENSEE may use the term "GRI LICENSEE" to describe or
refer to its activities under this Agreement. LICENSEE shall use the
term "GRI LICENSEE" only to designate or indicate to its
Customer/Sublicensees that it is a LICENSEE of GRI Patents and GRI
Technical Information and for no other purpose.
8 Warranty, Guarantee, and Limitation of Liability.
8.1 GRI warrants that it has title to the GRI Patents, that it has the
requisite authority to convey the rights granted in the Agreement, and
that, through the Effective Date of the Agreement, it has not abandoned
any of the GRI Patents.
8.2 GRI warrants that a FLGR(TM) Technology system designed and installed
in accordance with GRI Patents and/or GRI Technical Information will be
free from claims of infringement of the United States and Canadian
patents of any third party. GRI MAKES NO OTHER WARRANTIES, WHETHER
EXPRESSED OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR PURPOSE
OF FLGR(TM) TECHNOLOGY OR A FLGR(TM) TECHNOLOGY SYSTEM.
8.3 LICENSEE shall immediately notify GRI in writing of all infringement
claims made and infringement suits commenced against LICENSEE because
of its exercising any rights granted under this Agreement. So long as
LICENSEE timely tenders to GRI the defense of any such claim or suit,
GRI shall defend any such claim or suit that may be instituted for the
alleged infringement, provided that LICENSEE cooperates fully with GRI
in such defense. GRI agrees to indemnify LICENSEE against all costs of
suit, attorneys' fees, or judgments that may be incurred by or entered
against LICENSEE as a result of any such claim or suit. GRI shall have
the right to control the defense and resolution of any such claim or
suit. GRI shall not be bound by any compromise or settlement made in
such claims or suits without its written consent. The indemnification
and defense rights granted in this subparagraph are strictly limited to
the rights granted in this Agreement and shall not apply to
intellectual property developed by LICENSEE or a third party or
controlled by LICENSEE through license with a third party.
8.4 Subject to the indemnification provision of Paragraph 8.3 above,
LICENSEE's sole remedy for the breach by GRI of the above warranty
shall be, at GRI's sole discretion, either: (i) the redesign of the
FLGR(TM) Technology system to avoid any patent infringement claims;
(ii) the purchase of any rights from a third party necessary for
LICENSEE to continue to practice FLGR(TM) Technology; (iii) the
bringing of an action to invalidate any patent claims of third parties
upon which an infringement by FLGR(TM) Technology is alleged; or (iv)
the return of any royalties paid to GRI by LICENSEE for FLGR(TM)
Technology.
8.5 Performance Guarantee. If LICENSEE finds it necessary to guarantee the
performance of FLGR(TM) Technology when applied to a
Customer/Sublicensee's boiler of a type which has had limited FLGR(TM)
Technology application experience, then, upon review by GRI of
LICENSEE's proposal to the Customer/Sublicensee and GRI's agreement to
the level of performance guaranteed, GRI will share equally with
LICENSEE the cost of any such performance guarantee, including any
payments LICENSEE is required to make on a letter of credit, a
performance bond, and/or contract damages owed to a
Customer/Sublicensee, up to a maximum commitment by GRI of eighty
percent (80%) of GRI's portion of the Site License Fee for such boiler.
6
<PAGE>
8.6 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY
THIRD PARTY FOR ANY CONSEQUENTIAL, SPECIAL, PUNITIVE, OR INCIDENTAL
DAMAGES, INCLUDING BUT NOT LIMITED TO, LOST PROFITS OR OTHER ECONOMIC
LOSS, WHETHER ARISING FROM BREACH OF CONTRACT, TORT, NEGLIGENCE, STRICT
LIABILITY, OR OTHERWISE.
9 Indemnification.
9.1. LICENSEE agrees to indemnify and save GRI harmless from and against any
and all claims of any kind, including but not limited to liability for
injury to persons and/or damage to property (including without
limitation, environmental damage) and/or violations of law, arising out
of or in connection with LICENSEE's manufacture, use, sale or other
transfer of any FLGR(TM) Technology, including any and all expenses,
costs, attorneys' fees, settlement, judgments, or awards incurred by
GRI in the defense of any such claim or lawsuit, except as otherwise
affirmatively assumed by GRI hereunder.
9.2 LICENSEE shall maintain appropriate liability insurance policies in an
amount and for such time period as are required to fully satisfy the
foregoing obligations of indemnification.
10 Infringement by Third Parties.
10.1 Notification. Each Party shall immediately notify the other Party in
writing of suspected infringement(s) or misappropriation(s) of the GRI
Patents and/or GRI Technical Information and shall inform the other
Party of any evidence of such infringement(s) or misappropriation(s).
10.2 GRI shall have the first option and right to bring an action to enjoin
the infringement and to recover damages against any third party against
whom GRI has evidence of patent infringement. LICENSEE shall cooperate
as necessary with GRI. All costs and expenses for such suit shall be
borne by GRI, and GRI shall be entitled to retain all damages or other
relief recovered in such litigation.
10.3 If GRI chooses not to bring such an action, GRI shall notify LICENSEE
of its decision within thirty (30) days of receiving evidence of an
infringement, after which LICENSEE and the other co-exclusive Licensee
shall have the second option to bring an action to enjoin the
infringement and to recover damages. GRI shall cooperate as necessary
with LICENSEE. All costs and expenses for such suit shall be borne by
LICENSEE, and LICENSEE shall be entitled to retain all damages or other
relief recovered in such litigation.
10.4 No Party may compromise or settle with an infringer or misappropriator
without prior notice to and prior written consent of the other Party,
which consent shall not be unreasonbly withheld.
11 Term and Termination.
11.1 The Term of this Agreement shall begin from the Effective Date of this
Agreement and shall continue for a period of five (5) years. LICENSEE
has the option to extend the Term of this Agreement for an additional
seven (7) years upon the negotiation of an additional minimum Royalty
agreeable to both Parties.
7
<PAGE>
11.2 LICENSEE may terminate this Agreement at any time upon sixty (60) days
prior written notice to GRI.
11.3 If LICENSEE fails to pay the minimum Royalties required by Schedule B
of this Agreement, then, upon written notice to LICENSEE, GRI has the
option either to terminate this Agreement in its entirety or to convert
the license granted in Section 3 of this Agreement from a co-exclusive
license to a non-exclusive license.
11.4 If any Party shall be adjudged bankrupt, or become insolvent, or make
an assignment for the benefit of creditors, or be placed in the hands
of a receiver or a trustee in bankruptcy, the other Party may terminate
this Agreement by giving sixty (60) days prior written notice to the
other Party specifying the basis for termination. If within sixty (60)
days after receipt of such notice, the Party who received notice shall
remedy the condition forming the basis for termination, such notice
shall cease to be operative, and this Agreement shall continue in full
force.
11.5 Upon termination of this Agreement, LICENSEE agree: (1) that it will
not use or sell FLGR(TM) Technology systems until expiration of the
last of the GRI Patents, except that LICENSEE may sublicense the
FLGR(TM) Technology from others, and (2) that it will promptly transfer
to GRI all documents containing unpublished GRI Technical Information
in its possession (including but not limited to videotapes, computer
media, printed documents, and prototypes).
11.6 Effect of Termination. Termination of this Agreement shall not release
LICENSEE from its obligation to pay GRI any unpaid Royalties which have
accrued prior to the termination or which may accrue to GRI after the
effective date of the termination from Commercial Sales made prior to
the date of the termination.
12 Compliance with Export Restrictions.
12.1 LICENSEE acknowledges that the FLGR(TM) Technology system, and
non-patented items and all related GRI Technical Information and
materials referenced in this Agreement may be subject to export control
under U. S. Export Administration Regulations. LICENSEE accepts and
assumes all responsibility for compliance with United State and
Territory export regulations with respect to their exportation.
LICENSEE covenants and agrees to comply strictly with these
regulations, to cooperate fully with GRI in any official or unofficial
audit or inspection that relates to said regulations, and not to
export, re-export, divert, transfer or disclose directly or indirectly,
or permit the export of any item, component, or combination of an
FLGR(TM) Technology system and/or non-patented items and/or GRI
Technical Information and/or derivative products of non-patented items
to any country for which the United States Export Administration Act of
1979 and the regulations issued thereunder, or any other United States
law or regulation, requires export or re-export authorization or
approval under a validated export license. LICENSEE will bear the
expense of its compliance with all applicable United States laws and
regulations in this connection without reimbursement or offset.
13 Taxes and Customs Duties, Storage and Transportation Charges.
13.1 LICENSEE acknowledges and agrees that GRI has no responsibility or
liability for taxes or customs duties, harbor fees or storage or
transportation charges, related in any way to FLGR(TM) Technology,
non-patented items, or GRI's services or revenue, except that GRI shall
bear all income taxes imposed on it with respect to the Royalty
payments to be made pursuant to this Agreement. LICENSEE agrees to
assume all responsibility for collection and/or payment of other taxes,
including, without limitation, for value added taxes, sales taxes, use
taxes, excise taxes, service taxes, customs duties, customs storage
fees, without reimbursement by GRI or offset against Royalty payments
to GRI, but excluding income taxes imposed on GRI with respect to the
Royalty payments to be made pursuant to this Agreement.
8
<PAGE>
14 General Provisions.
14.1 Force Majeure. Anything contained in this Agreement to the contrary
notwithstanding, the obligations of the Parties shall be subject to all
laws, both present and future, of any Government having jurisdiction
over either Party, and to orders or regulations of any such Government,
or any department, agency, or court thereof, and acts of war, acts of
public enemies, strikes, or other labor disturbances, fires, floods,
acts of God, or any causes of like kind beyond the control of the
Parties, and the Parties shall be excused from any failure to perform
any obligation under this Agreement to the extent such failure is
caused by any such law, order, regulation, or contingency, but only so
long as said law, order, regulation, or contingency continues.
14.2 Assignment. This Agreement may not be assigned in whole or in part by
either Party without the prior written consent of the other Party,
except that this Agreement may be assigned to a wholly-owned subsidiary
of a Party. Any assignment made without such consent, other than an
assignment to a wholly-owned subsidiary of a Party, shall be considered
void ab initio.
14.3 Notices. All notices and demands required or permitted to be given
under this Agreement shall be in writing and shall be served by
facsimile, personal service, or by mail at the address of the receiving
Party set forth below (or at such different address as may be
designated by such Party by written notice to the other Party). All
notices or demands by mail shall be by first class, certified or
registered mail, return receipt requested, or by nationally-recognized
private express courier, and shall be deemed received within five (5)
days of mailing by the other Party.
(a) Gas Research Institute
8600 West Bryn Mawr Avenue
Chicago, IL 60631
Attn: Janice E. Pastryk
Contract and License Management
(b) Fuel Tech, Inc.,
1001 Frontenac Road
Naperville, Illinois 60563-1746
Attn: Roy A. Johnson
Vice President of Business Development
14.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, EXCLUDING ITS
CONFLICT OF LAW PRINCIPLES. GRI and LICENSEE shall attempt to settle
any claim or controversy arising out of this Agreement through
consultation and negotiation in the spirit of mutual friendship and
cooperation. If such attempts fail, then the dispute shall first be
submitted to a mutually acceptable neutral advisor for mediation,
fact-finding, or other form of alternate dispute resolution (ADR)
selected by the Parties. No Party may unreasonably withhold acceptance
of such an advisor, and his or her selection must be made within 45
days after written notice by one Party demanding the use of ADR. The
cost of such mediation or other ADR procedure shall be shared equally
among GRI and LICENSEE. Any dispute which the Parties cannot resolve
within six months of the date of the initial demand by any Party for
mediation or another ADR procedure shall be finally determined by a
court of competent jurisdiction located within the State of Illinois.
The use of an ADR procedure under this section shall not be construed
(under such doctrines as laches, waiver, or estoppel) to have affected
adversely any Party's ability to pursue its legal remedies, and nothing
in this section shall prevent any Party from resorting to judicial
proceedings if (1) good faith efforts to resolve a dispute under these
procedures have been unsuccessful or (2) interim resort to a court is
necessary to prevent serious and irreparable injury to any Party or to
others.
9
<PAGE>
14.5 No Waiver For Failure to Enforce Other Rights, Cumulative Remedies. The
failure of either Party to give notice of nonperformance or to enforce
or exercise any covenant, right or remedy at law or equity, will not
constitute a waiver of the covenant, right or remedy, or preclude
either Party from exercising same thereafter.
14.6 Schedule. All schedules to this Agreement, previously designated as
Schedule A and B respectively, are incorporated herein and expressly
made a part of this Agreement.
14.7 Severability. If any provision or part of any provision of this
Agreement is adjudged by a court to be invalid, void, or unenforceable,
it shall be deemed omitted and the Parties agree that the remainder of
the Agreement shall not be affected and shall remain in force and
effect.
14.8 Rule of Construction. The Parties acknowledge that both have
contributed to this Agreement's contents and they agree that no
provision of this Agreement should be construed against either Party as
the drafter.
14.9 Survival of Certain Provisions. The warranties, indemnification,
confidentiality, obligation to pay accrued Royalties, limitation of
liability, and choice of law obligations set forth in this Agreement
shall survive the termination of the Agreement by either Party for any
reason.
14.10 Headings. The titles and headings of the various sections and
paragraphs in this Agreement are intended solely for convenience of
reference and are not intended for any other purpose to explain, modify
or place any construction upon any of the provisions of this Agreement.
14.11 Relationship of the Parties. Nothing herein shall be deemed to create a
joint venture or partnership or agency relationship between the
Parties. No Party shall have the authority to make any statements,
representations, or commitments of any kind, or to take any action,
which shall be binding on the other, except as provided for in this
Agreement or as authorized in writing by a duly authorized agent of the
Party to be bound.
14.12 All Amendments in Writing. It is agreed that no supplement,
modification, or amendment of this Agreement shall be binding unless
executed in writing by duly authorized representatives of both Parties
to this Agreement.
14.13 Entire Agreement. The Parties have read this Agreement and agree to be
bound by its terms, and further agree that it constitutes the complete
and entire agreement of the Parties and supersedes all previous
communications, oral or written, express or implied and all other
communications between them relating to the license and to the subject
matter. No representatives or statements of any kind made by either
Party, which are not expressly stated, shall be binding on such Party.
10
<PAGE>
IN WITNESS WHEREOF, the Parties have executed the foregoing Agreement.
FUEL TECH, INC. GAS RESEARCH INSTITUTE
By: /s/ Steven C. Argabriight By: /s/ W. H. Kockenmeister
-------------------------- ---------------------------
Steven C. Argabright Willian H. Kockenmeister
President Vice President and
General Counsel
November 16, 1998 11/18/98
--------------------------- ---------------------------
Date Signed Date Signed
(66382/pgc)
11
<PAGE>
SCHEDULE A
GRI PATENTS
GRI Patents include the following list of U.S. and Canadian Patents and
Pending Patent applications, as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Patents and Patent Applications (7/23/98)
- ----------------------------------------------------------------------------------------------------------------
Patent/application # Title and Description
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 US 4,779,545 (1988) Apparatus and Method of Reducing Nitrogen Oxide Emission
- ----------------------------------------------------------------------------------------------------------------
CA 1,316,329 Pulse Injection of fuel to form fuel-rich eddies where NO is reduced.
Injection 2100-2400F. No OFA. This is the earliest patent establishing a
basis for the FLGR approach.
- ----------------------------------------------------------------------------------------------------------------
2 US 5,078,064 (1992) Apparatus and Method of Lower NOx Emission Using Diffusion Process
- ----------------------------------------------------------------------------------------------------------------
CA 2,038,796 Pulses of 4,779,545 patent not required. Effect can be achieved through
diffusion processes. Recently reexamined at GRI's request. CIP filed
to modify language.
- ----------------------------------------------------------------------------------------------------------------
3 US 5,181,475 (1993) Apparatus and Process for Control of Nitric Oxide Emission from
Combustion Devices Using Vortex Rings and the Like
- ----------------------------------------------------------------------------------------------------------------
CA appl Describes the use of vortex rings to control mixing in process described
2,088,659 in 064 patent
- ----------------------------------------------------------------------------------------------------------------
4 US appl 07/608,718 and CIP Apparatus and Method for Reducing NOx Emissions
appls
08/697,338 and 09/087,074
- ----------------------------------------------------------------------------------------------------------------
CA appl 2,036,612 Various nozzles and gas injection methods for affecting diffusion of the
natural gas for FLGR process
- ----------------------------------------------------------------------------------------------------------------
5 US 5,655,899 (1997) Apparatus and Method for NOx Reduction By Controlled Mixing of Fuel Rich
Jets in Flue Gas
- ----------------------------------------------------------------------------------------------------------------
Device for introducing gas and controlling jet momentum
- ----------------------------------------------------------------------------------------------------------------
6 US appl 08/507,928 Apparatus and Method for NOx Reduction by Selective Injection of Natural
Filed 7/95 Gas Jets in Flue Gas
- ----------------------------------------------------------------------------------------------------------------
Beneficial NOx reduction by injecting hydrocarbon fuel in high NOx
regions of furnace. NOA 9/97. Was supposed to be transferred from CNG to
GRI originally. Unavoidably abandoned. CNG petitioned to revive 4/98.
- ----------------------------------------------------------------------------------------------------------------
7 US appl 08/908,824 Filed Nitrogen Oxide Reduction by Gaseous Fuel Injection in Low Temperature,
8/8/97 Overall Fuel-Lean Flue Gas
- ----------------------------------------------------------------------------------------------------------------
teaches application of FLGR process originally disclosed in US 5,078,064
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
By jointly signed amendment to this Agreement the Parties may add or
delete patents to those initially listed above.
THIS INFORMATION IS CONFIDENTIAL AND SHOULD BE TREATED
ACCORDINGLY UNTIL THE RESPECTIVE PATENTS ISSUE.
<PAGE>
SCHEDULE B
ROYALTIES
1. In consideration of the license grant set forth in Section 3 of this
Agreement, LICENSEE shall pay to GRI a royalty ("Royalty") from the
Commercial Sale of FLGR(TM) Technology equal to * percent ( * %) of the Site
License Fee calculated pursuant to the Site License Fee Schedule set forth
below. LICENSEE shall retain the remaining * percent ( * %) of the Site
License Fee.
Site License Fee Schedule
- --------------------------------------------------------------------------------
Utility Boiler Site License Fees
- --------------------------------------------------------------------------------
Boiler Size FLGR
- --------------------------------------------------------------------------------
<= 100 MW $ * /KW
- --------------------------------------------------------------------------------
101-200 MW $ * /KW
- --------------------------------------------------------------------------------
201-300 MW $ * /KW
- --------------------------------------------------------------------------------
301- 400 MW $ * /KW
- --------------------------------------------------------------------------------
401-500 MW $ * /KW
- --------------------------------------------------------------------------------
=> 501 MW $ * /KW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Industrial Boiler Site License Fees
- --------------------------------------------------------------------------------
Boiler Size FLGR
- --------------------------------------------------------------------------------
Minimum Fee $ *
- --------------------------------------------------------------------------------
<= 250 MMBTU/HR $ * /MMBTU/hr
- --------------------------------------------------------------------------------
251 - 500 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
501 - 1000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
1001 - 2000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
2001 - 3000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
3001 - 4000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
4001 - 5000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
5001 - 10000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
2. For the purposes of computing Site License Fees under the Site License Fee
Schedule, multiple boilers for the same Customer/Sublicensee may be grouped
together for purposes of sizing the applicable Site License Fee if the
Customer/Sublicensee contracts to buy more than one Site License and the
FLGR(TM) Technology systems are built and the applicable Site License Fees
paid within a period of three years. If, however, the Customer/Sublicensee
does not build or pay the applicable Site License fee within a period of
three years, then the Customer/Sublicensee will become obligated to pay the
difference between the discounted Site License Fee and the Site License Fee
that the Customer/Sublicensee would have paid had it committed only to the
number of FLGR(TM) Technology systems it actually built.
<PAGE>
3. *
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
4. Notwithstanding the Site License Fee Schedule set out above, LICENSEE may,
from time to time, recommend to GRI that a Customer/Sublicensee be offered
the option of paying for FLGR(TM) Technology pursuant to an alternate
Royalty calculation and not pursuant to the Site License Fee Schedule, and
GRI agrees to consider such alternate Royalty calculations. LICENSEE will
recommend an alternative Royalty calculation only when, in LICENSEE's
reasonable commercial judgment, the Customer/Sublicensee is unlikely to
consider buying FLGR(TM) Technology unless offered such an alternative.
5. GRI agrees that when a Customer/Sublicensee has already purchased and
installed as of the date of this Agreement Fuel Tech Inc.'s
NOxOUT(R)technology, GRI will receive a Royalty from a Commercial Sale of
FLGR(TM) Technology to that Customer/Sublicensee that is equal to fifty
percent (50%) of the Site License Fee calculated pursuant to the Site
License Fee Schedule and the Customer/Sublicensee will receive a Site
License to operate its system as either a FLGR(TM)Technology system or an
AEFLGR(TM)Technology system. After the effective date of this Agreement, if
a Customer/Sublicensee installs a NOxOUT(R)system from LICENSEE and installs
a FLGR(TM)Technology system within eighteen (18) months thereafter of
installing that NOxOUT(R)system, and if the Customer/Sublicensee intends to
operate the system as taught by GRI's AEFLGR(TM)patent(s), then GRI shall
receive a royalty for the sale of the FLGR(TM)Technology system to that
Customer/Sublicensee that is calculated on the basis of the Site License Fee
Schedule contained in the AEFLGR(TM)License Agreement, and the
Customer/Sublicensee will receive a Site License to operate its system as
either a FLGR(TM)Technology system or an AEFLGR(TM)Technology system. If a
Customer/Sublicensee installs a NOxOUT(R)system from LICENSEE and installs a
FLGR(TM)Technology system more than eighteen (18) months after installing
that NOxOUT(R)system, then GRI shall receive a royalty for the sale of the
FLGR(TM)Technology system to that Customer/Sublicensee that is calculated on
the basis of the Site License Fee Schedule contained in this License
Agreement, and the Customer/Sublicensee will receive a Site License to
operate its system as either a FLGR(TM)Technology system or an
AEFLGR(TM)Technology system.
6. For each calendar year indicated below, LICENSEE agrees to use its
reasonable best efforts to sell, lease, or otherwise transfer sufficient
FLGR(TM) Technology systems for the following Minimum Cumulative Megawatts
(based on the boiler nameplate megawatt capacity, excluding Demonstration
Sales, to which the FLGR(TM) Technology is applied):
Year Minimum Cumulative Megawatts
---- ----------------------------
1999 *
2000 *
2001 *
2002 *
2003 *
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
2
<PAGE>
The Minimum Cumulative Megawatts are a cumulative total, running from year
to year, of all boiler nameplate megawatt capacity to which the FLGR(TM)
Technology is applied, through sale, lease, or other transfer, excluding
Demonstration Sales, by LICENSEE. LICENSEE shall receive credit towards the
calculation of the Minimum Cumulative Megawatts required under the terms of
this Agreement for the boiler nameplate megawatt capacity of an AEFLGR(TM)
Technology system sold under FUEL TECH INC.'s AEFLGR(TM) Technology license
from GRI.
7. At the end of each calendar year during the term of this Agreement,
LICENSEE shall pay to GRI a minimum Royalty equivalent to the difference
between the Minimum Cumulative Megawatts indicated above and the actual
cumulative megawatts sold through the current year of the Agreement. If
LICENSEE fails to pay the minimum Royalty as required, then, upon written
notice to LICENSEE, the license granted in Section 3 of this Agreement
shall terminate.
8. It is in the best interests of the Parties to maximize the commercial
exploitation of the GRI Patents and the GRI Technical Information. To
achieve the most effective commercial exploitation of the FLGR(TM)
Technology, LICENSEE shall propose appropriate Demonstration Sales of the
FLGR(TM)Technology. GRI shall not unreasonably withhold its approval of the
proposed Demonstration Sales. No Royalty payments shall be due on such
Demonstration Sales. LICENSEE and GRI agree that such Demonstration Sales
shall include new and different applications of the FLGR(TM)Technology,
including but not limited to the application of the FLGR(TM) Technology to
the following types of boilers: a cyclone boiler with over-fire air, a
wet-bottom boiler, a wall-fired boiler, a tangentially-fired boiler, an
opposed-wall-fired boiler, and a boiler with a total megawatt capacity of
500 MW or above.
9. Notwithstanding anything to the contrary in this Agreement, if the GRI
Patents are invalidated, then LICENSEE's obligation to make Royalty
payments shall cease and this Agreement shall terminate.
10. Within forty-five (45) days of the close of each fiscal quarter of
LICENSEE, beginning with the first close of a fiscal quarter following the
Effective Date, LICENSEE shall make the Royalty payments due under this
Agreement to GRI for all Site License Fees received by LICENSEE during that
quarter on Commercial Sales of the FLGR(TM)Technology, or LICENSEE shall
certify to GRI that it has made no Commercial Sales of the FLGR(TM)
Technology. All Royalty payments shall be made in U.S. dollars. LICENSEE
shall attach a statement to its payment indicating the size and location of
the boiler to which each Customer/Sublicense applies, the applicable Site
License Fee per boiler, the total megawatts for the number of
FLGR(TM)Technology systems sold, leased, or otherwise transferred to date
by year, and such other information as GRI may reasonably request from time
to time.
11. Interest on Late Payments. Royalty payments provided for in this Agreement,
when overdue, shall bear interest at a rate per annum equal to two percent
(2%) in excess of the "Prime Rate" published by "The Wall Street Journal"
on the due date for such Royalty payment. This interest charge shall
commence on the day after the due date and shall continue until payment is
received by GRI. The foregoing notwithstanding, if a royalty payment is
more than sixty (60) days past due, GRI may, at its sole option, deem such
late payment to be a material breach of this Agreement.
12. Records, Audit. LICENSEE agrees to maintain adequate books and accounting
records relating to the Royalties due. Such books and records shall be
available for GRI to audit and analyze by GRI's internal accountants, or at
GRI's discretion by GRI's independent accounting firm. These audits will be
paid for by GRI. Any such audit shall be permitted during business hours
within thirty (30)days of receipt of GRI's written request. GRI may conduct
such an audit on an annual basis but not more than once a year. LICENSEE
must maintain such records during the term of this Agreement and for a
period of two (2) years thereafter. LICENSEE shall incorporate a similar
provision into all sublicense agreements, permitting GRI to conduct
reasonable and periodic audits of the sublicensee's books and records.
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LICENSE AGREEMENT
This agreement ("Agreement") is between GAS RESEARCH INSTITUTE, an
Illinois Not-For Profit Corporation having an office at 8600 West Bryn Mawr
Avenue, Chicago, Illinois 60631 ("GRI"), and FUEL TECH, INC., a Massachusetts
corporation, having a principal place of business at 1001 Frontenac Road,
Naperville, Illinois 60563-1746 ("LICENSEE").
1 Background of Agreement.
1.1 Whereas, GRI is the owner, assignee, or licensee of certain
intellectual property rights related to the AEFLGR(TM) Technology;
1.2 Whereas, LICENSEE desires to acquire a license for the AEFLGR(TM)
Technology pursuant to the terms and conditions of this Agreement;
1.3 Whereas, GRI desires commercial exploitation of such intellectual
property rights and is willing to grant a exclusive license to LICENSEE
pursuant to the terms and conditions of this Agreement.
Now, therefore, in consideration of the promises and covenants set
forth below, GRI and LICENSEE (collectively the "Parties") agree as
follows:
2 Definitions.
For the purpose of this Agreement, the following terms shall have the
meanings set forth below:
2.1 "GRI Patents" means those patent registrations and licensable patent
applications, identified in Schedule A to which all right, title and
interest has been assigned to GRI, including, where appropriate, all
divisions, continuations, continuations-in-part, reissues,
reexaminations, renewals and extensions thereof.
2.2 "GRI Technical Information" means the unpublished research and
development information, unpatented manufacturing processes,
specifications, operating procedures, unpatented commercial or
industrial techniques, know-how and technical data, related to the
AEFLGR Technology which are in GRI's possession and which are
currently being evaluated for patentability.
2.3 "AEFLGR Technology" means a system of controlling Nitrogen Oxide
emissions from coal fired boilers by the injection of natural gas in
fuel-lean conditions in combination with amine as described in or that
would infringe a claim of the GRI Patents and/or which embodies or
incorporates GRI Technical Information.
2.4 "Effective Date" means the last date of signature of this Agreement by
the Parties.
2.5 "Commercial Sale" means any sale, lease, or other transfer of a
AEFLGR(TM) Technology system to an unaffiliated third party but
excludes Demonstration Sales by LICENSEE.
2.6 "Demonstration Sale" means any sale, lease, or other transfer of a
AEFLGR(TM) Technology system to an unaffiliated third party which is
intended by joint agreement between GRI and LICENSEE to demonstrate the
commercial capability of AEFLGR(TM) Technology on different types of
combustion units.
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2.7 "Improvements" means all improvements, enhancements, and modifications
of the GRI Patents, GRI Technical Information, and/or AEFLGR
Technology made or conceived by LICENSEE during the life of this
Agreement.
2.8 "Customer/Sublicense" means any sublicense which includes the right to
perform and use AEFLGR(TM) Technology, including the GRI Patents and
GRI Technical Information, but which grants no rights to sublicense or
further distribute, copy, or create derivative works. A
"Customer/Sublicensee" is any entity to whom LICENSEE grants a
sublicense pursuant to this Agreement.
2.9 "Site License" means a Customer/Sublicense granted by LICENSEE to a
Customer/Sublicensee which grants the right to use AEFLGR(TM)
Technology only on the boiler specifically identified in the sublicense
and which cannot be assigned or transferred to any other boiler.
3 License Grant.
3.1 License. For the Term of this Agreement, GRI grants to LICENSEE a
worldwide, royalty-bearing, revocable, exclusive license under GRI
Patents and GRI Technical Information to make, use, offer to sell,
sell, lease, otherwise dispose of, or import AEFLGR(TM) Technology and
to grant Site Licenses to their Customer/Sublicensees.
3.2 This license shall be exclusive to FUEL TECH, INC. GRI agrees that it
will not grant any other license for the AEFLGR(TM) Technology to any
entity other than FUEL TECH, INC. unless LICENSEE fails to meet the
minimum Royalty requirements set out in Schedule B to this Agreement or
this Agreement is terminated by Licensee or terminated for cause by
GRI. However, In the event it is determined that FUEL TECH, INC. is not
meeting market demand for the AEFLGR(TM) Technology , GRI may require
that LICENSEE grant a sublicense under the GRI Patents and GRI
Technical Information to at most two other entities of LICENSEE's
choice after the second year of this Agreement.
3.3 LICENSEE may implement the sale and installation of the AEFLGR(TM)
Technology through sublicensees under sublicense agreements which shall
give sublicensees the right to license the AEFLGR(TM) Technology under
the same terms and conditions, except for the Minimum Cumulative
Megawatt requirement, as LICENSEE has agreed to with GRI in this
Agreement. LICENSEE shall ensure that all sublicense agreements granted
under this Agreement do not contain provisions which would conflict
with any of the other provisions of this Agreement and do include a
provision requiring the sublicensee to indemnify GRI to the same extent
as required of LICENSEE in this Agreement.
3.4 Any sublicense granted under Paragraph 3.3 above will require prior GRI
approval. LICENSEE shall send the request for approval, including the
proposed sublicense agreement, directly to GRI's Manager of Contract
and License Management. Notwithstanding any such consent or
concurrence, (1) GRI shall not bear any liability to LICENSEE or to any
Sublicensee arising out of any act or omission of LICENSEE or any
Sublicensee, and (2) any sublicensing by LICENSEE shall not relieve
LICENSEE of any responsibility for the performance of the terms of this
Agreement. Notwithstanding this Paragraph 3.4, LICENSEE does not need
GRI approval to grant a Site License to a Customer/Sublicensee.
3.5 GRI agrees that it will not enter into another agreement granting a
license to another party for the GRI Patents, the GRI Technical
Information, or the AEFLGR(TM) Technology on more favorable terms than
those specified in this Agreement. If, at any time during the Term of
this Agreement, GRI enters into another agreement granting a license to
another party for the GRI Patents, the GRI Technical Information, or
the AEFLGR(TM) Technology on more favorable terms than those specified
in this Agreement, then GRI shall promptly notify LICENSEE of the grant
of such other license in writing, and LICENSEE shall have the option,
exercisable by written election to GRI within sixty (60) days of such
written notice, to adopt the more favorable terms of such other
Agreement; provided, however, that such new terms shall be effective
only after LICENSEE's written election to adopt such new agreement
terms.
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3.6 LICENSEE agrees that this license is limited to the rights expressly
granted herein, and any rights not expressly granted herein are
expressly reserved to GRI. Nothing contained within this section or
elsewhere in this Agreement shall be construed as granting by
implication, estoppel, or otherwise, any licenses or rights under
patents of GRI other than GRI Patents and GRI Technical Information.,
except as expressly granted in this Agreement.
4 Confidentiality.
4.1 LICENSEE agrees that all GRI Patents and GRI Technical Information
shall remain the property of GRI. LICENSEE agrees to keep all GRI
patent applications and GRI Technical Information confidential.
LICENSEE will advise each employee to whom it discloses GRI patent
applications and GRI Technical Information as to the confidential
nature of the GRI patent applications and GRI Technical Information.
4.2 LICENSEE agrees that all GRI Patents and GRI Technical Information
shall not be disclosed to anyone outside of LICENSEE without the prior
written consent of GRI, except to the extent necessary to
Customer/Sublicensees of LICENSEE and/or third parties under written
obligations of confidentiality. Upon a reasonable request by LICENSEE,
GRI will not unreasonably withhold its consent to such disclosure.
4.3 The obligations of Paragraphs 4.1 and 4.2 above shall not apply to GRI
Patents and GRI Technical Information which:
(a) otherwise is or becomes publicly known through no fault of
LICENSEE; or
(b) was in LICENSEE's possession prior to its disclosure by GRI and not
subject to an obligation of confidentiality; or
(c) comes into LICENSEE's possession, without covenants of secrecy,
from another party who is under no confidentiality obligation to
GRI;
(d) is independently developed by LICENSEE, including application
research data owned by FUEL TECH, INC.;
(e) is furnished to a third party by GRI without any obligation of
confidentiality;
(f) is explicitly approved for release by written authorization of GRI;
or
(g) is ordered to be disclosed by a court, government agency, or other
entity of competent jurisdiction, provided LICENSEE gives timely
written notice to GRI of such order.
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4.4 GRI Patents or GRI Technical Information shall not be deemed to be
within the foregoing exceptions merely because (1) it is specific and
embraced by more general information in the public domain or in
LICENSEE's possession; or (2) it is a combination which can be pieced
together to reconstruct the GRI Patents or GRI Technical Information
from multiple sources of information in the public domain, none of
which shows the whole combination, its principle of operation, or its
method of use.
5 Royalties.
5.1 In consideration for the license rights granted to LICENSEE by GRI
pursuant to this Agreement, LICENSEE shall pay GRI (1) a Maintenance
Fee, and (2) a Royalty on all Commercial Sales (but not on
Demonstration Sales) in accordance with Schedule B of this Agreement.
5.2 It is in the best interests of the Parties to maximize the commercial
exploitation of the GRI Patents and GRI Technical Information licensed
to LICENSEE pursuant to Section 3 of this Agreement. GRI agrees to
cooperate with LICENSEE in the promotion of AEFLGR(TM) Technology at
industry meetings, conventions, and individual customer visits, as well
as in the preparation of brochures, pamphlets and other advertising
materials, including web site references. In particular, GRI agrees
that it will assist LICENSEE in the identification and choosing of
sites suitable for implementation of the AEFLGR(TM) Technology and that
it will share with LICENSEE its expertise in projecting fuel prices.
GRI further agrees that it will designate John Pratapas to provide
technical assistance to LICENSEE for so long as John Pratapas works for
GRI and that if John Pratapas ceases to work for GRI, then GRI will
designate a person with equivalent credentials to provide technical
assistance to LICENSEE.
6 Patent Procurement, Maintenance and Improvements.
6.1 GRI shall have the initial right, with respect to domestic patent
filings, to file, prosecute, control and maintain all of the GRI
Patents and shall have the initial right to determine whether or not,
and where, to file a patent application, to abandon the prosecution of
any patent or patent application, file reissue or reexamination
applications or to discontinue the maintenance of any patent or patent
applications. GRI agrees that it will advise and consult with LICENSEE
on and keep LICENSEE fully informed of the status of all of the GRI
Patents and any and all patent applications filed by GRI on the GRI
Technical Information and that it will give LICENSEE reasonable
opportunity to make suggestions with regard to the filing, prosecution,
and maintenance of patents and patent applications. If GRI elects not
to file, prosecute, or maintain any patent or patent application, then
GRI will give timely written notice to LICENSEE of its decision;
LICENSEE will then have the right to file, prosecute, and maintain any
such patent or patent application, and GRI will cooperate with LICENSEE
in the filing, prosecution, and maintenance of any such patents or
patent applications.
6.2 LICENSEE has the right to file patent applications in the European
Patent Office for select countries within NATO Europe. LICENSEE has the
right to file, prosecute, maintain, and control those foreign patent
applications. LICENSEE will advise GRI within ninety days of the
Effective Date of this Agreement for which countries it will file
patent applications.
6.3 GRI agrees that any improvements, enhancements, and modifications of
the GRI Patents, GRI Technical information, and/or AEFLGR(TM)
Technology that it makes after the Effective Date of this Agreement,
whether patented or unpatented, will be deemed automatically included
within the license granted to LICENSEE by this Agreement. GRI and
LICENSEE agree to consider an additional royalty to provide GRI a
commercially reasonable return on its additional investment in any such
improvement, enhancement, or modification to the extent that the same
demonstrably adds commercial value to the rights licensed under this
Agreement.
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6.4 LICENSEE shall retain all of the right and title in and interest to any
Improvements made by LICENSEE, and LICENSEE shall have the sole right
to file, prosecute, maintain, and control any patent or patent
applications on such Improvements. LICENSEE hereby grants a
non-exclusive, royalty-free license to GRI under any Improvements made
by LICENSEE. GRI shall have the right to sublicense any Improvements
licensed to GRI under this provision for a royalty that would provide
LICENSEE a reasonable return on its additional investment in such
Improvement to the extent that the same demonstrably adds commercial
value to the rights licensed under this Agreement. As long as this
License Agreement remains exclusive, GRI shall not have the right to
sublicense any Improvements licensed to GRI under this provision.
7 Acknowledgment of GRI, Patent Marking, Publicity.
7.1 Acknowledgement. LICENSEE shall include the following acknowledgment,
or its functional equivalent, in its AEFLGR(TM)Technology literature,
and/or marketing , and/or specification sheets: "This (insert name of
product and/or process, etc.) was developed with the assistance of Gas
Research Institute."
7.2 Patent Marking. LICENSEE shall identify the applicable patent number(s)
of all GRI Patents on all AEFLGR(TM) Technology literature and
specification sheets immediately upon issuance of the patent. If any
patent applications are pending, LICENSEE shall place "Patent Pending"
on all AEFLGR(TM) Technology literature and specification sheets until
the last currently pending GRI patent applications have issued or are
abandoned.
7.3 Publicity. LICENSEE may use the term "GRI LICENSEE" to describe or
refer to its activities under this Agreement. LICENSEE shall use the
term "GRI LICENSEE" only to designate or indicate to its
Customer/Sublicensees that it is a LICENSEE of GRI Patents and GRI
Technical Information and for no other purpose.
8 Warranty, Guarantee, and Limitation of Liability.
8.1 GRI warrants that it has title to the GRI Patents, that it has the
requisite authority to convey the rights granted in the Agreement, and
that, through the Effective Date of the Agreement, it has not abandoned
any of the GRI Patents.
8.2 GRI warrants that a AEFLGR(TM) Technology system constructed and
installed in accordance with GRI Patents and/or GRI Technical
Information will be free from infringement of the United States and
Canadian patents of any third party as adjudged by a competent court of
law. GRI MAKES NO OTHER WARRANTIES, WHETHER EXPRESSED OR IMPLIED, AS TO
THE MERCHANTABILITY OR FITNESS FOR PURPOSE OF AEFLGR(TM) TECHNOLOGY OR
AN AEFLGR(TM) TECHNOLOGY SYSTEM.
8.3 LICENSEE shall immediately notify GRI in writing of all infringement
claims made and infringement suits commenced against LICENSEE because
of its exercising any rights granted under this Agreement. So long as
LICENSEE timely tenders to GRI the defense of any such claim or suit,
GRI shall defend any such claim or suit that may be instituted for the
alleged infringement, provided that LICENSEE cooperates fully with GRI
in such defense. GRI agrees to indemnify LICENSEE against all costs of
suit, attorneys' fees, or judgments that may be incurred by or entered
against LICENSEE as a result of any such claim or suit. GRI shall have
the right to control the defense and resolution of any such claim or
suit. GRI shall not be bound by any compromise or settlement made in
such claims or suits without its written consent. The indemnification
and defense rights granted in this subparagraph are strictly limited to
the rights granted in this Agreement and shall not apply to
intellectual property developed by LICENSEE or a third party or
controlled by LICENSEE through license with a third party.
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8.4 *
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT:
SUCH INFORMATION HAS BEEN FILED SEPARATELY.
8.5 In addition to the indemnification provision of Paragraph 8.3 above,
GRI may remedy a breach of its warranty set forth in Paragraph 8.2
above, at its sole discretion, by either: (i) redesigning the
AEFLGR(TM) Technology system to avoid any patent infringement claims;
(ii) purchasing any rights from a third party necessary for LICENSEE to
continue to practice AEFLGR(TM) Technology; or (iii) bring an action to
invalidate any patent claims of third parties upon which an
infringement by AEFLGR(TM) Technology is alleged.
8.6 Performance Guarantee. If LICENSEE finds it necessary to guarantee the
performance of AEFLGR(TM) Technology when applied to a
Customer/Sublicensee's boiler, then, upon review by GRI of LICENSEE's
proposal to the Customer/Sublicensee and GRI's agreement to the level
of performance guaranteed, GRI will share equally with LICENSEE the
cost of any such performance guarantee, including any payments LICENSEE
is required to make on a letter of credit, a performance bond, and/or
contract damages owed to a Customer/Sublicensee, up to a maximum
commitment by GRI of eighty percent (80%) of GRI's portion of the Site
License Fee for such boiler.
8.7 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY
THIRD PARTY FOR ANY CONSEQUENTIAL, SPECIAL, PUNITIVE, OR INCIDENTAL
DAMAGES, INCLUDING BUT NOT LIMITED TO, LOST PROFITS OR OTHER ECONOMIC
LOSS, WHETHER ARISING FROM BREACH OF CONTRACT, TORT, NEGLIGENCE, STRICT
LIABILITY, OR OTHERWISE.
9 Indemnification.
9.1. LICENSEE agrees to indemnify and save GRI harmless from and against any
and all claims of any kind, including but not limited to liability for
injury to persons and/or damage to property (including without
limitation, environmental damage) and/or violations of law, arising out
of or in connection with LICENSEE's manufacture, use, sale or other
transfer of any AEFLGR(TM) Technology, including any and all expenses,
costs, attorneys' fees, settlement, judgments, or awards incurred by
GRI in the defense of any such claim or lawsuit, except as otherwise
affirmatively assumed by GRI hereunder.
9.2 LICENSEE shall maintain appropriate liability insurance policies in an
amount and for such time period as are required to fully satisfy the
foregoing obligations of indemnification.
10 Infringement by Third Parties.
10.1 Notification. Each Party shall immediately notify the other Party in
writing of suspected infringement(s) or misappropriation(s) of the GRI
Patents and/or GRI Technical Information and shall inform the other
Party of any evidence of such infringement(s) or misappropriation(s).
10.2 GRI shall have the first option and right to bring an action to enjoin
the infringement and to recover damages against any third party against
whom GRI has evidence of patent infringement. LICENSEE shall cooperate
as necessary with GRI. All costs and expenses for such suit shall be
borne by GRI, and GRI shall be entitled to retain all damages or other
relief recovered in such litigation.
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10.3 If GRI chooses not to bring such an action, GRI shall notify LICENSEE
of its decision within thirty (30) days of receiving evidence of an
infringement, after which LICENSEE shall have the second option to
bring an action to enjoin the infringement and to recover damages. GRI
shall cooperate as necessary with LICENSEE. All costs and expenses for
such suit shall be borne by LICENSEE, and LICENSEE shall be entitled to
retain all damages or other relief recovered in such litigation.
10.4 No Party may compromise or settle with an infringer or misappropriator
without prior notice to and prior written consent of the other Party,
which consent shall not be unreasonably withheld.
11 Term and Termination.
11.1 The Term of this Agreement shall begin from the Effective Date of this
Agreement and shall continue for a period of five (5) years. LICENSEE
has the option to extend the Term of this Agreement for an additional
seven (7) years upon the negotiation of an additional minimum Royalty
agreeable to both Parties.
11.2 LICENSEE may terminate this Agreement at any time upon sixty (60) days
prior written notice to GRI.
11.3 If LICENSEE either (i) fails to pay the minimum Royalties required by
Schedule B of this Agreement, or (ii) uses its exclusive license
granted hereunder to the AEFLGR Technology to restrict, undermine or
eliminate the competition in the sale of GRI's FLGR Technology by tying
the sale of AEFLGR to the purchase by the customer of FLGR from
LICENSEE, then, upon written notice to LICENSEE, GRI has the option
either to terminate this Agreement in its entirety or to convert the
license granted in Section 3 of this Agreement from an exclusive
license to a non-exclusive license.
11.4 If any Party shall be adjudged bankrupt, or become insolvent, or make
an assignment for the benefit of creditors, or be placed in the hands
of a receiver or a trustee in bankruptcy, the other Party may terminate
this Agreement by giving sixty (60) days prior written notice to the
other Party specifying the basis for termination. If within sixty (60)
days after receipt of such notice, the Party who received notice shall
remedy the condition forming the basis for termination, such notice
shall cease to be operative, and this Agreement shall continue in full
force.
11.5 Upon termination of this Agreement, LICENSEE agree: (1) that it will
not use or sell AEFLGR(TM) Technology systems until expiration of the
last of the GRI Patents, except that LICENSEE may sublicense the
AEFLGR(TM) Technology from others, and (2) that it will promptly
transfer to GRI all documents containing unpublished GRI Technical
Information in its possession (including but not limited to videotapes,
computer media, printed documents, and prototypes).
11.6 Effect of Termination. Termination of this Agreement shall not release
LICENSEE from its obligation to pay GRI any unpaid Royalties which have
accrued prior to the termination or which may accrue to GRI after the
effective date of the termination from Commercial Sales made prior to
the date of the termination.
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12 Compliance with Export Restrictions.
12.1 LICENSEE acknowledges that the AEFLGR(TM) Technology system, and
non-patented items and all related GRI Technical Information and
materials referenced in this Agreement may be subject to export control
under U. S. Export Administration Regulations. LICENSEE accepts and
assumes all responsibility for compliance with United State and
Territory export regulations with respect to their exportation.
LICENSEE covenants and agrees to comply strictly with these
regulations, to cooperate fully with GRI in any official or unofficial
audit or inspection that relates to said regulations, and not to
export, re-export, divert, transfer or disclose directly or indirectly,
or permit the export of any item, component, or combination of an
AEFLGR(TM) Technology system and/or non-patented items and/or GRI
Technical Information and/or derivative products of non-patented items
to any country for which the United States Export Administration Act of
1979 and the regulations issued thereunder, or any other United States
law or regulation, requires export or re-export authorization or
approval under a validated export license. LICENSEE will bear the
expense of its compliance with all applicable United States laws and
regulations in this connection without reimbursement or offset.
13 Taxes and Customs Duties, Storage and Transportation Charges.
13.1 LICENSEE acknowledges and agrees that GRI has no responsibility or
liability for taxes or customs duties, harbor fees or storage or
transportation charges, related in any way to FLGR(TM) Technology,
non-patented items, or GRI's services or revenue, except that GRI shall
bear all income taxes imposed on it with respect to the Royalty
payments to be made pursuant to this Agreement. LICENSEE agrees to
assume all responsibility for collection and/or payment of other taxes,
including, without limitation, for value added taxes, sales taxes, use
taxes, excise taxes, service taxes, customs duties, customs storage
fees, without reimbursement by GRI or offset against Royalty payments
to GRI, but excluding income taxes imposed on GRI with respect to the
Royalty payments to be made pursuant to this Agreement.
14 General Provisions.
14.1 Force Majeure. Anything contained in this Agreement to the contrary
notwithstanding, the obligations of the Parties shall be subject to all
laws, both present and future, of any Government having jurisdiction
over either Party, and to orders or regulations of any such Government,
or any department, agency, or court thereof, and acts of war, acts of
public enemies, strikes, or other labor disturbances, fires, floods,
acts of God, or any causes of like kind beyond the control of the
Parties, and the Parties shall be excused from any failure to perform
any obligation under this Agreement to the extent such failure is
caused by any such law, order, regulation, or contingency, but only so
long as said law, order, regulation, or contingency continues.
14.2 Assignment. This Agreement may not be assigned in whole or in part by
either Party without the prior written consent of the other Party,
except that this Agreement may be assigned to a wholly-owned subsidiary
of a Party. Any assignment made without such consent, other than an
assignment to a wholly-owned subsidiary of a Party, shall be considered
void ab initio.
14.3 Notices. All notices and demands required or permitted to be given
under this Agreement shall be in writing and shall be served by
facsimile, personal service, or by mail at the address of the receiving
Party set forth below (or at such different address as may be
designated by such Party by written notice to the other Party). All
notices or demands by mail shall be by first class, certified or
registered mail, return receipt requested, or by nationally-recognized
private express courier, and shall be deemed received within five (5)
days of mailing by the other Party.
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(a) Gas Research Institute
8600 West Bryn Mawr Avenue
Chicago, IL 60631
Attn: Janice E. Pastryk, Associate General Counsel
Contract and License Management
(b) Fuel Tech, Inc.,
1001 Frontenac Road
Naperville, Illinois 60563-1746
Attn: Roy A. Johnson
Vice President of Business Development
14.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, EXCLUDING ITS
CONFLICT OF LAW PRINCIPLES. GRI and LICENSEE shall attempt to settle
any claim or controversy arising out of this Agreement through
consultation and negotiation in the spirit of mutual friendship and
cooperation. If such attempts fail, then the dispute shall first be
submitted to a mutually acceptable neutral advisor for mediation,
fact-finding, or other form of alternate dispute resolution (ADR)
selected by the Parties. No Party may unreasonably withhold acceptance
of such an advisor, and his or her selection must be made within 45
days after written notice by one Party demanding the use of ADR. The
cost of such mediation or other ADR procedure shall be shared equally
among GRI and LICENSEE. Any dispute which the Parties cannot resolve
within six months of the date of the initial demand by any Party for
mediation or another ADR procedure shall be finally determined by a
court of competent jurisdiction located within the State of Illinois.
The use of an ADR procedure under this section shall not be construed
(under such doctrines as laches, waiver, or estoppel) to have affected
adversely any Party's ability to pursue its legal remedies, and nothing
in this section shall prevent any Party from resorting to judicial
proceedings if (1) good faith efforts to resolve a dispute under these
procedures have been unsuccessful or (2) interim resort to a court is
necessary to prevent serious and irreparable injury to any Party or to
others.
14.5 No Waiver For Failure to Enforce Other Rights, Cumulative Remedies. The
failure of either Party to give notice of nonperformance or to enforce
or exercise any covenant, right or remedy at law or equity, will not
constitute a waiver of the covenant, right or remedy, or preclude
either Party from exercising same thereafter.
14.6 Schedule. All schedules to this Agreement, previously designated as
Schedule A and B respectively, are incorporated herein and expressly
made a part of this Agreement.
14.7 Severability. If any provision or part of any provision of this
Agreement is adjudged by a court to be invalid, void, or unenforceable,
it shall be deemed omitted and the Parties agree that the remainder of
the Agreement shall not be affected and shall remain in force and
effect.
14.8 Rule of Construction. The Parties acknowledge that both have
contributed to this Agreement's contents and they agree that no
provision of this Agreement should be construed against either Party as
the drafter.
14.9 Survival of Certain Provisions. The warranties, indemnification,
confidentiality, obligation to pay accrued Royalties, limitation of
liability, and choice of law obligations set forth in this Agreement
shall survive the termination of the Agreement by either Party for any
reason.
9
<PAGE>
14.10 Headings. The titles and headings of the various sections and
paragraphs in this Agreement are intended solely for convenience of
reference and are not intended for any other purpose to explain, modify
or place any construction upon any of the provisions of this Agreement.
14.11 Relationship of the Parties. Nothing herein shall be deemed to create a
joint venture or partnership or agency relationship between the
Parties. No Party shall have the authority to make any statements,
representations, or commitments of any kind, or to take any action,
which shall be binding on the other, except as provided for in this
Agreement or as authorized in writing by a duly authorized agent of the
Party to be bound.
14.12 All Amendments in Writing. It is agreed that no supplement,
modification, or amendment of this Agreement shall be binding unless
executed in writing by duly authorized representatives of both Parties
to this Agreement.
14.13 Entire Agreement. The Parties have read this Agreement and agree to be
bound by its terms, and further agree that it constitutes the complete
and entire agreement of the Parties and supersedes all previous
communications, oral or written, express or implied and all other
communications between them relating to the license and to the subject
matter. No representatives or statements of any kind made by either
Party, which are not expressly stated, shall be binding on such Party.
IN WITNESS WHEREOF, the Parties have executed the foregoing Agreement.
FUEL TECH, INC. GAS RESEARCH INSTITUTE
By: /s/ V.M. Albanese By:/s/ W.H.Kockenmeister
------------------------ ----------------------
Vincent M. Albanese Willian H. Kockenmeister
Vice President Vice President and
General Counsel
12/8/98 12/2/98
------------------------ ----------------------
Date Signed Date Signed
(66437/pgc)
10
<PAGE>
SCHEDULE A
GRI PATENTS
GRI Patents include the following list of U.S. and Canadian Patents and
Pending Patent applications, as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Patents and Patent Applications
- ----------------------------------------------------------------------------------------------------------------
Patent application # Title and Description
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 * *
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
By jointly signed amendment to this Agreement the Parties may add or
delete patents to those initially listed above.
THIS INFORMATION IS CONFIDENTIAL AND SHOULD BE TREATED
ACCORDINGLY UNTIL THE RESPECTIVE PATENTS ISSUE.
11
<PAGE>
SCHEDULE B
ROYALTIES
1. In consideration of the license grant set forth in Section 3 of this
Agreement, LICENSEE shall pay to GRI a royalty ("Royalty") from the
Commercial Sale of AEFLGR(TM) Technology equal to * percent ( * %) of the
Site License Fee calculated pursuant to the FLGR(TM) Technology License
Agreement between GRI and LICENSEE plus * percent ( * %) of the difference
between (1) the Site License Fee calculated pursuant to the Site License Fee
Schedule set forth below and (2) the Site License Fee calculated pursuant to
the FLGR(TM) Technology License Agreement between GRI and LICENSEE. LICENSEE
shall keep the remaining amount of the Site License Fee.
Site License Fee Schedule
- --------------------------------------------------------------------------------
Utility Boiler Site License Fees
- --------------------------------------------------------------------------------
Boiler Size AEFLGR
- --------------------------------------------------------------------------------
<= 100 MW $ * /KW
- --------------------------------------------------------------------------------
101-200 MW $ * /KW
- --------------------------------------------------------------------------------
201-300 MW $ * /KW
- --------------------------------------------------------------------------------
301- 400 MW $ * /KW
- --------------------------------------------------------------------------------
401-500 MW $ * /KW
- --------------------------------------------------------------------------------
=> 501 MW $ * /KW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Industrial Boiler Site License Fees
- --------------------------------------------------------------------------------
Boiler Size AEFLGR
- --------------------------------------------------------------------------------
Minimum Fee $ *
- --------------------------------------------------------------------------------
<= 250 MMBTU/HR $ * /MMBTU/hr
- --------------------------------------------------------------------------------
251 - 500 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
501 - 1000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
1001 - 2000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
2001 - 3000 MMBTU/hr $ * /MMBTU/hr
- ----------------------------------------------- --------------------------------
3001 - 4000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
4001 - 5000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
5001 - 10000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
2. For the purposes of computing Site License Fees under the Site License Fee
Schedule, multiple boilers for the same Customer/Sublicensee may be grouped
together for purposes of sizing the applicable Site License Fee if the
Customer/Sublicensee contracts to buying more than one Site License within a
period of three years. If, however, the Customer/Sublicensee does not build
or pay the applicable Site License fee within a period of three years, then
the Customer/Sublicensee will become obligated to pay the difference between
the discounted Site License Fee and the Site License Fee that the
Customer/Sublicensee would have paid had it committed only to the number of
AEFLGR(TM) Technology systems it actually built.
12
<PAGE>
3. *
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
4. Notwithstanding the Site License Fee Schedule set out above, LICENSEE may,
from time to time, recommend to GRI that a Customer/Sublicensee be offered
the option of paying for AEFLGR(TM) Technology pursuant to an alternate
Royalty calculation and not pursuant to the Site License Fee Schedule, and
GRI agrees to consider such alternate Royalty calculations. LICENSEE will
recommend an alternative Royalty calculation only when, in LICENSEE's
reasonable commercial judgment, the Customer/Sublicensee is unlikely to
consider buying AEFLGR(TM) Technology unless offered such an alternative.
5. GRI and LICENSEE agree that (i) when a customer/sublicensee of GRI's
FLGR(TM) Technology has already purchased and installed as of the date of
this Agreement Fuel Tech Inc.'s NOxOUT(R) technology and then purchases
GRI's FLGR(TM) Technology; or (ii) after the effective date of this
Agreement, if a customer/sublicensee of GRI's FLGR(TM) Technology installs a
NOxOUT system and installs a FLGR Technology system more than eighteen (18)
months after installing that NOxOUT system, then the customer/sublicensee
will receive a Site License to operate its system as either a FLGR
Technology system or an AEFLGR Technology system without having to pay the
differential Site License fee for the AEFLGR Technology.
6. For each calendar year indicated below, LICENSEE agrees to use its
reasonable best efforts to sell, lease, or otherwise transfer sufficient
AEFLGR(TM) Technology systems for the following Minimum Cumulative Megawatts
(based on the boiler nameplate megawatt capacity, excluding Demonstration
Sales, to which the AEFLGR(TM) Technology is applied):
Year Minimum Cumulative Megawatts
---- ----------------------------
1999 *
2000 *
2001 *
2002 *
2003 *
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMAITON HAS BEEN FILED SEPARATELY.
The Minimum Cumulative Megawatts are a cumulative total, running from year
to year, of all boiler nameplate megawatt capacity to which the AEFLGR(TM)
Technology is applied, through sale, lease, or other transfer, excluding
Demonstration Sales, by LICENSEE. LICENSEE shall receive credit towards the
calculation of the Minimum Cumulative Megawatts required under the terms of
this Agreement for one-half of the boiler nameplate megawatt capacity of an
FLGR(TM) Technology system sold under FUEL TECH INC.'s FLGR(TM) Technology
license from GRI.
7. At the end of each calendar year during the term of this Agreement, LICENSEE
shall pay to GRI a minimum Royalty equivalent to the difference between the
Minimum Cumulative Megawatts indicated above and the actual cumulative
megawatts sold through the current year of the Agreement.
13
<PAGE>
8. Maintenance Fee. Beginning January 1, 1999, and on every January 1
thereafter during the term of this Agreement, LICENSEE shall pay to GRI a
yearly Maintenance Fee of $ *. * INFORMATION OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT: SUCH INFORMATION HAS BEEN FILED SEPARATELY.
9. It is in the best interests of the Parties to maximize the commercial
exploitation of the GRI Patents and the GRI Technical Information. To
achieve the most effective commercial exploitation of the AEFLGR(TM)
Technology, LICENSEE shall propose appropriate Demonstration Sales of the
AEFLGR(TM)Technology. GRI shall not unreasonably withhold its approval of
the proposed Demonstration Sales. No Royalty payments shall be due on such
Demonstration Sales. LICENSEE and GRI agree that such Demonstration Sales
shall include new and different applications of the AEFLGR(TM)Technology,
including but not limited to the application of the AEFLGR(TM)Technology to
the following types of boilers: a cyclone boiler, a cyclone boiler with
over-fire air, a wall-fired boiler, a tangentially-fired boiler, an
opposed-wall-fired boiler, and a boiler with a total megawatt capacity of
500 MW or above.
10. Notwithstanding anything to the contrary in this Agreement, if the GRI
Patents are invalidated, then LICENSEE's obligation to make Royalty
payments shall cease and this Agreement shall terminate.
11. Within forty-five (45) days of the close of each fiscal quarter of
LICENSEE, beginning with the first close of a fiscal quarter following the
Effective Date, LICENSEE shall make the Royalty payments due under this
Agreement to GRI for all Site License Fees received by LICENSEE during that
quarter on Commercial Sales of the AEFLGR(TM)Technology, or LICENSEE shall
certify to GRI that it has made no Commercial Sales of the AEFLGR(TM)
Technology. All Royalty payments shall be made in U.S. dollars. LICENSEE
shall attach a statement to its - payment indicating the size and location
of the boiler to which each Customer/Sublicense applies, the applicable
Site License Fee per boiler, the total megawatts for the number of
AEFLGR(TM)Technology systems sold, leased, or otherwise transferred to date
by year, and such other information as GRI may reasonably request from time
to time.
12. Interest on Late Payments. Royalty payments provided for in this Agreement,
when overdue, shall bear interest at a rate per annum equal to two percent
(2%) in excess of the "Prime Rate" published by "The Wall Street Journal"
on the due date for such Royalty payment. This interest charge shall
commence on the day after the due date and shall continue until payment is
received by GRI. The foregoing notwithstanding, if a royalty payment is
more than sixty (60) days past due, GRI may, at its sole option, deem such
late payment to be a material breach of this Agreement.
13. Records, Audit. LICENSEE agrees to maintain adequate books and accounting
records relating to the Royalties due. Such books and records shall be
available for GRI to audit and analyze by GRI's internal accountants, or at
GRI's discretion by GRI's independent accounting firm. These audits will be
paid for by GRI. Any such audit shall be permitted during business hours
within thirty (30) days of receipt of GRI's written request. GRI may
conduct such an audit on an annual basis but not more than once a year.
LICENSEE must maintain such records during the term of this Agreement and
for a period of two (2) years thereafter. LICENSEE shall incorporate a
similar provision into all sublicense agreements, permitting GRI to conduct
reasonable and periodic audits of the sublicensee's books and records.
14
<PAGE>
LICENSE AGREEMENT
AMENDMENT NO. 1.
Amendment to LICENSE AGREEMENT between GAS RESEARCH INSTITUTE, an Illinois
not-for-profit corporation ("GRI") and FUEL TECH, INC., ("LICENSEE").
W I T N E S S E T H:
-------------------
WHEREAS, GRI and LICENSEE have entered into a LICENSE AGREEMENT dated November
18, 1998, (hereinafter called the "Agreement"); and
WHEREAS, GRI and LICENSEE desire to modify the terms under which LICENSEE must
pay a Royalty to GRI for use of the licensed technology and patents.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
1. Add Paragraphs 2.11 and 2.12 as follows:
"2.11 'Engineered Equipment' means:
a.) FLGR(TM)Gas Isolation and Flow Control Modules: manual gas
isolation valves, strainers, automatic isolation and vent
valves, inlet and outlet pressure transmitters, gas flow
control valves, gas injectors, gas flow transmitters,
automated header vent valves, and interconnecting piping.
b.) Gas Pressure Reducing Station: manual isolation valves,
inlet gas strainers, inlet and outlet pressure indicators
and transmitters, two redundant pressure control valves,
and interconnecting piping.
c.) Manual Gas Injector Flow Control: manual gas flow control
valves, manual gas isolation valves, pressure indicators,
and interconnecting piping.
d.) Automated Gas Injector Flow Control: automatic gas flow
control valves, automatic gas isolation valves, gas
pressure transmitters, and interconnecting piping.
e.) Drawings: equipment drawings such as P&IDs for Equipment
supplied by Fuel Tech.
f.) Controls and Instrumentation: control hardware, including
PLC or DCS, programming and software used to run hardware;
and sensors used to provide input to control hardware.
<PAGE>
"2.12 `Engineering Services' means:
a.) Baseline Testing: in-furnace temperature and species
mapping and emission measurements using a multi-point
economizer sampling grid.
Moment ("LIM") model to develop predictions for the
FLGR(TM) performance and to establish optimum
gas/NOxOUT-A(R) injection locations and flow rates.
c.) FLGR(TM) System Deployment: Include equipment installation
support, control logic integration support, operator
process and safety training, equipment startup and
checkout, process and boiler optimization tuning and
process guarantee testing and support."
2. Delete Paragraph 5.1 of Section 5, Royalties, in its entirety and substitute
the following in lieu thereof:
"5.1 In consideration for the license rights granted to LICENSEE by
GRI pursuant to this Agreement, LICENSEE shall pay GRI a Royalty
in accordance with Schedule B of this Agreement."
3. Delete Paragraph 14.2 of Section 14, General Provisions, in its entirety and
substitute the following in lieu thereof:
"14.2 Assignment. This Agreement may not be assigned in whole or in
part by either Party without the prior written consent of the
other Party, except that this Agreement may be assigned to a
wholly-owned subsidiary of a Party or to any entity with whom
any Party merges or consolidates or to whom either Party sells
all or substantially all of such Party's assets. Any assignment
made without such consent, other than the permitted assignments
noted above, shall be considered void ab initio. This Agreement
shall inure to the benefit of and be binding upon the Parties
hereto and their respective successors and permitted assigns."
4. Delete Paragraph 1 of SCHEDULE B, ROYALTIES, in its entirety and substitute
the following in lieu thereof:
"1. In consideration of the license grant set forth in Section 3 of
this Agreement, LICENSEE shall pay to GRI a royalty ("Royalty")
which shall consist of the following: (a) * percent ( * %) of
the Site License Fee from the Commercial Sale (excluding
Demonstration Sales) of FLGR(TM) Technology calculated pursuant
to the Site License Fee Schedule set forth below (LICENSEE shall
retain the remaining * percent ( * %) of the Site License Fee);
(b) * percent ( * %) of the revenue received by LICENSEE for
Engineering Services related to the assessment or implementation
of FLGR(TM) Technology; and (c) * percent ( * %) of the revenue
received by LICENSEE for Engineered Equipment related to the
implementation of FLGR(TM) Technology."
<PAGE>
Site License Fee Schedule
- --------------------------------------------------------------------------------
Utility Boiler Site License Fees
- --------------------------------------------------------------------------------
Boiler Size FLGR
- --------------------------------------------------------------------------------
<= 100 MW $ * /KW
- --------------------------------------------------------------------------------
101-200 MW $ * /KW
- --------------------------------------------------------------------------------
201-300 MW $ * /KW
- --------------------------------------------------------------------------------
301- 400 MW $ * /KW
- --------------------------------------------------------------------------------
401-500 MW $ * /KW
- --------------------------------------------------------------------------------
=> 501 MW $ * /KW
- --------------------------------------------------------------------------------
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
- --------------------------------------------------------------------------------
Industrial Boiler Site License Fees
- --------------------------------------------------------------------------------
Boiler Size FLGR
- --------------------------------------------------------------------------------
Minimum Fee $ *
- --------------------------------------------------------------------------------
<= 250 MMBTU/HR $ * /MMBTU/hr
- --------------------------------------------------------------------------------
251 - 500 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
501 - 1000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
1001 - 2000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
2001 - 3000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
3001 - 4000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
4001 - 5000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
5001 - 10000 MMBTU/hr $ * /MMBTU/hr
- --------------------------------------------------------------------------------
* INFORMATION OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT: SUCH
INFORMATION HAS BEEN FILED SEPARATELY.
5. Delete Paragraphs 4 and 5 of SCHEDULE B, ROYALTIES, in their entirety and
substitute the following in lieu thereof:
"4. Notwithstanding the Site License Fee Schedule set out above,
LICENSEE may, from time to time, recommend to GRI that a
Customer/Sublicensee be offered the option of paying for
FLGR(TM)Technology pursuant to an alternate calculation and not
pursuant to the Site License Fee Schedule, and GRI agrees to
consider such alternate calculations. LICENSEE will recommend an
alternative calculation only when, in LICENSEE's reasonable
commercial judgment, the Customer/Sublicensee is unlikely to
consider buying FLGR(TM)Technology unless offered such an
alternative. Notwithstanding the above, any discount offered to
a customer shall come solely out of the portion of the Site
License Fee received by LICENSEE and/or the revenue received by
LICENSEE from the Engineering Services and Engineered Equipment,
and GRI shall at all times receive its full Royalty calculated
under Paragraph 1 of this Schedule B.
<PAGE>
5. GRI agrees that when a Customer/Sublicensee has already
purchased and installed as of the date of this Agreement Fuel
Tech Inc.'s NOxOUT(R) technology, GRI will receive a Royalty
from a sale of FLGR(TM) Technology to that Customer/Sublicensee
pursuant to the provisions of Paragraph 1 of this Schedule B and
the Customer/Sublicensee will receive a Site License to operate
its system as either a FLGRTM Technology system or an AEFLGR
Technology system. After the effective date of this Agreement,
if a Customer/Sublicensee installs a NOxOUT(R) system from
LICENSEE and installs a FLGRTM Technology system within eighteen
(18) months thereafter of installing that NOxOUT(R) system, and
if the Customer/Sublicensee intends to operate the system as
taught by GRI's AEFLGR patent(s), then GRI shall receive a
roylaty for the sale of the FLGRTM Technology system to that
Customer/Sublicensee that is calculated on the basis of the Site
License Fee Schedule contained in the AEFLGR License Agreement,
and the Customer/Sublicensee will receive a Site License to
operate its system as either a FLGRTM Technology system or an
AEFLGR Technology system. If a Customer/Sublicensee installs a
NOxOUT system from LICENSEE and installs a FLGRTM Technology
system more than eighteen (18) months after installing that
NOxOUT(R) system, then GRI shall receive a Royalty for the sale
of the FLGRTM Technology system to that Customer/Sublicensee
that is calculated on the basis of the provisions of Paragraph 1
of this Schedule B, and the Customer/Sublicensee will receive a
Site License to operate its system as either a FLGRTM Technology
system or an AEFLGR Technology system."
6. Delete Paragraphs 7 and 8 of SCHEDULE B, ROYALTIES, in their entirety and
substitute the following in lieu thereof:
"7. At the end of each calendar year during the term of this
Agreement, LICENSEE shall pay to GRI a minimum Site License Fee
equivalent to the difference between the Minimum Cumulative
Megawatts indicated above and the actual cumulative megawatts
sold through the current year of the Agreement. If LICENSEE
fails to pay the minimum Site License Fee as required, then,
upon written notice to LICENSEE, the license granted in Section
3 of this Agreement shall terminate.
8. It is in the best interest of the Parties to maximize the
commercial exploitation of the GRI Patents and the GRI Technical
Information. To achieve the most effective commercial
exploitation of the FLGR(TM) Technology, LICENSEE shall propose
appropriate Demonstration Sales of the FLGR(TM)Technology. GRI
shall not unreasonably withhold its approval of the proposed
Demonstration Sales. No Site License Fee payments shall be due
on such Demonstration Sales. LICENSEE and GRI agree that such
Demonstration Sales shall include new and different applications
of the FLGR(TM) Technology, including but not limited to the
application of the FLGR(TM) Technology to the following types of
boilers: a cyclone boiler with over-fire air, a wet-bottom
boiler, a wall-fired boiler, a tangentially-fired boiler, an
opposed-wall-fired boiler, and a boiler with a total megawatt
capacity of 500 MW or above."
7. Delete Paragraphs 10 and 11 of SCHEDULE B, ROYALTIES, in their entirety and
substitute the following in lieu thereof:
<PAGE>
"10. Within forty-five (45) days of the close of each fiscal quarter
of LICENSEE, beginning with the first close of a fiscal quarter
following the Effective Date, LICENSEE shall make the Royalty
payments due under this Agreement to GRI, including all Site
License Fees received by LICENSEE during that quarter on
Commercial Sales of the FLGR(TM) Technology, or LICENSEE shall
certify to GRI that it has made no Commercial Sales of the
FLGR(TM) Technology. All Royalty payments shall be made in U.S.
dollars. LICENSEE shall attach a statement to its payment
indicating the size and location of the boiler to which each
Customer/Sublicense applies, the applicable Site License Fee per
boiler, the total megawatts for the number of FLGR(TM)
Technology systems sold, leased, or otherwise transferred to
date by year, the amount of revenue received from the sale of
Engineering Services and Engineered Equipment, and such other
information as GRI may reasonably request from time to time.
11. Interest on Late Payments. Royalty payments provided for in this
Agreement, when overdue, shall bear interest at a rate per annum
equal to two percent (2%) in excess of the "Prime Rate"
published by "The Wall Street Journal" on the due date for such
Royalty payment. This interest charge shall commence on the day
after the due date and shall continue until payment is received
by GRI. The foregoing notwithstanding, if a Royalty payment is
more than sixty (60) days past due, GRI may, at its sole option,
deem such late payment to be a material breach of this
Agreement."
Except as expressly revised and amended by this Amendment No. 1, the Agreement
is in all other respects ratified, confirmed, and continued in full
force and effect in accordance with the original Agreement and its
attachments.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the last date
and year written below.
FUEL TECH, INC. GAS RESEARCH INSTITUTE
By: /s/ Vincent M. Albanese By: /s/ Janice E. Pastryk
------------------------------- ------------------------------
V.P., Sales & Marketing Assoc. Gen. Counsel
------------------------------- ------------------------------
Name and Title of Signer Name and Title of Signer
2-28-00 2-23-00
------------------------------- ------------------------------
Date Signed Date Signed
(76760/pgc)
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-83068 dated August 16, 1994) pertaining to The 1993 Incentive Plan of
Fuel Tech N.V. of our report dated march 1, 2000, with respect to the
consolidated financial statements of Fuel Tech N.V. included in this Annual
Report on Form 10-K for the year ended December 31, 1999.
Ernst & Young LLP
Chicago, Illinois
March 29, 2000
