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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-19260
RENTECH, INC.
(Name of small business issuer in its charter)
Colorado 84-0957421
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1331 17th Street, Suite 720
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 298-8008
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 .
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year ended September 30,
1998 were $1,987,586.
The aggregate market value of voting stock held by nonaffiliates of the
issuer as of November 2, 1998 was $44,617,041 based upon the average closing bid
and asked prices of such stock on that date.
The number of shares outstanding of the issuer's common stock as of January
8, 1999 was 43,437,438.
Transitional Small Business Disclosure Format. Yes No X
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PART I
Item 1. Description of Business
Rentech, Inc. (the "Company" or "Rentech") was incorporated as a Colorado
corporation in 1981. It was organized to develop and exploit its process for
the conversion of gases and solid materials that bear carbons into valuable
liquid hydrocarbons ("gas to liquids" or "GTL Technology"). The end products
include high quality transportation fuels and petrochemical feedstocks.
Rentech is implementing a strategic plan to engage in three primary areas
of business as outlined in its Annual Shareholders Meeting of June 24, 1998.
Rentech intends to accelerate its development of its gas-to-liquids technology
by further research into solids-to-liquids and its liquids-to-liquids processes
in cooperation with Texaco Natural Gas, Inc. The Company's second area of
business is its continuing investment into its advanced technology joint
ventures with ITN Energy Systems, Inc. These investments in thin-film substrate
research, smart metal applications and ceramic membrane development provide
significant long-term growth potential for Rentech. The Company's third area of
business is the continuing acquisition of commercial businesses with strong cash
flows to provide the economic stability necessary to advance the Company's
strategic plan.
Rentech GTL Technology--Petrochemicals
Rentech was originally established to develop and exploit its GTL
Technology for the conversion of low-value carbon bearing solids or gases into
valuable liquid hydrocarbons, including premium diesel fuel, naphthas and waxes.
The technical feasibility of the Rentech GTL Technology, that is, ability of the
Company's conversion processes to convert carbon-bearing gases into valuable
liquid hydrocarbons, was established in the Company's first pilot plant. That
plant operated periodically between 1982 and 1985. Technical feasibility was
again demonstrated in the Company's second pilot plant operated during 1989.
Basic gas to liquids conversion technology has existed since the 1920s.
The Rentech GTL Technology is based upon the Fischer-Tropsch conversion process
that was originally developed in Germany during the 1930s to create synthetic
fuels. When petroleum imports became readily available after World War II,
Fischer-Tropsch research went into decline. At that time and thereafter, the
commercial use of the technology was not economically viable. The Arab oil
embargo of 1973 created fuel shortages, and that crisis renewed interest in
Fischer-Tropsch processes. Research was conducted at the Naval Weapons Center
in China Lake, California and later at the Solar Energy Research Institute in
Golden, Colorado. Based in part on those efforts, Rentech developed its own gas
to liquids conversion process as well as a catalyst that is essential to use of
the Rentech GTL Technology.
The Rentech GTL Technology uses an iron-based catalyst. Rentech's catalyst
operates on feedstock with any hydrogen to carbon ratio. That capability,
shared by only one other technology provider known to management, enables
Rentech's GTL Technology to convert both natural gas and solids into liquid
hydrocarbons. Natural gas must first be reformed into synthesis gas, a mixture
of hydrogen and carbon monoxide gases. The solid and liquid materials must be
converted into gaseous
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form and then reformed into synthesis gas. The synthesis gas is then used as
the feed for the conversion step provided by the Rentech GTL Technology to
produce liquid hydrocarbons.
Economic use of the Rentech GTL Technology depends upon inexpensive
sources of carbon-bearing gas or solids that can be efficiently converted
into feedstock gases. Many types of carbon-bearing materials are suitable
sources of feedstock for the Rentech GTL Technology. Several of these
materials are in abundant supply worldwide. Some of the most important
sources of feedstock are natural gas, coal, and low-value refinery residues.
Other sources of feedstock include methane, gas collected from coal beds,
industrial off gases that are the byproduct of an industry process, and,
waste agricultural products such as straw and rice hulls.
Rentech GTL Technology can provide a means of utilizing carbon-bearing
resources that are currently unmarketable, for one of several reasons. Many
natural gas reservoirs around the world have been identified but are
presently unmarketable because they are in remote locations too far from
markets for economic transportation in the gaseous state. If these types of
reserves are converted into liquid hydrocarbons, they can be transported in
trucks, tankers and pipelines like other liquid hydrocarbons. Other natural
gas reserves are unmarketable due to the presence of diluents, including
carbon dioxide and nitrogen, both of which can be utilized in the Rentech GTL
Technology. Some low grade coal deposits and high sulphur coal deposits are
uneconomic for coal mining but may be gasified and used as feedstock for the
Rentech GTL Technology. Oil refinery residues, unless they are treated at
considerable expense, must be disposed of as hazardous materials. If
instead, the residues are gasified and used as feedstock for the Rentech GTL
Technology, they can produce valuable liquid hydrocarbons that are subject to
treatment like other liquid hydrocarbon products. See "Description of
Business, Feedstock Supplies for the Rentech GTL Technology."
The principal products of the Rentech GTL Technology process are
clean-burning and premium-grade diesel fuel, naphthas useful as a feedstock
for chemical processing and for refining into varnishes and mineral spirits,
and waxes useful in hot-melt adhesives, inks and coatings, and a variety of
other wax-based products.
The Company's original business is licensing the Rentech gas-to-liquids
Technology, including sale of its patented catalyst. Licensees are granted
in exchange for license fees and royalties on the production of liquid
hydrocarbons from conversion plants that use the GTL Technology. The
licenses provide that the licensees will construct and own the conversion
plants. Rentech also provides engineering design and technical services
under contract with its licensees for their use in constructing licensed
plants. In addition, Rentech provides engineering services and startup
operational support services on a fee basis for licensed plants. Rentech may
reserve the right to contract for the engineering and manufacture of the
synthesis gas reactor modules that are essential to use of its GTL Technology
in conversion plants.
The Company has not in the past year, and does not in the future, expect
to incur any costs for constructing plants that it would own. It may,
however, make investments to acquire minority ownership interests in future
plants constructed by licensees. See "Description of Business - Present
Licenses and Contracts for the Rentech GTL Technology."
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Environmental and Industrial Products--Okon, Inc.
In March 1997, Rentech entered into the business of manufacturing and
selling water-based stains, sealers and coatings on a wholesale basis by
purchasing the assets of Okon, Inc. ("Okon"). The coatings produced and sold
by the Okon subsidiary are biodegradable and environmentally clean. The
formulas used by Okon for manufacturing its products are proprietary. The
customers are primarily the construction industry and architects who use the
coatings on wood, concrete and masonry for their construction projects.
Okon, at present, is the Company's primary source of revenue.
Okon has been engaged for over 25 years in the business of manufacturing
and marketing biodegradable and environmentally clean water-based wood
stains, concrete stains, block pluggers and other water repellent sealers.
Okon markets and sells its products nationwide through a variety of channels.
These include distribution through paint dealers, retailers other than
discount retailers and mass merchandisers, industry users, and architects and
building contractors. Okon has a one-person sales staff, but no distributors
or independent sales representatives. The brand names of the various
products are recognized throughout the industry.
Primarily, Okon manufactures and markets standard products, but it also
will prepare special products for large orders. Sales are generally made
pursuant to purchase orders, which are occasionally revised to reflect
changes in the customer's requirements or to establish special orders.
Product deliveries are scheduled upon Okon's receipt of purchase orders, and
orders are typically filled within one to two days. Okon had no significant
backlog of orders as of September 30, 1998. Generally the purchase orders
allow customers to reschedule delivery dates and cancel purchase orders
without significant penalties. Orders are occasionally rescheduled, revised
or canceled. For these reasons, the Company believes that its backlog, while
useful for scheduling production, is not necessarily a reliable indicator of
future revenues.
Historically, sales of stains and sealers have been seasonal in nature.
The heaviest concentration of sales have occurred in the spring and summer
months. Production schedules are timed to reflect these seasonal variations.
Okon's sales of products to certain customers, individually, may
constitute a significant portion of its revenues. Okon, however, sells to
over 2,000 customers, and the loss of any single customer would not have a
material adverse effect upon the overall business of the Okon subsidiary.
The coatings industry in which Okon conducts its business is highly
competitive and has historically been subject to intense price competition.
Other competitive factors in the coatings industry include the content of
volatile organic compounds (V.O.C.) in the product, product quality, product
innovation, and distribution. There are five major competitors in this
market. Management believes that the entire market is approximately
$27,000,000 per year. Okon is well positioned in the industry. The Company
believes that Okon is very competitive based on the quality of its products
and their unique properties, including the absence of V.O.C. ingredients.
Okon's products are water-based and biodegradable.
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The majority of wood stains, concrete stains and block pluggers
currently on the market contain V.O.C. levels that are increasingly
considered unacceptable in several regions of the United States. State and
federal government agencies have proposed further restrictions to limit the
levels of V.O.C. contained in products. The restrictions have effectively
prohibited the sale and use of high V.O.C. products in certain states such as
California.
The environmental advantages of the Okon products complement Rentech's
business philosophy of producing environmentally cleaner fuels and products.
The Company's long-term plan is to establish an environmental and industrial
products group that includes Okon.
Advanced Technologies (ITN Electronic Substrates LLC)
Rentech owns 10% of ITN Energy Systems, Inc. ("ITN/ES"), a privately
owned Colorado corporation. ITN/ES owns 50% of an Arizona limited liability
company called Global Solar Energy LLC ("Global Solar Energy"). The other
50% owner of Global Solar Energy is Advanced Energy Technologies, Inc., a
wholly owned subsidiary of Tucson Electric Power Corporation, which is a
wholly-owned subsidiary of UniSource Energy Corporation.
Global Solar Energy, established in May 1996 by Tucson Electric Power
and ITN/ES, manufactures and markets flexible photovoltaic (PV) modules. The
PV modules are used for the production of electricity. Global Solar Energy
utilizes innovative solar technology developed by ITN/ES to produce Copper
Indium Diselenide (CIS), a new class of solar cell materials in a
state-of-the-art facility in Tucson, Arizona. The facility, scheduled to go
on line in the first quarter of 1999, is designed to manufacture and produce
up to 1.5 megawatts of thin-film photovoltaic modules that are 1/20th the
thickness of a piece of paper. The flexible photovoltaic modules are to be
sold for military, space, consumer, and commercial applications. Additional
plans call for the plant's production capacity to be expanded substantially
to meet increasing demands for an environmentally safe energy source. It is
expected that the innovative manufacturing technology incorporated into the
new plant can reduce production costs below that of other existing solar
energy technologies. Rentech's interest in ITN/ES provides Rentech an
indirect interest amounting to 5% of Global Solar Energy.
As a step toward its long-term goal of establishing an advanced
technology group, Rentech agreed in July 1997 with ITN/ES to enter into a new
business organized as ITN Electronic Substrates LLC ("LLC"). Rentech owns
50% of the LLC, and ITN/ES owns 50%. Rentech is manager of the LLC for
financial, marketing, and operational matters. The other member of the LLC
is manager for technical matters. Rentech and ITN/ES contemplate that the
LLC's business will be based upon advanced technology to be contributed to it
by ITN/ES. The LLC will use the technology to manufacture and sell flexible
thin-film on which it has electronically deposited metals with unique
properties, such as copper and molybdenum, that provide conductive paths to
which computer chips may be attached. The customers are expected to be
contract manufacturers in the computer, aerospace and medical instrument
industries, as well as large end-users which would use the substrates to
manufacture their own products. The LLC is actively pursuing development of
a passive RFID tag (Radio Frequency Identification Tag) with a major
customer. This tag will be manufactured utilizing thin film substrate
technology. The Company and the LLC believe that there is a substantial
future market in the
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distribution, warehousing and transportation fields for passive and active
RFID tags. The LLC has developed alpha-stage prototypes which are currently
being evaluated by prospective customers.
Rentech has an agreement with ITN/ES contemplating co-ownership by them
of additional businesses to be organized as limited liability companies. The
additional limited liability companies would commercially exploit other
advanced technologies developed by ITN/ES. There are several such potential
technologies. These include advanced processes for ceramic deposition on
materials to improve their capacity to withstand heat and wear. Another
potential technology involves use of shape memory alloys that are highly
advanced metals which, by the proper application of heat, cold or electrical
impulse can perform a mechanical function with precision for long periods of
time. An application of this technology is the Thermal Heat Engine or solar
pump being developed by ITN/ES and Rentech. This pump utilizes ambient
temperature differentials between ground water and air temperature to
activate an advanced spring made of shape memory alloys to drive the pump
action.
The agreement between Rentech and ITN/ES recognizes that
commercialization of the technologies already in existence, as well as those
that may be developed in the future by ITN/ES, may require establishment of
additional business entities. By mutual agreement with ITN/ES, Rentech may
provide additional capital to increase its ownership interest in the various
advanced technologies developed by ITN/ES.
Business Strategy for Commercializing the Rentech GTL Technology
The Company's objective for its Rentech GTL Technology is to license the
GTL Technology for use in plants to be constructed and financed by licensees.
The Rentech GTL Technology is innovative, has been presented at energy
industry conferences, and has become generally known throughout the energy
industry. Interested businesses that are potential licensees have initiated
contacts with the Company. The Company has also had negotiations with
potential licensees who were introduced through its present licensees. See
"Texaco License Arrangement."
Rentech's licensees are responsible for financing, constructing and
operating their own conversion plants that use the Rentech GTL Technology and
catalyst. Licensees would also pay for synthesis gas reactor modules that
are supplied by Rentech to meet the special design specifications required
for each plant. It is the licensee's obligation to obtain the feedstock
material, either carbon bearing solids or gases, to be fed into the
licensee's plant. Each licensee is also responsible for marketing the liquid
hydrocarbon products produced from their licensed plant.
Conversion plants that use the Rentech GTL Technology may be designed to
produce from several hundred up to one hundred thousand or more barrels per
day of product. The smaller plants are expected to be assembled from
component systems that are trucked into remote locations where inexpensive
sources of feedstock may be available. Plants with the largest production
capabilities would have to be constructed directly at the sites where they
are to be operated. The cost of constructing conversion plants will vary
depending upon production capacity; available infrastructure such as
electrical power, water supplies, roads, gas pipelines and the like;
location; cost of financing; whether
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the feedstock is a gas or carbon-bearing solid that must first be converted
to synthesis gas; and, other factors.
Some of Rentech's licensees and prospective licensees are foreign and
expect to locate their plants outside the United States. Domestic licensees
may also construct their plants in other countries. Many foreign nations,
such as India, have substantial needs for diesel fuel that are not being met
at this time.
The designs of plants for use of the Rentech GTL Technology are complex.
Each design must be developed to fit the composition of the synthesis gas
that will be the feedstock, and also designed to produce the desired
products. Business dealings in foreign countries, the ability of licensees to
obtain financing for construction of plants, and the complexity of design are
factors that may result in delays in schedules for financing, design,
construction and start up of operations of a plant following the initial
decision to proceed with construction.
Texaco License Arrangement for the Rentech GTL Technology
On October 8, 1998, Rentech entered into a licensing agreement with
Texaco Natural Gas, Inc. ("Texaco") for the Rentech GTL Technology. Under
the license, Texaco will use Rentech's gas to liquids technology in
combination with Texaco's proprietary gasification technology to produce
liquid hydrocarbon products such as naphtha, fuel and specialty products.
The Texaco gasification technology, which produces synthesis gas by
partial oxidation of carbon-based substances, will be used to generate the
synthesis gas feedstock for the Rentech GTL Technology. The combination of
these technologies will allow for the use of a broad range of feedstocks such
as petroleum coke, oils and byproducts generated in refineries and chemical
plants.
Under the terms of the agreement, Texaco has an exclusive, worldwide
(except in India) license to use and sublicense the Rentech GTL Technology in
projects where solid and liquid hydrocarbons are used as feedstocks for the
generation of synthesis gas in a gasification process such as the proprietary
Texaco gasification process. Rentech retains the right to license at its
discretion for GTL technology for 100% natural gas feedstock. Texaco and
Rentech will share revenues from plants licensed under this agreement.
Additionally, Texaco received a non-exclusive license (except in India) to
use the Rentech GTL Technology for the conversion of 100% natural gas
feedstock.
Until the deployment and integration of the two technologies is
completed, Rentech will not have information adequate to assess whether the
arrangement with Texaco will result in significant revenues to Rentech at
some time in the future.
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Thermal Conversion Corp Test of Rentech GTL Technology
In August 1998, Rentech entered into a joint venture with Thermal
Conversion Corp ("TCC"). TCC is wholly owned by EnerTek Partners, a
consortium of major U.S. energy production and distribution companies. These
companies include Columbia Gas, Consolidated Natural Gas, Enron, and Southern
California Gas Company. EnerTek Partners is managed by Scientific Advances,
Inc., a subsidiary of Battelle Memorial Institute.
TCC owns technology by which an electrically generated high-power
electric current is created inside a high temperature reactor for the purpose
of converting carbon bearing gases induced into the reactor into synthesis
gas, a mixture of carbon monoxide and hydrogen. The TCC thermal and chemical
process is referred to as plasma technology. Tests are being conducted by
TCC to determine whether TCC's plasma technology, in the presence of
Rentech's catalyst, economically converts natural gas into synthesis gases
that have compositions prescribed in advance. If so, the synthesis gases
produced by this process could be suitable for use in gas conversion plants
that use Rentech's GTL Technology. Successful combination of TCC's plasma
technology with Rentech's GTL Technology would enable users of Rentech's
technology to use smaller scale and less expensive gas conversion plants than
are now required. This could provide a cost-effective solution to the need
for gas conversion plants that are small enough to be mounted and
economically used on barges for production of liquid hydrocarbons from
offshore natural gas wells.
The tests are not expected to be completed until the first few months of
1999. If the tests are successful, Rentech will be entitled to a
nonexclusive license to use the TCC plasma technology with the Rentech GTL
Technology. Rentech will also receive, for 10 years, 5% of any future license
fees, royalties or other payments in lieu thereof that are received by TCC
for use of its plasma technology in any other gas-to-liquids projects.
Demonstration of the Rentech GTL Technology in the Synhytech Plant
In 1985, Fuel Resources Development Company ("Fuelco"), a wholly-owned
subsidiary of Public Service Company of Colorado ("PSCo"), evaluated
Rentech's GTL Technology. Based upon a favorable review in 1986, Rentech
granted Fuelco the right to obtain an option to license the GTL Technology,
and Fuelco continued its evaluation. Fuelco subsequently assisted with
construction and operation of the second pilot plant in 1989. Successful
operation of that plant confirmed the technical feasibility of Rentech's GTL
Technology, that is, the ability of the GTL Technology to convert
carbon-bearing gases, and solids converted into synthesis gas, that are fed
to a conversion plant, into valuable liquid hydrocarbons such as diesel fuel,
naphthas, and waxes. In 1990 Fuelco began construction of the first
full-scale conversion plant, located near Pueblo, Colorado. This plant,
called the Synhytech plant, cost Fuelco approximately $25 million to
construct, maintain and operate. It was specifically designed and constructed
to use methane gas from an adjacent landfill as its feedstock. The plant was
designed and built by a contractor for Fuelco to produce 235 barrels of
liquid hydrocarbons per day. Fuelco commenced start up operations of the
Synhytech plant and first produced liquid hydrocarbons in January 1992.
Rentech's GTL Technology, including its synthesis reactors and catalyst,
performed as expected. Fuelco was unable, however, to produce enough methane
from the landfill to operate the plant. Contrary
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to the results that Fuelco expected based upon previous test drilling into
the landfill, most of the methane produced by decomposition of the landfill
apparently escaped into the atmosphere rather than entering the gas gathering
pipeline that Fuelco had installed in the landfill for delivery of the
landfill gas to the Synhytech plant. Further, the composition of the gas was
considerably different than the gas Fuelco had determined would be produced.
Consequently, the gas that was produced was collected in inadequate volumes
and was not a suitable feedstock for the Synhytech plant because it did not
contain the combination of carbon bearing materials that Fuelco projected and
for which the plant was specifically designed. The deficiencies in Fuelco's
ability to collect its projected volume of landfill gas and in the
composition of the landfill gas that it did collect have no relation to the
technical feasibility of the Rentech GTL Technology. That technology cannot
be successfully applied without an adequate volume of gas that has the same
composition as that which a plant is designed to use.
After the deficiency in feedstock gas was discovered, Fuelco constructed
a pipeline to bring an expensive and limited supply of natural gas to the
plant as an alternative feedstock on a temporary basis. Fuelco operated the
plant with a mixture of the pipeline natural gas and the landfill gas.
Because this temporary gas supply was not intended to be a permanent supply
due to the high cost of the natural gas, because it was delivered under too
low a pressure to meet the plant's original design requirements, and because
the natural gas supply was subject to cutoff in favor of prior users during
periods of high demand for gas, Fuelco shut down operations of the plant in
May 1992 to seek a better feedstock source and to repair mechanical problems
in the conventional systems of the plant. In mid-1992, before Fuelco could
solve these problems, PSCo, as part of its decision to return to its core
business of producing and selling electricity, decided to divest several
subsidiary businesses. The subsidiaries that PSCo divested included its real
estate development business and Fuelco and its Synhytech operations. After
extensive negotiations based upon the potential of claims by Rentech against
PSCo and Fuelco, they transferred all interests in the Synhytech plant to
Rentech in May 1993. PSCo and Fuelco also transferred to Rentech associated
equipment and assets, including $650,000 in cash and all the machinery,
equipment and other assets assembled by Fuelco in Boulder, Colorado to
manufacture Rentech's proprietary catalyst. The primary motivation for PSCo
to enter into the transfer agreement was Rentech's agreement to release its
claims that PSCo and Fuelco failed to perform under its license agreement
with Rentech to construct and operate a commercial size plant. The transfer
required no cash or stock from Rentech, but instead was based on termination
of the relationship between the companies and release of Rentech's claims
against Fuelco and PSCo. Fuelco's 20% interest in Rentech's future revenues
from royalties and license fees reverted to Rentech. PSCo retained its equity
interest in Rentech as a shareholder of the Company.
In February 1993, Rentech took possession of the Synhytech plant and the
related assets acquired from Fuelco and Public Service Company of Colorado.
Before acquiring the Synhytech plant, Rentech had entered into negotiations
with prospective licensees who had indicated interest in acquiring licenses
if the Company could provide data from actual operations of a full-size
plant. In order to provide verifiable statistics and evidence for
prospective licensees, and to evaluate the plant and its components for
resale to one or more prospective licensees, Rentech decided to operate the
plant for a short period of time. Rentech therefore converted the Synhytech
plant during 1993 to use natural gas rather than landfill gas; corrected or
resized several items of equipment and other associated hardware; and
modified several aspects of the engineering design used by Fuelco for the
conventional systems of the plant. Rentech's costs to convert the plant,
including operations during the demonstration run and
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assumption of all obligations for equipment leases, gas supply contracts and
utilities, were approximately $3.3 million.
In accordance with the Company's plan to provide operating data on
Rentech's GTL Technology in a full-size, commercial scale plant and to
evaluate the plant, Rentech operated the modified Synhytech plant
successfully in a continuous state for three weeks during July and August
1993. As planned, the plant was then shut down pending a decision by
Rentech's management regarding its sale or other disposition. During the
demonstration phase, the plant operated at design specifications, produced
the expected range of hydrocarbon products, and achieved the design
conversion ratios anticipated for Rentech's catalyst used in the conversion
process. The technical data collected and initial product test results show
the Rentech GTL Technology is feasible for commercial exploitation. The
operations produced liquid hydrocarbon products, samples of which are
available to prospective licensees for their evaluation of uses, markets and
pricing of the products. Valuable engineering and operational data bearing
on the efficiency and economics of the GTL Technology were collected. This
information will also be used by licensees in the design of their own plants.
Based on these results, which were observed by several prospective
licensees, Rentech was able to obtain arrangements for use of its GTL
Technology in the Henan Plant in China, which license was allowed to expire,
and the Arunachal Pradesh plant under construction in India. See
"Description of Business--Present Licenses and Contracts for the Rentech GTL
Technology." Rentech expects to recover the related costs of the
demonstration run in the Synhytech Plant over the term of present and
expected future license agreements.
In 1993, the Synhytech plant fulfilled Rentech's purposes of
demonstrating use of its GTL Technology on a commercial scale and collection
of data for use by licensees in their plants. However, Fuelco's inability to
obtain its projected quantities and adequate quality of gas feedstock from
the landfill adversely impacted the economic viability of the plant. That
failure prevented the Synhytech plant from ever being operated at a profit at
the original site. Accordingly, in 1995, Rentech sold the Synhytech plant as
a whole, except for the buildings used for support activities, to its
licensee for the India plant. The plant was dismantled in 1996. The
component parts were shipped to Arunachal Pradesh, India where the plant has
been reassembled and modified for use of the Rentech GTL Technology.
Present Licenses and Contracts for the Rentech GTL Technology
Rentech's business arrangement with Texaco grants Texaco the exclusive
license, except in India, to use and sublicense Rentech's GTL Technology for
solid and liquid feedstocks in plants where a gasification process is used.
See "Description of Business -- Texaco License Arrangement." Rentech retains
rights to license the GTL Technology for 100% natural gas feedstock but
Texaco also received a non-exclusive license to use the technology for 100%
natural gas feedstock.
Several other licenses for use of the GTL Technology have been granted
by Rentech, as described in this section. Rentech's licenses for 100%
natural gas feedstock authorize a third party to construct a conversion plant
utilizing the Rentech GTL Technology. The license agreements are granted in
exchange for license fees, engineering design fees, and production royalties
based either upon a percentage of gross proceeds from the sale of liquid
hydrocarbons or other products produced through
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use of the Rentech GTL Technology or based upon some other measure of product
value. Licenses may grant either exclusive or non-exclusive rights to use
the GTL Technology in identified countries or other geographic areas. The
license fees and terms are individually negotiated and vary among licensees.
In September 1992, Rentech granted the exclusive right to ITN, Inc., a
Colorado corporation, to market the Rentech GTL Technology in the country of
India to potential owners of Rentech gas conversion plants. ITN, Inc. is
owned by Dr. Mohan S. Misra, who also owns a majority of ITN/ES. See
"Description of Business--Advanced Technologies (ITN Electronic Substrates
LLC)." If ITN, Inc. identifies parties who obtain a license from Rentech and
build a plant or plants in India using the Rentech GTL Technology, ITN, Inc.
is entitled to 20% of Rentech's royalty, license fee or other revenues from
such plants as compensation. ITN, Inc. continues to assist with marketing
the Rentech GTL Technology in India.
Through the efforts of ITN, Inc., Rentech has granted a license for the
design and construction of a process plant in India using Rentech's GTL
Technology. The plant is to be a 360 barrel per day plant, using flared gas
in the state of Arunachal Pradesh in northeastern India. The owners are
Donyi Polo Petrochemicals Ltd., the state government of Arunachal Pradesh,
and Oil India, Ltd., a government of India enterprise. Gas feedstock that is
presently flared from oil wells has been allocated to this project by the
state government of Arunachal Pradesh. Between August 1994 and February
1995, Rentech completed a $300,000 preliminary contract for the basic design
of the plant that it entered into in 1994 with the plant owners. In 1995,
Donyi Polo Petrochemicals, which acquired the license from Rentech, purchased
Rentech's Synhytech plant near Pueblo, Colorado. Rentech has earned $240,000
as payments due toward its license fee. The Synhytech plant, which
constitutes the majority of base components of the India plant, was relocated
to India in late 1996 for use at the Arunachal Pradesh site. In addition to
the $250,000 contract for engineering services awarded to Rentech, Donyi Polo
Petrochemicals contracted with Humphries & Glasgow, Bombay, India, for the
prime engineering contract and for the design and fabrication of the required
wax distillation equipment. In 1998, the final engineering design of the
plant was completed by Humphries & Glasgow and construction of the plant was
started. Completion of the plant is expected during early 2000. The license
agreement provides for royalty payments to Rentech for seven years after
commencement of production from the plant. The licensee is to construct and
operate its own catalyst manufacturing plant, using the Company's patents,
for the production of catalyst for its plant.
Rentech has been requested by Oil and Natural Gas Commission, the state
oil company of India, to prepare quotations for the design of other gas
conversion facilities in India that would use the Rentech GTL Technology.
The plans under consideration would be sized to produce 2,800 and 10,000
barrels per day of products from use of the Rentech GTL Technology. No
decisions have been made to proceed with these plants. Rentech does not
expect engineering design contracts, license fees or revenues from them in
the foreseeable future. Additional prospective Indian licensees are waiting
to learn the results of operation of the Arunachal Pradesh plant in India or
another commercial size plant using the Rentech GTL Technology.
-12-
<PAGE>
Market for Products Produced by the Rentech GTL Technology
The market for diesel fuel is well established, extends worldwide, is
large, and is expected to increase. Recent total distillate fuel oil
consumption in the United States was in excess of 132 million gallons per
day, and over 750 million gallons per day worldwide.
Rentech Diesel Fuel
Laboratory tests made to determine the fuel properties of the diesel
fuel produced by use of Rentech's GTL Technology have been made by
independent testing agencies. While not exhaustive or definitive from a
scientific point of view, these tests indicate that it is a high-grade diesel
fuel that provides environmental advantages over regularly available diesel
fuel. Compared to Commercial No. 2 diesel fuel, the Rentech diesel fuel has
four fuel properties that make it less polluting. These are an absence of
sulphur, zero percent aromatics by volume, a higher cetane number, and a
lower 90% distillation temperature. During the tests, Rentech's diesel fuel
demonstrated significant reductions in harmful exhaust gas emissions. Based
on the test reports, Rentech's management believes that its diesel fuel has
improved combustion characteristics as measured by its higher cetane value.
See "Description of Business-- Patents Relating to the Rentech GTL
Technology."
A series of federal statutes known as the Clean Air Act Amendments of
1990 and the Energy Policy Act of 1992 and related executive orders have
established benchmarks for reductions in harmful exhaust emissions within the
United States. The U.S. Environmental Protection Agency has required
reductions in diesel fuel sulphur to 0.05% weight maximum. The state of
California, which has more motor vehicles than any other state, and several
other state and local governments, have also adopted legislation establishing
allowable levels of exhaust emissions for vehicles and businesses. The
California limits include 0.05% sulphur weight maximum and lowering aromatics
content to a maximum of 10% by volume. The legislative goals of the various
legislative and regulatory requirements are to reduce harmful engine exhaust
emissions by reducing fuel aromatics by volume, lowering the 90% distillation
temperature, and reducing the sulphur levels of diesel fuels. Initial
studies as to the requirements of California and other jurisdictions have
shown that emissions of hydrocarbons, carbon monoxide, oxides of nitrogen,
and particulate matter seem to be reduced by a reduction in fuel aromatics.
Higher cetane numbers were found to reduce hydrocarbon and carbon monoxide
emissions. Lowering the sulphur content of diesel fuel helps reduce
particulate matter emissions. Independent third-party testing to support the
patent applications and claims were completed by
- High Altitude Research Center, Aurora, CO
- Detroit Diesel, Detroit, MI
- California Air Resources Board, El Monte, CA
Based on the fuel characteristics tests previously described in this
section, Rentech's diesel fuel would seem to have many of the qualities that
the emerging legislation requires. Before Rentech's diesel fuel could be
said to be a practical solution to the air emission problems, however,
long-term
-13-
<PAGE>
engine wear tests are necessary. Studies conducted by several companies on
commonly available diesel fuels that have low aromatics and low sulphur
content show that such fuels may cause premature mechanical failure of some
engine parts, particularly fuel injection pumps. However, low sulphur fuel
produced from low sulphur crude oil has been used for many years without any
noticeable increase in engine failures. Industry studies indicate that
increased risk of premature failure of certain classes of fuel injection
pumps may be caused by the severe hydrotreating step used by other companies.
For them, the hydrotreating step is necessary to reduce both the aromatic
content as well as the sulphur content of commonly available diesel fuel.
The Company's GTL Technology used to produce its aromatic and sulphur free
diesel fuel from synthesis gas may not require the severe hydrogenation step.
Some fuel industry researchers have suggested the use of additives to
diesel fuels that meet the new regulatory standards as a means of reducing
fuel system wear. Additives would increase the cost of such fuels, including
Rentech's diesel fuel, if that proved necessary. Preliminary work and
studies by others indicate the cost of additives would not be so material as
to substantially impact present costs. Rentech's management believes that
its diesel fuel can best be used for blending with readily available diesel
fuel to reduce the visible and invisible contaminants in exhaust gases
produced by combustion engines.
The diesel fuel fraction produced by use of the Rentech GTL Technology
is an excellent blending stock to upgrade non-specification fuels or to
improve the quality of the commercial diesel currently being produced in
refineries. Blending with Rentech's diesel fuel lowers the aromatic and
sulphur content and increases the cetane index of commercial diesel. Rentech
has patented the blending of its Fischer-Tropsch diesel fuel with commercial
diesel to reduce harmful emissions.
Unlike alternative fuels such as methanol and compressed natural gas,
Rentech's diesel fuel does not require any engine or vehicle modification for
use. Fuel mileage may be slightly decreased, although minor engine
adjustments are expected to increase the fuel mileage to the level provided
by regularly available diesel fuel.
Rentech has no arrangements by which vehicle manufacturers have approved
the use of its fuel and no arrangements for the sale of its products. It is
not aware of any reason why its fuel would not be readily saleable and would
not command a premium price compared to current diesel fuel prices.
Rentech Naphthas
Rentech's GTL Technology also produces naphthas. Naphthas are liquid
hydrocarbon products that are lighter than diesel fuel. Naphthas are used
extensively in manufacturing processes for products as diverse as paint,
printing ink, polish, adhesives, perfumes, glues and fats. Naphthas produced
at conversion plants using the Rentech GTL Technology are expected to be in
demand due to their lower toxicity and lower aromatic content than other
naphthas. Rentech's management is aware of at least one major urban area that
limits the amounts of aromatics in naphthas due to environmental concerns.
The U.S. market for one type of naphtha that can be produced using the
Rentech GTL Technology has been estimated at 60,000 barrels per day.
-14-
<PAGE>
Rentech Wax Products
The waxes produced by the Rentech GTL Technology are expected to be the
most valuable products on a unit basis. This is because the existing market
prices for waxes are higher for each barrel of wax than for naphthas or diesel
fuel. However, the wax market is very small and can easily become saturated.
In such event, the waxes produced by the Company's GTL process can be thermally
or hydrocracked to additional naphthas and diesel fuel.
Rentech Light Crude Oil
If required, the conversion process in process plants using the Rentech GTL
Technology can be easily modified to produce a light crude oil for sale to
refineries. Rentech's GTL Technology produces a high-grade crude oil, already
partially refined. Management believes it could be inexpensively refined in
existing refineries into other petroleum products. The markets for these types
of products are well developed and extensive.
Competition With the Rentech GTL Technology
Several major oil companies are involved in large-scale synthetic fuel
development. These competitors include Royal Dutch/Shell, Exxon, Syntroleum,
and South African Synthetic Oil, Ltd. (SASOL), a South African company. Only
SASOL has a technology similar to Rentech's using an iron-based catalyst and
currently SASOL is not licensing its technology unless it is able to take a
large equity position in the licensed projects. Additionally, Royal
Dutch/Shell, Exxon and Syntroleum use cobalt-based catalyst in their GTL
technologies, and, unlike iron-based GTL technologies, the cobalt-based GTL
technologies are currently only used for the conversion of synthesis gas
produced from natural gas. However, cobalt-based GTL technologies can be used
to convert synthesis gas from liquids and solids but such a process plant
requires the addition of expensive process equipment and will suffer reduced
product yields.
Rentech's management believes that its patents protect several unique
features of its GTL Technology and catalyst that give it competitive advantages
in costs and product yields over those of its competitors. See "Description of
Business--Patents Relating to the Rentech GTL Technology." However, most
companies that do or may compete with Rentech are well established. They have
substantially greater financial, marketing, personnel and other resources than
does Rentech. No assurance can be given that Rentech will be able to
successfully compete on a price basis with either synthetic or natural fuels.
Catalyst Production for the Rentech GTL Technology
Use of the Rentech's GTL Technology requires use of its proprietary
catalyst. The license arrangements with both Texaco and Donyi Polo
Petrochemicals Ltd. authorize them to manufacture the Rentech catalyst for their
respective conversion plants. Rentech has no plans to manufacture its own
-15-
<PAGE>
catalyst. It expects to grant a license to an independent catalyst
manufacturer for manufacture and delivery of catalyst or to grant a license
to individual licensees to manufacture catalyst for their own use.
Feedstock Supplies for the Rentech GTL Technology
The Company's licensees of its GTL Technology are responsible for obtaining
their own supplies of carbon-bearing, low-cost feedstock, usually in substantial
quantities. Economic use of the Rentech GTL Technology depends upon inexpensive
sources of feedstock for its GTL process. Management believes such feedstocks
are readily available to its licensees from inexpensive sources.
A potential feedstock that is of growing importance is the heavy high
sulphur residual fuels at refineries. These materials are commonly referred
to as refinery residues or refinery bottoms. They are generally in the form
of solids. The conversion of such feedstock materials to liquids is a good
application for Rentech's solids-to-liquids or liquids-to-liquids technology.
Within the next ten years a large surplus of high sulphur refinery residue is
predicted which cannot be absorbed by the market. Conversion of such fuels
to synthesis gas by conventional gasification technologies is an attractive
option. The synthesis gas, a mixture of hydrogen and carbon monoxide, with
its low hydrogen-to-carbon monoxide ratio, is an excellent feedstock source
for conversion into liquid hydrocarbons by the application of Rentech's
iron-based GTL Technology. The hydrocarbon products, as well as other
byproducts such as the excess steam and hydrogen produced by the process, can
all be utilized at the refinery.
Additional sources of feedstock include natural gas, gas associated with
the production of oil, methane gas collected from coal beds and industrial off
gases. Carbon-bearing solids such as coal, biomass and other carbonaceous
materials that, like natural gas and refinery residues, must first be converted
to synthesis gas, can provide another feedstock source. Feedstock sources are
also discussed in the section of this report called "Description of Business --
Rentech GTL Technology--Petrochemicals."
Patents Relating to the Rentech GTL Technology
Rentech has been granted nine United States patents related to certain
process applications, products produced, and materials used in its gas
conversion process. The patents are directed to technology in the field of
conversion of gaseous hydrocarbons to liquid hydrocarbons through use of
Fischer-Tropsch processes in slurry bed reactors. Additional patent
applications have been filed.
The present patents include a method for cracking a Fischer-Tropsch wax; a
method of making and promoting a promoted iron catalyst for use in slurry
Fischer-Tropsch synthesis reactors; a synthetic oxygenated diesel fuel produced
by Fischer-Tropsch synthesis; the overall gas to liquids conversion process;
and, Rentech's oxygenated, sulphur and aromatic-free diesel fuel for use as an
additive. Other patents solidify Rentech's previous patent relating to use of
its diesel fuel as an additive. That use increases the oxygen content in diesel
fuel to reduce harmful emissions while maintaining diesel fuel specification
limits for viscosity.
-16-
<PAGE>
Two of the patents include key elements of the process that enables
Rentech's iron-based catalyst to compete with cobalt-based catalysts used by
other gas conversion processes. These patents protect process steps that
improve Rentech's carbon conversion efficiency by over 30%. Additionally, due
to their toxicity, cobalt catalysts used by others are less environmentally
friendly because they create a waste hazard for their users. By comparison,
Rentech's iron-based catalyst can be disposed of in a landfill with no
environmental regulation or concerns. These factors make the Rentech process
cost-effective and environmentally safe for converting gases containing
hydrocarbons to liquids. They also allow Rentech's end products to be
competitively priced with products made from other Fischer-Tropsch processes.
The issuance of patents to the Company does not assure that competitors or
licensees will not engage in infringement of such patents, especially outside
the United States where rights to technology are generally not as well protected
as in the United States. There are no assurances that the Company's
patents will not be challenged, invalidated or circumvented, that the rights
granted by the patents will provide competitive advantages to the Company, or
that the Company's efforts to protect its intellectual property rights will be
successful.
Governmental Regulations Pertaining to the Rentech GTL Technology
Conversion plants using the Rentech GTL Technology and plants manufacturing
Rentech's proprietary catalyst are subject to federal, state and local laws,
rules and regulations relating to occupational health and safety as well as
those regulating protection of the environment. Compliance with these
requirements is not expected to require significant capital expenditures by
Rentech. Compliance is the responsibility of the licensees that own and operate
the plants.
Research and Development Pertaining to the Rentech GTL Technology
The Company incurred $25,377 in expenses for research and development
during the fiscal year ended September 30, 1998. No such expenses were incurred
during the fiscal year ended September 30, 1997.
Employees
At September 30, 1998, the Company had seven employees and its wholly-owned
subsidiary, Okon, Inc., had eight full-time employees and two part-time
employees. As of December 15, 1998, the Company had twelve employees because of
staffing requirements for the Company's new research and development facility
and the need for additional accounting staff.
-17-
<PAGE>
Item 2. Description of Property
Office Lease
The executive offices of the Company are located in Denver, Colorado and
consist of approximately 5,855 square feet of office space. The lease expires
in October 2003 and includes an option to extend for another five-year term. The
rent is approximately $115,524 per year.
The Rentech Research and Development facilities are also located in Denver,
Colorado, and consist of approximately 6,197 square feet of space located in the
building and approximately 900 square feet of space located outside the
building. The lease expires in March 2001. The rent is approximately $32,400
per year.
Okon Facility
Okon, Inc. rents an industrial building located in Lakewood, Colorado,
where it conducts its operations. The building contains approximately 12,000
square feet of office and warehouse space. The lease expires March 14, 1999 and
includes an option to extend for a five-year term. In addition, Okon has the
option to purchase the facility at any time during the lease term. The rent is
$24,000 a year.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company or its
properties.
Item 4. Submission of Matters to a Vote of Securities Holders
The Company's annual meeting of shareholders was held on June 24, 1998. At
the meeting, Ronald C. Butz and Douglas L. Sheeran were elected to terms ending
in 2001 as members of the board of directors. The terms of John J. Ball, John
P. Diesel, Erich W. Tiepel and Dennis L. Yakobson as directors continue after
the meeting. In addition, the 1998 Stock Option Plan authorizing the issuance
of 500,000 shares to grantees under the plan was approved.
The following tabulation shows the votes cast at the meeting on each matter
voted upon, including election of directors.
-18-
<PAGE>
<TABLE>
<CAPTION>
For Withheld/ Not Voted
Against
--------- -------- ---------
<S> <C> <C> <C>
Election of Directors
Ronald C. Butz 25,978,933 410,689 0
Douglas L. Sheeran 25,978,456 411,166 0
Approval of the 1998 Stock Option
Plan: 24,810,056 1,500,955 78,611
</TABLE>
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
The common stock of the Company trades on the NASDAQ SmallCap Market under
the symbol RNTK. The following table sets forth the high and low bid prices for
the Company's common stock, as reported on NASDAQ, for the quarters presented.
The quotations reflect inter-dealer prices, without adjustment for retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Price Ranges
For the Quarterly Periods Indicated
1998 1997
Low High Low High
--- ---- --- ----
<S> <C> <C> <C> <C>
Jan.-Mar. 13/16 3/32 1/8 15/32
Apr.-Jun. 1-1/2 2-29/32 1/8 1/2
Jul.-Sep. 13/16 1-21/32 7/32 31/32
Oct-Dec. 5/8 1-7/32 23/64 2-9/64
</TABLE>
The Nasdaq Stock Market has increased its financial requirements as of
January 1998 for companies whose stocks are listed on Nasdaq. Among several
changes, one makes stocks trading at less than $1 ineligible for continued
listing, and another increases the total assets requirement to $3 million. At
present Rentech meets all of the requirements even though its stock has recently
traded for less than $1. There are no assurances that the Company will continue
to meet the listing requirements. If it does not, the common stock would be
dropped from Nasdaq's SmallCap Market after a grace period allowed for meeting
the standards. The effect of delisting would have a material adverse effect
upon ability of shareholders to sell their stock and upon the value of the
stock.
The approximate number of shareholders of record of the common stock of the
Company as of September 30, 1998 was 407. The number of beneficial owners is
estimated by management at not less than 6,000.
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<PAGE>
No dividends have been declared with respect to the common stock during the
12-month fiscal year ended September 30, 1998. Dividends on the common stock
may not be paid unless all accumulated and unpaid dividends due on the Series
1998-A and Series 1998-B preferred stock have been declared and the funds to pay
those dividends have been set aside.
The following table shows information concerning all sales of the Company's
unregistered securities made by the Company during the past three years.
<TABLE>
<CAPTION>
No. Total Exemptions
Date of Security Securities Offering Total Class of From
Sale Sold Sold Price Commissions Purchasers Registration
- ---- ---- ---- ----- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jul. 17, 1996 Common Stock 578,126 $ 115,625 0 Accredited Rule 506 and
and Warrants Officers and Section 4(6)
to Purchase Directors
826,126
shares of
Common Stock
Aug. 1, 1996 Common Stock 3,993,426 $ 787,000 $ 104,761 Accredited Rules 505, 506,
and Warrants Investors Section 4(6)
to Purchase
3,993,426
shares of
Common Stock
Sep. 13, 1996 Common Stock 295,274 $ 97,537 0 Accredited Rules 505, 506,
and Warrants Investors Section 4(6)
to Purchase
138,724
shares of
Common Stock
Sep. 30, 1996 Common Stock 151,422 $ 37,245 0 Accredited Rules 505, 506
and Warrants Investors Section 4(6)
to Purchase
33,724
shares of
Common Stock
Jan. 29, 1997 Common Stock 1,479,000 $ 73,950 0 Accredited Rules 505, 506,
Investor Section 4(6)
Sep. 5, 1997 Common Stock 1,000,000 $ 200,000 0 Accredited Rules 505, 506,
Investor and Section
4(6)
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<PAGE>
Oct. 17, 1997 Promissory 26 $ 620,500 $ 63,050 Accredited Rules 505, 506,
Notes Investors Section 4(6)
Convertible
into Common
Stock(1)
Jan. 26 and Series 200,000 $ 2,000,000 $ 200,000(2) Accredited Rules 505, 506,
Feb. 9, 1998 1998-A Investors Section 4(6)
Convertible
Preferred
Stock
Jul. 10, 1998 Common 1,700,000 (3) 0 Accredited Rules 505, 506,
Stock Investor Section 4(6)
Jul. 17, 1998 Series 1998-B 100,000 $ 1,000,000 $ 100,000 Accredited Rules 505, 506,
Convertible Investors Section 4(6)
Preferred
Stock(4)
Aug. 18, 1998 Series 1998-B 100,000 $ 1,000,000 $ 100,000 Accredited Rules 505, 506,
Convertible Investors Section 4(6)
Preferred
Stock(4)
Sep. 15, 1998 Series 1998-B 100,000 $ 1,000,000 $ 100,000 Accredited Rules 505, 506,
Convertible Investors Section 4(6)
Preferred
Stock(4)
Nov. 19, 1998 Common 100,000 (5) 0 Accredited Rules 505, 506,
Stock Investor Section 4(6)
</TABLE>
(1) In addition to the convertible promissory notes, the placement agent
received a warrant, exercisable for 5 years, to purchase the Company's
convertible promissory note in the amount of $58,500. The note is
convertible, for 180 days from exercise of the warrant, at 70% of the
average closing bid price for the 5 trading days prior to conversion, not
to exceed $.33 a share.
(2) Plus stock purchase warrants to purchase 120,000 shares of common stock at
$1.00 and 80,000 shares of common stock at $1.023 per, in each case, if
lower, 82.5% of the average closing bid for the 5 trading days prior to
conversion. All preferred shares in this series since have been converted
into common stock.
(3) The consideration received was 10% of the common stock of ITN Energy
Systems, Inc. plus a 50% ownership in advanced technologies developed by
ITN Energy Systems, Inc.
(4) If and to the extent that Rentech exercises its option to sell Series
1998-B Preferred Shares to the original investors, which Rentech may do up
to August 9, 1999, those investors may convert their Series 1998-B
Preferred Shares into
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<PAGE>
common shares at any time more than 120 days after the conversion date.
If any of the preferred shares remain outstanding on December 31, 1999,
Rentech may convert them into common shares. The preferred shares are
convertible into common stock at 82.5% of the average closing bid for
the 5 trading days prior to conversion.
(5) For investment banking services provided.
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-KSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 ("The ACT") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believes,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking
statements are subject to risks, uncertainties and important factors beyond the
control of the Company that could cause actual results and events to differ
materially from historical results of operations and events and those presently
anticipated or projected. The Company disclaims any obligation subsequently to
revise any forward-looking statements to reflect events or circumstances after
the date of such statement or to reflect the occurrence of anticipated or
unanticipated events.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
For the year ended September 30, 1998 and the year ended September 30, 1997, the
Company had net losses of $2,180,855 and $1,375,686, respectively. The increase
of approximately 50% in loss for fiscal 1998 compared to fiscal 1997 is due to a
$1,157,747 increase in general and administration costs attributable to the
write-off of approximately $167,000 in doubtful accounts receivable ,
approximately $200,000 in salary and benefit costs associated with hiring of
additional office staff and salary increases, increased public relations costs
and increased legal expenses. Expenses for Okon were higher because of its
longer reporting period in the full 1998 fiscal year as compared to a six and
one half month period in fiscal 1997. Gross profit which is contributed totally
by Okon is higher in fiscal year 1998 primarily due to the longer reporting
period. Net interest costs are 55% less for the year ended September 30, 1998 as
compared to the year ended September 30, 1997 primarily due to the elimination
of notes payable during the year.
During the year ended September 30, 1998, the Company recognized $1,987,586
for sales of water-based paints, sealers and coatings as compared to $1,189,536
for a six and one-half month period commencing March 20, 1997. This increase
reflects the purchase of Okon in March 1997.
During the year ended September 30, 1998, costs of sales related to the
water-based paints, sealers and coatings was $944,068 as compared to $481,796
for the six and one-half month period ended September 30, 1997. This increase
reflects the purchase of Okon in March 1997.
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<PAGE>
The gross profit of $1,043,518 for the year ended September 30, 1998 is a
result of increased sales of water-based paints, sealers and coatings as
compared to $707,739 in fiscal 1997. The increase reflects the purchase of Okon
in March 1997.
During the year ended September 30, 1998, general and administrative
expenses increased by 78% over the comparable period ended September 30, 1997.
The increase is caused by approximately $365,000 in expenses associated with
Okon which were not included in the prior period, increased costs related to
public relations, and approximately $200,000 in expense from the hiring of
additional office staff and salary increases during 1998.
Depreciation and amortization increased 28% during the year ended September
30, 1998 compared to the year ended September 30, 1997. This is primarily due to
the longer period during which Okon's depreciation of equipment and amortization
of goodwill were recorded. Okon was acquired in March 1997.
Loss from operations for the year ended September 30, 1998 increased by
$909,035 to a loss of $1,986,818 compared to a loss of $1,077,783 for the year
ended September 30, 1997. The increased loss is primarily due to increases in
general and administrative expenses and depreciation and amortization. This
increase is partially offset by an increase in operating profit contributed by
Okon, which was acquired in March 1997, reflecting a full year for 1998 as
compared to six and one-half months for 1997.
Interest expense decreased by approximately $168,000 during the twelve
months ended September 30, 1998 compared to the year ended September 30, 1997
due to the elimination of $1,250,500 in debt.
Liquidity and Capital Resources
At September 30, 1998, the Company had working capital of $3,195,381 as
compared to a working capital deficit of $675,630 at September 30, 1997. The
increase in working capital is primarily due to the issue of $5,000,000 in
convertible preferred shares. The proceeds of this stock issue were used to
eliminate the Company's debt. Preferred shareholder's converted $3,425,000 in
preferred shares into the Company's common stock during 1998.
The cash realized by the Company during the fiscal year ended September 30,
1998 and the cash generated from Okon's operations are expected to be adequate
to fund the Company's operations at the current level through the 2000 fiscal
year.
The Company is discussing other proposals made by several energy
companies for exploitation of the Company's GTL Technology through licenses
or other business ventures. In October 1998, Rentech entered into a license
agreement with Texaco Natural Gas, Inc. for commercialization of Rentech's
GTL Technology. No assurances can be made that these discussions or
arrangements will result in revenues to the Company.
The Company has made significant commitments for capital expenditures.
Management has made a $1,413,000 offer to purchase the building housing its new
laboratory and has committed to invest over $350,000 in building renovations and
new testing equipment in the next ninety days. The Company has begun the process
of closing its Pueblo testing facility.
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<PAGE>
The Company has deferred tax assets with a 100 percent valuation allowance
at September 30, 1998 and 1997. Management is not able to determine if it is
more likely than not that the deferred tax assets will be realized.
The Company, like most other companies, is faced with the Year 2000 Issue,
which is the result of computer programs that are written using two digits
rather than four to define the applicable year. Any computer programs that
affect the Company's activities and that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations that depend upon such date-sensitive software or computer hardware.
The potential problems include, among other things, a temporary inability to
process transactions, send invoices, transfer funds, or engage in similar normal
business activities. The problems caused by the Year 2000 Issue may be
exacerbated and cause widespread business disruption because of the
interdependence of computer and telecommunications systems in the United States
and throughout the world.
The Company has completed an initial assessment of Year 2000 compliance for
its own information technology and business infrastructure. Based upon this
assessment, the Company believes its computer software, hardware and embedded
technology would present limited Year 2000 Issues. The Company believes that its
activities do not rely upon date-sensitive computer software, hardware or
embedded technology for its own activities. The Company has been unable to
evaluate whether the software, hardware and embedded technology used by third
parties with whom it conducts business, including licensees, joint venture
parties, and potential licensees, are Year 2000 compliant. If third parties who
do business with the Company or governmental regulatory agencies fail to timely
remediate their Year 2000 Issues, then the Company may experience business
interruptions, and in the worst case, the inability to engage in normal business
operations for an unknown length of time. The effect of these and related
difficulties on the Company's operations, income and financial condition could
be materially adverse. To date, the Company's assessment of the Year 2000 Issue
has not resulted in material costs. The Company does not believe that any
material expenditures will be required to complete its assessment.
The Company recognizes the need for Year 2000 contingency plans because of
the uncertainty associated with the Year 2000 Issue. The Company does plan to
replace its word processing and financial spread sheet software and its computer
hardware if they are impacted by Year 2000 Issues. The cost of any such
replacements is not expected to be material. The Company believes that it will
not be able to require third parties with whom it conducts business or
government agencies to resolve their Year 2000 Issues. The Company has not
developed contingency plans that would assure it will not be adversely impacted
by the effect of the Year 2000 Issue, and it does not intend to prepare such
plans.
Analysis of Cash Flow
The Company had net losses of $2,180,855 during the year ended September
30, 1998, and $1,375,685 during the year ended September 30, 1997. During the
year ended September 30, 1998, non-cash expenses included depreciation, which
was 66% more, and amortization, which was 24% more, than during the year 1997,
primarily due to the longer period during which Okon's equipment was depreciated
and Okon's goodwill was amortized. Okon was purchased in March 1997 and expenses
were recorded in a six and one-half month period in fiscal 1997. During the year
ended September 30, 1998, the Company incurred $45,621 in noncash interest
expense associated with convertible notes payable as compared to $274,539
non-cash interest in the prior period. Common stock was issued for services
during the year ended September 30,
-24-
<PAGE>
1998. Options to purchase common stock were granted for services valued at
$52,933 and $45,028 during fiscal 1998 and 1997. The Company recorded a
$99,500 write-down of the Synhytech plant held for sale and a write-off of
$167,206 to recognize doubtful collection of accounts receivable during the
year ended September 30, 1998. There were no similar charges during the prior
year.
Changes in operating assets and liabilities are primarily due to accounts
receivable, inventories, prepaid expenses and accrued liabilities acquired with
the operations of Okon in 1997. Property tax refund was received during the
year ended September 30, 1997. The total net cash used in operations increased
by 90% to $1,430,770 in the year ended September 30, 1998 compared to cash used
in operations of $753,324 during the year ended September 30, 1997. The
increase reflects increased cash costs for general and administrative expenses
partially offset by cash generated from Okon's operations since its acquisition
in March 1997.
Investing activities during the year ended September 30, 1998 included
purchase of $61,785 in equipment compared to $65,815 for equipment in the prior
period. The Company used $252,665 in cash to acquire a 10% interest in ITN/ES
during the year ended September 30, 1998 compared to use of $1,075,739 used to
acquire all the assets of Okon during the year ended September 30, 1997. There
was no reduction in restricted cash during the 1998 period compared to a $25,000
reduction in restricted cash during the 1997 period. Other assets increased by
$85,044 during the 1998 period compared to an increase of $23,091 in the 1997
period, primarily due to preliminary investments in future acquisitions and
joint ventures.
Financing activities during the year ended September 30, 1998 produced
$725,971 from the issuance of common stock compared to $1,378,899 during the
year ended September 30, 1997. During the year ended September 30, 1998, the
Company received net proceeds of $4,399,185 from the issuance of $5,000,000 in
convertible preferred stock. During the year ended September 30, 1997, the
Company received $390,000 ($90,000 from a related party) as proceeds from notes
payable. These notes were repaid in full during the 1998 period. During the year
ended September 30, 1998, the Company received an additional $60,000 as proceeds
of convertible notes payable. In 1997, the same issue of convertible notes
payable in the amount of $560,500 which generated $481,554 after payment of
$78,946 in debt issue costs. The net cash provided by financing activities
during the year ended September 30, 1997 was $4,495,156, an increase of 54%
compared to cash provided by financing activities during the 1997 period.
Cash increased during the year ended September 30, 1998 by $2,664,892
compared to an increase of $181,001 during the year ended September 30, 1997.
These changes increased the ending cash balance to $3,056,379 at September 30,
1998 from $391,487 at September 30, 1997.
In June 1997, Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 establishes standard for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from investments
by owners and distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other financial
statements. SFAS 131 supersedes Statement of Financial Accounting Standard No.
14 "Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards of the way the public companies report information about
operating segments in annual financial
-25-
<PAGE>
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is
available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any, the
standards may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by the
implementation of these standards.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132") which standardizes the disclosure
requirements for pensions and other postretirement benefits and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not readily
available. Management believes the adoption of this statement will have no
material impact on the Company's consolidated financial statements.
The FASB has recently issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 established standards for recognizing all derivative
instruments including those for hedging activities as either assets or
liabilities in the statement of financial position and measuring those
instruments at fair value. This Statement is effective for fiscal years
beginning after June 30, 1999. The Company has not yet determined the effect of
SFAS No. 133 on its consolidated financial statements.
The FASB recently issued Statement of Financial Accounting Standards No.
134 "Accounting for Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" ("SFAS No.
134"). SFAS No. 134 establishes accounting and reporting standards for certain
activities of mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise.
This statement is effective for the first fiscal quarter beginning after
December 15, 1998. Management believes the adoption of this statement will have
no impact on the Company's consolidated financial statements.
Item 7. Financial Statements
The financial statements identified in Item 13 are filed as part of this
Annual Report on Form 10-KSB.
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<PAGE>
Item 8. Changes in and Disagreements with Auditors on Accounting and Financial
Disclosure
The Company has not had a change of its independent auditors during its
two most recent fiscal years or subsequent interim period. The Company has not
reported a disagreement with its auditors on any matter of accounting principles
or practices or financial statement disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;'
Compliance with Section 16(a) of the Exchange Act
The following table sets forth certain information concerning directors and
executive officers of the Company:
<TABLE>
<CAPTION>
Term of Service Term as
as an Officer Director
Name Positions Held or Director Expires
- ---- -------------- ----------- -------
<S> <C> <C> <C>
John J. Ball(1) Director 1998 to date 2000
Charles B. Benham Vice President - Research 1981 to date --
and Development
Ronald C. Butz(2) Vice President, Chief Operating 1984 to date 2001
Officer, Secretary and Director
Jack P. Diesel(1) Director 1998 to date 1999
James P. Samuels Vice President - Finance, 1996 to date --
Chief Financial Officer
Douglas L. Sheeran(3) Director 1998 to date 2001
Erich W. Tiepel(3) Director 1983 to date 2000
Dennis L. Yakobson(4) President, Chief Executive Officer, 1981 to date 1999
Director, and Chairman of the
Board
</TABLE>
- ---------------
(1) Member of audit committee.
(2) Director since 1984 and officer since 1989.
(3) Member of stock option committee.
(4) President since 1983.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon the Company's review of Securities and Exchange
Commission Forms 3 and 4 and amendments to those forms submitted to it during
the most recent fiscal year, the Company has identified the following persons
who were at any time during the fiscal year a director, officer, or beneficial
owner of more than 10% of any class of equity securities and who failed to file
such forms on a timely basis with the SEC, as required by Section 16(a) of the
Securities Exchange Act, during the most recent fiscal year or prior fiscal
years: James P. Samuels, Douglas L. Sheeran, Charles B. Benham, Mark S. Bohn,
Ronald C.
-27-
<PAGE>
Butz, Frank L. Livingston, Erich W. Tiepel and Dennis L. Yakobson. Each of
them failed to timely file one Form 4 due by February 10, 1998 to report one
respective transaction, the acquisition of stock options. The required
reports were filed on May 8, 1998.
No arrangements exist between directors, officers or other persons which
resulted in the selection or election of any of them. There are no family
relationships among the executive officers and directors. All directors are
elected for three-year terms expiring at the annual meeting of shareholders or
until their successors are elected and qualified. Officers serve at the
pleasure of the board of directors, but have employment contracts, as
subsequently described in this report.
Business Experience of Directors and Continuing Officers
The principal occupations of each executive officer, significant employee
and director of the Company for at least the past five years are as follows:
Class I Directors (with terms expiring in 2001):
Ronald C. Butz, Vice President, Chief Operating Officer, Secretary and
Director--
Mr. Butz, age 61, received a Bachelor of Science degree in Civil
Engineering from Cornell University in 1961 and a Juris Doctor degree from the
University of Denver in 1965. From 1966 to 1982, Mr. Butz was a practicing
attorney in Denver, Colorado with the firm of Grant, McHendrie, Haines and
Crouse, P.C. In 1982, Mr. Butz became a shareholder, vice president and chief
operating officer of World Agricultural Systems, Ltd., a privately-held Colorado
corporation specializing in the international marketing of commodity storage
systems. He resigned these offices in December 1983. In 1984, Mr. Butz became
president of Capital Growth, Inc., a privately-held Colorado corporation
providing investment services and venture capital consulting. In 1984, he also
became a director of the Company. In October 1989, Mr. Butz was appointed a
vice president of the Company, and in June 1990 he was appointed secretary of
the Company, and in May 1998 he was appointed chief operating officer. Mr. Butz
devotes his full time to the business of the Company.
Douglas L. Sheeran, Director--
Mr. Sheeran, age 60, received a Bachelor of Arts degree in Industrial
Psychology from Miami University, Oxford, Ohio, in 1960. He held a number of
human resource positions of increasing scope and responsibility with Home Life
Insurance Company, 1960-1962, Kraft Foods from 1962-1965, Electronic Associates
Inc. from 1965-1968, and Celanese Corporation from 1968-1973. These positions
covered a range of labor relations, organizational development, compensation and
benefit responsibilities at both operating sites and corporate staff. From 1973
until 1986 Mr. Sheeran was employed by Purolator Automotive Group and became
Vice President, Human Resources, with responsibilities for multiple North
American business units. He resigned in 1986 and founded FCI Inc., a human
resource consulting firm specializing in executive staffing, merger planning and
organizational effectiveness. FCI's client base includes Fortune 500 and
start-up firms in technology, pharmaceutical, automotive and consumer durable
industries. Mr. Sheeran is president of FCI, Inc.
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<PAGE>
Continuing Class II Directors (with terms expiring in 1999):
Dennis L. Yakobson, President, Chief Executive Officer, Director and
Chairman of the Board--
Mr. Yakobson, age 62, received a Bachelor of Science degree in Civil
Engineering from Cornell University in 1959 and a Masters Degree in Business
Administration from Adelphi University in 1963. From 1960 to 1969 he was
employed by Grumman Aerospace Corporation, with the final position held being
that of contract administrator with responsibility for negotiation of prime
contracts with governmental agencies. From 1969 to 1971 he was employed by
Martin Marietta Corporation, Denver, Colorado (now Lockheed Martin Corporation)
in a similar position, and from 1971 through 1975 was employed by Martin
Marietta as marketing engineer in space systems. In 1975 he was employed by
Wyoming Mineral Corporation in Denver as a contract administrator. In 1976, he
was employed by Power Resources Corporation, Denver, Colorado, a mineral
exploration company, as vice president-land, secretary, treasurer, and a
director. In 1979, he became a director and the secretary of Nova Petroleum
Corporation also in Denver, Colorado, and in 1981 became its vice president of
administration and finance. He resigned from Nova in November of 1983 to assume
the presidency of the Company. Mr. Yakobson devotes his full time to the
business of the Company. He serves as chairman of the Board of Directors of the
Company.
John P. Diesel, Director--
Mr. Diesel, age 72, received a Bachelor of Science degree in Industrial
Engineering from Washington University in 1951. Prior to attending the
university he served in the United States Navy as an aviator in the Western
Pacific. Mr. Diesel was employed by McQuay-Norris Manufacturing Co. from 1951
to 1957 in the production of proximity fuses. He joined Booz Allen and Hamilton
in 1957, remaining there until 1961, and being elected to the partnership in
that time. Mr. Diesel joined A.O. Smith Corporation as Vice President of
Planning, held a series of manufacturing officer positions, including group vice
president. In 1972 he became President of Newport News Shipbuilding, a
wholly-owned subsidiary of Tenneco. There for 5 years he was responsible for,
among other projects, the design and construction of the nuclear powered
aircraft carriers Nimitz class and Los Angeles class submarines. In 1977 he
moved to the position of Executive Vice President of Tenneco, Inc., with
responsibility for their automotive, farm and construction equipment and
packaging businesses. In 1978 he became President and a director of Tenneco.
During his tenure at Tenneco, and after retiring, Mr. Diesel served on numerous
boards of directors. These directorships included the Aluminum Company of
America, Brunswick Corp., Allied Stores, Pullman Corporation, Cooper Industries
and Financial Institutions Reinsurance Group. He continues to serve on the
Board of Telepad Corporation.
Continuing Class III Directors (with terms expiring in 2000):
Erich W. Tiepel, Director--
Dr. Tiepel, age 55, obtained a Bachelor of Science degree in Chemical
Engineering from the University of Cincinnati in 1967, and a Ph.D. in Chemical
Engineering from the University of Florida in 1971. Dr. Tiepel has twenty-three
years of experience in all phases of process design and development, plant
management and operations for chemical processing plants. In 1981, Dr. Tiepel
was a founder of Resource Technologies Group, Inc. ("RTG"), a high technology
consulting organization specializing in process engineering, water treatment,
hazardous waste remediation, and regulatory affairs. Dr. Tiepel has been
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<PAGE>
president of RTG since its inception. From 1977 to 1981 he was project manager
for Wyoming Mineral Corporation, a subsidiary of Westinghouse Electric Corp.,
Lakewood, Colorado, where his responsibilities included management of the
design, contraction and operation of ground water treatment systems for ground
water cleanup programs. From 1971 to 1976 he was a principal project engineer
for process research for Westinghouse Research Labs. From 1967 to 1971, he was
a trainee of the National Science Foundation at the University of Florida in
Gainesville, Florida. Dr. Tiepel has been a director of the Company since 1983.
John J. Ball, Director--
Mr. Ball, age 55, received a Bachelor of Education and Arts Degree from
Mount Allison University in 1966 and a Bachelor of Laws Degree from Dalhousie
University in 1969. He was called to the Nova Scotia Bar in 1970 and the
Ontario Bar in 1971. After his call to the Bar he joined the firm of McMillan
Binch, Toronto, as an associate from 1971 to 1975. He then formed Broadhurst &
Ball, Mississauga, as a partner from 1975 to 1984 and subsequently formed Keyser
Mason Ball, Mississauga, as a senior partner from 1984 to present. He has been
and is the Managing Partner of Keyser Mason Ball for over 10 years. He is
presently a director of The Mississauga Hospital Chair of the Bio-Ethics
Committee and is a member of the Board Merger Committee in connection with the
amalgamation of The Mississauga Hospital and The Queensway Hospital. Mr. Ball
is past member of the Board and Executive Committees of Mount Allison University
and is a past Chair of the Vanier Corp., the Canadian National University
Football Championship.
There are no family relationships among the directors. There are no
arrangements or understandings between any director and any other person
pursuant to which that director was elected.
The Company has adopted a salary reduction simplified employee pension plan
but presently has no other pension, retirement or similar plans. The Company has
profit-sharing and stock option plans. It provides a medial reimbursement plan
and life insurance coverage to officers and directors and may provide other
benefits to officers and employees in the future. It may also compensate
non-employee directors for attendance at board and committee meetings at a per
diem rate to be determined plus reimbursement of actual expenses incurred in
attending such meetings.
Officers:
Charles B. Benham, Vice President - Research and Development--
Dr. Benham, age 61, received a Bachelor of Science degree in Mechanical
Engineering from the University of Colorado in 1958, and a Master of Science
degree in Engineering in 1964 and a Ph.D. degree in 1970, both from the
University of California at Los Angeles. He worked at the Naval Weapons Center,
China Lake, California, from 1958 through 1977 performing research and
development on thermal and chemical processes for converting municipal solid
wastes to liquid hydrocarbon fuels, thermochemical analyses of solid-fueled and
ramjet engines, combustor modeling, rocket motor thrust vector control, rocket
motor thrust augmentation, catalyst behavior in carbon monoxide oxidation, and
in liquid hydrocarbon fuels for ramjet applications. From 1977 to 1981, he
worked at the Solar Energy Research Institute in Golden, Colorado, on thermal
and chemical processes for converting agricultural crop residues to diesel fuel,
on thermochemical transport of solar energy using ammonia decomposition and
steam reforming of methane, and on high temperature applications of solar
energy. Dr. Benham has published several articles in the fields of liquid fuel
production from organic waste, catalyst pellet behavior and rocket propulsion.
He has been
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<PAGE>
an officer of the Company since its inception in 1981 and served as a
director from inception until 1996. Dr. Benham devotes his full time to the
business of the Company.
Frank L. Livingston, Vice President and General Manager, Okon, Inc.--
Mr. Livingston, age 56, received a Bachelor of Science Degree in Chemistry
from Colorado State University in 1965. He worked for Mallinckrodt Chemical Co.
from 1965 to 1971. While at Mallinckrodt Chemical Co., he worked as a process
research chemist and formulator prior to becoming a specialty marketing manager
for the industrial chemical division. From 1971 to 1975 Mr. Livingston was
employed by Gates Rubber Co. in Denver, Colorado as a sales and marketing
manager for a specialty chemical venture start-up business within the company.
He also worked as a research market analyst for the venture group. Projects of
the venture group included specialty chemicals and lead-acid battery technology,
as well as rubber products made by the company for off-shore oil exploration and
production. Mr. Livingston joined Okon, Inc. in 1975 as sales manager and was
promoted to Vice President of Sales in 1984. Mr. Livingston also became a 24%
owner of the company at that time. In addition to his sales and marketing
responsibilities, he was also responsible for manufacturing and research and
development for the company. Mr. Livingston also served on the Board of
Directors. With the sale of Okon, Inc. to Rentech in 1997, Mr. Livingston
became Vice President and General Manager for Okon, Inc. and continues to serve
on Okon's Board of Directors.
James P. Samuels, Vice President - Finance, Chief Financial Officer--
Mr. Samuels, age 51, has executive experience in general corporate
management, finance, sales and marketing, information technologies, and
consulting for both large companies and development stage businesses. He
received a Bachelor's degree in Business Administration from Lowell
Technological Institute, in 1970, and a Master of Business Administration degree
in 1972 from Suffolk University, Boston, Massachusetts, in 1972. He completed
an executive program in strategic market management through Harvard University
in Switzerland in 1984. From December 1995 through April 1998, he provided
consulting services in finance and securities law compliance to Telepad
Corporation, Herndon Virginia, a company engaged in systems solutions for field
force computing. From 1991 through August 1995, he served as chief financial
officer, vice president-finance, treasurer and director of Top Source, Inc.,
Palm Beach Gardens, Florida, a development stage company engaged in developing
and commercializing state-of-the-art technologies for the transportation,
industrial and petrochemical markets. During that employment, he also served as
president of a subsidiary of Top Source, Inc. during 1994 and 1995. From 1989
to 1991, he was vice president and general manager of the Automotive group of
BML Corporation, Mississauga, Ontario, a privately-held company engaged in auto
rentals, car leasing, and automotive insurance. From 1983 through 1989, he was
employed by Purolator Products Corporation, a large manufacturer and distributor
of automotive parts. He was president of the Mississauga, Ontario branch from
1985 to 1989; a director of marketing from 1984 to 1985; and director of
business development and planning during 1983 for the Rahway, New Jersey filter
division headquarters of Purolator Products Corporation. From 1975 to 1983, he
was employed by Bendix Automotive Group, Southfield, Michigan, a manufacturer of
automotive filters, electronics and brakes. He served in various capacities,
including group director for management consulting services on the corporate
staff, director of market research and planning, manager of financial analysis
and planning, and plant controller at its Fram Autolite division. From 1973 to
1974, he was employed by Bowmar Ali, Inc., Acton, Massachusetts, in various
marketing and financial positions, and in 1974 he was managing director of its
division in Wiesbaden, Germany.
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<PAGE>
The executive officers of the Company serve at the pleasure of the Board of
Directors and do not have fixed terms. Executive officers generally are elected
at the annual director meeting immediately following the annual stockholder
meeting. Any officer or agent elected or appointed by the Board of Directors
may be removed by the Board whenever in its judgment the best interests of the
Company will be served thereby, without prejudice to contractual rights, if any,
of the person so removed.
There are no family relationships among the executive officers. There are
no arrangements or understandings between any officer and any other person
pursuant to which that officer was selected.
Item 10. Executive Compensation
Cash Compensation
The following table shows all cash compensation paid or to be paid by the
Company or any of its subsidiaries, as well as other compensation paid or
accrued during the fiscal years indicated to the chief executive officer and the
three other highest paid executive officers of the Company as of the end of the
Company's last fiscal year whose salary and bonus for such period in all
capacities in which the executive officer served exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) ($) SARs(#) ($) sation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dennis L. Yakobson 1998 $132,090 --- --- --- 20,000 --- ---
Chief Executive 1997 $112,184 --- --- --- 462,400 --- ---
Officer 1996 $ 60,937(1) --- --- --- --- --- ---
Ronald C. Butz 1998 $128,058 --- --- --- 20,000 --- ---
Chief Operating 1997 $108,296 --- --- --- 450,880 --- ---
Officer 1996 $ 58,825(1) --- --- --- --- --- ---
Charles B. Benham 1998 $128,058 --- --- --- 20,000 --- ---
Vice President - 1997 $108,296 --- --- --- 450,880 --- ---
Research & 1996 $ 58,825(1) --- --- --- --- --- ---
Development
James P. Samuels 1998 $128,058 --- --- --- 20,000 --- ---
Chief Financial 1997 $ 94,731 --- --- --- 579,500 --- ---
Officer 1996 $ 24,500(1) --- --- --- --- --- ---
- --------------------
</TABLE>
(1) For 1996, the period consisted of the nine months ended September 30, 1996.
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<PAGE>
Option/SAR Exercises and Holdings
The following table sets forth information with respect to the named
executives, concerning the exercise of options and/or limited SARs during the
last fiscal year and unexercised options and limited SARs held as of the end of
the last fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired at FY-End(#) at FY-End($)
on Value Exercisable/ Exercisable/
Name Exercise(#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Dennis L. Yakobson --- --- 502,400(1) $344,979
Ronald C. Butz 60,000 $13,125 430,880(1) 294,747
Charles B. Benham --- --- 490,880(1) 335,982
James P. Samuels --- --- 599,500(1) 422,622
(1) Exercisable.
</TABLE>
Employment Contracts
The Company employs Messrs. Yakobson, Benham and Butz pursuant to
employment contracts that extend through March 31, 2002. The contracts provide
for annual cost of living adjustments. Mr. Samuels is employed pursuant to an
employment contract that extends to January 1, 2002. Mr. Livingston is employed
according to a contract that extends to March 14, 2000.
The contracts provide that the individuals will serve in their present
capacities as officers, together with such duties, responsibilities and powers
as the board of directors may reasonably specify. If the Company terminates
employment early without cause, the contracts provide for continuation of salary
for the remainder of the term or one year, whichever is more, as severance pay.
The contracts impose obligations of confidentiality as well as covenants not to
compete with the Company for three years following termination of employment for
any reason whatsoever.
Option/SAR Repricings
There have been no adjustments or amendments to the exercise price of stock
options or SARs previously awarded to any of the named executive officers,
whether through amendment, cancellation or replacement grants or any other means
during the last fiscal year.
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<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e) (f)
Number of % of Total Market
Securities Options/SARs Price on
Underlying Granted to Exercise or Date of Expira-
Options/SARs Employees in Base Price Grant tion
Name Granted(#) Fiscal Year ($/Sh) ($/Sh) Date
- ----- ------------ ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C>
Dennis L. Yakobson 20,000 6.64% $.82 $.82 01/26/03
Ronald C. Butz 20,000 6.64% .82 .82 01/26/03
Charles B. Benham 20,000 6.64% .82 .82 01/26/03
James P. Samuels 20,000 6.64% .82 .82 01/26/03
- -----------------
</TABLE>
* The market price is determined by averaging the closing bid and ask price
on the date of grant.
Profit Sharing Plan
The Company has adopted a profit-sharing plan for the benefit of all
employees. The plan is administered by a committee appointed by the board of
directors. Awards by the committee to its members will be subject to approval
by the disinterested members of the board of directors. Awards are
discretionary and shall not aggregate an amount in excess of five percent of
audited pre-tax earnings before depreciation, amortization and extraordinary
income for the preceding fiscal year. Bonuses are payable only if such pre-tax
earnings exceed $500,000 for the year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of November 2, 1998
by (i) all persons who owns of record or are known to the Company to
beneficially own more than 5% of the issued and outstanding shares of Common
Stock and (ii) by each director, each director nominee, each of the
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<PAGE>
executive officers named in the tables under "Executive Compensation" and by all
executive officers and directors as a group:
<TABLE>
<CAPTION>
Percent
of Class
Amount and Nature of Based on
Positions and Beneficial Common Beneficial
Name and Address Offices Held Stock Ownership Ownership
<S> <C> <C> <C>
John J. Ball Director 0 of record *
201 City Centre Dr., (10,000 indirectly)(1)
Suite 701
Mississauga, Ontario
L5B 2T4
Charles B. Benham Vice President - Research 275,440 of record 1.8%
12401 E. 37th Avenue and Development (490,880 indirectly)(1)
Denver, CO 80239
Mark S. Bohn Director 443,431 of record 1.7%
12401 E. 37th Avenue (292,092 indirectly)(1)
Denver, CO 80239
Ronald C. Butz Vice President, Chief 224,151 of record(2) 1.6%
1331 17th Street, Suite 720 Operating Officer, (430,880 indirectly)(1)
Denver, CO 80202 Secretary and Director
John P. Diesel Director 0 of record *
1224 U.S. Highway #1, (10,000 indirectly)(1)
Suite D
No. Palm Beach, FL 33408
Frank L. Livingston Vice President and Manager, 40,000 of record *
6000 W. 13th Avenue Okon, Inc. (66,000 indirectly)(1)
Lakewood, CO 80214
James P. Samuels Vice President - Finance, 100,000 of record 1.7%
1331 17th St., Suite 720 Chief Financial Officer (599,500 indirectly(1)
Denver, CO 80202
Douglas L. Sheeran Director 0 of record *
c/o FCI, Inc. (10,000 indirectly)(1)
621 Shrewsbury Avenue
Shrewsbury, NJ 07702
Erich W. Tiepel Director 123,277 of record *
3900 S. Wadsworth, Suite 155 (272,448 indirectly)(1)
Lakewood, CO 80235
</TABLE>
-35-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Dennis L. Yakobson President, Chief Executive 350,354 of record 2.0%
1331 17th Street, Suite 720 Officer and Director (502,400 indirectly)(1)
Denver, CO 80202
All Directors and Executive Officers and Directors 1,914,085 of record(2) 10.3%
Officers and a Group (2,684,200 indirectly) (4.7% of
(10 persons) record)
</TABLE>
- ----------------
* Less than 1%.
(1) Includes shares of common stock underlying presently exercisable stock
options.
(2) Does not include 357,432 shares of common stock held of record by his
spouse as to which shares he denies beneficial ownership.
Item 12. Certain Relationships and Related Transactions
On August 15, 1997, James P. Samuels was one of four individuals who loaned
the Company $390,000 to pay all remaining obligations on the preferred stock.
Mr. Samuels' loan was $90,000. It was evidenced by a promissory note paid in
full on January 29, 1998. The note bore interest at 20% per annum.
Additionally, options to purchase 55,000 shares of common stock at the
then-market price of $.25 per share were granted for each $100,000 of the loan.
The options expire August 15, 1999.
Item 13. Exhibits and Reports on Form 8-K
(a) The following financial statements are filed as a part of this
report:
Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Summary of Accounting Policies
Notes to Consolidated Financial Statements
-36-
<PAGE>
Signatures
In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RENTECH, INC.
(signature)
---------------------------------------
Date: January 12, 1999 Dennis L. Yakobson, President
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
(signature)
---------------------------------------
Date: January 12, 1999 Dennis L. Yakobson, President, Chief
Executive Officer and Director
(signature)
---------------------------------------
Date: January 12, 1999 Ronald C. Butz, Chief Operating Officer,
Vice President, Secretary and Director
(signature)
---------------------------------------
Date: January 12, 1999 James P. Samuels, Vice President
- Finance, Chief Financial Officer
(signature)
---------------------------------------
Date: January 12, 1999 John J. Ball, Director
(signature)
---------------------------------------
Date: January 12, 1999 John P. Diesel, Director
(signature)
---------------------------------------
Date: January 12, 1999 Douglas L. Sheeran, Director
(signature)
---------------------------------------
Date: January 12, 1999 Erich W. Tiepel, Director
</TABLE>
-37-
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6 - F-7
Consolidated Statements of Cash Flows F-8 - F-9
Summary of Accounting Policies F-10 - F-15
Notes to Consolidated Financial Statements F-16 - F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Rentech, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Rentech, Inc.
and Subsidiary (the "Company") as of September 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended September 30, 1998 and 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 financial position of the Company and its
subsidiary as of September 30, 1998 and 1997 and the results of their operations
and their cash flows for the years ended September 30, 1998 and 1997, in
conformity with generally accepted accounting principles.
December 7, 1998
Denver, Colorado
F-2
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 4)
CURRENT:
Cash $ 3,056,379 $ 391,487
Accounts receivable, net of $2,000 and $1,800
allowance for doubtful accounts (Note 10) 224,933 150,911
Inventories 99,574 107,151
Prepaid expenses and other current assets 209,179 52,688
- --------------------------------------------------------------------------------
Total current assets 3,590,065 702,237
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization
of $180,258 and $126,744 (Note 2) 320,057 172,863
OTHER:
Licensed technology, net of accumulated
amortization of $1,172,951 and $944,208 2,258,197 2,486,940
Goodwill, net of accumulated
amortization of $123,402 and $43,685 (Note 1) 1,085,382 1,166,030
Synhytech plant held for sale - 99,500
Accounts receivable, net of $167,206 and $0
allowance for doubtful accounts - 191,206
Investment in ITN/ES (Note 3) 3,079,107 9,823
Technology rights, net of accumulated
amortization of $28,776 and $0 (Note 5) 258,970 -
Deposits and other assets 123,472 28,605
- --------------------------------------------------------------------------------
Total other assets 6,805,128 3,982,104
- --------------------------------------------------------------------------------
$10,715,250 $ 4,857,204
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 315,116 $ 130,201
Accrued liabilities 79,568 122,166
Convertible notes payable (Note 4) - 560,500
Current portion of long-term debt (Note 4) - 475,000
Note payable, related party (Note 4) - 90,000
- ----------------------------------------------------------------------------------------------------
Total current liabilities 394,684 1,377,867
- ----------------------------------------------------------------------------------------------------
LONG-TERM DEBT, net of current portion (Note 4) - 125,000
- ----------------------------------------------------------------------------------------------------
Total liabilities 394,684 1,502,867
- ----------------------------------------------------------------------------------------------------
COMMITMENTS (Note 3, 6 and 11)
STOCKHOLDERS' EQUITY (Note 5)
Series A convertible preferred stock - $10 par value; 200,000
shares authorized; 50,000 and 0 shares issued and out-
standing; $10 per share liquidation value (in the aggregate
$528,347 including accrued dividends of $28,347) 500,000 -
Series B convertible preferred stock - $10 par value; 800,000
shares authorized; 107,500 and 0 shares issued and out-
standing; $10 per share liquidation value (in the aggregate
$1,081,000 including accrued dividends of $6,000) 1,075,000 -
Common stock - $.01 par value; 100,000,000 shares
authorized; 40,075,292 and 29,539,548 shares issued
and outstanding 400,750 295,392
Additional paid-in capital 21,426,487 12,794,769
Accumulated deficit (13,081,671) (9,735,824)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 10,320,566 3,354,337
- ----------------------------------------------------------------------------------------------------
$ 10,715,250 $ 4,857,204
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Net sales (Note 10) $ 1,987,586 $ 1,189,536
COST OF REVENUES:
Cost of sales 944,068 481,797
- --------------------------------------------------------------------------------
GROSS PROFIT 1,043,518 707,739
OPERATING EXPENSES:
General and administrative expense 2,613,309 1,480,939
Depreciation and amortization 391,650 304,583
Research and development 25,377 -
- --------------------------------------------------------------------------------
Total operating expenses 3,030,336 1,785,522
- --------------------------------------------------------------------------------
LOSS FROM OPERATIONS (1,986,818) (1,077,783)
OTHER INCOME (EXPENSE):
Write-down of Synhytech plant held for sale (99,500) -
Interest income 40,495 5,292
Interest expense (135,032) (303,195)
- --------------------------------------------------------------------------------
Total other expense (194,037) (297,903)
- --------------------------------------------------------------------------------
NET LOSS (2,180,855) (1,375,686)
DIVIDEND REQUIREMENTS ON PREFERRED STOCK (NOTE 5) 1,164,992 658,414
- --------------------------------------------------------------------------------
LOSS APPLICABLE TO COMMON STOCK $(3,345,847) $(2,034,100)
- --------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (.10) $ (.10)
- --------------------------------------------------------------------------------
BASIC AND DILUTED WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 33,289,164 19,603,265
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------- ------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1996 - $ - 14,975,116 $ 149,748 $10,888,152 $ (7,701,724)
Common stock issued for cash, net
of offering cost of $24,000 - - 2,479,000 24,790 225,160 -
Common stock issued for
cash on warrants exercised
net of offering costs of $7,500 - - 8,833,986 88,340 1,040,609 -
Common stock issued for
interest expense on convertible
notes payable - - 560,500 5,605 165,040 -
Preferred stock issued for
cash, net of offering costs of $250,989 150,000 1,500,000 - - (250,989) -
Common stock issued for
conversion of preferred stock (37,250) (372,500) 2,690,946 26,909 505,233 (159,642)
Preferred convertible stock
redeemed for cash (112,750) (1,127,500) - - - -
Stock warrants issued for
dividends on preferred stock - - - - 151,588 (151,588)
Stock options issued for:
Interest expense - - - - 24,948 -
Services - - - - 45,028 -
Dividend paid on preferred
stock redeemed for cash - - - - - (347,184)
Net loss - - - - - (1,375,686)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock
------------------------------------------- Common Stock Additional
Series A Series B ------------------ Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1997 - $ - - $ - 29,539,548 $295,392 $12,794,769 $(9,735,824)
Common stock issued for cash on
options and warrants exercised - - - - 2,824,442 28,245 697,726 -
Common stock issued for investment - - - - 1,700,000 17,000 2,711,125 -
Common stock issued for technology rights - - - - 200,000 2,000 160,500 -
Common stock issued for interest expense
on convertible notes payable - - - - 60,000 600 45,021 -
Common stock issued for redemption
of convertible notes payable,
net of $279,723 in offering costs - - - - 1,880,301 18,803 321,974 -
Common stock issued for services - - - - 166,000 1,660 221,373 -
Preferred stock issued for cash,
net of offering costs of $696,572 200,000 2,000,000 300,000 3,000,000 - - (696,572) -
Common stock issued for
conversion of preferred stock (150,000) (1,500,000) (192,500) (1,925,000) 3,705,001 37,050 3,457,990 (70,040)
Deemed dividends on convertible
preferred stock - - - - - - 1,060,605 (1,060,605)
Stock warrants issued for
Investment - - - - - - 98,317 -
Technology rights - - - - - - 125,246 -
Offering costs - - - - - - 375,480 -
Stock options issued for services - - - - - - 52,933 -
Dividends on preferred stock - - - - - - - (34,347)
Net loss - - - - - - - (2,180,855)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances September 30, 1998 50,000 $ 500,000 107,500 $1,075,000 40,075,292 $400,750 $21,426,487 $(13,081,671)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
YEARS ENDED SEPTEMBER 30, 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,180,855) $(1,375,686)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 53,484 32,154
Amortization 338,166 272,429
Interest expense 45,621 274,539
Write-down of Synhytech plant held for sale 99,500 -
Write-down of accounts receivable 167,206 -
Common stock issued for services 94,908 -
Stock options issued for services 52,933 45,028
Changes in operating assets and liabilities,
net of business combination:
Accounts receivable (74,022) (150,911)
Property tax receivable - 71,813
Inventories 7,577 (23,173)
Prepaid expenses and other current assets (28,366) (29,177)
Accounts payable 46,022 76,253
Accrued liabilities (52,944) 53,407
- -----------------------------------------------------------------------------------
Net cash used in operating activities (1,430,770) (753,324)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
RENTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTING ACTIVITIES:
Purchase of property and equipment $ (61,785) $ (65,815)
Cash used in purchase of business - (1,075,739)
Cash used in purchase of investment (252,665) -
Decrease in restricted cash - 25,000
Increase in deposits and other assets (85,044) (23,901)
- --------------------------------------------------------------------------------
Net cash used in investing activities (399,494) (1,140,455)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of offering costs 725,971 1,378,899
Proceeds from issuance of preferred stock,
net of offering costs 4,399,185 1,249,011
Proceeds from stock subscription receivable - 50,000
Cash redemption of and dividends paid on
preferred stock - (1,474,684)
Proceeds from notes payable - 300,000
Proceeds from note payable, related party - 90,000
Proceeds from convertible note payable 60,000 560,500
Payment for debt issue costs - (78,946)
Payments on note payable (690,000) -
- --------------------------------------------------------------------------------
Net cash provided by financing activities 4,495,156 2,074,780
- --------------------------------------------------------------------------------
INCREASE IN CASH 2,664,892 181,001
CASH, beginning of year 391,487 210,486
- --------------------------------------------------------------------------------
CASH, end of year $ 3,056,379 $ 391,487
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-9
<PAGE>
RENTECH, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
BASIS OF Rentech, Inc. (the "Company" or "Rentech") was
PRESENTATION incorporated on December 18, 1981 in the state of Colorado
to develop and market processes for conversion of
low-value, carbon-bearing solids or gases into valuable
liquid hydrocarbons, including high-grade diesel fuel,
naphthas and waxes ("Rentech GTL Technology"). The
Company's activities prior to 1994 were primarily directed
toward obtaining financing, licensing its technology to
third parties and completing full-scale plant processing
to demonstrate the Company's technology to prospective
licensees. During 1994, the Company entered into
contracts to provide basic engineering design relating to
the construction of plants using the Company's gas
conversion technology. In December 1996, the Company
elected to change its year end to September 30. In March
1997 with the acquisition of Okon, Inc. ("Okon"), the
Company entered into the business of manufacturing and
selling water-based stains, sealers and coatings.
PRINCIPLES OF The accompanying consolidated financial statements include
CONSOLIDATION the accounts of the Company and its wholly owned
subsidiary as of and for the year ended September 30, 1998
and for the period from March 20, 1997, date of
acquisition of Okon, to September 30, 1997 (see Note 1).
All significant intercompany accounts and transactions
have been eliminated in consolidation.
CASH EQUIVALENTS The Company considers highly liquid debt instruments
purchased with original maturities of three months or less
and money market accounts to be cash equivalents.
INVENTORIES Inventories, which consist of water protection sealants,
chemicals and packaging supplies, are recorded at the
lower of cost (first-in, first-out) or market.
LICENSED Licensed technology represents costs incurred by the
TECHNOLOGY Company primarily for the purpose of demonstrating the
Company's proprietary technology to prospective licensees,
which it licenses to third parties under various fee
arrangements. These capitalized costs are carried at the
lower of amortized cost or net realizable value and are
being amortized over 15 years.
F-10
<PAGE>
RENTECH, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
GOODWILL Goodwill, which relates to the acquisition discussed in
Note 1, is being amortized over a 15 year period using the
straight-line method.
SYNHYTECH PLANT The Synhytech plant held for sale is recorded at the lower
HELD FOR SALE of cost or net realizable value. During 1998, the Company
wrote the carrying value of this asset down to $0,
recognizing a loss of $99,500. Permanent impairments are
evaluated periodically based upon expected future cash
flows in accordance with Statements of Financial
Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets."
PROPERTY AND Property and equipment is stated at cost. Depreciation and
EQUIPMENT amortization expense are computed using the straight-line
method over the estimated useful lives of the assets,
which range from three to seven years, except for
leasehold improvements which are amortized over the
shorter of the useful life or the remaining lease term.
Maintenance and repairs are expensed as incurred. Major
renewals and improvements are capitalized. When property
and equipment is retired or otherwise disposed of, the
asset and accumulated depreciation or amortization are
removed from the accounts and the resulting profit or loss
is reflected in operations.
INVESTMENT IN The Company has a 10% investment in ITN Energy Systems,
ITN/ES Inc. The investment is stated at cost. The investment is
evaluated periodically and is carried at the lower of cost
or estimated net realizable value.
TECHNOLOGY Technology rights is recorded at cost and is being
RIGHTS amortized on a straight-line method over a 10 year
estimated life.
LONG-LIVED Long-lived assets, identifiable intangibles, and
ASSETS associated goodwill are reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the expected
future cash flow from the use of the assets and its
eventual disposition is less than the carrying amount of
the assets, an impairment loss is recognized and measured
using the asset's fair value.
F-11
<PAGE>
RENTECH, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
REVENUE License fees are recognized when the revenue earning
RECOGNITION activities that are to be provided by the Company have
been performed and no future obligation to perform
services exist.
Sales of water-based stains sealers and coatings are
recognized when the goods are shipped to the customers.
INCOME TAXES The Company accounts for income taxes under the liability
method which requires an entity to recognize deferred tax
assets and liabilities. Temporary differences are
differences between the tax basis of assets and
liabilities and their reported amounts in the financial
statements that will result in taxable or deductible
amounts in future years.
NET LOSS The Company implemented Statement of Financial Accounting
PER COMMON Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SHARE SFAS No. 128 provides for the calculation of "Basic" and
"Diluted" earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income
(loss) available to common stockholders by the weighted
average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of
an entity, similar to fully diluted earnings per share.
All prior period earnings per share data has been restated
to reflect the requirements of SFAS No. 128. The adoption
of SFAS No. 128 did not affect the loss per share
calculation at September 30, 1997.
For the years ended September 30, 1998 and 1997, total
stock options and stock warrants of 5,442,207 and
7,039,644 were not included in the computation of diluted
loss per share because their effect was anti-dilutive.
RECLASSIFICATIONS Certain reclassifications have been made to the 1997
financial statements in order for them to conform to the
1998 presentation. Such reclassifications have no impact
on the Company's financial position or results of
operation.
CONCENTRATIONS The Company's financial instruments that are exposed to
OF CREDIT RISK concentrations of credit risk consists primarily of cash
and accounts receivable.
F-12
<PAGE>
RENTECH, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
The Company's cash is in demand deposit accounts placed
with federally insured financial institutions. Such
deposit accounts at times may exceed federally insured
limits. The Company has not experienced any losses on
such accounts.
Concentrations of credit risk with respect to accounts
receivable are higher due to a few customers dispersed
across geographic areas. The Company reviews a customer's
credit history before extending credit and establishes an
allowance for doubtful accounts based upon the credit risk
of specific customers, historical trends and other
information. Generally, the Company does not require
collateral from its customers.
USE OF The preparation of financial statements in conformity with
ESTIMATES generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF The following methods and assumptions were used to
FINANCIAL estimate the fair value of each class of financial
INSTRUMENTS instruments for which it is practicable to estimate that
value:
ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Fair values of accounts receivables, accounts payable, and
accrued liabilities are assumed to approximate carrying
values for these financial instruments since they are
short term in nature and their carrying amounts
approximate fair value or they are receivable or payable
on demand.
CONVERTIBLE NOTES PAYABLE, NOTES PAYABLE AND LONG-TERM
DEBT
Substantially all of these notes bore interest at a
floating rate of interest based upon current lending rates
of interest.
STOCK OPTION The Company applies APB Opinion 25, "Accounting for Stock
PLAN Issued to Employees", and the related Interpretation in
accounting for all stock option plans. Under APB Opinion
25, compensation cost is recognized for stock options
issued to employees when the exercise price of the
Company's stock
F-13
<PAGE>
RENTECH, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
options granted is less than the market price of the
underlying common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation,"
requires the Company to provide pro forma information
regarding net income as if compensation cost for the
Company's stock options plans had been determined in
accordance with the fair value based method prescribed in
SFAS No. 123. To provide the required pro forma
information, the Company estimates the fair value of each
stock option at the grant date by using the Black-Scholes
option-pricing model.
RECENT In June 1997, Financial Accounting Standards Board
ACCOUNTING ("FASB") issued Statement of Financial Accounting
PRONOUNCEMENTS Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No.
131 "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS 131"). SFAS 130
establishes standard for reporting and display of
comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments
by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting
standards as components of comprehensive income be
reported in a financial statement that displays with the
same prominence as other financial statements. SFAS 131
supersedes Statement of Financial Accounting Standard No.
14 "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards of the way
the public companies report information about operating
segments in annual financial statements and requires
reporting of selected information about operating segments
in interim financial statements issued to the public. It
also establishes standards for disclosures regarding
products and services, geographic areas and major
customers. SFAS 131 defines operating segments as
components of a company about which separate financial
information is available that is evaluated regularly by
the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial
statements for periods beginning after December 15, 1997
and require comparative information for earlier years to
be restated. Because of the recent issuance of these
F-14
<PAGE>
RENTECH, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
standards, management has been unable to fully evaluate
the impact, if any, the standards may have on future
financial statement disclosures. Results of operations
and financial position, however, will be unaffected by the
implementation of these standards.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS
No. 132") which standardizes the disclosure requirements
for pensions and other postretirement benefits and
requires additional information on changes in the benefit
obligations and fair values of plan assets that will
facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated,
unless such information is not readily available.
Management believes the adoption of this statement will
have no material impact on the Company's consolidated
financial statements.
The FASB has recently issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 established standards for recognizing all
derivative instruments including those for hedging
activities as either assets or liabilities in the
statement of financial position and measuring those
instruments at fair value. This Statement is effective
for fiscal years beginning after June 30, 1999. The
Company has not yet determined the effect of SFAS No. 133
on its financial statements. Management believes the
adoption of this statement will have no material impact on
the Company's consolidated financial statements.
The FASB recently issued Statement of Financial Accounting
Standards No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise"
("SFAS No. 134"). SFAS No. 134 establishes accounting and
reporting standards for certain activities of mortgage
banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary
operations of a mortgage banking enterprise.
This statement is effective for the first fiscal quarter
beginning after December 15, 1998. Management believes
the adoption of this statement will have no impact on the
Company's consolidated financial statements.
F-15
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. BUSINESS On March 20, 1997, the Company acquired the assets of
ACQUISITION Okon for $1,050,000 in cash, a $300,000 note due to the
seller and $25,739 in acquisition costs. The acquisition
was recorded using the purchase method of accounting, by
which the assets are valued at fair market value at the
date of acquisition. The operating results of Okon have
been included in the accompanying consolidated financial
statements from the date of acquisition. The allocation
of the purchase price was as follows:
<TABLE>
<S> <C>
-------------------------------------------------------
Inventories $ 83,977
Property and equipment 82,047
Goodwill 1,209,715
-------------------------------------------------------
Total purchase price $ 1,375,739
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The following unaudited pro forma information presents
the consolidated results of operations of the Company as
if the acquisition of Okon had occurred at the beginning
of fiscal year 1997. The unaudited pro forma financial
data does not purport to be indicative of the results
which actually would have been obtained had the purchase
been effected on the dates indicated or of the results
which may be obtained in the future.
<TABLE>
YEAR ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
<S> <C>
Revenues $ 1,768,709
Operating expenses 2,877,575
Other expense 295,190
-------------------------------------------------------
Net loss from continuing
operations (1,404,056)
Dividend requirements on
preferred stock (1) 760,743
-------------------------------------------------------
F-16
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Loss applicable to
common stockholders $ (2,164,799)
-------------------------------------------------------
-------------------------------------------------------
Net loss per common
share from continuing
operations $ (0.11)
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
(1) The Company used the proceeds from a preferred
stock offering to acquire Okon. Therefore, the
Company has recorded the dividends on the preferred
stock assuming that the preferred stock was
outstanding at the beginning of fiscal year 1997.
2. PROPERTY AND Property and equipment consisted of the following:
EQUIPMENT
<TABLE>
SEPTEMBER 30, 1998 1997
-------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 139,753 $ 139,753
Vehicles 23,117 4,000
Office furniture and
equipment 165,328 122,660
Leasehold improvements 172,117 33,224
-------------------------------------------------------
500,315 299,637
Less accumulated
depreciation and
amortization 180,258 126,774
-------------------------------------------------------
$ 320,057 $ 172,863
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
3. INVESTMENT On May 6, 1998, the Company and ITN Energy Systems, Inc.
IN ITN/ES ("ITN") agreed to form a venture to design, develop and
manufacture active and passive Radio Frequency
Identification tags (RFID tags) which have a wide range
of applications. This opportunity utilizes thin-film
deposition technology developed by ITN.
F-17
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
On May 29, 1998, the Company acquired a 10% ownership in
ITN. The Company's 10% ownership in ITN includes a 10%
ownership interest in the 50% ownership interest of ITN
in Global Solar Energy LLC. The other 50% owner of Global
Solar Energy LLC is Advanced Energy Technologies, Inc., a
wholly owned subsidiary of Tucson Electric Power
Corporation, which is a wholly owned subsidiary of
UniSource Energy Corporation. Global Solar Energy LLC was
established to manufacture and market flexible
photovoltaic (PV) modules. The additional consideration
paid to ITN was 500,000 shares of the Company's common
stock for the derivative interest in Global Solar Energy
LLC. The Company's earlier investment with ITN enabled
the Company to acquire interests in other technology
ventures with ITN.
The total consideration paid to ITN in exchange for 10%
of ITN's issued and outstanding shares was as follows:
- A $200,000 cash deposit plus $52,665 in
acquisition costs,
- Issuance of 1,700,000 common shares having a
market value of $2,728,125 at the date of
issuance, and
- Issuance of warrants to purchase up to 150,000
additional shares of the Company. The value of
the warrants under the Black-Scholes option-
pricing model was $98,317.
If at any time after nine months from May 29, 1998, ITN
elects to sell a portion of its Rentech shares, and if at
that time the closing bid price of the Rentech shares is
less than $0.40 per share for a period of 20 consecutive
days, ITN will have the right to sell up to 1,700,000 of
the shares to the Company for cash, during the following
12 month period. The purchase price payable by the
Company for each of its shares will be $0.40. On May 29,
1998, the Company advanced ITN 200,000 shares prior to
the closing. On July 1, 1998 the Company finalized the
purchase of 10% of ITN and issued the additional 500,000
shares and released 1,000,000 shares from escrow.
4. LONG-TERM During September and October 1997, the Company issued,
DEBT for cash, convertible notes payable of $520,500 and
$60,000 as part of a private offering that closed in
October 1997. During September 1997, the Company
F-18
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
issued an additional convertible notes payable for
$40,000. Net proceeds from the private offering after
paying commissions and offering costs were $541,554.
The convertible notes payable bear interest at 10%
with interest payable at maturity. For each $1
received from the private offering, the Company issued
one share of its common stock. During September and
October 1997, the Company issued 560,500 and 60,000 of
the Company's common stock valued at $170,645 and
$45,621. The Company recorded these amounts as
additional interest expense associated with these
convertible notes payable. The notes were convertible
into shares of the Company's common stock at $.33 per
share until April 16, 1998. The conversion rate of the
convertible notes equalled or exceeded the Company's
market rate of its common stock at the date of the
issuance of the convertible debt. In April 1998, the
notes payable were converted into 1,880,301 common
shares in the Company.
On March 20, 1997, the Company entered into a $300,000
note payable with the sellers of Okon (see Note 1). The
$300,000 note payable accrued interest at 10% with
monthly interest only payments due through March 1998.
Commencing March 15, 1998, monthly principal and interest
were due through March 15, 1999. The note which was
collateralized by all assets of Okon was paid in full in
March, 1998.
During August 1997, the Company issued, for cash, notes
payable in the amount of $390,000. The notes bore
interest at an annual interest rate of 20%. As
additional consideration, the note holders were granted
stock options to purchase 214,500 shares of the Company's
common stock at a price equal to the market value on the
date of grant. The value of the options using the
Black-Scholes option-pricing model was $24,948. The
Company recorded this amount as partial consideration in
interest expense on the notes payable (see Note 5). The
notes were collateralized by an assignment of the common
stock of the Company's wholly owned subsidiary, Okon. An
officer of the Company held $90,000 of these notes
payable. The notes were paid in full in March, 1998.
F-19
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. STOCKHOLDERS' PREFERRED STOCK
EQUITY
During February 1997, the Company amended its articles of
incorporation authorizing the issuance of 150,000 shares
of Series A preferred stock. The holders of the Series A
preferred stock are entitled to receive, when, and if
declared by the Board of Directors and out of funds
legally available for the payment of dividends, dividends
at the annual dividend rate of $1.50 per year on each
outstanding share of preferred stock commencing upon
issuance. The dividends are payable quarterly in cash or
at the option of the Company in shares of its
free-trading common stock on the first day of April,
July, October and January of each year commencing July 1,
1997. The dividends accrue and are cumulative to the
extent not declared and paid by the Company.
The Series A preferred stock are redeemable at the
Company's election, in whole or in part, in cash equal to
$12.50 per share plus any accumulated and unpaid
dividends. The Series A preferred stock and any
accumulated and unpaid dividends are convertible at the
option of the holder if not redeemable by the Company
into common stock of the Company at the lesser of 70% of
the average of the closing bid price per share of the
Company's common stock for the five trading days
preceding the date of conversion or at 70% of the average
of the closing bid price per share of the Company's
common stock for the five trading days preceding the date
of the stock subscription.
During March 1997, the Company completed the $1,500,000
sale of 150,000 shares of its Series A preferred stock
together with warrants to purchase, at approximately $.28
per share, additional shares of the Company's common
stock. The Company received net proceeds of $1,249,011
after deducting $250,989 in offering costs and recognized
a deemed dividend of $159,642. During April and May
1997, the preferred shareholders elected to convert
$372,500 of their 37,250 shares into 2,690,946 shares of
the Company's common stock. The remaining shares were
redeemed prior to September 30, 1997 at $12.50 per share
plus accumulated dividends of $65,309 for a total cost of
$1,474,684. As required by the terms of the preferred
stock issue, 3,423,456 warrants were issued upon the
conversion and redemption of the preferred stock. The
F-20
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
value of the warrants using the Black-Scholes
option-pricing model was $151,588. The Company recorded
this amount as additional deemed dividends on the
preferred stock.
During fiscal 1998, the Company amended its articles of
incorporation authorizing the issuance of 200,000 shares
of Series A Preferred Stock and 800,000 shares of
Series B Preferred Stock.
During fiscal year 1998, the Company issued 200,000
shares of Series A Preferred Stock at $10.00 per share
together with warrants to purchase 200,000 shares of
Series B Preferred stock and, at the option of the
Company, up to an additional 600,000 shares of Series B
Preferred Stock at $10.00 per share. The warrants issued
to the Series A Preferred stockholders were deemed to be
nominal in value. The Company received $2,000,000 in
cash before offering costs of $336,083. The Series A
Preferred Stock pays a dividend of 9% per year and is
convertible over 18 months into common stock at the
lesser of the average closing bid price of the common
stock for the five trading days preceding the purchase of
the preferred shares; average closing bid price of the
common stock for the five days preceding the date of the
final sale of the preferred shares by the Company; or at
82.5% of the average closing bid for the five trading
days preceding the conversion of the Series A Preferred
Stock into common stock. The Company recorded a deemed
dividend of $424,242 when it issued the Series A
Preferred Stock. During fiscal 1998, certain holders of
the Series A Preferred Stock converted 150,000 of their
shares plus $57,716 in accrued dividends into 1,540,014
common shares of the Company.
The warrants provide for the purchasers of the Series A
Preferred Stock, during the 18 months after purchase of
the Series A Preferred Stock, to purchase 200,000 shares
of the Series B Preferred Stock at $10 per share and
provide the Company during the same period the option to
sell to the purchasers an additional 600,000 shares of
the Series B Preferred Stock at $10.00 per share. The
Company has no obligation to sell any of the 600,000
shares of the Series B Preferred Stock to the purchasers.
The Company does not have to sell any of the 800,000
shares of the Series B Preferred Stock to the purchasers
if certain conditions occur, primarily related to volume
and the
F-21
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
price of the common stock in the market. The Company
has no obligation to sell any of the 800,000 shares of
the Series B Preferred Stock if the average daily share
price for the common stock for the 10 trading days prior
to the sale is less than $1.00 per share. The Series B
Preferred Stock pays a dividend of 9% per year and is
convertible into common stock until December 31, 1999 at
82.5% of the average closing bid for the five trading
days preceding the date of conversion.
During the last quarter of fiscal 1998, the Company
issued 300,000 Series B Preferred stock for $3,000,000 in
cash before offering costs of $360,489. The Company
recorded a deemed dividend of $636,363 when it issued the
Series B Preferred Stock. During fiscal 1998, certain
holders of the Series B Preferred Stock converted 192,500
of their shares plus $12,324 in accrued dividends into
2,164,987 common shares of the Company.
The Series A and B Preferred Stock are not redeemable
prior to September 30, 1999. Thereafter, the Company
under the sole authority of its board of directors may
elect to redeem the Series A and B Preferred Stock, in
whole or in part, in cash equal to $11.50 per share plus
any accumulated and unpaid dividends.
COMMON STOCK
During fiscal 1997, the Company sold 2,479,000 shares of
its common stock for cash proceeds of $249,950 after
deducting $24,000 in offering costs.
During fiscal 1997, the Company sold 8,833,986 shares of
its common stock upon exercise of 8,833,986 in stock
warrants for cash proceeds of $1,128,949 after deducting
$7,500 in offering costs.
During fiscal 1998, the Company issued 2,824,442 shares
of its common stock upon exercise of 722,500 and
2,101,942 in stock options and stock warrants for cash
proceeds of $725,971.
During fiscal 1998, the Company issued 200,000 shares of
its common stock with a market value of $162,500 as
partial consideration to reacquire all
F-22
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
rights that RIG86 held to market, develop, license or
sublicense the Rentech process technology in the
countries comprising the Association of South East Asian
Nations.
During fiscal 1998, the Company issued 166,000 shares of
its common stock with a market value of $223,033 in
payment for services, of which $128,125 is for future
services.
STOCK OPTIONS AND STOCK WARRANTS
At September 30, 1998, the Company has five stock option
plans, which are described below.
The Company's board of directors adopted the 1990 Stock
Option Plan which allows for the issuance of incentive
stock options, within the meaning of the Internal Revenue
Code, and other options issued pursuant to the plan that
constitute nonstatutory options. Options granted under
the 1990 Stock Option Plan are for shares of the
Company's $0.01 par value common stock. The Company has
reserved 742,280 shares for the 1990 Stock Option Plan
and the 1988 Stock Option Plan which has been rolled into
the 1990 plan.
During 1994, the Company's board of directors adopted the
1994 Stock Option Plan which allows for the issuance of
incentive stock options, within the meaning of Internal
Revenue Code. The Company has reserved 300,000 shares of
the Company's $0.01 par value common stock for issuance
under the plan.
During 1996, the Company's board of directors adopted the
1996 Stock Option Plan which allows the issuance of
incentive stock options, within the meaning of the
Internal Revenue Code, and other options pursuant to the
plan that constitute nonstatutory options. The Company
has reserved 500,000 shares of the Company's $0.01 par
value common stock for issuance under the plan.
During 1998, the Company's board of directors adopted the
1998 Stock Option Plan which allows the issuance of
incentive stock options, within the
F-23
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
meaning of the Internal Revenue Code, and other options
pursuant to the plan that constitute nonstatutory
options. The Company has reserved 500,000 shares of the
Company's $0.01 par value common stock for issuance under
the plan.
During January 1997, options to purchase 250,000 of the
Company's $.01 par value common stock were granted at
$.01 as partial compensation for financial marketing and
consulting services. These options expire on January 29,
1999. An additional 150,000 options were granted at $.01
as incentive stock options under the Company's 1996 Stock
Option Plan. These options expire on January 29, 1999.
An additional 15,000 shares were granted at $.25 per
share which are exercisable through July 7, 2002 under
the Company's 1990 Stock Option Plan. The Company
received services valued at $24,000 in exchange for these
415,000 options.
In May 1997, options to purchase 100,000 of the Company's
$.01 par value common stock were granted as compensation
for public relations consulting services. These options
were granted at $.30 which is in excess of the common
stock's market price at the date of grant. These options
may be exercised at $.30 per share through May 13, 1998.
On August 15, 1997, options to purchase 214,500 of the
Company's $.01 par value common stock were granted in
partial consideration for $24,948 in interest expense on
the notes payable issued during August 1997 (See Note 4).
The options may be exercised through August 14, 1999.
In October 1998, the Company issued options to purchase
100,000 of the Company's $.01 par value common shares in
connection with an offer of employment. These options may
be exercised at $.75 per share through October 6, 2002.
During 1998, the Company issued options to purchase 7,500
common shares were granted as compensation to three
individuals pursuant to an agreement with them to serve
on a Management Advisory Board in 1996. These options
were granted at $.35 per share and expire in 1998. The
fair value of the options are considered nominal in
value.
F-24
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
During fiscal 1997, warrants to purchase 3,423,456 shares
were issued in connection with a private offering of the
Company's preferred stock. The Company granted these
warrants in partial consideration for $151,588 in
dividends on the preferred stock. The warrants can be
exercised at various prices from $.2686 to $.3564 per
share and expire at various dates from March 7, 1999 to
April 7, 1999
During 1996, the Company issued 4,744,000 warrants to
purchase common stock of the Company at an exercise price
of $.25 per share. During January, February and March,
1997, 251,900 warrants were exercised at $.25 per share.
On May 14, 1997, each warrant holder of record was
granted the right to receive two shares of the Company's
common stock for $.125 per share. Prior to the expiration
date of September 20, 1997, 8,582,086 of these warrants
were exercised. Also on May 14, 1997, officers and
directors, who had received warrants under the original
agreement for compensation due and unpaid under
consulting contracts or employment agreements, assigned
their rights to third parties. To avoid economically
penalizing the officers and directors and to provide the
officers and directors with a proprietary interest in and
a greater concern for the interests of the Company's
shareholders, the Company granted 1,568,700 stock options
to the officers and directors at an exercise price of
$.125 per share.
During March 1997, warrants to purchase 200,000 shares
were issued as part of the consideration for the 1997
private placement of convertible preferred shares. These
warrants are exercisable at $.30 per share through March
6, 1999. The Company has recorded $4,330 in offering
costs associated with this private placement.
In October 1997, warrants to purchase 200,000 shares were
issued as partial consideration to reacquire all rights
that RIG86 held to market, develop, license or sublicense
the Rentech process technology in the countries
comprising the Association of South East Asian Nations.
The warrants can be exercised at $.25 per share and
expire at March 3, 2000. The Company recorded the
$125,246 fair value of the warrants to technology rights.
F-25
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In October 1997, warrants to purchase 233,959 shares were
issued as part of the consideration for the 1997 private
placement of convertible notes payable. These warrants
can be exercised at $.33 per share through October 14,
2002. The Company recorded $279,723 in offering costs
associated with this private placement.
In February 1998, warrants to purchase 200,000 shares
were issued as part of the consideration for the 1998
private placement of convertible preferred shares. These
warrants can be exercised at $1.00 per share through
February 8, 2000. The Company recorded $95,757 in
offering costs associated with this private placement.
In June 1998, warrants to purchase 150,000 shares were
issued in connection with the Company's investment in
ITN/ES. The warrants can be exercised at $1.59 per share
and expire at July 1, 2003. The Company recorded the
$98,317 fair value of the warrants to its investment in
ITN/ES (see Note 3).
The following table summarizes information on stock
option activity:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number of Price Price Expiration
Outstanding at Shares Per Share Per Share Dates
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1990 STOCK OPTION PLAN
Outstanding at
October 1, 1996 472,280 $.5052-$1.88 $.84 1996-1998
Granted 625,000 $.1875-$.28 $.23 2002
Expired (356,292) $.5052 $.51 -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1997 740,988 $.1875-$1.88 $.50 1998-2002
Exercised (75,000) $.1875-$1.88 $.668 -
Expired (95,988) $1.88 $1.88 -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1998 570,000 $.1875-$.30 $.24 2001-2002
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------
<TABLE>
<CAPTION>
1994 STOCK OPTION PLAN
<S> <C> <C> <C> <C>
Outstanding at
October 1, 1996 280,000 $.28-$1.27 $.74 1997-2000
Granted 192,000 $.1875-$.30 $.24 2001-2002
Expired and/or forfeited (180,000) $.28-$1.27 $.45 -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1997 292,000 $.1875-$1.27 $.59 2000-2002
Exercised (20,000) $.1875-$.25 $.219 -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1998 272,000 $.1875-$1.27 $.62 2000-2002
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
1996 STOCK OPTION PLAN
Outstanding at
October 1, 1996 - - - -
Granted 450,000 $.01-$.30 $.19 1999-2002
Expired - - - -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1997 450,000 $.01-$.30 $.19 1999-2002
Granted 20,000 $.82 $.82 2003
Exercised (160,000) $.01-$.1875 $.021 -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1998 310,000 $.1875-$.82 $.312 2001-2003
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
1998 STOCK OPTION PLAN
Outstanding at
October 1, 1997 - - - -
Granted 181,000 $.30-$1.78 $.823 2003
Expired - - - -
Outstanding at
September 30, 1998 181,000 $.30-$1.78 $.823 2003
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
OTHER STOCK OPTIONS
Outstanding at
October 1, 1996 - - - -
Granted 2,133,200 $.01-$.30 $.13 1998-2000
Expired - - - -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1997 2,133,200 $.01-$.30 $.13 1998-2000
Granted 107,500 $.35-$.75 $.722 1998-2002
Exercised (467,500) $.01-.30 $.134 -
------------------------------------------------------------------------------------
Outstanding at
September 30, 1998 1,773,200 $.125-$.75 $.17 1999-2002
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Total stock options
outstanding,
September 30, 1998 3,106,200 $.125-$1.78 $.273 1999-2003
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
F-27
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes information on stock
warrant activity:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number of Price Price Expiration
Outstanding at Shares Per Share Per Share Dates
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCK WARRANTS
Outstanding at
October 1, 1996 10,268,100 $.125-$3.50 $.47 1997
Granted 3,423,456 $.2686-$.3564 $.29 1999
Exercised (8,833,986) $.125-$.25 $.13 -
Expired and/or forfeited (1,434,114) $.125-$3.50 $2.55 -
-------------------------------------------------------------------------------------------
Outstanding at
September 30, 1997 3,423,456 $.2686-$.3564 $.29 1999
Granted 983,959 $.25-$1.641 $.643 1999-2003
Exercised (2,071,408) $.25-$.3564 $.292 -
-------------------------------------------------------------------------------------------
Outstanding at
September 30, 1998 2,336,007 $.25-$1.641 $.433 1999-2003
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related Interpretations in
accounting for the plans. Under APB Opinion 25, when the
exercise price of the Company's employee stock options is
less than the market price of the underlying stock on the
date of grant, compensation cost is recognized.
FASB Statement 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires the Company to
provide pro forma information regarding net loss and net
loss per share as if compensation costs for the Company's
stock option plans and other stock awards had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the
fair value of each stock award at the grant date by using
the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998 and
1997, respectively; dividend yield of 0 percent for all
years; expected volatility of 25 to 43 percent in 1998
and 15 to 32 percent in 1997; risk-free interest rates of
5.14 to 6.22 percent in 1998 and 5.40 and 5.52 percent in
1997; and expected lives of 2 to 5 years in 1998 and 1
and 5 years in 1997 for the Plans and stock awards.
F-28
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Under the accounting provisions for SFAS No. 123, the
Company's net loss and net loss per share would have been
increased by the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998 1997
-----------------------------------------------------------------
<S> <C> <C>
Loss applicable to common stock:
As reported $(3,345,847) $(2,034,100)
Pro forma $(3,415,072) $(2,205,906)
Loss per common share:
As reported $ (.10) $ (.10)
Pro forma $ (.10) $ (.11)
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
The following information summarizes stock options
outstanding and exercisable at September 30, 1998.
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------ ------------------------
Weighted Average
------------------------
Remaining Weighted
Range of Number Contractual Exercise Number Average
Exercise Prices Outstanding Life in years Price Exercisable Exercise
--------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.25 104,500 1 $.25 104,500 $.25
$.125-$1.27 1,668,700 2 $.19 1,668,700 $.19
$.1875-$.30 1,032,000 4 $.25 1,032,000 $.25
$.30-$1.78 301,000 5 $.80 301,000 $.80
--------------------------------------------------------------------------------
$.125-$1.78 3,106,200 2.9 $.27 3,106,200 $.27
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
F-29
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following information summarizes stock warrants
outstanding and exercisable at September 30, 1998.
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------- -----------------------
Weighted Average
------------------------
Remaining Weighted
Range of Number Contractual Exercise Number Average
Exercise Prices Outstanding Life in years Price Exercisable Exercise
------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
$.27-$.36 1,922,660 1 $.29 1,922,660 $.29
$.25-$1.00 263,347 2 $.82 263,347 $.82
$1.64 150,000 5 $1.64 150,000 $1.64
--------------------------------------------------------------------------------
$.25-$1.64 2,336,007 1.3 $.43 2,336,007 $.43
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
6. COMMITMENTS EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements that
extend to January 31, 2002 through March 31, 2002 with
four of its officers. The employment agreements set
forth annual compensation to the four officers of between
$112,000 and $114,000 each. Compensation is adjusted
annually based on the cost of living index.
RETIREMENT PLANS
During 1990, the Company adopted a non-qualified profit
sharing plan for the benefit of all employees. The
profit sharing plan is administered by a committee
appointed by the Company's board of directors. The
profit sharing plan allows for current year bonuses of up
to five percent of audited pre-tax earnings before
depreciation, amortization and extraordinary income, if
adjusted earnings for the preceding year exceeds
$500,000. No distributions have been granted since the
inception of the plan. On January 1, 1998, the Company
established a 401(k) plan. Employees who are at least 21
years of age are eligible to participate in the plan and
share in the employer matching contribution. The
employer is currently matching 50% of the first 6% of the
participant's salary deferrals. All participants who have
completed 1000 hours of service and who are employed on
the last day of the plan year are eligible to share in
the non-matching employer contributions. Employer
matching and non-matching contributions vest
F-30
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
immediately in years in which the plan is not top heavy.
During years in which the plan is top heavy, employer
matching and non-matching contributions vest 100% after
three years of service. The Company contributed $14,352
to the plan for the year ended September 30, 1998.
Okon had a pre-existing qualified money purchase pension
and profit sharing plan in place. During 1985, Okon
adopted a qualified money purchase pension and profit
sharing plan administered by a committee appointed by
Okon's board of directors for participants which include
all employees age 18 and over who have been employed by
Okon for two years. The money purchase pension plan
calls for Okon's contribution of 6% of each eligible
participant's recognized compensation up to the
integration level for the plan year and 10.3% over the
integration level for the plan year. The profit sharing
plan contributions are made at the discretion of Okon for
eligible participants. The combined money purchase
pension and profit sharing contributions cannot exceed
25% of all eligible employees' wages, not to exceed
$30,000 per participant. For the year ended September
30, 1997, Okon contributed approximately $19,000 to the
plans. The plans were discontinued in 1998.
OPERATING LEASES
The Company leases office space under a noncancelable
operating lease which expires October 31, 2003, and the
lease contains a renewal option for an additional five
years. The Company also leases office and laboratory
space for its Fischer-Tropsch research facility, under a
lease which expires during March, 2003. The Company has
entered into an agreement to purchase this building (see
Note 11). The Company also leases office and warehouse
space for its Okon operation, under a lease which expires
during March 1999. The lease contains a renewal option
for an additional three years. In addition, provided
that Okon is not in default under the lease, Okon has the
option to purchase the facility at any time during the
lease
F-31
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
term. Future minimum lease payments as of September 30,
1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, Amount
-------------------------------------------------------------
<S> <C>
1999 $163,000
2000 151,000
2001 131,000
2002 119,000
2003 10,000
-------------------------------------------------------------
Total $574,000
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
Total lease expense for the years ended September 30,
1998 and 1997 was approximately $63,000 and $53,000.
LETTER OF INTENT
On May 27, 1998, the Company entered into a letter of
intent, subject to due diligence and financing
requirements, to purchase a Rocky Mountain based
manufacturing and machining firm for approximately
$4,000,000. Due to the nature of the transaction and the
sensitivity to its employees, no notification may be
forthcoming until closing. On August 5, 1998, a further
agreement set forth the terms and conditions for the
potential acquisition and due diligence began. As of
September 30, 1998, the Company gave the seller a $50,000
non-refundable earnest deposit.
7. INCOME There was no provision for income taxes required for the
TAXES years ended September 30, 1998 and 1997 due to operating
losses in those years.
At September 30, 1998, the Company had available net
operating loss carry forwards and capital loss carry
forwards of approximately $8,525,000 and $238,000 for tax
reporting purposes. The operating loss carry forwards
expire through 2018, and the capital loss carry forward
expires in 1999. These carry forwards are subject to
various limitations imposed by the rules and regulations
of the Internal Revenue Service.
F-32
<PAGE>
RENTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
There were no tax credits established in the statements
of operations since the Company has a 100 percent
valuation allowance for the tax benefit of net
deductible temporary differences and operating loss
carryforwards. Management is not able to determine if
it is more likely than not that the deferred tax assets
will be realized. The Company has deferred tax assets
with a 100 percent valuation allowance at September 30,
1998 and 1997. The tax effect on the components is as
follows:
<TABLE>
SEPTEMBER 30, 1998 1997
----------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carry forwards $ 3,197,000 $ 2,583,000
Capital loss carry forward 89,000 56,100
Compensation expense for common
stock options and common stock
not allowed for income tax purposes 46,000 26,000
Accruals for financial statement
purposes not allowed for income
taxes - cash basis 59,000 (12,700)
Basis difference relating to
licensed technology 265,000 209,700
Basis difference in property and
equipment (62,000) -
Basis difference in other assets (19,000) -
Basis difference in technology rights 7,000 -
Basis difference relating to Synhytech
plant held for sale 75,000 37,000
----------------------------------------------------------------------------
3,657,000 2,899,100
Valuation allowance (3,657,000) (2,899,100)
----------------------------------------------------------------------------
$ -0- $ -0-
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
A reconciliation of the income taxes at the federal
statutory rate to the effective tax rate is as follows:
F-33
<PAGE>
<TABLE>
YEARS ENDED SEPTEMBER 30, 1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
Federal income tax benefit computed
at the Federal statutory rate $ 741,000 $ 467,000
State income tax benefit net of
Federal benefit 39,400 41,000
Other - permanent differences (22,500) -
Increase in valuation allowance (757,900) (508,000)
---------------------------------------------------------------------------
Income tax benefit $ - $ -
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
8. SUPPLEMENTAL YEARS ENDED SEPTEMBER 30, 1998 1997
DATA TO ---------------------------------------------------------------------------
STATEMENTS OF <S> <C> <C>
CASH FLOWS Cash payments for interest $ 89,411 $ 14,090
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
Excluded from the statements of cash flows for the years
ended September 30, 1998 and 1997 were the effects of
certain noncash investing and financing activities as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
Issuance of common stock from
conversion of preferred stock
and dividends $ 4,555,645 $ 532,142
Issuance of common stock for
interest expense on
convertible notes payable $ 45,621 $ 170,645
Issuance of common stock for
redemption of convertible
notes payable $ 620,500 $ -
Issuance of common stock for
services $ 94,908 $ -
Issuance of common stock for
investment in ITN/ES $ 2,728,125 $ -
F-34
<PAGE>
Issuance of common stock for
prepaid expenses $ 128,125 $ -
Issuance of common stock for
technology rights $ 162,500 $ -
Issuance of stock warrants for
investment in ITN/ES $ 98,317 $ -
Issuance of stock warrants for
technology rights $ 125,246 $ -
Issuance of stock warrants for
offering costs $ 375,480 $ -
Issuance of stock warrants for
dividends on preferred stock $ - $151,588
Issuance of stock options for
interest expense on notes
payable $ - $ 24,948
Issuance of stock options for
services $ 52,933 $ 45,028
Property and equipment financed
with accounts payable $ 138,893 $ -
Increase in accrued dividends $ 34,347 $ -
Accounts receivable offset with
accrued liability $ 24,000 $ -
Long-term debt issued in connection
with the business acquisition $ - $300,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
9. SEGMENT AND The Company operates in the alternative fuels industry
GEOGRAPHIC and in the paint industry due to the acquisition of Okon
INFORMATION during March 1997 (see Note 1). The Company develops and
markets processes for conversion of low-value, carbon-
bearing solids or gases into valuable liquid hydrocarbons
and in the manufacture and distribution of water-based
paints, sealers and coatings. During fiscal 1998 and
1997, the Company did not generate any revenue
F-35
<PAGE>
from the alternative fuels industry. Financial
information summarized by industry segment is as follows
for 1998 and 1997.
<TABLE>
Alternative Intercompany
SEPTEMBER 30, 1998 Fuels Paint Eliminations Consolidated
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ - $ 1,987,586 $ - $ 1,987,586
Income (loss) from
operations $ (2,324,088) $ 337,270 $ - $ (1,986,818)
Depreciation and
amortization $ 288,852 $ 102,798 $ - $ 391,650
Capital expenditures $ 175,484 $ 25,194 $ - $ 200,678
Identifiable assets $ 5,596,273 $ 2,059,253 $ (449,053) $ 7,206,473
Corporate assets $ 4,884,517 $ - $ (1,375,740) $ 3,508,777
Total assets $ 10,480,790 $ 2,059,253 $ (1,824,793) $ 10,715,250
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------
Revenues $ - $ 1,189,536 $ - $ 1,189,536
Income (loss) from
operations $ (1,366,898) $ 289,115 $ - $ (1,077,783)
Depreciation and
amortization $ 252,251 $ 52,332 $ - $ 304,583
Capital expenditures $ 8,544 $ 57,271 $ - $ 65,815
Identifiable assets $ 2,777,789 $ 1,759,476 $ (130,145) $ 4,407,120
Corporate assets $ 1,825,824 $ - $ (1,375,740) $ 450,084
Total assets $ 4,603,613 $ 1,759,476 $ (1,505,885) $ 4,857,204
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
10. SIGNIFICANT With the acquisition of Okon in March 1997, the Company's
CUSTOMERS revenue base was increased to over 2,000 customers. As of
September 30, 1998, two customers account for 23% and 18%
of the paint segment's accounts receivable, and during
fiscal 1998, two customers accounted for 41% and 24% of
total paint segment's sales. As of September 30, 1997, one
customer accounted for 100% of total accounts receivable
for the alternative fuel segment and one customer
accounted for 29% of the paint segment's accounts
F-36
<PAGE>
11. SUBSEQUENT During October 1998, the Company converted 36,500 shares
EVENT of Series A Preferred Stock and accrued dividends related
thereto into 552,878 common shares, and the Company
converted 107,500 shares of Series B Preferred Stock and
accrued dividends related thereto into 1,618,787 common
shares.
On November 23, 1998, the Company made an offer to
purchase the industrial building occupied by its research
laboratory for $1,413,000. The building is occupied by two
additional tenants with long-term leases. The building
purchase will be financed with cash and debt.
On October 8, 1998, the Company entered into a licensing
agreement with Texaco Natural Gas, Inc. for the Rentech
GTL Technology. Under the license, Texaco will use
Rentech's GTL technology in combination with Texaco's
proprietary gasification technology to produce liquid
hydrocarbon products such as naphtha, fuel and specialty
products.
F-37
<PAGE>
The following exhibits are filed with this Form 10-KSB or incorporated
herein by the following references:
<TABLE>
<CAPTION>
Exhibit Index
Exhibit
Number Description
<C> <S>
EX-3.(i).1 Restated and Amended Articles of Incorporation, dated January 4,
1991 (incorporated herein by reference from the exhibits to
Amendment No. 2 to Registrant's Form S-18 Registration Statement
No. 33-37150-D filed with the Securities and Exchange Commission
on or about January 18, 1991).
EX-3.(i).2 Articles of Amendment dated April 5, 1991 to the Restated and
Amended Articles of Incorporation (incorporated herein by
reference from the exhibits to Registrant's Current Report on
Form 8-K dated August 10, 1993 filed with the Securities and
Exchange Commission).
EX-3.(i).3 Articles of Amendment dated January 26, 1998 to Articles of
Incorporation-- Preferences, Limitations and Relative Rights of
Convertible Stock, Series 1998-B of Rentech, Inc.
EX-3.(i).4 Articles of Amendment dated November 10, 1998 to Articles of
Incorporation --Designation, Preferences and Rights of Series
1998-C Participating Cumu- lative Preference Stock of Rentech,
Inc.
EX-3-(ii) Bylaws, as amended, (incorporated herein by reference from the
exhibits to Registrant's Form S-18 Registration Statement No.
33-37150-D filed with the Securities and Exchange Commission on
or about January 18, 1991).
EX-4 Shareholder Rights Plan dated November 10, 1998 (incorporated
herein by reference from the exhibits to Current Report on Form
8-K filed with the Securities and Exchange Commission on November
19, 1998).
EX-10-1 Profit Sharing Plan (incorporated herein by reference from the
exhibits to Registrant's Form S-18 Registration Statement No.
33-37150-D filed with the Securities and Exchange Commission on
or about October 30, 1990).
EX-10.2 1990 Stock Option Plan (incorporated herein by reference from the
exhibits to the Company's Registration Statement No. 33-37150-D
filed with the Securities and Exchange Commission on Form S-18
dated April 12, 1992).
EX-10.3 1994 Stock Option Plan (incorporated herein by reference from the
exhibits to Post-Effective Amendment No,. 5 to Registrant's Form
S-18 on Form SB-2 Registration Statement No. 33-37150-D filed
with the Securities and Exchange Commission on or about September
19, 1994).
EX-10.4 1996 Stock Option Plan (incorporated herein by reference from the
exhibits to Registrant's Current Report on Form 8-K dated
December 18, 1996 filed with the Securities and Exchange
Commission).
EX-10.5 1998 Stock Option Plan.
<PAGE>
EX-10.6 Employment contracts with Charles B. Benham, Dennis L. Yakobson
and Ronald C. Butz dated November 14, 1994 (incorporated herein
by reference from the exhibits to Registrant's Current Report on
Form 8-K dated November 14, 1994
filed with the Securities and Exchange Commission.)
EX-10.7 Articles of Organization of ITN Electronic Substrates LLC dated
August 4, 1997 (incorporated by reference from Exhibit 10.6 to
Registrant's Form 10-KSB/A Amendment No. One filed with the
Securities and Exchange Commission on October 31, 1997).
EX-10.8 License Agreement to Esquire Gujarat Petrochemicals Ltd. dated
Jun. 25, 1994 (incorporated by reference from Exhibit No. 10-7 to
Registrant's Form 10-KSB/A Amendment No. One filed with the
Securities and Exchange Commission on October 31, 1997).
EX-10.9 Letter of Intent between Rentech, Inc. and ITN Energy Systems,
Inc. dated October 17, 1996 (incorporated herein by reference
from the exhibits to Registrant's Current Report on Form 8-K/A
dated November 7, 1996 filed with the Securities and Exchange
Commission.)
EX-10.10 License Agreement between Rentech, Inc. and Texaco Natural Gas,
Inc. dated October 8, 1998. *Portions of the exhibit have been
omitted pursuant to a Request For Confidential Treatment.
EX-27 Financial Data Schedule
</TABLE>
<PAGE>
ARTICLES OF AMENDMENT TO EX-3.(i).3
ARTICLES OF INCORPORATION
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
CONVERTIBLE PREFERRED STOCK, SERIES 1998-B
OF
RENTECH, INC.
RENTECH, INC., a Colorado corporation (the "Corporation"), does hereby
certify that pursuant to the authority conferred upon the Board of Directors by
the Amended and Restated Articles of Incorporation, as amended, of the
Corporation and pursuant to Section 7-106-102 of the Colorado Business
Corporation Act, said Board of Directors, at a duly convened special meeting
held on January 22, 1998, duly adopted the following resolution:
RESOLVED, that, pursuant to the authority expressly granted to and vested
in the Board of Directors of RENTECH, INC., a Colorado corporation (the
"Corporation"), by the Amended and Restated Articles of Incorporation, as
amended, of the Corporation, the Board of Directors hereby creates out of the
authorized preferred stock, $10.00 par value per share, of the Corporation a
series of preferred stock to consist of not more than 800,000 shares, and the
Board of Directors hereby fixes the designation and the powers, preferences and
rights, and the qualifications, limitations or restrictions of the shares of
such series as follows:
1. DESIGNATION. This resolution shall provide for a single series of
convertible preferred stock, the designation of which shall be "Preferred
Stock--Series 1998-B" (hereinafter the "Preferred Series 1998-B Shares" or the
"Preferred Shares") and the number of authorized shares constituting the
Preferred Series 1998-B Shares is 800,000. The number of authorized Preferred
Series 1998-B Shares may be reduced or increased by a further resolution duly
adopted by the Board of Directors of the Corporation and by the filing of an
amendment to the Corporation's Articles of Incorporation pursuant to the
provisions of the Colorado Business Corporation Act stating that such reduction
or increase has been so authorized.
2. VOTING. Except as expressly required by the laws of the State of
Colorado, the holders of the Preferred Shares shall have no voting rights and
shall not be entitled to notice of meetings of shareholders, and the exclusive
voting power shall be vested in the holders of the shares of the Corporation's
Common Stock, $.01 par value per share (the "Common Stock"), and/or in any other
series of the Corporation's preferred stock now or at any time hereafter issued
and outstanding having voting rights. Any corporate action that may require a
vote of the holders of the Preferred Shares as a class shall be deemed to have
been approved by that class upon the affirmative vote by the holders of a
majority of the issued and outstanding Preferred Shares unless a higher voting
requirement is imposed by the Colorado Business Corporation Act. If any
corporate action shall require a vote of the holders of the Preferred Shares
other than as a class, the Preferred Shares shall vote as a group with the
Common Stock as if the Preferred Shares had been fully converted three (3)
business days prior to the date of the vote.
3. DIVIDENDS.
3.1 RATE. Holders of Preferred Shares shall be entitled to receive,
out of any funds of the Corporation legally available for that purpose,
cumulative dividends from the date of issuance at the rate of $.90 per year per
Preferred Share, payable quarterly (pro-rated for partial quarters) in cash, or,
at the option of the Corporation, in shares of its Free-Trading Common Stock (as
defined herein), on the first day of April, July, October and January of each
year commencing April 1, 1998 (each such date being hereinafter individually
referred to as the "Dividend Payment Date" and collectively as the "Dividend
Payment Dates"). Each such dividend shall be paid to the holders of record of
the Preferred Shares as they appear on the books of the Corporation on the
record date which shall be not less than 30 days prior to the related Dividend
Payment Date. Dividends on the Preferred Shares shall be declared and paid to
the extent the Corporation is legally able to do so and shall be cumulative to
the extent not declared and paid. Holders of Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of full dividends as herein provided on the Preferred Shares. "Free-Trading
Common Stock" shall mean shares of Common Stock that are not "restricted
securities" as defined in Rule 144 under the Securities Act of 1933 (the
"Securities Act").
<PAGE>
3.2 DIVIDENDS ON COMMON STOCK. No dividends (other than those
payable solely in Common Stock) shall be paid with respect to the Common Stock
during any fiscal year of the Corporation unless all accumulated and unpaid
dividends and the quarterly dividend on the shares of Preferred Stock for the
then current dividend period shall have been declared and a sum sufficient for
the payment thereof set apart. No shares of Common Stock shall be purchased,
redeemed or acquired by the Corporation, and no funds shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption or
acquisition thereof except (A) in transactions aggregating not more than
$100,000.00 per year, (B) in transactions resulting from a legal obligation of
the Corporation to redeem, purchase or otherwise acquire its securities arising
prior to the date hereof, or (C) pursuant to Section 5.1 herein.
4. REDEMPTION. Except as provided in Section 3.2 herein, the Preferred
Shares shall not be redeemable at any time prior to September 30, 1999.
Thereafter, the Corporation, on the sole authority of its Board of Directors,
may, at its option and at any time prior to notice of conversion of the
Preferred Shares by the holder thereof as hereinafter provided, redeem all or
any part of the Preferred Shares at the time issued and outstanding for an
amount in cash equal to $11.50 per share plus any accumulated and unpaid
dividends. Except as provided in Section 3.2 herein, if less than all the
Preferred Shares are to be redeemed, then such redemption shall be pro rata
based on the number of Preferred Shares owned of record by each Preferred
Shareholder. Written notice of redemption stating the date and place of
redemption and the amount of the redemption price shall be mailed by the
Corporation not less than 30 days nor more than 60 days prior to the redemption
date to the record holders of the shares to be redeemed directed to their last
known address as shown by the Corporation records. If notice of redemption is
given as provided above and if on the redemption date the Corporation has set
apart in trust for the purpose sufficient funds for such redemption, then from
and after the redemption date, notwithstanding that any certificate for such
shares has not been surrendered for cancellation, the Preferred Shares called
for redemption shall no longer be deemed to be outstanding and all rights with
respect to such shares shall forthwith cease and terminate, except only the
right of the holders thereof to receive the redemption price without interest
upon surrender of certificates representing the shares called for redemption.
Any monies remaining in trust after one year from the redemption date shall be
returned to the Corporation and thereafter holders of certificates for such
shares shall look only to the Corporation for the redemption price thereof.
Upon conversion of any Preferred Shares called for redemption into Common Sock,
then the portion of the monies held in trust for redemption of such shares shall
forthwith be returned to the Corporation.
5. CONVERSION.
5.1 PROHIBITION AGAINST SHORT SALES. No holder of Preferred Shares
shall directly or indirectly effect a short sale of the Corporation's Common
Stock for the holder's own account or for the account of a Related Person.
"Short sale" shall mean any sale of a security which the seller does not
beneficially own or any sale which is consummated by the delivery of a security
borrowed by, or for the account of, the seller, in either case whether or not
the seller is the owner of Common Stock at the time of such sale. "Related
Person" shall mean (A) any member of the holder's immediate family; (B) any
entity of which the holder is an officer, director, or holder of a position
having comparable duties or responsibilities; (C) any entity in which the holder
is the owner of an equity interest; and (D) any person which would be deemed to
be an "affiliate" of the holder as that term is defined in the Securities Act of
1933 or the rules and regulations promulgated thereunder.
(a) In the event of any willful violation of this prohibition
against short sales, the Preferred Shares owned by the violating holder shall
cease to be convertible into shares of the Corporation's Common Stock, and the
Corporation shall have the assignable right, exercisable at any time thereafter,
to redeem all Preferred Shares and all shares of Common Stock issued upon
conversion of Preferred Shares beneficially owned by the violating holder for an
amount equal to 50% of the following, whichever is applicable: (i) the par
value of the Preferred Shares, or (ii) the market value of the shares of Common
Stock issued, or which would have been issuable but for such violation, upon
full conversion of such Preferred Shares. In the event a holder of Preferred
Shares effects a short sale and thereafter converts all or any portion of such
Preferred Shares and sells or otherwise disposes of the shares of Common Stock
issued upon such conversion, the Corporation shall be entitled, at any time
thereafter, to recover from such holder the profit made or realized by such
holder upon sale or other disposition of such Common Stock.
(b) In the event of any willful breach of this short sale
prohibition by any holder of Preferred Shares, then such holder agrees to
indemnify and hold harmless the Corporation, its officers, directors,
<PAGE>
shareholders, employees, agents, affiliates, and their respective heirs,
personal representatives, successors and assigns, from and against any and all
claims, damages, demands, judgments, liabilities costs and expenses of any
nature whatsoever relating to or arising out of such breach and to promptly
reimburse all such persons for any and all costs and expenses incurred by them
in connection with or relating to such default, including costs of investigation
and reasonable fees of its or their lawyers, accountants and other experts.
5.2 CONVERSION RATE. So long as a holder of Preferred Shares is not
in breach of Section 5 herein and subject to Section 5.8 herein, such holder
shall have the right, exercisable at any time after 120 days from the date of
issuance of the Preferred Shares (the "Hold Period"), and on or before the close
of business on the second full business day preceding the date, if any, fixed
for the redemption of such shares as provided herein, to surrender the
certificate or certificates evidencing such shares and receive in conversion
thereof, and in lieu of accumulated and unpaid dividends thereon, that number of
shares of the Corporation's Common Stock as equals $10.00 per share of Preferred
Stock tendered for conversion, plus accumulated and unpaid dividends thereon,
divided by 82.5% of the average of the closing bid prices per share of the
Corporation's Common Stock on the NASDAQ Stock Market, any national securities
exchange, the OTC Bulletin Board or any other market on which the Common Stock
is listed for trading for the five trading days preceding the date such
conversion is deemed to have been made, as subsequently defined herein.
5.3 MECHANICS OF CONVERSION.
(a) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Shares
into full shares of Common Stock, the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 4:00 p.m., Denver time (the
"Conversion Notice Deadline") on the date of conversion, a copy of the fully
executed notice of conversion ("Notice of Conversion") to the Corporation at the
office of the Corporation or its designated transfer agent (the "Transfer
Agent"), and (B) surrender to a common carrier for delivery to the office of the
Corporation or the Transfer Agent, the original certificates representing the
Preferred Shares being converted (the "Preferred Stock Certificates"), duly
endorsed for cancellation. The holder of the Preferred Shares shall have the
right to convert fewer than the full number of Preferred Shares held at any
given time.
(b) CORPORATION'S RESPONSE. Upon receipt by the Corporation of
a facsimile copy of such Notice of Conversion, the Corporation shall send, via
facsimile, a confirmation of receipt of such Notice of Conversion to such
holder, which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Corporation whom the
holder should contact regarding information related to such conversion. Upon
receipt by the Corporation or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Notice of Conversion (or an
indemnification undertaking reasonably satisfactory to the Corporation with
respect to such shares in the case of their loss, theft or destruction) together
with the originally executed Notice of Conversion, the Corporation or the
Transfer Agent (as applicable) shall, within two business days after the date of
receipt (or the next business day if received prior to 11:00 a.m. local time of
the Corporation or Transfer Agent, as applicable) (the "Deadline"), issue and
surrender to a common carrier for either overnight or (if delivery is outside
the United States) two (2) day delivery to the address as specified in the
Notice of Conversion, a certificate for the number of shares of Common Stock to
which the holder shall be entitled as aforesaid. In the case of a dispute as to
the calculation of the conversion rate, the Corporation shall promptly issue to
the holder the number of shares of Common Stock that is not disputed and shall
submit the disputed calculations to its outside accountant via facsimile within
one (1) business day of receipt of such holder's Notice of Conversion. The
Corporation shall cause the accountant to perform the calculations and notify
the Corporation and the holder of the results no later than twenty-four (24)
hours from the time it receives the disputed calculations. Such accountant's
calculation shall be deemed conclusive absent manifest error. Should the Notice
of Conversion specify a smaller number of Preferred Shares to be converted than
are represented by the Preferred Stock Certificate surrendered to the
Corporation, then the Corporation shall immediately issue a new Preferred Stock
Certificate representing the number of Preferred Shares not yet converted, and
deliver the same to the holder thereof along with the Common Stock as stated
above.
(c) DATE OF CONVERSION. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (A) that the advance copy of the Notice of
Conversion is faxed to the Corporation before 4:00 p.m., Denver time, on the
Date of Conversion, and
<PAGE>
(B) that the original Preferred Stock Certificates representing the Preferred
Shares to be converted, together with the originally executed Notice of
Conversion, are surrendered by depositing such certificates and Notice with a
common carrier, as provided above, and received by the Transfer Agent or the
Corporation on or prior to the second (2nd) business day following the Date
of Conversion. In the event the Preferred Stock Certificates and the
originally executed Notice of Conversion are not received within three (3)
business days after the date of the Notice of Conversion, the Notice of
Conversion shall be deemed null and void and no conversion of Preferred
Shares shall be effected thereby.
(d) Notwithstanding anything contained herein to the contrary,
if any action is required herein to be taken by the Company or the Transfer
Agent on a day which is not a business day, then such action shall be deemed to
be timely if taken on the next following business day.
5.4 OPTIONAL CONVERSION. At the option of the Company, if any
Preferred Shares remain outstanding on December 31, 1999, then all or any part
of such Preferred Shares as the Company elects shall be converted in accordance
with Section 5.3 as if the holders of such Preferred Shares had given the Notice
of Conversion effective as of that date, and the Date of Conversion had been
fixed as of December 31, 1999, for all purposes of Paragraph 5.3. Following
notice by the Company to the holders, all holders of Preferred Stock
certificates shall within five (5) business days after receipt of such notice
surrender all Preferred Stock certificates, duly endorsed for cancellation, to
the Corporation or the Transfer Agent, as the Corporation may direct. No person
shall thereafter have any rights in respect of Preferred Shares, except the
right to receive shares of Common Stock on conversion thereof as provided in
this Section 5.
5.5 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of Preferred Shares shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a reorganization, merger, consolidation or sale of assets provided for
below), then and in each such event, the holder of each Preferred Share shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such Preferred Shares might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
5.6 MERGER OR OTHER TRANSACTIONS. In the event the Corporation, at
any time while any of the Preferred Shares are outstanding, shall be
consolidated with or merged into any other corporation or corporations or shall
sell or lease all or substantially all of its property and business as an
entirety, then lawful provisions shall be made as part of the terms of such
consolidation, merger, sale or lease so that the holder of any Preferred Shares
may thereafter receive in lieu of such Common Stock otherwise issuable to him
upon conversion of his Preferred Shares, but at the conversion rate which would
otherwise be in effect at the time of conversion, as hereinbefore provided, the
same kind and amount of securities or assets as may be issuable, distributable
or payable upon such consolidation, merger, sale or lease with respect to Common
Stock of the Corporation.
5.7 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon conversion of Preferred Shares. With
respect to any fraction of a share called for upon any such conversion, the
Corporation shall pay to the holder of the converted Preferred Share an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share determined by the Board of Directors in good faith, which
determination shall be conclusive and binding upon such holder.
5.8 RESERVATION OF COMMON SHARES. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock the
number of shares of Common Stock deliverable upon conversion of all the issued
and outstanding Preferred Shares and shall take such action to obtain such
permits or orders as may be necessary to enable the Corporation lawfully to
issue such Common Stock upon the conversion of the Preferred Shares.
6. RIGHTS ON LIQUIDATION. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, resulting in
any distribution of its assets to its shareholders, the holders of the Preferred
Shares then issued and outstanding shall be entitled to receive an amount equal
to $10.00 per Preferred Share
<PAGE>
plus any accumulated but unpaid dividends, and no more, before any payment or
distribution of the assets of the Corporation is made to or set apart for the
holders of Common Stock. If the assets of the Corporation distributable to
the holders of Preferred Shares are insufficient for the payment to them of
the full preferential amount described above, such assets shall be
distributed ratably among the holders of the Preferred Shares. The holders of
the Common Stock shall be entitled to the exclusion of the holders of the
Preferred Shares to share in all remaining assets of the Corporation in
accordance with their respective interests. For purposes of this paragraph,
a consolidation or merger of the Corporation with any other corporation or
corporations shall not be deemed to be a liquidation, dissolution or winding
up of the Corporation.
7. NOTICE. Any notice required to be given to the holders of Preferred
Shares or any securities issued upon conversion thereof shall be deemed to have
been given upon the earlier of personal delivery or three days after deposit in
the United States mails by registered or certified mail, return receipt
requested, with postage fully prepaid, and addressed to each holder of record at
his address as it appears on the stock transfer records of the Corporation. Any
notice to the Corporation shall be in writing and shall be deemed to have been
given only upon actual receipt thereof.
8. LEGEND. All certificates representing the Preferred Shares, all
shares of Common Stock issued upon conversion thereof and any and all securities
issued in replacement thereof or in exchange therefor shall bear such legends
(or not) as shall be required by law or contract.
IN WITNESS WHEREOF, RENTECH, INC. has caused its corporate seal to be
affixed hereto and this certificate to be signed by its President and Secretary
this 26th day of January, 1998.
RENTECH, INC.
[S E A L] By: (signature)
-----------------------------------
Dennis L. Yakobson, President
ATTEST:
(signature)
- --------------------------
Ronald C. Butz, Secretary
<PAGE>
EX-3.(i).4
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
DESIGNATION, PREFERENCES AND RIGHTS OF SERIES 1998-C
PARTICIPATING CUMULATIVE PREFERENCE STOCK
OF RENTECH, INC.
RENTECH, INC., a Colorado corporation (the "Corporation"), does hereby
certify that it duly adopted the following resolution without shareholder
action, which shareholder action was not required, pursuant to the authority
conferred upon the Board of Directors by the Amended and Restated Articles of
Incorporation, as amended, of the Corporation and pursuant to Section 7-106-102
of the Colorado Business Corporation Act, said Board of Directors, at a duly
convened special meeting held on October 28, 1998:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Amended and Restated
Articles of Incorporation, a series of Preferred Stock of the Corporation is
hereby created, and that the designation and amount thereof, and the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as stated in the Corporation's Amended and Restated
Articles of Incorporation and as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series 1998-C Participating Cumulative Preference Stock" and
shall consist of 500,000 shares of Preferred Stock, $10 par value per share,
having the preferences, limitations and relative rights set forth below. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series 1998-C Participating Cumulative Preference Stock to a number less than
the number of such shares then outstanding plus the number of such shares
reserved for issuance upon the exercise of outstanding options or rights or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series 1998-C Participating Cumulative Preference Stock.
2. DIVIDENDS AND DISTRIBUTIONS. The holders of Series 1998-C
Participating Cumulative Preference Stock shall have the following dividend
rights:
(a) Subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), that may be declared on the Common
Stock, par value $.01 per share, of the Corporation (the "Common Stock"). In
the event the Corporation shall at any time after November 10, 1998 (the
"Rights Declaration Date") (i) declare or pay any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of
Series 1998-C Participating Cumulative Preference Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event. Declaration of
a dividend on the Common Stock is at the sole discretion of the Corporation.
(b) The Corporation shall declare a dividend or
distribution on the Series 1998-C Participating Cumulative Preference Stock
as provided in paragraph (a) above immediately after it declares a dividend
or distribution on the Common Stock (other than a dividend payable in shares
of Common Stock).
(c) Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series 1998-C Participating
Cumulative Preference Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series 1998-C Participating Cumulative
Preference Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 45 days prior to
the date fixed for the payment thereof.
<PAGE>
3. VOTING RIGHTS. In addition to the voting rights otherwise
required by law, the holders of shares of Series 1998-C Participating Cumulative
Preference Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter
set forth, each share of Series 1998-C Participating Cumulative Preference
Stock shall entitle the holder thereof to 100 votes on all matters submitted
to a vote of the stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare
or pay any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
number of votes per share to which holders of shares of Series 1998-C
Participating Preference Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided in the Corporation's
Amended and Restated Articles of Incorporation or by law, the holders of
shares of Series 1998-C Participating Cumulative Preference Stock and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(c) (i) If at any time dividends on any Series 1998-C
Participating Cumulative Preference Stock shall be in arrears in an amount equal
to six quarterly dividends thereon, the occurrence of such contingency shall
mark the beginning of a period (herein called a "default period") which shall
extend until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on all
shares of Series 1998-C Participating Cumulative Preference Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series 1998-C Participating Cumulative Preference Stock) with dividends in
arrears in an amount equal to six quarterly dividends thereon, voting as a
class, irrespective of series, shall have the right to elect two Directors.
(ii) During any default period, such voting right of
the holders of Series 1998-C Participating Cumulative Preference Stock may be
exercised initially at a special meeting called pursuant to subparagraph (iii)
of this Section 3(c) or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders, provided that neither such voting right nor the
right of the holders of any other series of Preferred Stock, if any, to
increase, in certain cases, the authorized number of Directors shall be
exercised unless the holders of 10% in number of shares of Preferred Stock
Outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect Directors
to fill such vacancies, if any, in the Board of Directors as may then exist up
to two Directors or, if such right is exercised at an annual meeting, to elect
two Directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Preferred Stock shall
have the right to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their right to elect
Directors in any default period and during the continuance of such period, the
number of Directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or part passu with the Series 1998-C
Participating Cumulative Preference Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than 10% of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman of the Board, Chief Executive Officer
and President, a Senior Vice-President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which holders of Preferred
Stock are entitled to vote pursuant to this paragraph (c)(iii) shall be given to
each holder of record of Preferred Stock by mailing a copy of such notice to the
holder the last address appearing on the books of the Corporation. Such meeting
shall be called for a time not earlier than 20 days and not later than 60 days
after such order or request or in default of the calling of such meeting within
60 days after such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the aggregate not less than
10% of the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (c)(iii), no such special
meeting shall be called during the period within 60 days immediately preceding
the date fixed for the next annual meeting of the stockholders.
<PAGE>
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation, if applicable, shall
continue to be entitled to elect the whole number of Directors until the holders
of Preferred Stock shall have exercised their right to elect two Directors
voting as a class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of Directors may (except as
provided in paragraph (c)(ii) of this Section 3) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders of the class of
stock which elected the Director whose office shall have become vacant.
References in this paragraph (c) to Directors elected by the holders of a
particular class of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of Directors
shall be such number as may be provided for in the Corporation's Amended and
Restated Articles of Incorporation or By-laws irrespective of any increase made
pursuant to the provisions of paragraph (c)(ii) of this Section 3 (such number
being subject, however, to change thereafter in any manner provided by law or in
the Amended and Restated Articles of Incorporation or By-laws). Any vacancies
in the Board of Directors effected by the provisions of clauses (y) and (z) in
the preceding sentence may be filled by a majority of the remaining Directors.
(d) Except as set forth herein, holders of Series 1998-C
Participating Cumulative Preference Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
4. CANCELLATION. Any shares of Series 1998-C Participating
Cumulative Preference Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the shareholders or the Board of Directors, subject to the conditions and
restrictions on issuance set forth in the Corporation's Amended and Restated
Articles of Incorporation.
5. RESTRICTIONS. The Corporation shall abide by the following
restrictions:
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series 1998-C Participating Cumulative Preference
Stock as provided for in Section 2 are in arrears or the Corporation shall be in
default in payment thereof, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series 1998-C
Participating Cumulative Preference Stock outstanding shall have been paid or
set aside for payment in full, and in addition to any and all other rights which
any holder of shares of Series 1998-C Participating Cumulative Preference Stock
may have in such circumstances, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series 1998-C Participating
Cumulative Preference Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series 1998-C
Participating Cumulative Preference Stock, unless dividends are paid ratably on
the Series 1998-C Participating Cumulative Preference Stock and all such parity
stock on which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series 1998-C Participating
Cumulative Preference Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series 1998-C
Participating Cumulative Preference Stocks or redeem or purchase or otherwise
acquire for consideration any shares of Series 1998-C Participating Cumulative
Preference Stock, or any shares of stock ranking on a parity with the Series
1998-C Participating Cumulative Preference Stock (either as to dividends or upon
liquidation, dissolution or winding up), except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all
<PAGE>
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall determine
in good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, the holders of Series
1998-C Participating Cumulative Preference Stock shall have the following
rights.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no distribution shall be made to
the holders of shares of stock ranking (either as to dividends or upon
liquidation, dissolution or winding up) junior to the Series 1998-C
Participating Cumulative Preference Stock unless, prior thereto, the holders of
shares of Series 1998-C Participating Cumulative Preference Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series 1998-C Liquidation Preference"). Following the payment of the full
amount of the Series 1998-C Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series 1998-C Participating Cumulative
Preference Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series 1998-C Liquidation Preference by
(ii) 100 (as appropriately adjusted as set forth in subparagraph (c) below to
reflect such events as stock splits, stock dividends and recapitalizations with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series 1998-C
Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series 1998-C Participating Cumulative Preference Stock and Common
Stock, respectively, holders of Series 1998-C Participating Cumulative
Preference Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to 1 with respect to such Series 1998-C
Participating Cumulative Preference Stock and Common Stock, on a per share
basis, respectively.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series 1998-C Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Series 1998-C Participating
Cumulative Preference Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(c) In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect -immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series 1998-C Participating Cumulative Preference Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare or pay any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series 1998-C Participating Cumulative
Preference Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
<PAGE>
8. NO REDEMPTION. The shares of Series 1998-C Participating
Cumulative Preference Stock shall not be redeemable by the holders thereof.
9. AMENDMENT. The Amended and Restated Articles of
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preferences or special rights
of the Series 1998-C Participating Cumulative Preference Stock so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series 1998-C Participating Cumulative
Preference Stock, voting separately as a class.
10. FRACTIONAL SHARES. Series 1998-C Participating Cumulative
Preference Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series 1998-C Participating Cumulative
Preference Stock.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to the Articles of Incorporation to be executed in its name and its corporate
seal to be affixed hereto by its duly authorized officers on this 4th day of
December, 1998.
RENTECH INC.
By: (signature)
----------------------------------------------
Dennis L. Yakobson, Chairman of the Board,
President and Chief Executive Officer
ATTEST:
(signature)
- -------------------------
Ronald C. Butz, Secretary
<PAGE>
EX-10.5
RENTECH, INC.
1998 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. Rentech, Inc., a Colorado corporation ("Company"),
hereby establishes a stock option plan for key employees, directors, and
consultants providing material services to the Company, as described herein,
which shall be known as the "1998 Stock Option Plan" (the "Plan"). It is
intended that certain of the options issued to employees pursuant to the Plan
may constitute incentive stock options within the meaning of Section 422A of
the Internal Revenue Code and that other options issued pursuant to the Plan
shall constitute nonstatutory options. The Board of Directors shall
determine which options are to be incentive stock options and which are to be
nonstatutory options and shall enter into option agreements with recipients
accordingly.
1.2 PURPOSE. The purpose of this Plan is to enhance shareholder
investment by attracting, retaining and motivating key employees, directors
and consultants of the Company, and to encourage stock ownership by such
persons by providing them with a means to acquire a proprietary interest in
the Company's success, and to align the interests of management with those of
shareholders.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have
the respective meanings set forth below, unless the context clearly requires
otherwise, and when said meaning is intended, the term shall be capitalized.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the Committee provided by Article IV
hereof, which may be created at the discretion of the Board.
(d) "COMPANY" means Rentech, Inc., a Colorado corporation.
(e) "CONSULTANT" means any person or entity, including a Parent
Corporation or a Subsidiary Corporation, that provides services (other than
as an Employee) to the Company, a Parent Corporation or a Subsidiary
Corporation, and shall include a Non-Employee Officer or Non-Employee
Director, as defined subsequently.
(f) "DATE OF EXERCISE" means the date the Company receives notice, by
an Optionee, of the exercise of an Option pursuant to Section 8.1 of this
Plan. Such notice shall indicate the number of shares of Stock the
Optionee intends to exercise.
(g) "EMPLOYEE" means any person, including an officer or director of
the Company or a Subsidiary Corporation, who is employed by the Company or
a Subsidiary Corporation.
(h) "FAIR MARKET VALUE" means the fair market value of Stock upon
which an option is granted under this Plan, determined as the average of
the closing bid and asked prices of the Stock, as reported by Nasdaq.
(i) "INCENTIVE STOCK OPTION" means an Option granted under this Plan
which is intended to qualify as an "incentive stock option" within the
meaning of Section 422A of the Code.
(j) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
employee of the Company at the time an Option is granted hereunder.
<PAGE>
(k) "NON-EMPLOYEE OFFICER" means an officer of the Company who is not
an employee of the Company at the time an Option is granted hereunder.
(l) "NONSTATUTORY OPTION" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option within the
meaning of Section 422A of the Code. Nonstatutory Options may be granted
at such times and subject to such restrictions as the Board shall determine
without conforming to the statutory rules of Section 422A of the Code
applicable to incentive stock options.
(m) "OPTION" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified period of time.
For purposes of this Plan, an Option may be either an Incentive Stock
Option or a Nonstatutory Option.
(n) "OPTIONEE" means an Employee or Consultant holding an Option
under the Plan.
(o) "PARENT CORPORATION" shall have the meaning set forth in Section
425(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(p) "SUBSIDIARY CORPORATION" shall have the meaning set forth in
Section 425(f) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(q) "SIGNIFICANT SHAREHOLDER" means an individual who, within the
meaning of Section 422A(b)(6) of the Code, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Company or of any Parent Corporation or Subsidiary Corporation of the
Company. In determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning stock owned by
certain relatives of the individual and certain stock owned by corporations
in which the individual is a shareholder, partnerships in which the
individual is a partner, and estates or trusts of which the individual is a
beneficiary, all as provided in Section 425(d) of the Code.
(r) "STOCK" means the $.01 par value common stock of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. All Employees are eligible to
participate in this Plan and receive either or both Incentive Stock Options
and Nonstatutory Options under the Plan. All Consultants are eligible to
participate in this Plan and receive Nonstatutory Options hereunder.
Optionees in the Plan shall be selected by the Board, in its sole discretion,
from among those Employees and Consultants who, in the opinion of the Board,
are in a position to contribute materially to the Company's continued growth
and development and to its long-term financial success.
ARTICLE IV
ADMINISTRATION
4.1 ADMINISTRATION. The Board shall be responsible for administering the
Plan.
(a) The Board is authorized to interpret the Plan; to prescribe,
amend, and rescind rules and regulations relating to the Plan; to provide
for conditions and assurances deemed necessary or advisable to protect the
interests of the Company; and to make all other determinations necessary or
advisable for the administration of the Plan. Determinations,
interpretations, or other actions made or taken by the Board, pursuant to
the provisions of this Plan, shall be final and binding and conclusive for
all purposes and upon all persons.
(b) At the discretion of the Board this Plan may be administered by a
Committee which shall be an executive committee of the Board, consisting of
not less than two members of the Board. The members of such Committee may
be directors who are eligible to receive Options under this Plan, but
Options may be granted
<PAGE>
to such persons only by action of the full Board and not by action of the
Committee. If the Company determines that grant of Options by the full
Board to members of the Committee may not exempt the shares of Committee
members from the provisions of Rule 16b-3 under the Securities Exchange Act
of 1934, this Plan, without further action, hereby authorizes and grants
options to purchase 10,000 shares each to each member of the Committee for
each year of continuous service on the Committee, except that, (i) any
Committee member, for any year, may elect not to accept an option to
purchase 10,000 shares or may elect to accept options for the purchase of
less than 10,000 shares; and (ii) if any Committee member elects, for any
year, to receive no option or an option to purchase less than 10,000
shares for that year, that option shall be deemed permanently waived, shall
not cumulate, and shall not be available in any future year. Such options
shall be exercisable at the fair market value of the Stock on the date of
grant and shall have the same term and may be exercised in installments
as provided in Section 7.3 of this Plan. Such Committee shall have full
power and authority, subject to the limitations of the Plan and any
limitations imposed by the Board, to construe, interpret and administer
this Plan and to make determinations which shall be final, conclusive and
binding upon all persons, including, without limitation, the Company, the
shareholders, the directors and any persons having any interests in any
Options which may be granted under this Plan, and, by resolution or
resolutions providing for the creation and issuance of any such Option,
to fix the terms upon which, the time or times at or within which, and
the price or prices at which any such shares may be purchased from the
Company upon the exercise of such Option. Such terms, time or times
and price or prices shall, in every case, be consistent with the
provisions of this Plan, and shall be set forth or incorporated by
reference in the instrument or instruments evidencing such Option.
(c) If the Committee has been appointed, the Board may from time to
time remove members from, or add members to, the Committee. The Board may
terminate the Committee at any time. Vacancies on the Committee, howsoever
caused, shall be filled by the Board. The Committee shall select one of
its members as Chairman, and shall hold meetings at such times and places
as the Chairman may determine. A majority of the Committee at which a
quorum is present, or acts reduced to or approved in writing by all of the
members of the Committee, shall be the valid acts of the Committee. A
quorum shall consist of a majority of the members of the Committee.
(d) Where the Committee has been created by the Board, references in
this Plan to actions to be taken by the Board shall be deemed to refer to
the Committee as well, except where limited by this Plan or by the Board.
(e) The Board shall have all of the enumerated powers of the
Committee, but shall not be limited to such powers. No member of the Board
or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
4.2 SPECIAL PROVISIONS FOR GRANTS TO OFFICERS OR DIRECTORS. Rule 16b-3
under the Securities and Exchange Act of 1934 (the "Act") provides that the
grant of a stock option to a director or officer of a company subject to the Act
will be exempt from the provisions of Section 16(b) of the Act if the conditions
set forth in said Rule are satisfied. Unless otherwise specified by the Board,
grants of Options hereunder to individuals who are officers or directors of the
Company shall be made in a manner that satisfies the conditions of said Rule.
ARTICLE V
STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The total number of shares of Stock hereby made available and
reserved for issuance under the Plan shall be 500,000 shares for Incentive Stock
Options and Nonstatutory Stock Options. The aggregate number of shares of Stock
available under this Plan shall be subject to adjustment as provided in Section
5.3. The total number of shares of Stock may be authorized but unissued shares
of Stock, or Shares acquired by purchase as directed by the Board from time to
time in its discretion, to be used for issuance upon exercise of Options granted
hereunder.
5.2 UNUSED STOCK. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number
<PAGE>
of shares of Stock remaining subject to the Plan and to Options previously
granted shall be appropriately adjusted by the Board, whose determination
shall be conclusive; provided however, that fractional shares shall be
rounded to the nearest whole share. In any such case, the number and kind of
shares that are subject to any Option (including any Option outstanding after
termination of employment) and the Option price per share shall be
proportionately and appropriately adjusted without any change in the
aggregate Option price to be paid therefor upon exercise of the Option.
ARTICLE VI
DURATION OF THE PLAN
6.1 DURATION OF THE PLAN. Subject to approval of shareholders, the
Plan shall be in effect for ten years from the date of its adoption by the
Board. Any Options outstanding at the end of said period shall remain in
effect in accordance with their terms. The Plan shall terminate before the
end of said period if all Stock subject to it has been purchased pursuant to
the exercise of Options granted under the Plan.
ARTICLE VII
TERMS OF STOCK OPTIONS
7.1 GRANT OF OPTIONS. Subject to Section 5.1, Options may be granted
to Employees or Consultants at any time and from time to time as determined
by the Board; provided, however, that Consultants may receive only
Nonstatutory Options and may not receive Incentive Stock Options. The Board
shall have complete discretion in determining the terms and conditions and
number of Options granted to each Optionee. In making such determinations,
the Board may take into account the nature of services rendered by such
Employees or Consultants, their present and potential contributions to the
Company and its Subsidiary Corporations, and such other factors as the Board
in its discretion shall deem relevant. The Board also shall determine
whether an Option is to be an Incentive Stock Option or a Nonstatutory Option.
(a) In the case of Incentive Stock Options, the total Fair Market
Value (determined at the date of grant) of shares of Stock with respect to
which incentive stock options granted after December 31, 1986 are
exercisable for the first time by the Optionee during any calendar year
under all plans of the Company under which incentive stock options may be
granted (and all such plans of any Parent Corporations and any Subsidiary
Corporations of the Company) shall not exceed $100,000. Hereinafter, this
requirement is sometimes referred to as the "$100,000 Limitation".
(b) Nothing in this Article VII of the Plan shall be deemed to
prevent the grant of Options permitting exercise in excess of the maximums
established by the preceding paragraph where such excess amount is treated
as a Nonstatutory Option.
(c) The Board is expressly given the authority to issue amended or
replacement Options with respect to shares of Stock subject to an Option
previously granted hereunder. An amended Option amends the terms of an
Option previously granted and thereby supersedes the previous Option. A
replacement Option is similar to a new Option granted hereunder except that
it provides that it shall be forfeited to the extent that a previously
granted Option is exercised, or except that its issuance is conditioned
upon the termination of a previously granted Option.
(d) The date of grant of an Option is either the date it is granted
or such other date as may be designed at the time of the award of the
Option.
7.2 NO TANDEM OPTIONS. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's
right to exercise another Option, or vice versa, such that the Option
intended to be an Incentive Stock Option would be deemed a tandem stock
option within the meaning of the regulations under Section 422A of the Code.
7.3 OPTION AGREEMENT: TERMS AND CONDITIONS TO APPLY UNLESS OTHERWISE
SPECIFIED. As determined by the Board on the date of grant, each Option
shall be evidenced by an Option agreement (the "Option Agreement") that
includes the non-transferability provisions required by Section 10.2 hereof
and specifies: whether the Option is an Incentive Stock Option or a
Nonstatutory option; the Option price; the duration of the Option; the number
of shares of Stock to which the Option applies; any vesting or exercisability
restrictions which the Board may impose; in the case of an Incentive Stock
Option, a provision implementing the $100,000 Limitation; and any other terms
or conditions
<PAGE>
which the Board may impose. All such terms and conditions shall be
determined by the Board at the time of grant of the Option.
(a) If not otherwise specified by the Board, the following terms and
conditions shall apply to Options granted under the Plan:
(i) TERM. The duration of the Option shall be five years from
the date of grant.
(ii) EXERCISE OF OPTION. Unless an Option is terminated as
provided hereunder, an Optionee may exercise his Option for up to, but
not in excess of, the amounts of shares subject to the Option
specified hereafter in this section, based on the Optionee's number of
years of continuous service with the Company or a Subsidiary
Corporation from the date on which the Option is granted. In the case
of an Optionee who is an Employee, continuous service shall mean
continuous employment; in the case of an Optionee who is a Consultant,
continuous service shall mean the continuous provision of consulting
services. In applying said limitations, the amount of shares, if any,
previously purchased by the Optionee under the Option shall be counted
in determining the amount of shares the Optionee can purchase at any
time. The Optionee may exercise his Option in the following amounts:
(A) After one year of such continuous services, up to but
not in excess of twenty percent of the shares originally subject
to the Option;
(B) After two years of such continuous services, up to but
not in excess of forty percent of the shares originally subject
to the Option;
(C) After three years of such continuous services, up to
but not in excess of sixty percent of the shares originally
subject to the Option;
(D) After four years of such continuous services, up to but
not in excess of eighty percent of the shares originally subject
to the Option; and
(E) At the expiration of the fifth year of such continuous
services, the Option may be exercised, in whole or in part, and
at any time and from time to time within its term but it shall
not be exercisable after the expiration of five years from the
date on which it was granted.
(b) The Board shall be free to specify terms and conditions
other than those set forth above, in its discretion.
(c) All Option Agreements shall incorporate the provisions of
this Plan by reference, with certain provisions to apply depending
upon whether the Option Agreement applies to an Incentive Stock Option
or to a Nonstatutory Option.
7.4 OPTION PRICE. No Incentive Stock Option granted pursuant to this
Plan shall have an Option price that is less than the Fair Market Value of
Stock on the date the Option is granted. Incentive Stock Options granted to
Significant Shareholders shall have an Option price of not less than 110
percent of the Fair Market Value of Stock on the date of grant. The Option
price for Nonstatutory Options shall be established by the Board and shall
not be subject to the restrictions applicable to Incentive Stock Options.
7.5 TERM OF OPTIONS. Each Option shall expire at such time as the
Board shall determine when it is granted, provided however that under no
circumstances shall a Nonstatutory Option be exercisable later than the tenth
anniversary date of its grant, nor by its terms, shall an Incentive Stock
Option granted to a Significant Shareholder be exercisable later than the
fifth year from the anniversary date of its grant.
7.6 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions
as the Board shall in each instance approve, which need not be the same for
all Optionees.
<PAGE>
7.7 PAYMENT. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment has been made. Payment shall be made (i) in cash, or (ii) if
acceptable to the Board, in Stock or in some other form; provided, however, in
the case of an Incentive Stock Option, that said other form of payment does not
prevent the Option from qualifying for treatment as an incentive stock option
within the meaning of the Code.
ARTICLE VIII
WRITTEN NOTICE, ISSUANCE OF STOCK
CERTIFICATES. SHAREHOLDER PRIVILEGES
8.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a permitted nominee of the Optionee a certificate or certificates for the
requisite number of shares of stock.
8.3 PRIVILEGES OF A SHAREHOLDER. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such stock.
ARTICLE IX
TERMINATION OF EMPLOYMENT OR SERVICES
9.1 DEATH. If an Optionee's employment in the case of an Employee, or
provision of services as a Consultant, in the case of a Consultant, terminates
by reason of death, the Option may thereafter be exercised at any time prior to
the expiration date of the Option or within 12 months after the date of such
death, whichever period is the shorter, by the person or persons entitled to do
so under the Optionee's will or, if the Optionee shall fail to make a
testamentary disposition of an Option or shall die intestate, the Optionee's
legal representative or representatives. The Option shall be exercisable only
to the extent that such Option was exercisable as of the date of death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH. In the event of an
Optionee's termination of employment, in the case of an Employee, or termination
of the provision of services as a Consultant, in the case of a Consultant, other
than by reason of death, the Optionee may exercise such portion of his Option as
was exercisable by him at the date of such termination (the "Termination Date")
at any time within three months of the Termination Date; provided, however, that
where the Optionee is an Employee, and is terminated due to disability within
the meaning of Code 422A, he may exercise such portion of his Option as was
exercisable by him on his Termination Date within one year of his Termination
Date. In any event, the Option cannot be exercised after the expiration of the
term of the Option. Options not exercised within the applicable period
specified above shall terminate.
(a) In the case of an Employee, a change of duties or position within
the Company or an assignment of employment in a Subsidiary Corporation or
Parent Corporation of the Company, if any, or from such a Corporation to
the Company, shall not be considered a termination of employment for
purposes of this Plan.
(b) The Option Agreements may contain such provisions as the Board
shall approve with reference to the effect of approved leaves of absence
upon termination of employment.
9.3 TERMINATION FOR CAUSE. In the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, which termination is by
the Company or a Subsidiary Corporation for cause, any Option or Options held by
him under the Plan, to the extent not exercised before such termination, shall
terminate upon notice of termination for cause.
ARTICLE X
RIGHTS OF OPTIONEES
10.1 SERVICE. Nothing in this Plan shall interfere with or limit in any
way the right of the Company or a Subsidiary Corporation to terminate any
Employee's employment, or any Consultant's services, at any time, nor confer
<PAGE>
upon any Employee any right to continue in the employ of the Company or a
Subsidiary Corporation, or upon any Consultant any right to continue to provide
services to the Company or a Subsidiary Corporation.
10.2 NON-TRANSFERABILITY. All Options granted under this Plan shall be
non-transferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee. No Option may be assigned, pledged, hypothecated or otherwise
alienated or encumbered (whether by operation of law or otherwise), and any
attempt to do so shall be null and void.
ARTICLE XI
OPTIONEE-EMPLOYEE'S TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE-EMPLOYEE'S TRANSFER OR LEAVE OF ABSENCE. For purposes of
this Plan:
(a) A transfer of an Optionee who is an Employee from the Company to
a Subsidiary Corporation or Parent Corporation, or from one such
Corporation to another, or
(b) A leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company or a Subsidiary Corporation, and (ii)
if the Optionee holds an Incentive Stock Option, which qualifies under the
applicable regulations under the Code which apply in the case of incentive
stock options, shall not be deemed a termination of employment. However,
under no circumstances may an Optionee exercise an Option during any leave
of absence, unless authorized by the Board.
ARTICLE XII
AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN.
(a) The Board may at any time terminate, and from time to time may
amend or modify the Plan; provided, however, that no such action of the
Board, without approval of the shareholders, may:
(i) increase the total amount of Stock which may be purchased
through Options granted under the Plan, except as provided in Article
V;
(ii) change the class of Employees or Consultants eligible to
receive Options; or
(iii) extend the maximum option period provided in this Plan.
(b) No amendment, modification, or termination of the Plan shall in
any manner adversely affect any outstanding Option under the Plan without
the consent of the Optionee holding the Option.
ARTICLE XIII
ACQUISITION, MERGER OR LIQUIDATION
13.1 ACQUISITION.
(a) In the event that an Acquisition occurs with respect to the
Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of Acquisition, whether
or not such Options are then exercisable, in return for payment to the
Optionees of an amount equal to a reasonable estimate of an amount
(hereinafter the "Spread") equal to the difference between the net amount
per share payable in the Acquisition or as a result of the Acquisition,
less the exercise price of the Option. In estimating the Spread,
appropriate adjustments to give effect to the existence of the Options
shall be made, such as deeming the Options to have been exercised, with the
Company receiving the exercise price payable thereunder, and treating the
stock receivable upon exercise of the Options as being outstanding in
determining the net amount per share.
(b) For purposes of this section, an "Acquisition" means any
transaction in which substantially all of the Company's assets are acquired
or in which a controlling amount of the Company's outstanding shares of
Stock are acquired, in each case by a single person or entity or an
affiliated group of persons and entities.
<PAGE>
For purposes of this section, a controlling amount shall mean more than
50% of the issued and outstanding shares of Stock of the Company. The
Company shall have such an option regardless of how the Acquisition is
effectuated, whether by direct purchase, through a merger or similar
corporate transaction, or otherwise. In cases where the acquisition
consists of the acquisition of assets of the Company, the net amount
per share shall be calculated on the basis of the net amount receivable
with respect to shares upon a distribution and liquidation by the
Company after giving effect to expenses and charges, including but not
limited to taxes, payable by the Company before the liquidation can be
completed.
(c) Where the Company does not exercise its option under this Section
13.1 the remaining provisions of this Article XIII shall apply, to the
extent applicable.
13.2 MERGER OR CONSOLIDATION. Subject to any required action by the
shareholders, if the Company shall be the surviving corporation in any merger
or consolidation, any option granted under this Plan shall pertain to and apply
to the securities to which a holder of the number of shares of Stock subject to
the Option would have been entitled in such merger or consolidation.
13.3 OTHER TRANSACTIONS. A dissolution or a liquidation of the Company or
a merger and consolidation in which the Company is not the surviving corporation
shall cause every Option outstanding hereunder to terminate as of the effective
date of such dissolution, liquidation, merger or consolidation. However, the
Optionee either (i) shall be offered a firm commitment whereby the resulting or
surviving corporation in a merger or consolidation will tender to the Optionee
an option (the "Substitute Option") to purchase its shares on terms and
conditions both as to number of shares and otherwise, that will substantially
preserve to the Optionee the rights and benefits of the Option outstanding
hereunder granted by the Company, or (ii) shall have the right immediately prior
to such dissolution, liquidation, merger, or consolidation to exercise any
unexercised Options whether or not then exercisable, subject to the provisions
of this Plan. The Board shall have absolute and uncontrolled discretion to
determine whether the Optionee has been offered a firm commitment and whether
the tendered Substitute Option will substantially preserve to the Optionee the
rights and benefits of the Option outstanding hereunder. In any event, any
Substitute Option for an Incentive Stock Option shall comply with the
requirements of Code Section 425(a).
ARTICLE XIV
SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualification of such Options or
Stock.
14.2 REPRESENTATIONS. Unless the Company has determined that the following
representation is unnecessary, each person exercising an Option under the Plan
may be required by the Company, as a condition to the issuance of the shares
pursuant to exercise of the Option, to make a representation in writing (i) that
he is acquiring such shares for his own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof,
(ii) that before any transfer in connection with the resale of such shares, he
will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing.
ARTICLE XV
TAX WITHHOLDING
15.1 TAX WITHHOLDING. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy any applicable federal, state, and local withholding tax
requirements.
ARTICLE XVI
INDEMNIFICATION
16.1 INDEMNIFICATION. To the extent permitted by law, each person who is
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or
<PAGE>
expense that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit, or proceeding to which he may
be a party or in which he may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid
by him in settlement thereof, with the Company's approval, or paid by him in
satisfaction of judgment in any such action, suit, or proceeding against him,
provided he shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on
his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's articles of incorporation or bylaws, as a matter
of law, or otherwise, or any power that the Company or any Subsidiary
Corporation may have to indemnify them or hold them harmless.
ARTICLE XVII
REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the state of Colorado.
ARTICLE XVIII
EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE. The Plan shall be effective on January 15, 1998.
ARTICLE XIX
COMPLIANCE WITH CODE
19.1 COMPLIANCE WITH CODE. Incentive Stock Options granted hereunder are
intended to qualify as "incentive stock options" under Code 422A. If any
provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stock options under
the Code.
ARTICLE XX
NO OBLIGATION TO EXERCISE OPTION
20.1 NO OBLIGATION TO EXERCISE. The granting of an Option shall impose no
obligation upon the holder thereof to exercise such Option.
THIS 1998 STOCK OPTION PLAN was adopted by the Board of Directors of
Rentech, Inc. on January 15, 1998 to be effective as of January 15, 1998. It is
to be submitted for approval by shareholders at the annual meeting of
shareholders to be held on June 24, 1998.
RENTECH, INC.
By: (signature)
-------------------------------------
Dennis L. Yakobson, President
<PAGE>
LICENSE AGREEMENT
dated 8 October, 1998
between RENTECH, INC.
and TEXACO NATURAL GAS INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. General Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Grant of License. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.2 Exclusivity of Licensed Field . . . . . . . . . . . . . . . . . . . . .5
2.3 Grantback License . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.4 Sublicenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Joint Ventures with Third Parties . . . . . . . . . . . . . . . . 6
(b) Any Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Reservation of Rights by Rentech. . . . . . . . . . . . . . . . . . . 6
2.6 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Independent Contractor Agreement. . . . . . . . . . . . . . . . . . . 7
2.8 Hiring Prohibition. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Exhibits and Attachments. . . . . . . . . . . . . . . . . . . . . . . 7
3. Initial Payment and License Payments. . . . . . . . . . . . . . . . . 8
3.1 Initial Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 License Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Surrendering Exclusivity Before Deployment. . . . . . . . . . . . 8
(b) Conversion of Exclusivity After Deployment. . . . . . . . . . . . 8
(c) Recovery of License Payments. . . . . . . . . . . . . . . . . . . 9
4. Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Rentech Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Rentech Royalties . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Natural Gas and Still Gas as Feedstock. . . . . . . . . . . . . . 10
(c) Rentech Catalyst Markup . . . . . . . . . . . . . . . . . . . . . 11
(d) Percentage of Income and Other Consideration. . . . . . . . . . . 12
4.2 Valuation and Collection of Royalties . . . . . . . . . . . . . . . . 14
(a) Fair Market Value of Consideration. . . . . . . . . . . . . . . . 14
(b) Collection of Royalties . . . . . . . . . . . . . . . . . . . . . 14
4.3 * Rentech Royalties. . . . . . . . . . . . . . . . . . . 14
4.4 Reduced Royalties for Use of Technical Information. . . . . . . . . . 14
5. Facility Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1 Access to Licensee's Facility . . . . . . . . . . . . . . . . . . . . 15
6. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
* Omitted material filed separately.
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6.1 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Non-Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Payment Due Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Late Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.6 Taxes Withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.7 No Set-Offs or Counterclaims. . . . . . . . . . . . . . . . . . . . . 16
7. Reports and Records . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Records and Books of Account. . . . . . . . . . . . . . . . . . . . . 17
7.2 Production Reports. . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Quantities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Calculations. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 Need for Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Right to Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.1 Obligation of Confidentiality . . . . . . . . . . . . . . . . . . . . 18
8.2 Exception to Confidentiality. . . . . . . . . . . . . . . . . . . . . 18
8.3 Published Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 19
8.4 Legal Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.5 Notice of Unauthorized Disclosures. . . . . . . . . . . . . . . . . . 19
8.6 Press Releases and Use of Names and Terms . . . . . . . . . . . . . . 19
9. Disclaimer of Warranties, Damages and Liability of Parties. . . . . . 19
9.1 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Assumption of Risk. . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.4 Defense of Patent Infringement by Rentech . . . . . . . . . . . . . . 20
9.5 Notice of Claims to Rentech . . . . . . . . . . . . . . . . . . . . . 21
9.6 Advisory Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.7 Indirect Damage Disclaimer. . . . . . . . . . . . . . . . . . . . . . 21
9.8 Notification of Suit. . . . . . . . . . . . . . . . . . . . . . . . . 21
9.9 Liability Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10. Title to Patents, Copyright, and Information. . . . . . . . . . . . . 22
10. 1 Rentech Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2 Texaco Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11. Representations, Warranties and Covenants . . . . . . . . . . . . . . 22
11.1 Representations, Warranties and Covenants to Texaco . . . . . . . . . 22
(a) Right, Power and Authority. . . . . . . . . . . . . . . . . . . . 22
(b) Binding Obligation. . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Corporate Good Standing . . . . . . . . . . . . . . . . . . . . . 22
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(d) No Government Approval Needed . . . . . . . . . . . . . . . . . . 22
(e) No Provisions Contravened . . . . . . . . . . . . . . . . . . . . 23
(f) No Consent of Third Parties Needed. . . . . . . . . . . . . . . . 23
(g) No Proceedings Pending. . . . . . . . . . . . . . . . . . . . . . 23
(h) Not Contravene Any Law. . . . . . . . . . . . . . . . . . . . . . 23
11.2 Representations, Warranties and Covenants of Rentech. . . . . . . . . 23
(a) Right, Power and Authority. . . . . . . . . . . . . . . . . . . . 23
(b) Binding Obligation. . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Corporate Good Standing . . . . . . . . . . . . . . . . . . . . . 23
(d) No Government Approval Needed . . . . . . . . . . . . . . . . . . 24
(e) No Provisions Contravened . . . . . . . . . . . . . . . . . . . . 24
(f) No Consent of Third Parties Needed. . . . . . . . . . . . . . . . 24
(g) No Proceedings Pending. . . . . . . . . . . . . . . . . . . . . . 24
(h) Not Contravene Any Law. . . . . . . . . . . . . . . . . . . . . . 24
(i) No Patent Invalidity. . . . . . . . . . . . . . . . . . . . . . . 24
(j) Rentech Owner of Licensed Technology. . . . . . . . . . . . . . . 24
(k) No Current Restrictions on Providing Information to Texaco. . . . 24
(l) Licensing All Rights. . . . . . . . . . . . . . . . . . . . . . . 25
12. Term and Termination. . . . . . . . . . . . . . . . . . . . . . . . . 25
12.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.2 Termination for Breach. . . . . . . . . . . . . . . . . . . . . . . . 25
12.3 License Abatement, Termination and Damage Recovery for Infringement . 25
(a) License Termination by Texaco Based on Infringement . . . . . . . 25
(b) License Abatement Based Upon Infringement . . . . . . . . . . . . 25
(c) Recovery of Indemnification from Rentech Royalties. . . . . . . . 26
12.4 Survival of Obligations . . . . . . . . . . . . . . . . . . . . . . . 26
12.5 No Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13. Licensing Existing, Gasification Plants and Still Gas Plants. . . . . 26
14. Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.1 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.2 Arbitration and Injunctive Relief . . . . . . . . . . . . . . . . . . 27
(a) Procedure for Arbitration; Judgment . . . . . . . . . . . . . . . 27
(b) Judicial Action for Specific Performance or Injunction. . . . . . 28
15.3 Governing Law; Jurisdiction; Venue. . . . . . . . . . . . . . . . . . 28
15.4 No Other Relationship . . . . . . . . . . . . . . . . . . . . . . . . 29
15.5 Conversion to Dollars . . . . . . . . . . . . . . . . . . . . . . . . 29
15.6 Dollar Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.7 Fees Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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15.8 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) No Liability for Certain Delays or Defaults . . . . . . . . . . . 29
(b) Cause Beyond the Reasonable Control . . . . . . . . . . . . . . . 30
15.9 Rights, Powers, Remedies Cumulative; Waiver; Time . . . . . . . . . . 30
15.10 Table of Contents and Headings. . . . . . . . . . . . . . . . . . . . 30
15.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.12 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.1 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.14 Invalidity of Provision . . . . . . . . . . . . . . . . . . . . . . . 31
15.15 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.16 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXHIBIT A Secrecy Agreement . . . . . . . . . . . . . . . . . . . . . . 33
EXHIBIT B Affiliate's Acceptance. . . . . . . . . . . . . . . . . . . . 36
EXHIBIT C Independent Contractor Agreement. . . . . . . . . . . . . . . 38
* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Attachment 2 - Equal Employment Opportunity . . . . . . . . . 46
EXHIBIT D Agreement for Secrecy and Assignment of Invention
* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
*Omitted material filed separately.
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LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of ___________________, 1998
by and between RENTECH, INC., a Colorado corporation having an address of
1331 17th St., Suite 720, Denver, CO 80202 ("Rentech") and TEXACO NATURAL GAS
INC., a Delaware corporation having an office at 1111 Bagby Street, Houston,
TX 77002 ("Texaco").
WHEREAS, Rentech has developed a synthesis gas to liquids process
incorporating Fischer-Tropsch technology with a slurry reaction bed and an
iron based catalyst and has filed patent applications on said process, some
of which have issued;
WHEREAS, Texaco and its Affiliates have substantial expertise in
petroleum chemistry and processes associated therewith, and in particular,
have developed and are developing substantial expertise in synthesis gas and
Fischer-Tropsch technologies;
WHEREAS, Rentech wishes to license its Fischer-Tropsch technology to
Texaco, who will (1) engage Affiliates of Texaco to further develop and
improve the technology, and (2) market and sublicense the technology in the
Licensed Field (subsequently defined in this Agreement) should it prove to be
commercially successful;
WHEREAS, Rentech and Texaco therefore wish to define the rights and
obligations of the parties under this License Agreement; and
THEREFORE, for and in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Definitions
1.1 "AFFILIATE " of a party shall mean any company (including a
corporation, partnership, joint venture, or other entity) in which the party
or its parent company shall at the time in question directly or indirectly
own a fifty percent (50%) or more interest in such company. It is understood
that (i) a party or its parent company directly owns a fifty percent (50%) or
more interest in a particular company if that party or its parent company
holds shares carrying fifty percent (50%) or more of the votes exercisable to
vote for directors of the said particular company, and (ii) a party or its
parent company indirectly owns a fifty percent (50%) or more interest in a
particular company if a series of companies can be specified beginning with a
parent company and ending with a particular company so related such that each
company of the series, except the particular company, directly owns a fifty
percent (50%) or more interest in a
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later company in the series; PROVIDED, HOWEVER, no company shall be deemed an
Affiliate of Texaco unless Texaco or its parent company directly owns at
least twenty-five percent (25%) of the equity ownership of the company.
1.2 "BENHAM IMPROVEMENTS" shall mean those inventions and improvements
developed solely or jointly by Charles B. Benham in which title is assigned
to Texaco under the Independent Contractor Agreement between the parties and
related exhibits executed concurrently herewith.
1.3 "CATALYST IMPROVEMENT AREAS" shall mean the specific areas of iron
catalyst formulation, iron catalyst manufacturing and iron catalyst
separation, but excluding any and all rights relating to reactor design.
1.4 "CONFIDENTIAL INFORMATION" shall have the meaning set forth in
Section 8. 1.
1.5 "DEPLOYMENT" shall mean that time after Texaco has initiated the
payment of Rentech Royalties for one or more plants licensed under this
Agreement in the Licensed Field that are designed to produce at least five
hundred (500) barrels of F-T Products (measured at the U.S. standard of
forty-two (42) gallons per barrel) per day, each gallon consisting of two
hundred thirty-one (231) cubic inches, measured at sixty degrees Fahrenheit
(60DEG. F) and one (1) atmosphere pressure.
1.6 "EFFECTIVE DATE" shall mean the date of execution of this
Agreement if signed by both parties on the same date or the later of the
dates of execution if signed by the parties on different dates. The Effective
Date of Exhibits C and D will be different (See Section 2.7).
1.7 "F-T PRODUCTS" shall mean hydrocarbon products which have five (5)
or more carbon atoms produced by the use of Rentech Technology through a
Fischer-Tropsch reaction.
1.8 "IMPROVEMENT PATENT AND COPYRIGHT RIGHTS" shall mean all United
States and foreign patent and copyright rights specifically developed by
Texaco or its Affiliates to improve the Rentech Technology in the Catalyst
Improvement Areas; and further including patent and copyright improvements to
Rentech Technology in the Catalyst Improvement Areas by sublicensees of
Texaco which Texaco has the right to sublicense to Rentech and its licensees
without the obligation to account to third parties therefor.
1.9 "IMPROVEMENT TECHNICAL INFORMATION" shall mean any technical
information, data, know-how and unpatented inventions specifically developed
by Texaco or its Affiliates to improve the Rentech Technology in the Catalyst
Improvement Areas; and further including any
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improvements to Rentech Technology in the Catalyst Improvement Areas by
sublicensees of Texaco which Texaco has the right to sublicense to Rentech
and its licensees without the obligation to account to third parties therefor.
1.10 "LICENSE PAYMENTS" shall have the meaning set forth in Section 3.2.
1.11 "LICENSED FIELD" shall mean a Fischer-Tropsch process where (i)
the source of synthesis gas is the product of a gasification process or the
combination of a gasification process and one or more synthesis gas
production methods such as, but not limited to, steam methane reforming or
autothermal reforming and (ii) the feed for the gasification process is not
one hundred percent (100%) by weight Natural Gas.
1.12 "LICENSED PLANT" shall mean a facility incorporating a
Fischer-Tropsch reactor utilizing Rentech Technology, including Rentech
Patent and Copyright Rights and Rentech Technical Information, which is
licensed under this Agreement.
1.13 "MARKET RATE" shall mean the license fees and royalties, or other
consideration in lieu thereof, that can be reasonably obtained under the
market conditions prevailing at the time for a Fischer-Tropsch plant of
comparable size under similar terms and conditions, taking into account
comparable recent transactions and license fees for the synthesis gas license
using similar feedstocks, if applicable. If there is a disagreement as to the
Market Rate in effect from time to time, the Market Rate shall be determined
by an appraiser selected as provided for in this Agreement.
1.14 "NATURAL GAS" shall mean a mixture of hydrocarbon compounds,
primarily methane, which may contain small quantities of various
non-hydrocarbons, all existing either in gaseous phase or in solution with
crude oil in natural underground reservoirs at reservoir conditions.
1.15 "PERSON" shall mean any individual, corporation, partnership,
joint venture, association joint stock company, limited liability company,
trust estate, unincorporated organization or governmental body, excluding a
Third Party.
1.16 "RENTECH CATALYST" shall mean an iron-based catalyst licensed by
Rentech or an improvement catalyst derived from such by Texaco.
1.17 "RENTECH CATALYST MARKUP" shall have the meaning set forth in
Section 4.1 (c).
1.18 "RENTECH PATENT AND COPYRIGHT RIGHTS" shall mean all United States
and foreign rights related to Rentech Technology existing, at the Effective
Date, including but not limited to,
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rights accruing to Rentech and its Affiliates from filings of U.S. Patent
Nos. 5,324,335, issued June 28, 1994; 5,504,118, issued March 19, 1996;
5,645,613, issued April 2, 1996; 5,621,155 issued April 9, 1996; 5,500,449
issued August 6, 1996; 5,506,272 issued April 15, 1997; 5,543,437 issued
April 15, 1997; 5,620,670 issued July 8, 1997; and 5,763,716 issued June 9,
1998; any subsequent continuations, continuations-in-part and divisionals
which claim priority to the above-identified patents and patent applications;
any foreign filed patent equivalents of the above; and any copyright rights
(including but not limited to derivative rights) which Rentech may have in
the Rentech Technology; and further including patent and copyright
improvements to Rentech Technology in the Catalyst Improvement Areas by
Rentech or Rentech's licensees other than Texaco and its Affiliates, which
Rentech has the right to sublicense to Texaco, its Affiliates and their
licensees without the obligation to account to third parties therefor.
1.19 "RENTECH ROYALTY(IES)" shall have the meaning set forth in
Sections 4.1 and 4.2.
1.20 "RENTECH TECHNICAL INFORMATION " SHALL mean any Confidential
Information, including technical information, data, know-how and unpatented
inventions, of Rentech and its Affiliates related to the Rentech Technology
existing at the Effective Date and further including improvements to Rentech
Technology in the Catalyst Improvement Areas by Rentech or Rentech's
licensees other than Texaco and its Affiliates, which Rentech has the right
to sublicense to Texaco, its Affiliates and their sublicensees without the
obligation to account to third parties therefor.
1.21 "RENTECH TECHNOLOGY" shall mean the synthesis gas to liquids
process of Rentech incorporating Fischer-Tropsch technology with a slurry
reaction bed and an iron based catalyst.
1.22 "REPORTING PERIOD" shall mean a calendar quarter until the sum of
Rentech Royalties and Rentech Catalyst Markup exceed Ten Thousand Dollars
($10,000) a month, whereupon the Reporting Period shall become a calendar
month.
1.23 "STILL GAS" shall mean any mixture of gas produced in refineries
by distillation, cracking, reforming, and other processes. The principal
constituents may be methane, ethane, ethylene, normal butane, butylene,
propane, and propylene.
1.24 "TECHNICAL INFORMATION" shall mean either Rentech Technical
Information or Improvement Technical Information, or both, as the case may be.
1.25 "TEXACO GASIFICATION PROCESS" shall mean the process licensed by a
Texaco Affiliate and improvements therein producing carbon monoxide and
hydrogen by partial oxidation of carbonaceous substances.
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1.26 "THIRD PARTY" shall mean an independent third party in a joint
venture with Texaco or an Affiliate, wherein the equity interest of Texaco
and its Affiliates is at least ten percent (10%).
2. General Terms
2.1 GRANT OF LICENSE. Rentech grants to Texaco, its Affiliates, and
joint ventures with Third Parties subject to the terms and conditions of this
Agreement, an irrevocable, nonexclusive, worldwide license to make, have
made, practice and use (including the right to sell or lease parts,
equipment, and Rentech Catalyst to Affiliates and sublicensees, and the right
to sell or lease produced hydrocarbon products to any person or third party ,
and the right to sublicense one or more manufacturers to furnish Rentech
Catalyst to Licensed Plants) the Rentech Technology, including Rentech Patent
and Copyright Rights and Rentech Technical Information, in their business,
including joint ventures with Third Parties, anywhere in the world, except in
the country of India, for which an exclusive license has been granted;
PROVIDED, HOWEVER, notwithstanding the grant of license made in this section,
no grant of license to any Affiliate of Texaco or joint venture with Third
Parties shall be effective unless Texaco has first provided to Rentech the
Affiliate's (or said joint venture's) written and signed undertaking (in the
form set forth in Exhibit B to this Agreement) by which the Affiliate agrees
that the Affiliate is subject to and accepts many of the same conditions and
obligations to which Texaco is subjected to under this Agreement, but with no
right to extend the license to any other Affiliates or Persons as if the
Affiliates had signed and entered into this Agreement as modified by Exhibit
B directly with Rentech as of the date of the Affiliate's written and signed
undertaking. If it desires, Texaco may condition an Affiliate's rights under
this Section 2.1 grant to an Affiliate signing a license agreement with
Texaco (instead of Exhibit B), said license agreement containing terms at
least as restrictive as Exhibit B and Section 2.4(c). If the excepted
exclusive license rights for the country of India are terminated or expire,
then the country of India shall be included within the scope of this Section
2.1 grant to Texaco and its Affiliates.
2.2 EXCLUSIVITY OF LICENSED FIELD. Subject to Section 13, the grant
to Texaco and its Affiliates under Sections 2.1 and 2.4(a) shall be exclusive
within the Licensed Field.
2.3 GRANTBACK LICENSE. Subject to Section 2.2, Texaco agrees to
disclose to and grants to Rentech a nonexclusive, royalty-free, irrevocable,
worldwide license, including the right to grant sublicenses to make, have
made, practice and use Improvement Patent and Copyright Rights and
Improvement Technical Information. Notwithstanding any other language in this
Agreement, Improvement Patent and Copyright Rights and Improvement Technical
Information originating from sublicensees of Texaco or its Affiliates may not
be sublicensed by Rentech unless such sublicensees of Rentech agree to the
royalty-free licensing of such
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sublicensees' improvements in the Catalyst Improvement Areas to Texaco, its
Affiliates and their sublicensees.
2.4 SUBLICENSES.
(a) JOINT VENTURE WITH THIRD PARTIES. Rentech grants to Texaco the
irrevocable, nonexclusive right to grant sublicenses to joint ventures with
Third Parties (and Third Parties for practice only in such joint ventures) only
within the Licensed Field of any and all rights granted under this Agreement on
terms consistent with this Agreement, specifically excluding Sections 4.2, 11.1,
13, 14 and 15.2;
(b) ANY PERSON. Rentech grants to Texaco the exclusive right to
grant sublicenses to any person only within the Licensed Field of any and all
rights granted under this Agreement on terms consistent with this Agreement,
specifically excluding Sections 4.2, 11.1, 13, 14 and 15.2;
(c) CONDITIONS. As express conditions of any sublicense under
(a) or (b) above, the sublicensee shall be required to agree in writing that
the sublicense is subject to commercially reasonable reporting of license
fees, royalties and other consideration due in lieu thereof, record keeping
and inspection provisions for the benefit of Texaco, and confidentiality
obligations substantially similar to the terms of the Confidentiality
Agreement attached as Exhibit A to this Agreement and incorporated herein.
Each sublicense shall also expressly state that the covenants of the
sublicensee run for the benefit of Texaco and Rentech, and Rentech is an
express and intended third-party beneficiary of the covenants of the
sublicensee. Texaco acknowledges and agrees that the grant of one or more
sublicenses and the use of any rights granted under this Agreement by any
sublicensee shall not relieve Texaco of any of its obligations, duties or
limitations under this Agreement. Notwithstanding any other language in this
Agreement, Texaco may not sublicense to any Person unless that sublicensee
agrees to the royalty-free grantback licensing of such sublicensee's
improvements in Catalyst Improvement Areas to Rentech and its licensees
through Texaco.
2.5 RESERVATION OF RIGHTS BY RENTECH. Rentech reserves to itself and
its successors and assigns, subject only to the license grants described in
Sections 2.1, 2.2, 2.3 and 2.4, all rights of ownership and use of the
Rentech Technology, including but not limited to: (i) the right, by itself or
with others, to develop, design, construct, operate and sell gas conversion
plants using Rentech Technology except in the Licensed Field for the
production of F-T Products anywhere in the world; (ii) the right to license,
sublicense, lease, use, produce, patent, protect and sell all or any parts of
the Rentech Technology, except in the Licensed Field, to anyone anywhere in
the world; (iii) the right to sell F-T Products produced by Rentech
Technology, in any fields of use other than the Licensed Field, anywhere in
the world; (iv) the right to use and license, except in the Licensed Field,
all trade names and trademarks used by Rentech in connection with the
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Rentech Technology, including products covered or produced by use of the
technology; (v) all rights for use of the Rentech Technology in the country
of India; and (vi) all rights to the Rentech Technology and other rights of
Rentech not specifically granted to Texaco in this Agreement.
2.6 PLANS. Rentech will prepare and deliver to Texaco, within sixty
(60) days of the Effective Date, a set of plans, drawings and technical
information relating to Rentech's bubble column reactor and associated
separation equipment (gas-liquid-solid) in existence at the Effective Date
useful in the construction of a bubble column reactor system.
2.7 INDEPENDENT CONTRACTOR AGREEMENT. Concurrently with this
Agreement, Texaco and Rentech are executing an Independent Contractor
Agreement (Exhibit C) whereby Rentech is serving as a contractor to Texaco *
2.8 HIRING PROHIBITION. Neither party will solicit for employment or
hire as an employee or contractor any employee of the other party and its
Affiliates working in a technical or management position for Fischer-Tropsch
or synthesis gas supply, including Texaco Gasification Process during the
term of this Agreement, without the written consent of the other party,
unless such other party is under legal protection for relief of debts,
including but not limited to Chapters 7 and 11 of the Federal bankruptcy
laws, or has made an assignment for the general benefit of creditors.
2.9 EXHIBITS AND ATTACHMENTS. The following Exhibits and Attachments
are incorporated into and made subject to the terms of this Agreement:
<TABLE>
<S> <C>
Exhibit A Secrecy Agreement
Exhibit B Affiliate's Acceptance
Exhibit C Independent Contractor Agreement
Attachment 1 *
Attachment 2 Equal Employment Opportunity
Exhibit D Agreement for Secrecy and Assignment of Inventions *
</TABLE>
* Omitted material filed separately.
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3. Initial Payment and License Payments
3.1 INITIAL PAYMENT. Concurrently with execution of this Agreement,
Texaco shall pay One Hundred Thousand Dollars ($100,000) to Rentech as
consideration for this Agreement, including Rentech's reactor plans, the
exclusivity of Section 2.2, and the grant clauses of Section 2. In no event
shall this payment or any portion of it be refunded to Texaco.
3.2 LICENSE PAYMENTS BEFORE DEPLOYMENT. Starting on the first day of
the first full calendar month following Effective Date, and continuing on the
first day of each succeeding month thereafter until Deployment, Texaco shall
pay the sum of Twenty Thousand Dollars ($20,000) a month to Rentech ("License
Payments"). The License Payments shall be a credit against any license fees,
royalties or other consideration in lieu thereof received by Rentech from
Texaco. Rentech shall not have any obligation to credit License Payments
except as an offset against Rentech Royalties. Payment of the License
Payments shall cease upon the earlier to occur of the following events: (i)
upon Deployment, (ii) termination by Texaco due to a material breach by
Rentech or an adverse judgment as specified in Section 12.3(a), or (iii) the
month after Texaco has given written notice thirty (30) days in advanced to
Rentech, by registered or certified mail, that Texaco has elected to
surrender its exclusive license as provided in Section 3.2(a).
(a) SURRENDERING EXCLUSIVITY BEFORE DEPLOYMENT. In its sole
discretion, Texaco may surrender its exclusive license in the Licensed Field
under Section 2.2 and its sublicensing right under Section 2.4(b) in the
Licensed Field, while retaining its license and sublicense grants under
Sections 2.1 and 2.4(a) by giving Rentech written notice, said surrender
effective not earlier than thirty (30) days after Rentech has received the
notice. If Rentech has not received Two Hundred Forty Thousand Dollars
($240,000) in License Payments on the effective date of the surrender, Texaco
will pay the difference to Rentech on the effective date of the surrender. If
Texaco surrenders its exclusive license before Deployment has occurred,
Rentech's obligations for repayment of the License Payments shall be deemed
waived and released by Texaco.
(b) SURRENDERING OF EXCLUSIVITY AFTER DEPLOYMENT. For a period of *
if total Rentech Royalties and Rentech Catalyst Markup received from
plants in the Licensed Field do not equal at least a minimum of Two Hundred
Forty Thousand Dollars ($240,000) per year then Rentech may terminate the
exclusive license in the Licensed Field of Section 2.2 by giving Texaco
written notice. The surrender of Section 2.2 rights shall be effective not
earlier than thirty (30) days after Texaco has received the notice. Texaco
and its Affiliates will continue to have their license and sublicense rights
under Sections 2.1 and 2.4(a) but no rights to grant sublicenses under
Section 2.4(b). Texaco may, in its sole discretion, pay Rentech Royalties
from its own internal funds to satisfy the minimum requirement of this
*Omitted material filed separately.
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Section 3.2(b) to prevent surrender of the exclusive grant under Section 2.2
and sublicense grant under Section 2.4(b) ("Makeup Funds") for a period of
five (5) years after Deployment. For the time period of *
years after Deployment, Texaco may, in its sole discretion, use its own
internal funds to pay up to fifty percent (50%) of the minimum requirement of
this Section 3.2(b). The Makeup Funds shall not be recoverable from Rentech
in any event. Notwithstanding the provisions of Section 4.1 or any other
provision of this Agreement, after the effective date of surrender of
exclusivity, for any future plants in the Licensed Field Rentech shall be
paid Rentech Royalties and Rentech Catalyst Markup at the percentage rate
then in effect at time of surrender of exclusivity after Deployment
established in accordance with the table titled Rentech Royalties and Rentech
Catalyst Markup in Section 4.1(d) for those equity portions of any future
Licensed Plant owned by Texaco or its Affiliates, and at the rate of one
hundred percent (100%) for those equity portions of any future Licensed Plant
owned by Third Parties. For purposes of satisfying the minimum payment in
multiple years of this Section 3.2(b) only, Texaco, in its sole discretion,
may allocate royalties and other consideration received as a paid-up license
to multiple years as if the royalties and other consideration had been
received over multiple years as a running royalty. Regardless of the
foregoing, Texaco will still pay the proper Rentech Royalties and Rentech
Catalyst Markup at the contractually obligated time.
(c) RECOVERY OF LICENSE PAYMENTS. Once Deployment occurs, Texaco may
recover the License Payments paid to Rentech by offsets against fifty percent
(50%) of Rentech Royalties and Rentech Catalyst Markup originating in
relation to Licensed Plants that are licensed after Deployment occurs, and by
an offset against fifty percent (50%) of Rentech Royalties and Rentech
Catalyst Markup originating in relation to the five hundred (500) barrels per
day of liquid hydrocarbons required for Deployment, until all License
Payments have been returned to Texaco. If the license is terminated, as
provided in Section 3.2(b) after Deployment has occurred, Texaco may recover
the License Payments paid to Rentech by offsets only against Rentech
Royalties originating in relation to Licensed Plants operating at the time of
termination.
4. Royalties.
4.1 RENTECH ROYALTIES AND RENTECH CATALYST MARKUP.
(a) RENTECH ROYALTIES. As partial consideration for the license
granted to Texaco in this Agreement, Texaco shall pay to Rentech throughout
the term of this Agreement, and thereafter so long as F-T Products are
produced by use of Rentech Technical Information or practice under Rentech
Patent and Copyright Rights at a Licensed Plant, by Texaco, its Affiliates
and their sublicensees, the following percentage of all license fees,
royalties and other consideration in lieu thereof, actually received by
Texaco, for such production or practice, excluding any consideration for
production, sales and use of Rentech Catalyst, the consideration for which is
calculated separately, at the percentages set forth below in the table in
Section
*Omitted material filed separately.
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4.1(d) titled "Rentech Royalties and Rentech Catalyst Markup." Except as
provided in Section 3.2(b), the percentage of Rentech Royalties applicable to
a specific Licensed Plant shall be determined according to the applicable
period of time described in the Section 4.1(d) table when a sublicense is
granted for a specific plant site or for a Licensed Plant where a sublicense
is not executed, the authorization by Texaco or its Affiliates with an
Approval for Expenditure (AFE) or equivalent thereof. When the percentage of
Rentech Royalties is established for a particular Licensed Plant, the same
percentage shall continue to apply without change, except that after Rentech
Royalties have been paid for a Licensed Plant for * years,
there will be no further Rentech Royalties due for that Licensed Plant for
the production capacity for which Rentech Royalties have been paid unless
Texaco or its Affiliate is receiving license fees, royalties or other
consideration in lieu thereof, in which event the payment of Rentech
Royalties shall continue. Reasonable amounts received for a Process Design
Package ("PDP") or an Engineering Services Agreement shall not be included in
"license fees, royalties and other consideration in lieu thereof."
(b) NATURAL GAS AND STILL GAS AS FEEDSTOCK. Notwithstanding the
rates of Rentech Royalties previously described in Section 4.1(a) as to Third
Parties and Persons, in the event that the energy content of Natural Gas or
Still Gas or any combination thereof (based on the project design or any
design modification increasing original design capacity by ten percent (10%)
or more) fed to either the gasification process, steam methane reforming
system, autothermal reforming system or any other synthesis gas generation
process of a Licensed Plant *
*
*
*Omitted material filed separately.
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*
*
*
(c) RENTECH CATALYST MARKUP. As partial consideration for the
license granted to Texaco in this Agreement, and regardless of whether Texaco
or one or more of its Affiliates manufactures Rentech Catalyst or the
catalyst is manufactured by a catalyst sublicensee of Texaco or one or more
of its Affiliates, and supplied by Texaco or one or more of its Affiliates to
a Licensed Plant, Texaco shall pay to Rentech throughout the term of this
Agreement, and thereafter so long as F-T Products are produced using Rentech
Catalyst at a Licensed Plant including sales and use by Texaco, its
Affiliates and their sublicensees, the percentages ("Rentech Catalyst
Markup") determined according to the table titled Rentech Royalties and
Rentech Catalyst Markup in Section 4.1(d), of those sums or consideration in
lieu thereof actually received by Texaco from Affiliates, sublicensees and
manufacturers of Rentech Catalyst * of the cost
to produce or have produced the Rentech Catalyst for use in a Licensed Plant
if Texaco or an Affiliate is the Rentech Catalyst manufacturer. For example,
if the manufacturing cost is One Dollar ($1.00), the Rentech Catalyst Markup
would be calculated on any amount received by Texaco *
. If any other person or third party is the Rentech
Catalyst manufacturer, then the Rentech Catalyst Markup will be the Section
4.1(d) table percentages of those sums or consideration in lieu thereof
actually received by Texaco * of the amount charged by the
manufacturer for the Rentech Catalyst. Regardless of the amount of money
Texaco receives from an Affiliate relating to Rentech Catalyst, in the event
Texaco
*Omitted material filed separately.
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receives from an Affiliate less than the average sum bargained to be received
from non-Affiliate sublicensees in a bona fide arm's-length transaction
during the preceding six (6) months, Texaco will be assumed to have received
such an average sum. Upon ten (10) days advance written request by Rentech,
Texaco and its Affiliates will, at least once each calendar year, provide
Rentech or its accountants reasonable access to the relevant books of Texaco
or its Affiliates to verify the cost of Rentech Catalyst, any markup, and any
sums received by Texaco and its Affiliates in connection with Rentech
Catalyst.
(d) PERCENTAGE OF INCOME AND OTHER CONSIDERATION. The following
percentages shall apply to the calculation of Rentech Royalties and Rentech
Catalyst Markup.
*The following page 13 and the table appearing on that page is entirely omitted.
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4.2 VALUATION AND COLLECTION OF ROYALTIES.
(a) FAIR MARKET VALUE OF CONSIDERATION. The Rentech Royalties
payable by Texaco and its Affiliates for all purposes of Section 4.1, shall
be calculated upon the Market Rate. If Texaco receives consideration in some
form other than money from any person or third party, then the consideration
for the licensing transaction shall be automatically valued at the Market
Rate for determination of the Rentech Royalties due. At least twice a year,
Rentech shall have the right to access as may be necessary the applicable
books and records of Texaco or its Affiliates, which Texaco shall provide
upon reasonable written notice given by Rentech at least ten (10) days in
advance. If the parties do not reach mutual agreement on the Market Rate
within sixty (60) days of either party's request to the other to determine
the value, the fair market value shall be determined by appraisal as provided
for in this Agreement.
(b) COLLECTION OF ROYALTIES. Texaco will use commercially
reasonable efforts to collect and receive the full amount of Rentech
Royalties and Rentech Catalyst Markup due from its sublicensees and its
Affiliates under this Agreement.
4.3 * RENTECH ROYALTIES. Notwithstanding any
provisions of this Agreement to the contrary, the Rentech Royalties and
Rentech Catalyst Markup payable for up to the first 750 barrels per day of
production capacity licensed under this Agreement are * by Rentech,
but such * shall not apply to all or any part of the five hundred (500)
barrels per day of liquid hydrocarbons required for Deployment. It is solely
within Texaco's discretion to elect to achieve Deployment at any time by
initiating the payment of Rentech Royalties pursuant to Section 1.6. If
Texaco or its Affiliates elect to achieve Deployment before any other
production capacity is constructed, the * shall no longer apply.
Texaco or its applicable Affiliate shall permit Rentech to reasonably
inspect, at mutually convenient times, and receive data from the
Fischer-Tropsch portion of Licensed Plants in the Catalyst Improvement Areas
and analyses of F-T Products. Rentech understands that inspection of and
Texaco disclosure of subject matter outside the Catalyst Improvement Areas is
solely within the discretion of Texaco. Rentech Royalties and Rentech
Catalyst Markup, as provided in Section 4.1 and 4.2, shall be paid for all
production capacity in excess of those that may be waived under this
Agreement.
4.4 REDUCED ROYALTIES FOR USE OF TECHNICAL INFORMATION.
Notwithstanding the foregoing provisions of this Section 4, if a Licensed
Plant of Texaco, an Affiliate, or any sublicensee is no longer practicing
under any valid, non-lapsed or non-expired patents under Rentech Patent and
Copyright Rights, but uses Rentech Technical Information for its operation,
Texaco shall continue to pay Rentech Royalties and Rentech Catalyst Markup
(if Rentech Catalyst is used in such Licensed Plant), except that the Section
4.1(d) percentage for Rentech Royalties and Rentech Catalyst Markup shall be
reduced to * of the percentage in effect immediately preceding the
date of last expiration, lapsing or declaration of
*Omitted material filed separately.
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<PAGE>
invalidity. Texaco acknowledges and agrees that the Rentech Technical
Information contains at least * of the value inherent
in the Rentech Technology, and that the Rentech Patent and Copyright Rights
constitute only a minor part of the value of the Rentech Technology. Texaco
therefore acknowledges and agrees that the reduced rate of *
of Rentech Royalties and Rentech Catalyst Markup is fair consideration for
its continued use of the Rentech Technical Information after expiration of
the term.
5. Facility Access
5.1 ACCESS TO LICENSEE'S FACILITY. Up to once a year upon reasonable
notice, Texaco and its Affiliates will permit Rentech (through the services
of an independent auditor) to have access during business hours to any plant
utilizing Rentech Technology under the control of Texaco or an Affiliate and
to business records of Texaco and the Affiliate for the limited purpose of
verifying compliance by Texaco and its Affiliates with its obligations under
this Agreement. Upon at least ten (10) days written notice, Rentech may show
a mutually agreed upon facility utilizing Rentech Technology under the
control of Texaco or an Affiliate during normal business hours, whether under
construction or in operation, to Rentech's prospective licensees, financiers,
joint ventures, purchasers, construction contractors, consultants or others
whose tour of such a facility might enhance the rights reserved by Rentech to
the Rentech Technology. Rentech recognizes that certain portions of a Texaco
or Affiliate facility that embody and would disclose information to which
Rentech and its other licensees are not entitled may be declared off-limits
to a showing by Rentech, such as reactor design, if applicable, and Texaco
Gasification Process. All persons attending such a tour and inspection must
first have executed and delivered to Texaco (i) confidentiality agreements
with substantially the same provisions as Exhibit A. and (ii) since
hydrocarbon plants are inherently dangerous, a reasonable disclaimer of
Texaco and Affiliate liability and an assumption of risk by any such person
touring a Texaco or Affiliate facility.
6. Payments
6.1 MANNER OF PAYMENT. All payments made under this Agreement shall be
calculated and made in U.S. dollars, by electronic transfer of immediately
available funds, to such banks and accounts as Rentech designates from time
to time in writing.
6.2 NON-BUSINESS DAYS. Whenever any payment or calculation of payment
due hereunder shall be stated to be due or made on a day that is not a
business day, the payment or calculation shall be made on the immediately
succeeding business day.
6.3 RECEIPT. Payments shall not be considered to be made until the day
they are received at Rentech's final bank account that is designated by it
for such purpose.
*Omitted material filed separately.
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6.4 PAYMENT DUE DATE. All Rentech Royalties and Rentech Catalyst
Markup shall be due one (1) month after the end of a calendar quarter for the
receipt of royalties in that quarter by Texaco. Once the total of Rentech
Royalties and Rentech Catalyst Markup exceeds Ten Thousand Dollars ($10,000)
per month, Rentech Royalties and Rentech Catalyst Markup shall be due on the
last day of each month for the previous month's receipts of royalties by
Texaco. If Texaco must calculate a royalty from a Texaco or Affiliate
Licensed Plant from production figures based upon the Market Rate for
determination of Rentech Royalties and Rentech Catalyst Markup, then the
"license fees, royalties and other consideration in lieu thereof" will be
deemed to be received by Texaco in the second month following the production
month. If Texaco must calculate a royalty from a sublicensee's (other than an
Affiliate) Licensed Plant based on Market Rate due to some consideration
being paid in a form. other than money (Section 4.2(a)), then the
consideration paid in a form other than money will be deemed to be received
by Texaco in the second month following the production month. The portion of
consideration paid by such a sublicensee in the form of money shall be
subject to Rentech Royalties and Rentech Catalyst Markup as stated above in
the Section 6.4 when such money is actually received.
6.5 LATE PAYMENTS. In the event any payment of any type by Texaco to
Rentech shall at any time be overdue, Texaco shall pay interest to Rentech on
any and all such late payments at the simple rate of ten percent (10%) per
annum, such interest being calculated on a per diem basis for each late
payment from the date it became due to the date of actual payment. Payment of
such interest shall be in addition to any of Rentech's other rights under
this Agreement resulting from Texaco's default in making timely payments.
Interest shall accrue on late payments from the due date regardless of
whether Rentech has given Texaco written notice of the default.
6.6 TAXES WITHHELD. If Texaco is required by any government with
jurisdiction to withhold any tax or tax payment from any payment due by it to
Rentech, Texaco shall remit the net amount of the payment to Rentech,
together with official receipts or other evidence acceptable to Rentech
establishing payment of such tax payments. Any such tax payments shall be
made by Texaco on time and in the proper amount to relieve Rentech from all
liabilities for failure to pay such payments timely or fully.
6.7 NO SET-OFFS OR COUNTERCLAIMS. Under no circumstances shall any
amount payable to Rentech be reduced, either by set-off, counterclaim,
adjustment or otherwise, except for taxes withheld in accordance with
provisions of the preceding section, by virtue of any claim of any person
other than Texaco or its Affiliates, except as noted in Sections 7.4 and
12.3(c).
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7. Reports and Records
7.1 RECORDS AND BOOKS OF ACCOUNT. Texaco shall make and keep complete
and accurate records and books of account describing all activities by it
under this Agreement in sufficient detail to enable Rentech Royalties and
Rentech Catalyst Markup to be determined for each Licensed Plant. The records
shall include, without limitation by reason of enumeration, separate reports
on the construction and operation of each Licensed Plant, estimates of the
composition of materials used as feedstock for the gasification process and
for the Fischer Tropsch reactor, the names and current addresses of the
Licensed Plants and sublicensees, and records showing the quantities of all
F-T Products produced. Whenever Texaco conducts audits of one or more of its
sublicensees during the term of this Agreement, Texaco shall promptly provide
complete copies of the audit reports, free of charge, to Rentech.
7.2 PRODUCTION REPORTS. Texaco shall deliver to Rentech within one (1)
month after the end of each Reporting Period a written report describing for
the applicable Reporting Period and separately for each Licensed Plant:
(a) QUANTITIES. The quantities of all F-T Products produced
during the Reporting Period, together with all other data necessary for the
calculation of Rentech Royalties and Rentech Catalyst Markup.
(b) CALCULATIONS. Calculations showing the total Rentech
Royalties and Rentech Catalyst Markup, if any, due for the Reporting Period
and the calendar year to date, and confirmation that payment to Rentech has
been or will be made as of the same due date as the report.
(c) ESTIMATES. If Texaco has not received actual reports from
Licensed Plants in time to prepare these production reports, Texaco will
prepare reports containing estimates, mark the reports as estimates, and
correct promptly when actual production data is available in the future.
7.3 NEED FOR REPORT. If Rentech Royalties have never become payable by
Texaco for a Licensed Plant under this Agreement, then no report to Rentech
is required by this Agreement. If Rentech Royalties and Rentech Catalyst
Markup are not due for the Reporting Period, this report need not contain any
information other than the statement, "No payments are due for this Reporting
Period."
7.4 RIGHT TO AUDIT. Texaco agrees, upon ten (10) days written notice
of Rentech, to permit up to once a calendar year, Rentech's certified public
accountants to have fall access during customary business hours to the books
and records of Texaco pertaining to activities
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under this Agreement, and they shall have the right to make copies therefrom
to the extent useful for purposes of their audit at Rentech's expense. The
right to examine may be exercised at any time during the term of this
Agreement and for a period of two years after its expiration or termination.
Prompt adjustments shall be made to compensate for any errors or omissions
disclosed by the examination. If payments (limited to amounts actually
received and Market Rate already determined between the parties or by
appraisal for specific Licensed Plants) due by Texaco are determined to have
been underpaid by fifteen (15 %) or more, Texaco shall pay a penalty of ten
percent (10%) of the underpaid amount, which includes any interest owed under
Section 6.5. If the Rentech Royalties and Rentech Catalyst Markup are
determined- to have been overpaid, then Texaco shall be entitled to recover
such overpayment by offsets against future Rentech Royalties without regard
to the fifty percent (50%) limitation on recovering License Payments.
8. Confidentiality
8.1 OBLIGATION OF CONFIDENTIALITY. All information which does not fall
within the Section 8.2 exceptions to confidentiality is confidential
information ("Confidential Information"). For a period of *
from the date of disclosure, each party agrees to not disclose to third
parties any Confidential Information received from the other party (including
that received during visits to the other party's Licensed Plants and audits
and inspections conducted under this Agreement) following the same standard
of care the receiving party uses to protect its own Confidential Information
of a similar nature except to the extent required to be disclosed by law or
as expressly permitted by this Agreement. A party shall not disclose received
Confidential Information to anyone except to its employees or those of its
Affiliates that have a need to know in connection with the development,
financing, design, construction or operation of the technology or where
knowledge of such Confidential Information is necessary to effect the
purposes of this Agreement. A receiving party may disclose received
Confidential Information to a contractor, licensee, Rentech licensee, or
potential licensee if such party has executed a confidentiality agreement in
substantially the form of Exhibit A attached hereto.
8.2 EXCEPTION TO CONFIDENTIALITY. A receiving party shall not have any
obligations of nondisclosure or confidentiality under Section 8.1 as to
information, as shown by competent evidence, that (i) is or becomes, through
no fault of the receiving party in the public domain; (ii) is lawfully
obtained by the receiving party or an Affiliate from a source other than the
disclosing party; (iii) was already known by the receiving party or an
Affiliate at the time of its receipt, (iv) is independently developed by
employees or contractors of the receiving party or an Affiliate without
access to the disclosed information; or (v) is required to be disclosed by
law or order of any court or governmental authority having jurisdiction.
Disclosures that are specific, including but not limited to operating
conditions such as pressures, temperatures, formulae, procedures and
*Omitted material filed separately.
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other like standards and conditions, shall not be deemed to be within the
foregoing exceptions merely because they are embraced by general disclosures
within the foregoing exceptions. Additionally, any combination of features
shall not be deemed to be within the foregoing exceptions merely because the
individual features are within the foregoing exceptions.
8.3 PUBLISHED DISCLOSURE. It is agreed that the disclosure of certain
information by a disclosing party in a publication, such as in letters patent
or by otherwise placing it in the public domain, will not free the receiving
party from its obligation to maintain in confidence any information not
specifically disclosed in or fairly ascertainable from the publication or
other disclosure, such as, for example, the fact that information in the
publication or any portion of it is or is not used by the disclosing party.
8.4 LEGAL DISCLOSURES. A receiving party shall promptly inform the
disclosing party of any required disclosure falling under Section 8.2(v), and
aid (or at a minimum not oppose) a motion or similar request by the
disclosing party for an order protecting the confidentiality of such
information, including joining or agreeing to (or nonopposition to) a motion
for leave to intervene by the disclosing party.
8.5 NOTICE OF UNAUTHORIZED DISCLOSURES. A receiving party shall
promptly notify the disclosing party in writing of any actual or suspected
unauthorized disclosures of which it becomes aware; provided, however, it
shall not be a material breach of this Agreement for mere negligence of the
receiving party to fail to provide such written notice to the disclosing
party as required.
8.6 PRESS RELEASES AND USE OF NAMES AND TERMS. This Agreement does not
grant and shall not be construed as granting any license, authorization or
consent, to either party by the other party hereto, to use any name,
trademark, service mark or slogan of the other party. A party shall not use
the other party's name without written consent, except for the identification
of the other party as a licensor, licensee, or as a party to this Agreement.
The terms of this Agreement will be considered Confidential Information under
Section 8, by each party except as required by law. A press release which
includes the name of the other party must have prior written approval of the
other party, except as required by law.
9. Disclaimer of Warranties, Damages and Liability of Parties
9.1 DISCLAIMER. Except as stated in this Article 9.0, ANY TECHNOLOGY,
APPARATUS, DESIGN, ORAL OR WRITTEN REPORT, DATA, COMPUTER PROGRAM,
REFERENCE/USER MANUALS OR OTHER INFORMATION PROVIDED BY ANY PARTY HEREUNDER
SHALL BE PROVIDED ON AN "AS IS" BASIS WITHOUT ANY WARRANTIES, EXPRESSED OR
IMPLIED, including but not limited to the results or effects
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obtained through use of any apparatus or information, or that it is fit for
any use intended, or can be used without infringing the patent or copyright
rights of third parties. Without limitation on the preceding, ANY IMPLIED
WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE IS EXPRESSLY
EXCLUDED, BY AGREEMENT OF THE PARTIES, FROM THIS AGREEMENT AND FROM ANY
APPARATUS OR INFORMATION PROVIDED HEREUNDER. IN NO EVENT WILL ANY PARTY BE
LIABLE FOR ANY DAMAGES WHATSOEVER, INCLUDING DIRECT DAMAGES OR INDIRECT
DAMAGES, SUCH AS LOSS OF PROFITS, SPECIAL OR PUNITIVE DAMAGES, RESULTING FROM
THE OTHER PARTY'S USE OR DISCLOSURE OF ANY APPARATUS OR INFORMATION. The use
by a party or its Affiliate of any apparatus or information shall be solely
at its own risk, and the other party shall not be liable for any damage
resulting from inaccuracy, incorrectness, unsoundness, and/or unreliability
resulting from use by such party or its Affiliate thereof, whether or not
such is caused by negligence of the other party or Affiliate.
9.2 ASSUMPTION OF RISK. Should any party disclose or sublicense
apparatus or information of the other party to any third party within the
bounds of this Agreement, the party disclosing or sublicensing same shall
assume all risks arising out of the third party's use thereof and shall
notify such third party in a sublicense, or other writing if no sublicense is
granted, that the other party to this Agreement makes no warranties and
disclaims all liabilities concerning the information so disclosed or
sublicensed.
9.3 INDEMNIFICATION. Each party hereto indemnifies and holds the other
party hereto harmless from and against any and all damages, including injury
or death of individuals and property damages, which arise out of, or are
directly related to the indemnifying party's practice under or use of the
other party's information, the indemnifying party's rightful disclosure or
sublicensing of apparatus or information pursuant to this Agreement, and the
use of such information by any third party or sublicensee to whom such
information is so disclosed without regard to the cause or causes or the
negligence of any party or parties. Each party agrees that its licensee or
sublicensee in all agreements which grant rights under the other party's
technology or information will disclaim the right to sue for or collect any
and all damages from the other party, without regard to the cause or causes
of the negligence of any party or parties. Nothing herein is intended to or
shall be construed as an admission of liability on the part of any party
hereto with respect to third parties, and each party hereto expressly
disclaims any intention that any third party shall be a third party
beneficiary under this section.
9.4 DEFENSE OF PATENT INFRINGEMENT BY RENTECH. Rentech agrees to
indemnify, defend, at its sole expense and with counsel of its own choice and
by conduct solely determined by Rentech, hold harmless Texaco, its
Affiliates, licensees of Texaco or its Affiliates, and employees, directors,
officers and agents of each ("Texaco Indemnified Parties") from any and
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all claims of (i) patent infringement against any of the Texaco Indemnified
Parties asserting infringement by practice of one or more patents licensed
under Rentech Patent and Copyright Rights by reason of use by any of the
Texaco Indemnified Parties of such patents as permitted under this Agreement,
and (ii) copyright infringement or theft of trade secrets asserted against
any of the Texaco Indemnified Parties as the result of use or sublicensing of
Rentech Technology as delivered by Rentech. If Rentech does not defend or in
the reasonable judgment of Texaco, which judgment has been reached after
giving at least twenty (20) days prior written notice of its concerns to
Rentech, is not vigorously and adequately defending against any such action,
including the appropriate appeals, Texaco may defend against such an action
and Rentech shall reimburse Texaco for its reasonable expenses incurred in
connection with such defense. Rentech shall have the right to be kept fully
and promptly informed of the status and progress of each such defense by
Texaco. Rentech does not have any authority to bind the Texaco Indemnified
Parties to pay damages in any action related to this Section 9.4 without
prior written consent of each of the Texaco Indemnified Parties.
9.5 NOTICE OF CLAIMS TO RENTECH. Texaco shall, to the extent it
becomes aware thereof, give prompt written notice to Rentech of each legal
action or claim or threat thereof made against a Texaco Indemnified Party,
with respect to technology, patent or copyright infringement or unfair
competition. Texaco shall give such written notice within ten (10) days after
acquiring such knowledge but at least ten (10) days prior to the expiration
of time in which a response must be filed with a court or other judicial
body, whichever is the first to occur. It shall not be a material breach of
this Agreement justifying termination of this Agreement for mere negligence
of Texaco in failing to provide such written notice to Rentech as required
hereby, but shall support claims for damages.
9.6 ADVISORY COUNSEL. A Texaco Indemnified Party may, at its expense
and with advisory counsel of its own choosing, participate in the defense of
any legal action, claims, or threat thereof under Sections 9.3 and 9.4.
9.7 INDIRECT DAMAGE DISCLAIMER. Except for the unauthorized disclosure
of Confidential Information where indirect damages may be awarded, neither
party shall be liable to the other for any indirect damages, including but
not limited to loss of profits, special or punitive damages.
9.8 NOTIFICATION OF SUIT. Each party shall promptly notify the other
party in writing of any suit or action which to its knowledge directly or
indirectly relates to the use of the Rentech Technology.
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9.9 LIABILITY LIMIT. Regardless of any terms in this Agreement (except
for Rentech Royalties and Rentech Catalyst Markup due and owing), in no event
shall any party's liability to the other party exceed the greater of Five
Million Dollars ($5,000,000) or the amount of Rentech Royalties and Rentech
Catalyst Markup paid in the last two (2) years in which liability existed.
10. Title to Patents, Copyright. and Information
10.1 RENTECH OWNERSHIP. Subject to the terms and conditions set out
herein, ownership and title to Rentech Technical Information and Rentech
Patent and Copyright Rights shall remain with Rentech.
10.2 TEXACO OWNERSHIP. Subject to the terms and conditions set out
herein, ownership of and title to Improvement Technical Information,
Improvement Patent and Copyright Rights, Benham Improvements, and
improvements made by employees or agents of Texaco and its Affiliates that do
not fall within other categories in this Section 10.2 shall remain with
Texaco or its Affiliates.
11. Representations, Warranties and Covenants
11.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF TEXACO. Texaco hereby
represents, warrants and covenants to Rentech as follows:
(a) RIGHT, POWER AND AUTHORITY. Texaco has full right, power and
authority to enter into this Agreement, and there is no impediment that would
inhibit its ability to perform the terms and conditions imposed upon it by
this Agreement.
(b) BINDING OBLIGATION. This Agreement has been duly authorized
by all necessary corporate and stockholder action and constitutes a valid and
binding obligation of Texaco, enforceable in accordance with its terms.
(c) CORPORATE GOOD STANDING. Texaco is a corporation duly
organized and validly existing and in good standing under the laws of the
place of its organization and is duly qualified and authorized to do business
wherever the nature of its activities or properties requires such
qualification or authorization.
(d) NO GOVERNMENT APPROVAL NEEDED. No registration with or
approval of any government agency or commission is necessary for the
execution, delivery or performance by Texaco of any of the terms of this
Agreement, or for the validity and enforceability hereof or with respect to
the obligations of Texaco hereunder, except such registrations and approvals
as have been previously made or obtained, or will be obtained.
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(e) NO PROVISIONS CONTRAVENED. There are no provisions in the
memorandum or articles of association or articles of incorporation, as the
case may be, or bylaws or operating agreement, if any, of Texaco, and no
provision in any existing mortgage, indenture contract or agreement binding
upon Texaco that would be contravened by the execution, delivery or
performance by Texaco of this Agreement.
(f) NO CONSENT OF THIRD PARTIES NEEDED. No consent of any
lender, trustee or holder of any indebtedness of Texaco or any other third
party is or shall be required as a condition to the validity of this
Agreement, except such consents as have been previously obtained, certified
copies of which have been delivered to Rentech.
(g) NO PROCEEDINGS PENDING. No actions or proceedings are
pending or insofar as Texaco knows or ought to know threatened against
Texaco, or any or its officers or directors in their capacities as officers
and directors of Texaco, before any court, administrative agency or other
tribunal that might have a material adverse effect on its business or
condition, financial or otherwise, or its operation.
(h) NOT CONTRAVENE ANY LAW. Neither the execution nor the
delivery of this Agreement by Texaco nor the fulfillment of or compliance
with its terms and provisions by Texaco will contravene any provision of law
including, without limitation, any statute, rule, regulation, judgment,
decree, order, franchise or permit applicable to Texaco.
11.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF RENTECH. Rentech
hereby represents, warrants and covenants to Texaco as:
(a) RIGHT, POWER AND AUTHORITY. Rentech has full right, power
and authority to enter into this Agreement, and there is no impediment that
would inhibit its ability to perform the terms and conditions imposed upon it
by this Agreement.
(b) BINDING OBLIGATION. This Agreement has been duly authorized
by all necessary corporate and stockholder action and constitutes a valid and
binding obligation of Rentech, enforceable in accordance with its terms.
(c) CORPORATE GOOD STANDING. Rentech is a corporation duly
organized and validly existing and in good standing under the laws of the
state of Colorado, United States of America, and is duly qualified and
authorized to do business wherever the nature of its activities or properties
requires such qualification or authorization.
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(d) NO GOVERNMENT APPROVAL NEEDED. No registration with or
approval of any government agency or commission is necessary for the
execution, delivery or performance by Rentech of any of the terms of this
Agreement, or for the validity and enforceability hereof or with respect to
the obligations of Rentech hereunder, except such registrations and approvals
as have been previously made or obtained or will be obtained.
(e) NO PROVISIONS CONTRAVENED. There are no provisions in the
memorandum or articles of association or articles of incorporation as the
case may be, or bylaws or operating agreement, if any, of Rentech, and no
provisions in any existing mortgage, indenture, contract or agreement binding
on Rentech that would be contravened by the execution, delivery or
performance by Rentech of this Agreement.
(f) NO CONSENT OF THIRD PARTIES NEEDED. No consent of any
lender, trustee or holder of any indebtedness of Rentech or any other third
party is or shall be required as a condition to the validity of this
Agreement, except such consents as have been previously obtained, certified
copies of which have been delivered to Texaco.
(g) NO PROCEEDINGS PENDING. There are no actions or proceedings
pending or insofar as Rentech knows or ought to know threatened against
Rentech, or any of its officers or directors in their capacities as officers
or directors of Rentech, before any court, administrative agency or other
tribunal that might have a material adverse effect on its business or
condition, financial or otherwise, or its operation.
(h) NOT CONTRAVENE ANY LAW. Neither the execution nor the
delivery of this Agreement by Rentech nor the fulfillment of or compliance
with the terms and provisions by Rentech will contravene any provision of law
including, without limitation, any statute, rule, regulation, judgment,
decree, order, franchise or permit applicable to Rentech.
(i) NO PATENT INVALIDITY. To the best of Rentech's knowledge,
there are no U.S. letters patent or foreign patents that invalidate the
patents included within the Rentech Patent and Copyright Rights, and the
practice by Texaco, its Affiliates and sublicensees under the Rentech Patent
and Copyright Rights and the Rentech Technology will not infringe upon any
third party patent and copyright rights.
(j) RENTECH OWNER OF LICENSED TECHNOLOGY. To the best of
Rentech's knowledge, Rentech has the right to use the Rentech Technology and
has the right to grant the licenses of this Agreement to Texaco and its
Affiliates under the Rentech Technology.
(k) NO CURRENT RESTRICTIONS ON PROVIDING INFORMATION TO TEXACO.
Rentech is not a party to any contract, confidence or obligation that would
create liability for Rentech by
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reason of: (i) disclosure by Rentech of information not formulated in whole
or in part by Rentech which pertains to applications to patent the Rentech
Technology or (ii) the use of such information by Rentech or Texaco.
(l) LICENSING ALL RIGHTS. The Rentech Technology disclosed and
licensed hereunder represents all rights of Rentech with respect to
technologies and equipment for Rentech Technology.
12. Term and Termination
12.1 TERM. The term of this Agreement shall commence on the date of
this Agreement and, shall extend until the latter of (i) the last expiration
date of a patent which has not lapsed or been declared invalid within Rentech
Patent and Copyright Rights, and (ii) final and complete discontinuance of
use of Rentech Technical Information and practice under Rentech Patent and
Copyright Rights in all Licensed Plants, unless earlier terminated.
12.2 TERMINATION FOR BREACH. Either party shall have the right to
terminate this Agreement as a result of the other party's material breach.
The party claiming breach of the Agreement shall give the other party written
notice of the breach, specifying the nature thereof, and the other party
shall have sixty (60) days after such notice to cure such breach. Upon the
failure of the party in material breach to cure the breach within the sixty
(60) day period or to commence a cure and diligently proceed thereafter to
complete the cure, the other party shall have the right to terminate this
Agreement as of the date set forth in the written termination notice. The
right of a party to terminate this Agreement for material breach shall be in
addition to and not in lieu of any other right or remedy that the terminating
party may have under this Agreement.
12.3 LICENSE ABATEMENT, TERMINATION AND DAMAGE RECOVERY FOR
INFRINGEMENT.
(a) LICENSE TERMINATION BY TEXACO BASED ON INFRINGEMENT. Should an
adverse judgment be entered against Rentech or a Texaco Indemnified Party for
reason of infringement of third party patents and copyrights resulting from
practice under Rentech Patent and Copyright Rights or Rentech Technical
Information, Texaco shall have the right in its sole discretion to terminate
this Agreement effective thirty (30) days after receipt by Rentech of written
notice. If the judgment materially affects Texaco's ability to use the
Rentech Technology, Texaco will not be required to pay any License Payments
after termination. No such termination shall be effective to terminate any
license grantback to Rentech pursuant to the provisions of Section 2.3.
(b) LICENSE ABATEMENT BASED UPON INFRINGEMENT. If an adverse judgment
partially reduces Texaco's ability to use the Rentech Technology, Texaco
shall have the right to reduce
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the amount of Rentech Royalties by a percentage equal to the percentage
decrease in the value of the use of the Rentech Technology to Texaco and
other Indemnified Parties due to such adverse judgment. The amount of such
percentage decrease in the value of the Rentech Technology shall be
determined by the parties hereto, or in the case of failure to reach an
agreement, by appraisal under Section 14.
(c) RECOVERY OF INDEMNIFICATION FROM RENTECH ROYALTIES. Texaco shall
have the right to reduce the amount of Rentech Royalties without regard to
any fifty percent (50%) limit in Section 3.2 to recover any damages a Texaco
Indemnified Party is liable for that are not indemnified by Rentech under
Sections 9.3 and 9.4.
12.4 SURVIVAL OF OBLIGATIONS. Texaco's obligation to pay Rentech
Royalties and Rentech Catalyst Markup, and other moneys due and owing, and
the provisions of Sections 2.1, 2.3, 2.4(a), 7, 8, 9, 10, and 15.2 shall
survive any termination.
12.5 NO DAMAGE. Neither party shall be liable for damages of any kind
as a result of properly exercising its respective right to terminate this
Agreement, and termination according to the terms of this Agreement shall not
affect any other right or remedy of either party.
13. LICENSING EXISTING GASIFICATION PLANTS AND STILL GAS PLANTS. If Texaco
or an Affiliate elects not to license Rentech Technology within the scope of
the Licensed Field (i) to any gasification facility in existence as of the
date of Deployment, or (ii) to process any Still Gas at a facility, Rentech,
notwithstanding the exclusive license within the Licensed Field granted to
Texaco by this Agreement, shall have the right, at its option, to license
Rentech Technology to said gasification facility or to said facility to
process Still Gas. Any license fees, royalties or other consideration in lieu
thereof that are paid for such a Rentech Technology license, work and
equipment shall be the sole property of Rentech.
14. APPRAISAL. If either Rentech or Texaco invoke any right they may have
under this Agreement to an appraisal of the Market Rate for royalties,
Rentech Catalyst Markup, the energy content of feedstock, or other issues
expressly subject to appraisal by the provisions of this Agreement
("Appraisal Issue"), the Appraisal Issue shall be resolved by appraisal
conducted in accordance with the provisions of this section. The Appraisal
Issue shall be determined by an independent appraisal conducted by Arthur D.
Little Consulting or any other firm with knowledge of Fischer-Tropsch
business issues in accordance with generally accepted appraising standards.
If the parties have not agreed upon the firm to serve as the appraiser within
thirty (30) days of a written request given by one to the other, the
appraisal firm shall be designated by the chief executive officer of the
Denver office of the American Arbitration Association from among the nominees
submitted to him by any one or both of the parties. Both parties shall
provide the appraiser with complete and detailed information in their
possession or knowledge about the
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subject matter of the appraisal , including full access to the records and
documentation within their control pertaining to any issue in question,
subject to a secrecy agreement binding the Appraiser similar to Exhibit A.
The costs of appraisal shall be borne equally by Rentech and Texaco. The
valuation determined by the appraisal shall be binding and conclusive-upon
the parties.
15. Miscellaneous
15.1 ASSIGNMENT. Except for assignment to an Affiliate, which accepts
all obligations and rights of the assignor as if it was an original signatory
to this Agreement, which may be done without consent, neither this Agreement
nor any of the rights and obligations of a party hereunder may be assigned by
any party without the prior written consent of the other party, which will
not be unreasonably withheld. It is reasonable for a party to withhold
consent for the reason that the proposed assignee is a competitor in the
licensing of Fischer-Tropsch technology.
15.2 ARBITRATION AND INJUNCTIVE RELIEF.
(a) PROCEDURE FOR ARBITRATION; JUDGMENT. Except as specified in
Section 15.2(b), any dispute, controversy or claim arising out of or relating
to this Agreement (including all Exhibits and Attachments), including its
interpretation or performance, that the parties are unable to resolve shall
be submitted to binding arbitration before a single arbitrator, in the sole
discretion of any party, by giving the other party written notice. The
arbitration shall be in accordance with the commercial rules of the American
Arbitration Association, which shall administer the arbitration and act as
appointing authority. The arbitration, including the rendering of the award,
shall take place in the city of Denver, Colorado, United States of America,
which shall be the exclusive forum for resolving such dispute, controversy or
claim. For the purpose of the arbitration, the provisions of this Agreement
and all rights and obligations hereunder shall be governed or construed in
accordance with the laws of the state of Colorado, United States of America,
without regard to the conflicts of law doctrine observed in Colorado. The
arbitration award shall be in writing and specify the factual and legal basis
for the award, and shall be accompanied by a reasoned opinion. The decision
of the arbitrator shall be final and binding upon the parties hereto, and the
expense of the arbitration (including without limitation the award of
attorneys' fees to the prevailing party) shall be paid as the arbitrator
determines. Each party hereby submits itself to the jurisdiction of the
courts of the place arbitration is held for the entry of judgment thereunder.
Notwithstanding this provision, judgment upon the award of the arbitration
may be entered in any court where the arbitration takes place or any court
having jurisdiction thereof, and application may be made to any court for a
judicial acceptance of the award and order of enforcement. If the parties
cannot agree on an arbitrator within thirty (30) days of receipt of notice of
arbitration, then either party may elect to have the arbitrator appointed by
the chief executive officer of the American Arbitration Association; provided,
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however, that the arbitrator shall be a licensed member of the U.S. patent
bar who is skilled in licensing agreements.
(b) JUDICIAL ACTION FOR SPECIFIC PERFORMANCE OR INJUNCTION.
Notwithstanding anything contained in the preceding section to the contrary,
each party shall have the right to institute judicial proceedings against the
other party or anyone acting by, through or under such other party in order
to enforce the instituting party's rights for injunctive relief.
15.3 GOVERNING LAW; JURISDICTION; VENUE.
The provisions of this Agreement and all rights and obligations
hereunder shall be governed and construed in accordance with the substantive
and procedural laws of the state of Colorado, United States of America,
without regard to the conflicts of law doctrine observed in Colorado. The
parties irrevocably submit to the jurisdiction of the courts of the state of
Colorado and of the United States of America for the District of Colorado for
these purposes; provided, however, that nothing herein shall preclude either
party, if it deems fit, from instituting proceedings for injunctive relief
against any other party or anyone acting by, through or under such other
party in any country or place which may have jurisdiction for the purpose of
protecting and enforcing the instituting party's rights either under this
Agreement or pursuant to any other agreements, documents, instruments or
rights. If the notice address of Section 15.11 is not a valid Colorado
address, the parties designate and appoint the Secretary of State of Colorado
as their agent for the service of process in Colorado and agree to consider
any legal process or any demand or notice made or served on said agent as
being made on it; provided, however, that the serving party shall within
twenty-four (24) hours of such service send to the other party a copy of the
documents so served, and such copies shall be sent by air courier to the
other party's address (as set out in Section 15.11 and a second known address
if the noticing party knows the address has changed). In the alternative,
service of process may be made by postage prepaid, certified or recorded
delivery air mail letter transmitted by either party to the other party at
the address for notices in Section 15.11 and a second known address if the
noticing party knows the address has changed. The foregoing, however, shall
not limit the right of either party to serve process in any other manner
permitted by law or to bring any proceeding to protect and enforce through
injunctive relief its rights either hereunder or pursuant to any other
agreements, documents, instruments or rights or to obtain execution or
judicial recognition of judgment of arbitration in any court of competent
jurisdiction. Each party hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or
proceeding relating to this Agreement in the state of Colorado and further
irrevocably waives any claim that the state of Colorado is not a convenient
forum for any such suit, action or proceeding or to object to venue to the
extent of any proceeding brought in accordance with this section. Each party
stipulates that the state and federal courts located in the City and County
of Denver, Colorado shall have IN PERSONAM jurisdiction and venue over such
party for the purpose of
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obtaining execution of judicial recognition of judgment of arbitration
arising out of or related to this Agreement.
15.4 NO OTHER RELATIONSHIP. Nothing herein contained shall be deemed to
create an agency, joint venture, partnership, franchise or similar relation
between the parties hereto. Each party shall conduct all business in such
party's own name as an independent contractor. Neither party shall be liable
for the representations, acts, or omissions of the other party contrary to
the terms of this Agreement. Neither party has the right or power to act for
or on behalf of the other or to bind the other in any respect whatsoever,
other than as expressly provided for herein.
15.5 CONVERSION TO DOLLARS. If Rentech Royalties are stated in a
currency other than U.S. Dollars, such payment shall be converted into U.S.
Dollars using a rate determined by averaging the exchange selling rate quoted
by Telerate in the Wall Street Journal for the first and last business days
of each month.
15.6 DOLLAR TRANSACTION. To the extent this is an international
licensing transaction, the specification of U.S. Dollars and payment in
Denver, Colorado, United States of America, is of the essence. U.S. Dollars
shall be the currency in which all obligations between the parties are paid.
Except to the extent of possible Texaco offsets of Rentech Royalties and
Rentech Catalyst Markup, the payment obligations hereunder shall not be
discharged by an amount paid in another currency or in another place.
15.7 FEES PAYABLE. Rentech and Texaco acknowledge that there are no
broker's commissions, finder's fees or other like amounts payable with regard
to this transaction. Rentech and Texaco agree to indemnify and hold the other
harmless from and against all liability, claims, demands, damages or costs of
any kind arising from or connected with any broker's or finder's fee,
commission or charge claimed to be due any person arising from the
indemnitor's conduct with respect to this Agreement and the transactions
contemplated herein.
15.8 FORCE MAJEURE.
(a) NO LIABILITY FOR CERTAIN DELAYS OR DEFAULTS. Neither Rentech
nor Texaco shall be liable in damages, or have the right to terminate this
Agreement, for any delay or default in performing any obligation hereunder if
that failure or delay is due to any cause beyond the reasonable control and
without default or negligence of that party and it is making efforts in good
faith to comply with the terms of this Agreement; provided, however, in order
to excuse its delay or default hereunder, a party shall promptly notify the
other party of the occurrence or the cause specifying the nature and
particulars thereof and the expected duration thereof, and provided, further,
that such party shall promptly give notice to the other party specifying the
date of termination thereof. All obligations of both parties shall return to
being in full force and effect
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upon the termination of such occurrence or cause (including, without
limitations any payment that became due and payable hereunder prior to the
termination of such occurrence or cause). However, in the event that the
duration of such occurrence or cause extends beyond one year, the non-excused
party shall then have the right, by giving sixty (60) days prior written
notice to the other party, to terminate this Agreement unless the other party
shall substantially cure such occurrence or cause within said sixty (60) days.
(b) CAUSE BEYOND THE REASONABLE CONTROL. For the purposes of
this section, a "cause beyond the reasonable control" of a party shall mean
any act of any government or other authority or statutory undertaking, labor
walkout or work stoppage that compels termination of work; fire; explosion;
accident; power failure; failure of electric power supply; flood;
catastrophic hardware or software failure; riot or war (declared or
undeclared) that renders a party unable to proceed with performance or
continue, despite all reasonable commercial efforts to proceed or continue to
perform.
15.9 RIGHTS, POWERS, REMEDIES CUMULATIVE; WAIVER; TIME. Except for
binding arbitration and limitation of rights for legal action in Section
15.2, each and every power and remedy in this Agreement specifically given to
a party shall be cumulative and shall be in addition to every other right,
power and remedy herein or now or hereafter existing at law, in equity, or by
statute, and each and every right, power and remedy whether specifically
provided in this Agreement or otherwise existing may be exercised from time
to time and as often and in such order as may be deemed expedient by a party.
Failure by either party to enforce any provision of this Agreement shall not
be construed as a waiver of that provision. The acceptance by a party of any
payment shall not be deemed a waiver of any right to take advantage of any
future ground for termination or of any past ground for termination not
completely cured thereby, unless expressly waived in writing.
15. 10 TABLE OF CONTENTS AND HEADINGS. Any table of contents
accompanying this Agreement and any section headings contained herein are for
ease of reference only, do not constitute a part of this Agreement, and shall
not be employed in interpreting this Agreement.
15. 11 NOTICES. Any notice, payment, request, demand or other
communication hereunder shall be in writing and shall be deemed to have been
duly given (i) when delivered personally, upon personal delivery to the party
to be notified; or (ii) one business day after sending by facsimile
transmission with confirmation that the facsimile message was transmitted to
the party to be notified, or (iii) three (3) business days after sending by
registered or certified mail, postage paid, to the party to be notified; or
(iv) three (3) business days after sending by ordinary mail, postage paid, to
the party to be notified, at the address set forth below:
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Rentech, Inc. Texaco Natural Gas Inc.
1331 17th St., Suite 720 1111 Bagby
Denver, CO 80202 Houston, TX 77002-4596
Facsimile: (303) 298-8010 Facsimile: (713) 752-4736
Either Rentech or Texaco may change its address, facsimile number or
representative to be notified by written notice to the other party given in
accordance with this section.
15.12 INTEGRATION. This Agreement, which includes Exhibits and
Attachments, represents the entire agreement of the parties with respect to
the subject matter herein contained and supersedes and cancels all prior
correspondence, conversations, negotiations, understandings and agreements
with respect to those subjects. This Agreement may not be modified orally,
but only by a writing signed by both parties.
15.13 CONSTRUCTION. This Agreement has been prepared, examined,
negotiated and revised by each party and their respective attorneys, and no
implication shall be drawn and no provision shall be construed against any
party to this Agreement by virtue of the purported identity of the drafter of
this Agreement, or any portion thereof.
15.14 INVALIDITY OF PROVISION. If any of the provisions of this
Agreement shall be held by a court or administrative agency of competent
jurisdiction to contravene the laws of any country, it is agreed that such
invalidity, illegality or unenforceability shall not invalidate the whole
Agreement, but this Agreement shall be construed as if it did not contain the
provision or provisions held to be invalid, illegal or unenforceable in the
particular jurisdiction concerned, and insofar as such construction does not
affect the substance of this Agreement and the rights and obligations of the
parties hereto, it shall be construed and enforced accordingly. In the event,
however, that such invalidity, illegality or unenforceability shall
substantially alter the relationship between the parties hereto, affecting
adversely the interest of either party, then the parties hereto shall
negotiate a mutually acceptable alternative provision not conflicting with
such laws.
15.15 FURTHER ASSURANCES. Each party shall execute and deliver all such
further documents and instruments and take all such further actions as may be
reasonably required or appropriate to carry out the intent and purposes of
this Agreement.
15.16 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute but one and
the same agreement, which shall be binding on all the parties hereto
notwithstanding that less than all of the parties may have signed the same
original or the same counterpart.
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IN WITNESS WHEREOF, the parties have executed duplicate originals of
this Agreement by their duly authorized officers as of the date first
mentioned above.
RENTECH, INC. ATTEST:
By: (signature) (signature)
--------------------------------- ----------------------------
Dennis L. Yakobson, President Ronald C. Butz, Secretary
Date: 8 October 1998
TEXACO NATURAL GAS INC.
By: (signature)
---------------------------------
Name: Graham Batcheler
Title: Executive Vice President
Date: October 6, 1998
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EXHIBIT A
SECRECY AGREEMENT
Fischer-Tropsch Technology
This AGREEMENT is effective the ____ day of ____________________, 19_,
by and between TEXACO NATURAL GAS INC., a Delaware corporation, having a
principal place of business at 1111 Bagby Street, Houston, Texas 77002-2543
hereinafter referred to as "Texaco", and ________________________________,
having a principal place of business at
________________________________________________, hereinafter referred to as
"Company";
WHEREAS, Texaco has conducted substantial research and development work
with respect to Fischer-Tropsch technology, and has acquired by license from
third parties and has developed proprietary and confidential technical data
and information relating to the subject matter, identified above, methods,
apparatus, formulations and use thereof (hereinafter "Confidential
Information"); and
WHEREAS, Company is considering the licensing of Confidential
Information from Texaco or the furnishing of services to Texaco or its
licensees relating to Confidential Information;
NOW, THEREFORE, for and in consideration of the premises and of the
covenants hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Texaco will furnish certain of its Confidential Information to
Company solely for the purpose of Company (a) performing evaluations to
determine whether or not to license technology from Texaco which will be
governed by another agreement, or (b) furnishing services to Texaco, its
affiliates or licensees.
2. Company agrees that it will:
(a) use the same care and discretion to avoid disclosure and
dissemination of Confidential Information it receives from Texaco, its
affiliates or licensees as it uses to protect its own confidential
information of a similar nature;
(b) use such Confidential Information so received from Texaco, its
affiliates or licensees solely for the above stated purpose; and
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(c) make no commercial or other use of such Confidential Information
received from Texaco, its affiliates or licensees without first obtaining
prior written approval therefor from the party furnishing the Confidential
Information.
3. The foregoing restrictions shall not apply to any Confidential
Information that:
(a) is or becomes public information or otherwise becomes generally
available to the public through no act or fault of Company;
(b) is, prior to disclosure hereunder, already in the possession of
Company and was not received by it directly or indirectly from Texaco, its
affiliates or licensees;
(c) is hereafter rightly received by Company from a third party who
did not receive the same directly or indirectly from Texaco, its affiliates
or licensees; or
(d) is independently developed by employees of Company without access
to the received Confidential Information.
Specific information shall not be deemed to be within the exceptions of
the preceding sentence merely because it is embraced by more general
information within such exceptions, nor shall a combination of features be
deemed to be within such exceptions merely because the individual features
are within such exceptions.
4. Supplying of Confidential Information hereunder shall not be
considered to provide any license or proprietary rights, including any
implied patent license.
5. Company shall limit access to disclosed Confidential Information
to those of its employees and employees of its parent and subsidiary
companies reasonably requiring the same for the purpose aforesaid and advise
each such employee of the existence and importance of the confidentiality
provisions of this Secrecy Agreement, and ensure by appropriate measures that
such employees hold Texaco's Confidential Information in strict confidence
according to this Agreement. Company shall notify Texaco promptly upon
discovery of any unauthorized use or disclosure of Texaco's Confidential
Information.
6. Company may disclose Confidential Information to the extent
required by law if it gives prompt written notice to Texaco and makes a
reasonable effort to obtain a protective order or substitute therefor.
Company shall also aid (or at a minimum not oppose) a motion or similar
request by Texaco for an order protecting the confidentiality of such
Confidential Information, including joining or agreeing to (or nonopposition
to) a motion for leave to intervene by Texaco.
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7. Confidential Information may be disclosed to Company not only in
writing or other tangible form but in part through discussions between
respective technical representatives, demonstrations, observations and other
tangible methods including possible visits to the facilities of Texaco.
8. All Confidential Information is disclosed on an "as is" basis. Use
of such Confidential Information is at Company's own risk. Texaco will not be
liable for any damages arising out of evaluation or use of disclosed
Confidential Information.
9. The obligations of restricted use and non-disclosure will extent
for a term of ten (10) years from the effective date of the Agreement noted
on page 1.
10. THIS SECRECY AGREEMENT SHALL BE CONSTRUED AND THE LEGAL RELATIONS
BETWEEN THE PARTIES SHALL BE DETERMINED IN ACCORDANCE WITH THE SUBSTANTIVE
AND PROCEDURAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF
LAW PROVISIONS THERE OF.
TEXACO NATURAL GAS INC.
By
--------------------------------
Name
--------------------------------
Title
--------------------------------
Date
--------------------------------
- --------------------------------
By
--------------------------------
Name
--------------------------------
Title
--------------------------------
Date
--------------------------------
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EXHIBIT B
AFFILIATE'S ACCEPTANCE
This Agreement is entered into this ____ day of _______________, 1998 by
___________________________________, a _______________ corporation having an
address of _______________________________________________________
("Accepting Party").
WHEREAS, Accepting Party is an"Affiliate" of Texaco Natural Gas Inc.
("Texaco"), a Delaware corporation, as that term is defined in the License
Agreement dated _______________, 1998 ("License Agreement") by and between
Rentech, Inc. and Texaco.
WHEREAS, Rentech, Inc. has granted a certain license to Texaco and its
Affiliates by the License Agreement, and an Affiliate license grant is
effective upon Texaco's delivery to Rentech, Inc. of the Affiliate's written
and signed acceptance of this Exhibit B.
WHEREAS, the Accepting Party desires to receive the benefits of the
license grant along with the obligations of the License Agreement.
THEREFORE, for and in consideration of the premises and mutual covenants
herein contained, the Accepting Party agrees with Rentech, Inc. as follows:
1. ACCEPTANCE OF LICENSE OBLIGATIONS. Accepting Party acknowledges
having, received from Texaco a complete copy of the License Agreement.
Accepting Party agrees to accept, be bound by, and be subject to all
conditions and obligations set forth in the License Agreement that apply to
Texaco, except those provisions relating to the obligations Texaco has for
the actions, inactions, liabilities and royalties of its Affiliates and
sublicensees practicing Rentech Technology, such as provisions concerning
Affiliates and sublicensees included within Sections 2.4, 3, 4, 6 and 7, as
if Accepting Party had signed and entered into the License Agreement directly
with Rentech, Inc. without the exception provisions described above.
Accepting Party accepts responsibility and liability for its own action and
inaction, but not for the action or inaction of Affiliates or sublicensees.
2. ACKNOWLEDGMENT BY ACCEPTING PARTY. Accepting Party acknowledges
and agrees that it has no right to, and will not, further sublicense or
extend the license granted by the terms of the License Agreement to any
Person, including another Affiliate of Texaco, as those terms are defined in
the License Agreement.
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Executed by the Accepting Party as of the date previously given.
Accepting Party:
--------------------------------
By:
--------------------------------
Authorized Officer
Name:
--------------------------------
Title:
--------------------------------
Date:
--------------------------------
Receipt acknowledged as of _______________, 19__ by
RENTECH, INC.
By
--------------------------------
Authorized Officer
Name:
------------------------------
Title:
-----------------------------
Date:
------------------------------
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EXHIBIT C
INDEPENDENT CONTRACTOR AGREEMENT
This Exhibit C is between TEXACO NATURAL GAS INC. (hereinafter referred to as
"Texaco") having an office and place of business at 1111 Bagby, Houston,
Texas 77002-2543 and RENTECH, INC. (hereinafter referred to as "Rentech"
having an office and place of business at 1331 17th Street, Suite 720,
Denver, Colorado 80202. The Effective Date of this Exhibit C is defined in
Section 2.7 of the License Agreement.
WHEREAS, Rentech is in the business of licensing its patented and proprietary
synthesis gas to liquids process incorporating Fischer-Tropsch technology; and
WHEREAS, Texaco desires to have Rentech furnish one of its employees Charles
B. Benham to provide services as described in Attachment 1.
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. NOT ASSIGNABLE
Rentech shall not assign this Exhibit C to any other party without prior
written consent by Texaco.
2. NOT EXCLUSIVE
It is understood that Texaco does not bind itself to use Rentech's services
exclusively for work required by Texaco of the nature listed herein, nor is
Rentech bound hereby to perform such services for Texaco exclusively during
or beyond the term of this Exhibit C.
3. INDEPENDENT CONTRACTOR
Texaco and Rentech expressly agree that Rentech is performing the services
described herein as an independent contractor and not as an agent or employee
of Texaco; and that Texaco has no right to control the manner or details of
how Rentech performs the work called for hereunder. Texaco does not set hours
of work for Rentech. Rentech will provide its own working materials. Rentech
is responsible for hiring, supervising, and paying its own employees. No
employee of Texaco will be employed by the Rentech under this Exhibit C.
4. COMPENSATION
Rentech shall be compensated as specified in Attachment 1 which is attached
hereto and incorporated herein by reference.
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5. COMPLIANCE WITH LAW
Rentech accepts full and exclusive responsibility and liability for payment
of unemployment insurance. old age pension, annuities, retirement, and other
benefits imposed by law, and measured by wages, salaries, or other
remuneration paid or payable by Rentech to employees of Rentech engaged in
the services or related activities, or by voluntary or contractual benefit
plans between Rentech and its employees which require contributions by
Rentech and agrees that each subcontractor who performs any part of the
services accepts the same responsibility and liability with respect to
employees of that subcontractor.
During the performance of this Exhibit C, Rentech will be in full compliance
with Executive Orders 11246 (as amended by 11375), 11701, 11625, 11758, 12138
and the provisions of 15 USC Section 637, and with the regulations, rules and
orders issued thereunder, to the extent such requirements are applicable to
Rentech. Rentech must certify its compliance by signing the Certificate
attached as Attachment 2 to Exhibit C which is hereby incorporated into this
Exhibit C by reference.
6. TAXATION
Rentech shall be responsible for the timely reporting and payment to the
proper taxing authorities of all federal, state, and local taxes applicable
to the amounts paid to Rentech by Texaco. Rentech further agrees to indemnify
and save Texaco harmless against all claims and taxes (including interest,
penalties, and any other costs which are claimed or assessed against Texaco
and are attributable to this Exhibit C or the payments made hereunder).
Rentech expressly agrees that the sole compensation under this Exhibit C will
be the sum paid for the specific services rendered, that Rentech's employees
will not be entitled by virtue of this Exhibit C to participate in any of the
benefit plans available to Texaco employees, and that Rentech hereby waives
and releases all rights to any such participation, provided however, that any
rights or benefits that Rentech's employees may have under such benefit plans
by virtue of formerly having been an employee of Texaco (if he/she has any
such rights or benefits) shall not be affected hereby. Rentech is responsible
for providing any insurance necessary in conjunction with this Exhibit C and
recognizes that Texaco shall carry no insurance of any type whatsoever under
this Exhibit C.
7. INDEMNITY AND HOLD HARMLESS PROVISION EACH PARTY AGREES TO INDEMNIFY AND
HOLD HARMLESS THE OTHER PARTY, ITS AFFILIATES, AND THEIR OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS FROM AND AGAINST THE FULL AMOUNT OF ANY AND ALL CLAIMS,
DEMANDS, ACTIONS, DAMAGES, LOSSES, COSTS, EXPENSES, OR LIABILITY WHATSOEVER
(INCLUDING WITHOUT LIMITATION THE COSTS OF LITIGATION, INCLUDING REASONABLE
ATTORNEYS' FEES) ("DAMAGES"), FOR PROPERTY (REAL AND PERSONAL) DAMAGE,
PERSONAL INJURY OR DEATH, FINES, OR PENALTIES ARISING IN WHOLE OR IN PART OUT
OF THE SERVICES PERFORMED FOR TEXACO UNDER THIS EXHIBIT C, TO THE EXTENT SUCH
DAMAGES RESULT FROM THE NEGLIGENT OR WILLFUL ACTIONS OR INACTIONS OF THE
INDEMNIFYING PARTY AND ITS EMPLOYEES, CONTRACTORS, OR REPRESENTATIVES. IN THE
EVENT OF A CONFLICT BETWEEN THIS SECTION 7 AND THE LICENSE AGREEMENT SECTIONS
9.4 AND 9.5, SECTIONS 9.4 AND 9.5 SHALL GOVERN AND CONTROL.
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8. CONFIDENTIALITY
Except as to Rentech's ownership of Rentech Technology, Rentech understands
and agrees that all of the data and information submitted to it by Texaco and
that all work product of Charles B. Benham, including studies, data and
information produced while performing obligations under this Exhibit C and
any and all inventions and improvements of Charles B. Benham relating to the
subject area of Section 2(a) of Exhibit D, whether patentable or not, are the
sole property of Texaco and are confidential and proprietary to Texaco.
Improvements shall not include the scale-up of Rentech Technology, including
Rentech Patent and Copyright Rights and Rentech Technical Information, or any
part thereof. Rentech agrees to follow the obligations of Section 8 of the
License Agreement with Texaco executed concurrently with this Agreement, and
further to not disclose, license or use in any way any Texaco Confidential
Information of which it becomes aware through Charles B. Benham outside of
Catalyst Improvement Areas as that term is defined in said License Agreement
between the parties. Rentech further agrees that Charles B. Benham shall
execute the Secrecy Agreement attached to the License Agreement between the
parties as Exhibit D. The provisions of this paragraph 8 shall survive the
termination or expiration of this Exhibit C according to Section 8 of the
License Agreement.
9. INTELLECTUAL PROPERTY
This Exhibit C is related to the subject matter of the License Agreement
executed concurrently between Rentech and Texaco. It is the intention of the
parties to this Exhibit C that all inventions and improvements related to the
subject matter of Section 2(a) of Exhibit D made solely or jointly by Charles
B. Benham during the term of this Exhibit C and for six (6) months after
termination, whether patentable or not, whether or not made on time working
for Texaco, are to be solely titled in Texaco. Rentech hereby assigns title
to such inventions and improvements made by Charles B. Benham during the
effective term of this Exhibit C and for six (6) months thereafter to Texaco
Natural Gas Inc. Rentech will also, at no expense to Rentech, execute and
deliver all papers deemed proper and necessary by Texaco in connection with
patent preparation and prosecution, and assist Texaco to obtain and sustain
patent, copyright and trade secret protections.
10. SUBSTANCE ABUSE PROGRAM
As a condition of having access to Texaco's premises, and subject to
applicable law, Rentech agrees that:
a. Rentech's employees shall be subject to rules of conduct
relating to substance abuse which prohibit:
(1) the manufacture, sale, purchase, transfer, use or
possession of illegal drugs, narcotics or other unlawful
substances or materials on Texaco's premises, or while
conducting business for Texaco; and
(2) the manufacture, sale, purchase, transfer, use or
possession on Texaco's premises of substances or materials not
authorized by Texaco
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<PAGE>
(such as firearms, weapons, intoxicating beverages, drug
paraphernalia, or medically authorized drugs used improperly or
unsafely).
b. Any employee of Rentech who has violated any of the rules of
conduct in a., above, shall be removed from Texaco's premises and
shall not be allowed to reenter such premises without Texaco's
permission.
c. Rentech's employees shall be subject to searches of their
persons and personal effects when entering Texaco's premises, while
on Texaco's premises, and when leaving Texaco's premises. Such
searches shall be conducted by Texaco or by a third party, at
Texaco's direction, without prior announcement and at such times
and locations as Texaco in its sole discretion may determine.
d. Texaco reserves the right to conduct or have conducted
unannounced drug testing of employees of Rentech while they are
performing services on Texaco's premises, to the extent permitted by
applicable law.
e. Rentech shall be responsible for advising and discussing with
any unions representing Contractor's employees, the application to
such employees of the conditions described in 10 a., b., c., and d.,
above.
f. Rentech shall be responsible for including in any subcontract
for work to be performed on Texaco's premises the requirements and
conditions described in 10 a., b., c., d., and e., above, so that
such requirements and conditions will be binding upon each of
Rentech's subcontractors.
11. INSURANCE
Rentech shall maintain, at its sole cost, at all times while performing
services, the insurance coverage set forth below. Before commencing services,
Rentech shall provide a certificate evidencing the coverage and naming Texaco
an additional insured. The certificate shall provide that any change
restricting or reducing coverage or the cancellation of any policies under
which certificates are issued shall not be valid with respect to Texaco until
Texaco has received thirty (30) days notice in writing of such change or
cancellation:
a. Workers' Compensation Insurance as required by laws and
regulations applicable to and covering employees of Rentech engaged in the
performance of services under this Agreement.
b. EMPLOYER'S LIABILITY INSURANCE protecting Contractor against
common law liability, in the absence of statutory liability, for employee
bodily injury arising out of the masterservant relationship with a limit of
not less than One Million Dollars ($1,000,000).
c. AUTOMOBILE LIABILITY INSURANCE including non-owned and hired
vehicle coverage with limits of liability of not less than One Million
Dollars ($ 1,000,000), such policy shall be endorsed with an MCS-90
endorsement as determined by services provided.
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Each policy shall be endorsed to provide waiver of subrogation rights in
favor of Texaco, its subsidiaries and affiliates, and all other parties
owning an interest in the property on which services covered by this Exhibit
C are to be performed.
Failure of the Contractor to keep the required insurance policies in full
force and effect during the performance of services covered by this Exhibit C
and during any extensions, extra or additional services agreed to by the
Contractor and Texaco shall constitute a breach of this Exhibit C and Texaco
shall have the right, in addition to any other rights, to withhold payment
under this Exhibit C without penalty arid/or immediately terminate this
Exhibit C without further cost to Texaco.
12. EQUIPMENT
All equipment furnished to Rentech by Texaco shall be used by Rentech for
only Texaco business, unless otherwise authorized by Texaco in writing. All
right, title and interest in the equipment shall remain at all times in
Texaco. Upon the termination of this Exhibit C, all such equipment shall be
returned to Texaco by Rentech, in the same condition in which it was
received, reasonable wear and tear excepted.
13. TERMINATION OF AGREEMENT
Texaco shall have the right to terminate this Exhibit C upon thirty (30) days
notice effective at the one (1) year anniversary of the Effective Date.
Thereafter Texaco shall have the right to terminate this Exhibit C upon
thirty (30) days notice and the payment of three (3) months severance pay.
This Exhibit C shall not extend, in any event, for more than two (2) years
from the Effective Date. Upon termination of the License Agreement between
the parties that is executed as of the date hereof, this Exhibit C shall
automatically terminate at the same time. Texaco shall have no obligation of
severance pay if this Exhibit C or the License Agreement is terminated due to
a Rentech material breach.
The obligations to pay money due and owing and Sections 5, 6, 7, 8 and 9
shall survive the termination or expiration of this Agreement.
14. CHOICE OF LAW AND MERGER CLAUSE
This Exhibit C shall be subject to and construed in accordance with the laws
of the State of Colorado and sets forth the entire Agreement between the
parties hereto with respect to the employment of Rentech as an independent
contractor for Texaco. Except for the License Agreement and all Exhibits and
Attachments, this Exhibit C supersedes and cancels all
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previous understandings, negotiations, commitments, and representations with
respect hereto, and such Exhibit C may not be changed or modified orally but
only by a writing signed by both parties hereto.
TEXACO NATURAL GAS INC.
By (signature)
--------------------------------
Name Graham Batcheler
Title Executive Vice President
Date October 6, 1998
RENTECH, INC.
By (signature)
--------------------------------
Name Dennis L. Yakobson
Title President
Date 8 October 1998
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ATTACHMENT 1 TO EXHIBIT C
*This page 44 and the material appearing on this page is entirely omitted and
filed separately.
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<PAGE>
*This page 45 and the material appearing on this page is entirely omitted and
filed separately.
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ATTACHMENT 2 TO EXHIBIT C
EQUAL EMPLOYMENT OPPORTUNITY
During the performance of the contract described above, Contractor agrees to
the following, additional terms and conditions to the extent they may be
applicable to the work to be performed under such contract in accordance with
the provisions of the following described Executive Orders, Acts, and
implementing rules and regulations issued thereunder.
A. E.O. 1 1246. as amended by E.O.1 1375 (Race, Color, Religion, Sex and
National Origin).
1. If the contract is in excess of Ten Thousand dollars ($10,000),
the Contractor agrees to comply with the provisions of Section 202 of
such Order (the "Equal Opportunity Clause"), which clause is
incorporated herein by reference pursuant to the regulations
promulgated under such Order (41 C.F.R. See. 601.4(d)).
2. If the contract is in excess of Ten Thousand Dollars ($10,000),
the Contractor certifies that it does not maintain or provide, nor
will it maintain or provide for its employees any segregated
facilities at any of its establishments, and that it does not permit
nor will it permit its employees to perform their services at any
location, under its control, where segregated facilities are
maintained.* Contractor agrees that a breach of this certification is
a violation of the Equal Opportunity Clause of Executive Order 11246.
Contractor further agrees that (except where it has obtained
identical certifications from proposed subcontractors for specific
time periods) it will obtain identical certifications from proposed
subcontractors prior to the award of subcontractors exceeding Ten
Thousand Dollars ($10,000) which are not exempt from the provisions
of the Equal Opportunity Clause; that it will retain such
certifications in its files; and that it will forward the prescribed
notice to such proposed subcontractors (except where the proposed
subcontractors have submitted identical certifications for specific
time periods).**
- -------------------------
* As used in this certification, the "segregated facilities" means any
waiting rooms, work areas, rest room and wash rooms, restaurants and other
eating areas, time clocks, locker rooms and other storage or dressing areas,
parking lots, drinking fountains, recreation or entertainment areas,
transportation and housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of
race, creed, color or national origin because of habit, local custom or
otherwise.
** The form of the prescribed notice is as follows: NOTICE TO PROSPECTIVE
SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF NONSEGREGATED FACILITIES.
A Certificate of Nonsegregated facilities as required by the May 9, 1967
order on Elimination of Segregated Facilities, by the Secretary of Labor (32
Fed. Reg. 7439, May 19, 1967), must be submitted prior to the award of a
subcontract exceeding $10, 000 which is not exempt from the provisions of the
Equal Opportunity Clause. The certification may be submitted either for each
subcontract or for all subcontracts during a period (i.e. quarterly,
semiannually or annually). Note: The penalty for making false statements in
offers is prescribed in 18 U.S.C. Section 1001.
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<PAGE>
3. If the contract is in excess of Fifty Thousand Dollars
($50,000) and the Contractor has more than 50 employees, the
Contractor agrees (a) to file annually, on or before March 31 of each
year, (or within thirty (30) days after the award of such contract if
not filed within twelve (12) months preceding the date of the award),
complete and accurate reports on Standard Form 100 (EEO-1) with the
appropriate governmental agency, in accordance with the regulations
issued by the Secretary of Labor (41 C.F.R. Sec. 60-1.7), and (b) to
develop a written affirmative action compliance program for each of
its establishments in accordance with the regulations issued by the
Secretary of Labor (41 C.F.R. Sec. 60-1.40).
B. E.O. 11701 (Section 4.02-Veterans Readjustment Act of 1974)
If the contract is in excess of Ten Thousand Dollars ($10,000), the
Contractor agrees to comply with the affirmative action clause and
regulations promulgated under such Order (41 C.F.R. Sec. 60-250) which
clause is incorporated herein by reference pursuant to Section 60-250.22 of
such regulations.
C. E.O. 11758 (Section 503 -Rehabilitation Act of 1973)
If the contract is in excess of Two Thousand Five Hundred Dollars ($2,500),
the Contractor agrees to comply with the affirmative action clause and the
regulations promulgated under such Order (41 C.F.R. Sec. 6-741), which
clause is incorporated herein by reference pursuant to Section 60-741.22 of
such regulations.
D. PUBLIC LAW 95-507. SECTION 211. 15 U.S.C. SEC. 637 (Small Businesses and
Small Socially and Economically Disadvantaged Businesses).
1. If the contract is in excess of Ten Thousand Dollars
($10,000), the Contractor agrees to use its best efforts to provide
small business concerns and small business concerns owned and
controlled by socially and economically disadvantaged individuals,
with the maximum practicable opportunity to participate in the
performance of such contract to the fullest extent consistent with
the efficient performance thereof, and in accordance with the
statutes and regulations promulgated thereunder which are herein
incorporated by reference.
2. Negotiated and Sealed Bid Contracts. If the contract is
in excess of Five Hundred Thousand Dollars ($500,000), the Contractor
agrees to comply with the small business and small disadvantaged
business subcontracting plan as set forth in the statute and any
regulations promulgated thereunder, which are incorporated herein by
reference.
E. E.O. 12138 AS AMENDED BY E.O. 2608 (Women's Business Enterprises Program).
If the contract is in excess of Ten Thousand Dollars ($10,000), the
Contractor agrees to use its best efforts to provide women-owned
business, with the maximum practicable opportunity to participate in
the performance of such
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contract to the fullest extent consistent with the efficient
performance thereof, in accordance with the regulations and Executive
Orders promulgated thereunder and which are herein incorporated by
reference.
ACCEPTED THIS 8th DAY OF OCTOBER, 1998.
RENTECH, INC.
(signature)
- ---------------------------------------------
SIGNATURE OF AUTHORIZED REPRESENTATIVE
Dennis L. Yakobson
- ---------------------------------------------
PRINTED NAME OF AUTHORIZED REPRESENTATIVE
President
- ---------------------------------------------
TITLE OF AUTHORIZED REPRESENTATIVE
Please indicate by check mark if you are:
Minority Business Enterprise
------------
Small Business Concern X
Small Business Concern Owned and Controlled ------------
By Socially and Economically ------------
Disadvantaged Individuals
Women-owned Business Concern
------------
Return To:
Texaco Natural Gas Inc.
1111 Bagby
Houston, TX 77002-2543
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EXHIBIT D
AGREEMENT FOR SECRECY AND ASSIGNMENT OF INVENTIONS
*
This AGREEMENT is between TEXACO NATURAL GAS INC., a Delaware
corporation, having a principal place of business at 1111 Bagby, Houston,
Texas 77002, hereinafter referred to as " Texaco", *
and RENTECH, INC., a Colorado corporation, having an office
and place of business at 1331 17th Street, Suite 720, Denver, Colorado 80202.
The Effective Date of this Exhibit D Agreement is defined in Section 2.7 of
the License Aareement.
WHEREAS, Texaco and Rentech, Inc. are entering into a licensing and
development agreement for gas to liquids technology owned by * Rentech.
*
WHEREAS, it is important for inventions and improvements * to be
assigned to Texaco under the overall agreement, *
(hereinafter "Technical Information"), and for certain proprietary and
confidential technical data and information of Texaco and third parties
relating to gas to liquids, their methods, apparatus, formulations and use
thereof (hereinafter also "Technical Information") to be disclosed to *
NOW, THEREFORE, for and in consideration of the premises and of the
covenants hereinafter set forth, including the employment of *
under the Contractor Agreement, the parties hereto covenant and agree as
follows:
1 . Texaco will furnish certain of its Technical Information to *
solely for the purpose of * using the Technical Information to
fulfill his and Rentech's duties under the Contractor Agreement.
2. * agrees that he will:
(a) use reasonable care and discretion to avoid disclosure and
dissemination to any Person, including Rentech, of Technical Information he
(i) receives from Texaco, (ii) he develops during his work under the
Contractor Agreement, and (iii) embodied in sole or joint *
inventions and improvements which relate to the subject area of synthesis gas
to liquids technology; such as incorporating and improving Rentech Technology
in the Licensed Field; integrating Rentech Technology with the Texaco
Gasification Process, both as defined in the License Agreement entered into
concurrently between Texaco and Rentech and which incorporates
Fischer-Tropsch technology with a slurry reaction bed and an iron-based
catalyst; the production of hydrocarbons through the Fischer-Tropsch
reaction; catalyst formulation;
*Omitted material filed separately.
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manufacturing; separation; process design and control; reactor design and
manufacturing; synthesis gas feedstocks; by-products; products; waste
streams; recycling; and environmental treatments;
(b) use such Technical Information solely for the above stated
purpose;
(c) make no commercial or other use of such Technical
Information without first obtaining prior written approval therefor from
Texaco.
3. * may disclose Technical Information to Rentech if such
is specifically developed by Texaco, its Affiliates or their sublicensees *
to improve Rentech Technology in the specific areas of iron catalyst
formulation, iron catalyst manufacturing, and iron catalyst separation. Such
disclosure to Rentech will be considered to be a disclosure to Rentech as a
receiving party from Texaco as a disclosing party under Section 8 of the
License Agreement between Texaco and Rentech;
4. The foregoing restrictions of Section 2 shall not apply to any
Technical Information that may be shown by written evidence:
(a) is or becomes public information or otherwise becomes
generally available to the public through no act or fault of *
Rentech;
(b) is, prior to disclosure by Texaco or sole or joint
development by * hereunder, already in the possession of *
Rentech and was not received by them directly or indirectly from Texaco or
its Affiliates thereof; or
(c) is hereafter rightly received by * Rentech
from a third party who did not receive the same directly or indirectly from
Texaco or its Affiliates.
Specific information shall not be deemed to be within the
exceptions of the preceding sentence merely because it is embraced by more
general information within such exceptions, nor shall a combination of
features be deemed to be within such exceptions merely because the individual
features are within such exceptions.
5. Supplying of Technical Information * or development
of inventions or improvements * within the scope of the
Section 2(a) subject matter shall not be considered to provide any license or
proprietary rights to * Rentech, including any implied patent
license or technical information license.
6. The obligations of restricted use and non-disclosure will extend
for a term of * years from the date of disclosure to or
development by * .
7. * will make a prompt written communication to Texaco
detailing the important features of the conception of any new and useful art,
machine, manufacture, composition of matter, or any new and useful
improvements thereof relating to the subject matter of Section 2(a), whether
patentable or not, which * solely or jointly conceives or develops
during the term of up to two (2) years (See Section 13) of the Exhibit C
Independent Contractor Agreement and six (6) months thereafter.
*Omitted material filed separately.
-50-
<PAGE>
8. * hereby assigns his entire right, title and interest in
and to any and all of such conceptions or improvements described in Section 7
above and any applications for patents thereon, whether domestic or foreign,
to Texaco, or its designee, and will, when requested by Texaco and at no
expense to * , execute and deliver all papers deemed proper and
necessary by Texaco in connection with the preparation, assignment, filing
and prosecution of applications for patent covering such conceptions and will
make all rightful oaths useful to Texaco in obtaining, perfecting or
enforcing such patents. * will at no expense to himself assist Texaco
in every lawful way to obtain and sustain patent, copyright and trade secret
protections, all for the benefit of Texaco, as and when requested by Texaco.
9. All of the covenants herein contained shall inure to the benefit
of the Company, its successors, assigns or designees.
10. THIS AGREEMENT (EXHIBIT D) SHALL BE CONSTRUED AND THE LEGAL
RELATIONS BETWEEN THE PARTIES SHALL BE DETERMINED IN ACCORDANCE WITH THE
SUBSTANTIVE AND PROCEDURAL LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO
CONFLICT OFF LAW PROVISIONS THEREOF. THIS AGREEMENT (EXHIBIT D) SHALL ALSO BE
SUBJECT TO THE BINDING ARBITRATION PROVISIONS OF AND LIMITATION OF RIGHTS FOR
LEGAL ACTION SET FORTH IN SECTION 15.2 OF THE LICENSE AGREEMENT.
*Omitted material filed separately.
-51-
<PAGE>
11. This Exhibit D may not be assigned by * Rentech
without the prior written consent of Texaco.
TEXACO NATURAL GAS INC.
By: (signature)
--------------------------------
Name: Graham Batcheler
Title: Executive Vice President
Date: October 6, 1998
RENTECH, INC.
By: (signature)
--------------------------------
Name: Dennis L. Yakobson
Title: President
Date: 8 October 1998
*
*
*
*Omitted material filed separately.
-52-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at September 30, 1998 and the Statement of Operations for the 12 months
ended September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 3,056,379
<SECURITIES> 0
<RECEIVABLES> 224,933
<ALLOWANCES> 2,000
<INVENTORY> 99,574
<CURRENT-ASSETS> 3,590,065
<PP&E> 320,057
<DEPRECIATION> 180,258
<TOTAL-ASSETS> 10,715,250
<CURRENT-LIABILITIES> 394,684
<BONDS> 0
0
1,575,000
<COMMON> 400,750
<OTHER-SE> 8,344,816
<TOTAL-LIABILITY-AND-EQUITY> 10,715,250
<SALES> 1,987,586
<TOTAL-REVENUES> 1,987,586
<CGS> 944,068
<TOTAL-COSTS> 3,030,336
<OTHER-EXPENSES> 99,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,032
<INCOME-PRETAX> (2,180,855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,180,855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,180,855)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
