<PAGE> 1
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, 1999
[ ] 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 .
1
<PAGE> 2
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, 1999 were $2,880,900.
The aggregate market value of voting stock held by nonaffiliates of the
issuer as of November 12, 1999 was $27,005,986 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
November 12, 1999 was 52,952,915.
Transitional Small Business Disclosure Format. Yes . No X.
2
<PAGE> 3
RENTECH, INC.
FORM 10-KSB ANNUAL REPORT
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I .........................................................................................................5
Item 1. Description of Business..................................................................................5
The Rentech GTL Technology...............................................................................6
The Company.....................................................................................6
Business Strategy...............................................................................7
Environmental and Energy Demand Trends.................................................8
Accelerating Commercialization Through Strategic Relationships.........................8
Technical Expertise....................................................................9
Technology Licensing Fees and Royalties................................................9
The Fischer-Tropsch Process.....................................................................9
Feedstocks.....................................................................................11
Products and Markets...........................................................................11
Rentech Diesel Fuel (Ecodiesel).......................................................12
Naphthas .............................................................................13
Wax Products..........................................................................13
Light Crude Oil.......................................................................13
Normal Paraffins......................................................................13
Synthetic Lube Base Oil...............................................................13
Synthetic Drilling Fluid..............................................................13
Proprietary Designs, Intellectual Property and Patents.........................................14
GTL Technology and Designs.....................................................................15
Marketing and Customers........................................................................15
Business Strategy..............................................................................16
Licenses, Contracts and Joint Ventures.........................................................17
Texaco.........................................................................................18
Technology License....................................................................18
Technical Services Agreement..........................................................18
Early Entrance Coproduction Plant.....................................................18
Republic Financial Corporation -- Retrofitting Methanol Plants.................................19
Oroboros AB License............................................................................20
Esperance Power Project........................................................................20
Thermal Conversion Corp........................................................................21
Phoenix Gas Systems............................................................................21
Donyi Polo Petrochemicals......................................................................22
Dresser Engineering............................................................................22
BC Projectos, Ltd..............................................................................23
Competition in GTL Technology..................................................................23
Governmental Regulation of GTL Processes and Products..........................................25
Other Businesses........................................................................................25
Okon, Inc......................................................................................25
Petroleum Mud Logging, Inc.....................................................................26
Ren Corporation................................................................................27
Advanced Technologies..........................................................................27
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
ITN Energy Systems, Inc. (ITN/ES).....................................................27
Global Solar Energy LLC...............................................................28
ITN/ES Electronic Substrates LLC......................................................29
Ceramic Membrane Technology...........................................................29
Employees......................................................................................29
Item 2. Description of Property........................................................................29
Office Lease...................................................................................29
Development and Testing Laboratory.............................................................29
Okon Facility..................................................................................30
Petroleum Mud Logging Properties...............................................................30
Item 3. Legal Proceedings..............................................................................30
Item 4. Submission of Matters to a Vote of Securities Holders..........................................30
PART II ........................................................................................................31
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters..........................31
Item 6. Management's Discussion and Analysis or Plan of Operation......................................33
Results of Operations..........................................................................33
Liquidity and Capital Resources................................................................35
Year 2000 Compliance...........................................................................36
Analysis of Cash Flow..........................................................................36
Item 7. Financial Statements...........................................................................37
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................................................38
PART III ........................................................................................................38
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.........................................38
Section 16(a) Beneficial Ownership Reporting Compliance........................................38
Business Experience of Directors and Continuing Officers.......................................39
Executive Officers And Key Employees...........................................................41
Item 10. Executive Compensation.........................................................................43
Cash Compensation..............................................................................43
Option/SAR Exercises and Holdings..............................................................44
Employment Contracts...........................................................................45
Option/SAR Repricings..........................................................................45
Profit Sharing Plan............................................................................46
Item 11. Security Ownership of Certain Beneficial Owners and Management.................................46
Item 12. Certain Relationships and Related Transactions.................................................48
Item 13. Exhibits and Reports on Form 8-K...............................................................48
Signatures..............................................................................................49
</TABLE>
4
<PAGE> 5
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Rentech, Inc. is a Colorado corporation organized in 1981 and based in
Denver. It has developed and owns a proprietary and patented technology (the
Rentech GTL Technology) that converts carbon bearing gases, liquids and solids
into liquid hydrocarbon products. These include clean burning diesel fuel,
naphthas, and speciality products such as waxes, petrochemical feedstocks and
synthetic lubricant base stock.
Rentech's primary business is licensing the Rentech GTL Technology,
including selling its proprietary and patented catalyst used in the conversion
process to licensees. Licenses are granted in exchange for license fees and
ongoing royalties charged for each barrel of liquid hydrocarbons produced by
conversion plants that use the Rentech GTL Technology. After it grants a
license, Rentech expects that its licensees will finance, construct and operate
their own conversion plants. In some instances, Rentech may invest with others
to acquire equity interests in existing industrial plants, particularly existing
underutilized methanol plants, that are converted to use the Rentech GTL
Technology to produce liquid hydrocarbons.
Rentech also contracts to provide engineering design and technical
services for its licensees as they design and construct their plants. To assist
its licensees, Rentech may also contract to provide its engineering services and
startup operational support services for licensed plants. In addition, Rentech
may reserve the right to contract for the engineering and supply of the
synthesis gas conversion reactor modules that are essential for use of the
Rentech GTL Technology.
Rentech operates several separate businesses not related to
gas-to-liquids through subsidiary corporations. Rentech is engaged in these
businesses and others it may acquire to produce revenues and cash flow to
support its core business related to the Rentech GTL Technology until that
business is self-supporting. Rentech also holds an interest in ITN Energy
Systems, Inc., a privately held high technology and development company located
in Wheat Ridge, Colorado, as well as interests in several advanced technology
joint ventures with ITN Energy Systems, Inc. See "Other Businesses--Advanced
Technologies."
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.
5
<PAGE> 6
THE RENTECH GTL TECHNOLOGY
THE COMPANY
The Company's gas-to-liquids technology (the Rentech GTL Technology) is
capable of using as feedstock a variety of naturally occurring hydrocarbons as
well as gaseous, liquid and solid hydrocarbons produced as by-products or waste
in various industrial processes. Feedstocks include high BTU, low sulfur natural
gas (so-called sweet natural gas); lower BTU natural gas; natural gas containing
higher concentrations of carbon dioxide, nitrogen or sulfur; industrial waste
gas; heavy crude oil; refinery by-products; coal; coal fines and petroleum coke.
Principal products produced from Rentech's gas-to-liquids technology (GTL
products) include clean diesel fuel (ecodiesel), naphtha (an intermediate
product used to make gasoline and certain petrochemicals) and waxes that can be
further processed into high-value specialty products such as synthetic
lubricants, base oils and drilling fluids.
The Rentech GTL Technology represents a major enhancement of a process
developed in Germany in the 1920s known as Fischer-Tropsch (F-T). In the
process, hydrocarbon feedstocks are first reformed by various commercially
available processes into synthesis gas, a mixture of hydrogen and carbon
monoxide. The synthesis gas is then converted through the F-T process into
differentiated liquid products in a reactor vessel containing Rentech's patented
and proprietary catalyst. The ability of the Rentech GTL Technology to
efficiently utilize a broad range of hydrocarbon feedstocks distinguishes it
from all but one of the other technologies that are only able to efficiently
convert sweet natural gas to liquid products. Key aspects of the Company's
technology are catalyst design, catalyst deployment, F-T conversion reactor
design and the process configuration, most of which are proprietary and some of
which are patented.
Rentech's GTL products are similar to analogous products derived from
crude oil refining, but tests of Rentech's ecodiesel by independent labs show it
has significant environmental benefits resulting from the way it is produced.
See "The Rentech GTL Technology: Products and Markets." GTL products are
environmentally cleaner than conventional refined petroleum products, are free
of sulfur which can be released into the atmosphere as harmful sulfurous oxide
(SO), and are free of chemical compounds known as aromatics, which are believed
to be carcinogenic. Automobile and truck manufacturers are considering F-T
transportation fuels, such as Rentech's ecodiesel, as the future fuels of choice
for reducing emissions from diesel engines. These fuels can be used directly or
as a blending component with conventionally refined petroleum diesel to reduce
harmful emissions. Moreover, Rentech believes its ecodiesel can be used in
currently available diesel engines without any modifications.
The Rentech GTL Technology has applications in existing and new
petrochemical and industrial plants and in oil and natural gas producing fields.
For example, Rentech's technology enables refineries to more fully utilize
heavier crude oil and refinery bottoms to produce an improved slate of
high-value products. Potential benefits to the refiner include lower refinery
feedstock costs, higher revenue, a reduction in waste disposal costs and
increased margins. Currently, many methanol production plants are uneconomic and
several are closed due to a worldwide oversupply of methanol as well as low
prices. The oversupply may worsen in the future as use of the gasoline additive
MTBE, the largest end-market for methanol, is phased out of many markets,
including California. Rentech believes that some of these plants can be
converted at relatively low cost to use its technology and operated profitably
to produce GTL products.
The Rentech GTL Technology potentially adds value to sources of fossil
fuels that have little or no current market value due to lack of an economic or
practical way to get these resources to market. Rentech's process makes feasible
on-site conversion of these resources into GTL products that are more easily and
6
<PAGE> 7
cost-effectively transported to market. A high priority for this application
includes remote or stranded reserves of natural gas as well as natural gas
associated with producing crude oil fields that is currently being flared,
re-injected into the reservoir or merely left in the ground unproduced.
Increasing environmental and regulatory pressures to reduce the wasteful flaring
of natural gas, the economic attractiveness of monetizing wasted assets, and the
growing need for cleaner fuels are driving the growing interest of oil and gas
producers in this application.
Other potential applications of the Company's technology that are being
studied by Rentech, the energy industry and owners of hydrocarbon resources,
include, among others, the conversion of petroleum coke and heavy crude,
co-production of gas-to-liquids products and power from coal or refinery
residues, and the use of GTL naphtha in fuel cells.
The Company believes that its Rentech GTL Technology represents a
technological breakthrough that could provide significant benefits to the oil
and gas industry, other energy businesses and the environment. The potential
advantages of the Rentech GTL Technology include:
o Improving refinery economics through more efficient use of heavy and
sour crude oil and refinery residues.
o Enhancing the value of uneconomic methanol or other industrial plants
that have costly gas reforming systems in place that can be
alternatively used to make synthesis gas for the production of GTL
products.
o Allowing natural gas producers to economically develop and produce
remote and substandard gas resources, thus increasing their proved
reserves and revenue.
o Facilitating efficient co-production of electricity and GTL products
from coal and other feedstocks while dramatically reducing harmful
emissions.
o Broadening available supplies of clean energy and transportation fuel
to help meet the rapidly growing worldwide demand.
o Producing high-value, high-purity specialty products to meet
increasingly stringent environmental standards and product
specifications.
o Enhancing U.S. energy security by facilitating expanded use of
relatively abundant coal and natural gas resources for needs
traditionally met by increasing amounts of imported crude oil and fully
refined products.
o Allowing developers of gas conversion plants using the Rentech GTL
Technology to obtain insurance covering performance of the Rentech GTL
process.
BUSINESS STRATEGY
Rentech's business strategy is to achieve use of its technology in
commercial gas-to-liquids projects and to expand its revenue and earnings
through an integrated approach of strategic relationships, technology licensing
and direct project participation, emphasizing the following key components:
7
<PAGE> 8
ENVIRONMENTAL AND ENERGY DEMAND TRENDS. Rentech believes it can
capitalize on many current trends impacting the energy, transportation and
environmental industries through application of the Rentech GTL Technology.
Those factors include increasingly stringent requirements to reduce tailpipe
emissions and strengthen clean-air standards; the contradictory need of refiners
to cost-effectively produce cleaner fuel from increasingly poor quality crude
oils; the regulatory curtailment of natural gas flaring; economic incentives to
profitably develop vast, remote resources of natural gas; steadily increasing
power demand around the world; a need to utilize dirty coal for clean power
generation; and, the search for a practical fuel source for transportation fuel
cells currently being developed.
ACCELERATING COMMERCIALIZATION THROUGH STRATEGIC RELATIONSHIPS. While
the Rentech GTL Technology is not currently being used in any commercial scale
plant, the Company is pursuing commercial deployment of its technology through a
number of initiatives. To accelerate its efforts and leverage its technology,
Rentech has formed several strategic relationships with owners of complementary
technologies, engineering capabilities, financial assets and potential projects.
These relationships are designed to broaden application of Rentech's technology
and accelerate deployment of commercial GTL facilities.
o In October 1998, Rentech granted an exclusive technology license to
Texaco Natural Gas, Inc. (now Texaco Energy Systems, a division of
Texaco, Inc.) to use and sublicense the Rentech GTL Technology in
projects where solid and liquid hydrocarbons are used as feedstock. The
license also granted Texaco a non-exclusive license for conversion of
natural gas to liquids. Texaco's front-end synthesis gas reformer units
have been deployed in 68 of its own and others' refineries and chemical
plants around the world. Under an expanded Technical Services Agreement
signed in June 1999, Rentech and Texaco are rapidly pursuing design
work to integrate Rentech's GTL conversion technology with Texaco's
gasification technology in preparation for commercial deployment.
o In May 1999, Rentech formed a strategic financial relationship with
Republic Financial Corporation of Denver, Colorado to pursue joint
ventures with owners of existing North American methanol plants to
convert those plants to gas-to-liquids facilities. Retrofitting an
existing industrial plant with the Rentech GTL Technology significantly
reduces the construction time and cost compared to building a
greenfield GTL plant. Rentech believes modification of these existing
plants would enhance their economics with feedstocks including
marketable, pipeline-quality natural gas.
o In August 1999, Rentech agreed by a letter of intent to grant Dresser
Engineering Company, of Tulsa, Oklahoma, a license by which Dresser
will market Rentech's GTL Technology for projects that Dresser
develops. Rentech and Dresser are preparing a license agreement to
reflect their agreement in principle. Dresser will have the exclusive
right, except for Texaco's rights and Donyi Polo Petrochemicals' rights
in the country of India, to provide the engineering services and to
design the synthesis gas reactors that are necessary to use Rentech's
technology. Dresser's participation in marketing and developing
projects is expected to substantially contribute to commercial use of
Rentech's technology. See discussion of Dresser Engineering, which
follows.
o Rentech also has R&D relationships with Thermal Conversion Corporation
(TCC) of Kent, Washington and Phoenix Gas Systems of Long Beach,
California. The focus of each of these separate collaborations is to
develop smaller, more efficient and cheaper front-end synthesis gas
units for deployment on platforms in offshore oil and gas fields, on
barges for inland waterway oil and gas fields and skid-mounted or
trailer truck-mounted for smaller onshore oil and gas fields.
8
<PAGE> 9
TECHNICAL EXPERTISE. Two founders of Rentech, Dr. Charles Benham and
Dr. Mark Bohn, are directly responsible for development of the Rentech GTL
Technology. The founders continue to work toward improving the Company's
technology and designs and developing new applications. As a result of advances
they have made, Texaco entered into the Technical Services Agreement with
Rentech for the integration of Rentech's GTL Technology with Texaco's
gasification technology.
TECHNOLOGY LICENSING FEES AND ROYALTIES. The licenses that Rentech
issues for use of the Rentech GTL Technology are granted in exchange for license
fees and ongoing royalties on the sale of products produced from conversion
plants that use the technology. Plants are generally constructed and owned by
licensees at no cost to Rentech. The Company may also provide contract
engineering, operational and other technical services to licensees during
construction and startup phases of a new plant. In the future, the Company may
supplement its licensing fees and royalties with direct investments in
gas-to-liquids plants and facilities. Rentech is entitled to revenues from sales
of its catalyst whenever Rentech GTL Technology is used, whether in plants
licensed directly by Rentech or licensed through others. Rentech intends, for
its own account, to actively license its technology for use in plants using
natural gas. Rentech is to share in revenues received by Texaco from its
exclusive license to use the Rentech GTL Technology in projects where solids and
liquids are used as feedstock. Rentech retains rights to license the Rentech GTL
Technology in the entire range of use for natural gas conversion projects. To
date Rentech has granted non-exclusive licenses for natural gas conversion
projects to Texaco, to Dresser for projects marketed and developed by it
(subject to negotiation of a definitive license agreement), and to Donyi Polo
Petrochemicals Ltd which has an exclusive license for use of the Rentech GTL
Technology in India.
THE FISCHER-TROPSCH PROCESS
The Rentech GTL Technology is based on Fischer-Tropsch technology which
originated in the 1920s. Fischer-Tropsch technology, often called F-T, is a
chemical process by which carbon-bearing materials are converted into synthetic
liquid hydrocarbons. The process includes three stages:
o The Syngas Step (sometimes called the front end process)--the
carbon-bearing material is converted into synthesis gas, a
mixture of hydrogen and carbon monoxide. Oxygen must be added
for the conversion of any solid or liquid feedstock. Oxygen
may also be necessary for gaseous feedstocks, depending on the
gasification technology selected.
o The Fischer-Tropsch Step (sometimes called the back end
process)--the synthesis gas, sometimes called syngas, is fed
through a F-T reactor and converted in the presence of
Rentech's proprietary and patented catalyst, producing
synthetic hydrocarbon products.
o The Upgrading Step--the synthetic hydrocarbon products are
upgraded in the same plant to produce a prescribed mix of
final products.
The synthetic hydrocarbons obtained from Rentech's conversion process
have environmental benefits that traditional refinery products do not possess.
Because of the way they are produced, Rentech's synthetic products are less
polluting, and the products are substantially free of contaminants usually found
in crude oil, such as sulphur, aromatics, nitrogen and heavy metals.
The Rentech GTL Technology can convert a broad range of feedstocks,
whether they are gases, liquid, or solids, that are carbon bearing, into liquid
hydrocarbon products. The gas feedstocks include natural gas
9
<PAGE> 10
and industrial off gases. The liquid feedstocks include heavy crude oil and
refinery byproducts. The solid feedstocks include coal and petroleum coke.
The ability of the Rentech GTL Technology to convert carbon-bearing
gases into valuable liquid hydrocarbons was established in the Company's first
pilot plant which operated periodically between 1982 and 1985. Technical
feasibility was again demonstrated in Rentech's second pilot plant operated
during 1989. Additional confirmation of several significant aspects of the
Rentech GTL Technology was obtained from tests in a subsequent pilot plant
between 1993 and 1998.
The Rentech GTL Technology is based upon the Fischer-Tropsch conversion
process that was originally developed in Germany during the 1920s 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, use
of Fischer-Tropsch technology was not economically viable. The Arab oil embargo
of 1973 created fuel shortages, and that crisis renewed interest in
Fischer-Tropsch technology. Dr. Charles B. Benham, a founder of Rentech,
conducted research on F-T processes at the Naval Weapons Center in China Lake,
California and later at the Solar Energy Research Institute in Golden, Colorado.
Based on the pioneering work of Dr. Benham and Dr. Mark S. Bohn, another founder
of Rentech, the Company developed its own Fischer-Tropsch technology as well as
a highly efficient catalyst that is essential to use of the Rentech GTL
Technology.
The Rentech GTL Technology uses an iron-based catalyst. A major
advantage of Rentech's catalyst is that it operates on feedstock with a wide
range of hydrogen to carbon ratios. That capability, which to the knowledge of
management, is shared only by Sasol, enables the Rentech GTL Technology to
convert either gases, liquids or solids that contain carbon materials into
liquid hydrocarbons. Sasol's announced business arrangements indicate it
currently intends only to license to joint ventures in which it owns a share of
profits.
The first step for using the Rentech GTL Technology, like all F-T
processes, is preparation of the synthesis gas that is used as the feedstock for
the conversion reactor. Synthesis gas, or syngas, is a combination of hydrogen
and carbon monoxide gases. The addition of oxygen may be required, depending on
the feedstock and exact process used.
The second step in Rentech GTL Technology is to feed the synthesis gas
into the conversion reactor. In the reactor, Rentech's proprietary and patented
iron-based catalyst accelerates the reaction of the syngas, which is chemically
altered to form liquid hydrocarbon products.
The third step in Rentech GTL Technology occurs downstream from the
conversion reactor but in the same plant. The hydrocarbon end products, in both
liquid and solid form, are upgraded to the specifications required by the target
market.
The successful use of the Rentech GTL Technology by licensees largely
depends upon their ability to design, construct and operate commercial scale
plants using the technology. They must obtain adequate financing and feedstock,
construct plants specifically designed for the chemical composition of the
feedstock, and assure that the plant equipment and machinery is mechanically
adequate. Licensees are also responsible for obtaining governmental permits. In
remote locations, licensees may be required to add supporting infrastructure
such as roads and utilities.
Rentech's belief that its technology can be cost effective and that
full-scale conversion plants using the technology can be profitably operated
depends upon several factors, including the availability of low cost
10
<PAGE> 11
feedstock, the economic efficiency of the technology, and market demand for the
end products at profitable prices.
FEEDSTOCKS
Rentech's licensees of its technology are responsible for obtaining
their own supplies of carbon-bearing feedstock. Economic use of the Rentech GTL
Technology requires substantial quantities of inexpensive carbon-bearing gases,
liquids 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, coalbed methane, low-value refinery residues and industrial wastegases.
The Rentech GTL Technology can provide a means of utilizing
carbon-bearing resources that are currently unmarketable for several reasons.
Many large, known natural gas reservoirs around the world are presently
uneconomic to develop because they are in remote locations too far from markets
for economic transportation in the gaseous state. Upon conversion into liquid
hydrocarbons, they can be transported in trucks, tankers and pipelines like
conventional liquid hydrocarbons. Other natural gas reserves are unmarketable
due to the presence of diluents, including carbon dioxide or nitrogen, but may
be suitable feedstocks for the Rentech GTL Technology. Some low grade coal
deposits and high sulphur coal deposits that are uneconomic for coal mining may
also be suitable feedstock for the Rentech GTL Technology.
A potential feedstock that is of growing importance is the heavy high
sulphur residual fuels provided at crude oil refineries. These materials are
commonly referred to as refinery residues or refinery bottoms. Some refinery
residues, unless they are treated at considerable expense, must be disposed of
as hazardous materials. Alternatively, by incorporating the Rentech GTL
Technology into the refinery, the residues can be gasified and converted into
valuable end products. Industry analysts predict that, within the next ten
years, a large surplus of high sulphur refinery residues will have accumulated,
which cannot be absorbed by the market. The synthesis gas resulting from
refinery residues is characterized by a low hydrogen-to-carbon monoxide ratio
and is an excellent feedstock source for conversion into liquid hydrocarbons by
the application of Rentech's iron-based F-T technology.
PRODUCTS AND MARKETS
Plants using the Rentech GTL Technology can be designed and configured
to produce a variety of liquid hydrocarbon products. 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, specialty products such as waxes useful in
hot-melt adhesives, inks and coatings, base oil for lube oils, normal paraffins
and a variety of other wax-based products. The factors that affect the product
mix include the catalyst, the ratio of hydrogen to carbon monoxide in the
synthesis gas, the design of the F-T reactor, the temperature and pressure
conditions in the F-T reactor itself, among other key operating characteristics.
The products resulting from use of the Rentech GTL Technology will
compete with traditional petroleum products and synthetic products produced by
similar technology. To a great extent, competition will be based upon price, and
the price at which liquid hydrocarbons can be produced by use of the Rentech GTL
Technology has not yet been established. Experience with F-T technology since
its development in the 1920s, has indicated that earlier versions of the
technology could not economically produce synthetic fuels. Rentech's management
believes that its enhancements and variations of the basic F-T technology allow
the Rentech GTL
11
<PAGE> 12
Technology to be cost-effective. Compliance with environmental laws may create
demand for Rentech's clean-burning diesel fuel even at premium prices.
Products resulting from the Rentech GTL Technology, like other F-T
processes, are environmentally benign relative to analogous products produced
from crude oil refining. These products are entirely free of the sulphur,
aromatics, nitrogen and heavy metals that are typically found in crude oil. For
example, Rentech's ecodiesel has excellent combustion qualities and can help
reduce harmful exhaust emissions. Likely uses of the ecodiesel include use as a
blending stock to improve the quality of commonly available diesel fuel and as a
blending component for upgrading low quality stock that would otherwise be used
in lower value fuel oil.
RENTECH DIESEL FUEL (ECODIESEL)
Laboratory tests made to determine the properties of the ecodiesel
produced by the Rentech GTL Technology have been conducted by independent
testing agencies. While not exhaustive or definitive from a scientific
standpoint, these tests indicate that ecodiesel is a high-grade diesel fuel with
environmental advantages compared to diesel fuel derived from crude oil.
Compared to Commercial No. 2 diesel fuel, Rentech's diesel fuel has four
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.
Independent third-party tests of Rentech's diesel fuel, both in
vehicles and engine test stands, were completed by the High Altitude Research
Center, Denver, Colorado (under high altitude conditions), and by Detroit
Diesel, Michigan, and the California Air Resources Board, (under low altitude
conditions). Rentech's diesel fuel demonstrated significant reductions in
harmful exhaust gas emissions and improved combustion characteristics as
measured by its higher cetane value. See "GTL Technology and Designs." Before
Rentech's ecodiesel could be said to be a practical alternative to conventional
diesel fuel, long-term wear tests on engines fueled by the ecodiesel are
necessary.
The diesel fuel fraction produced by use of the Rentech GTL Technology
is also 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 F-T ecodiesel with conventional 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 conventional
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,
especially for use as a blending stock for conventional diesel.
Rentech petitioned the U.S. Department of Energy in July 1999 to
designate Rentech's ecodiesel as an alternative fuel under the Energy Policy Act
of 1992. An alternative fuel, under that act, is one that is substantially not
petroleum and would yield benefits in energy security and environmental
protection. United States agencies are required by the legislation to promote
the use of alternative fuels. They are to do this by educating the public about
alternative fuels, and, beginning in 1997, by using alternative fuels in
increasing proportions in their government vehicle fleets. The act specifies
that 75% of all federal and state government-purchased vehicles for major urban
areas must be alternative fuel vehicles. The DOE has recently determined
12
<PAGE> 13
that these mandates are not being met. Designation by the DOE of non-petroleum
fuel, such as that produced using the Rentech GTL Technology, as alternative
fuel, could spur near-term demand for ecodiesel from government and state
customers.
NAPHTHAS
Naphthas are liquid hydrocarbon products that are lighter than diesel
fuel and 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 compared to
other naphthas. The U.S. market for the type of naphtha produced using the
Rentech GTL Technology is estimated at a minimum of 60,000 barrels per day.
WAX PRODUCTS
The waxes produced by Rentech GTL Technology are useful in hot-melt
adhesives, inks, coatings and several other wax-based products. The market
prices for these waxes is high, but demand is limited. The wax market could
easily become saturated. The waxes produced can also be thermally or hydro
cracked to yield additional naphtha and diesel fuel. Another option is the
hydrosomerization of the wax to produce base oil used for lubricating oils.
LIGHT CRUDE OIL
If required, the conversion process in plants using the Rentech GTL
Technology can be easily modified to produce a light crude oil for sale to
refineries. The Rentech GTL Technology produces a high-grade crude oil, already
partially refined that management believes could be inexpensively refined in
existing refineries into end products.
NORMAL PARAFFINS
Normal paraffins are saturated linear hydrocarbons with molecular
ranges between nine and 15 carbon atoms. They are primarily used in the
production of laundry detergent, cosmetics, pharmaceuticals, paints, stains, ink
oils, aluminum rolling oils and lamp oils. Paraffins produced by the Rentech GTL
Technology are free of sulfur, a requirement for many of these products.
SYNTHETIC LUBE BASE OIL
Rentech anticipates that specifications for motor oil will become more
stringent in the future as automobile manufacturers respond to tightening
emissions requirements. This could result in increased demand for high quality
base oils as blending stock for manufacture of premium lubes. The hydrocarbons
with molecular ranges between twenty and fifty carbon atoms produced by the
Rentech GTL Technology would provide excellent blending material for production
of synthetic lube oil.
SYNTHETIC DRILLING FLUID
The hydrocarbons produced by Rentech the GTL Technology with a
molecular range from seventeen to twenty-two carbon atoms would be a potential
base material for synthetic drilling fluids. Drilling fluids are used in the
drilling of oil and gas wells as a coolant and lubricant for the drill bit. In
off-shore operations, oil
13
<PAGE> 14
based fluids, which have been used historically, degrade slowly and can
suffocate aquatic plant and animal life. In response to increased environmental
pressures, synthetic drilling fluids have been developed and used in the Gulf of
Mexico and other offshore locations. The key advantage of synthetic drilling
fluids is that cuttings associated with use of these fluids appear to be
environmentally acceptable in regard to crude contamination and toxicity and
therefore can be discharged in many Gulf locations instead of being barged to
shore for disposal, yielding considerable cost savings to drillers. As defined
by the U.S. Environmental Protection Agency, materials falling under the
synthetic category include linear alpha olefins and synthetic paraffins, such as
those produced by the Rentech GTL Technology.
PROPRIETARY DESIGNS, INTELLECTUAL PROPERTY AND PATENTS
Rentech owns intellectual property rights consisting of proprietary
designs for its synthesis gas reactors and other key aspects of the Rentech GTL
Technology, as well as confidential information and trade secrets that are
essential for its success. Rentech seeks to protect its intellectual property
rights through patents and trade secret agreements, including confidentiality
agreements with its licensees, employees and consultants.
Use of the Rentech GTL Technology requires use of Rentech's patented
catalyst. The license arrangements with both Texaco and Donyi Polo
Petrochemicals Ltd. authorize them to manufacture the Rentech catalyst for their
respective conversion plants or to have the catalyst made for them by a
manufacturer of their choice. Rentech has no present plans to manufacture its
own catalyst. It expects ultimately to grant a license, for which it would
receive a license fee and royalties, to an independent catalyst manufacturer for
manufacture and delivery of catalyst, or to grant a license to individual
licensees of the technology to manufacture catalyst for their own use.
Rentech has been granted nine United States patents related to process
applications, products produced, and materials used as part of the Rentech GTL
Technology. The patents include a method for cracking produced waxes; a method
of making and energizing a promoted iron catalyst for use in slurry synthesis
reactors; production of a synthetic oxygenated diesel fuel; the overall
gas-to-liquids conversion process; and use of Rentech's oxygenated, sulphur and
aromatic-free diesel fuel as an additive to conventional diesel fuel.
Two of Rentech's patents include key elements of a process that enables
Rentech's iron-based catalyst to compete with cobalt-based catalysts used by
other F-T processes. These patents protect process steps that improve Rentech's
carbon conversion efficiency by over 30%, making the Rentech process
cost-effective for converting gases to liquids.
Additional U.S. patent applications have been filed. Several foreign
patent applications based on one or more of the United States patents are
pending.
Rentech relies on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical security measures to
protect its intellectual property rights in F-T processes and other businesses.
The success of Rentech may depend upon its ability to establish, protect and
enforce these intellectual property rights and to successfully defend against
any alleged infringement of another's intellectual property. Protecting and
enforcing Rentech's intellectual property position involves complex legal,
scientific and factual questions and uncertainties. This may be especially true
in foreign countries, which might become important users of the Rentech GTL
Technology, but which generally do not provide as much protection of
intellectual property rights as the United States. The lack of stable systems of
law in some foreign countries
14
<PAGE> 15
could lead to rapid changes in political and economic climates, civil
disturbances and other disruptions that affect operations.
GTL TECHNOLOGY AND DESIGNS
In 1985, Fuel Resources Development Company (Fuelco), a wholly-owned
subsidiary of Public Service Company of Colorado, initiated an evaluation of the
Rentech GTL Technology. Based upon a favorable review, Fuelco assisted with
construction and operation of Rentech's second GTL pilot plant in 1989.
Successful operation of that pilot plant confirmed the technical feasibility of
the Rentech GTL Technology.
In 1990 Fuelco began construction of the first full-scale conversion
plant to use the Rentech GTL Technology. The plant, located near Pueblo,
Colorado, 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.
Plant production was initiated in January 1992. The Rentech 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 for any length of time. Further, the composition of the gas was
considerably different than what Fuelco had estimated and for which the plant
was designed. Consequently, the gas that was produced was inadequate in volume
and composition for the plant.
In order to evaluate performance of the Rentech GTL Technology in a
commercial-scale plant, Rentech decided to operate the plant for a short period
of time. Rentech decoupled the plant from the landfill and converted it to use
temporary sources of natural gas. Rentech then successfully operated the plant
during July and August of 1993. 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. The operations produced liquid hydrocarbon products, samples of which
are available to prospective licensees for their evaluation of uses and markets.
Rentech decided to close the plant at the end of 1993 because no
adequate source of permanent feedstock was available. In 1995, Rentech sold the
plant to Donyi Polo Petrochemicals Pty, its licensee for India. Donyi Polo
dismantled the plant in 1996 and shipped the components to India for reassembly.
MARKETING AND CUSTOMERS
Rentech markets licenses of the Rentech GTL Technology for use to
owners of 100% natural gas feedstock who would construct, finance, and own their
plants. To facilitate business development, senior officers of the Company
regularly hold meetings with and make presentations to energy industry
participants at gas-to-liquids seminars and conferences. The features of the
Rentech GTL Technology have become generally known to major oil and gas
companies and throughout the energy industry.
Rentech's management believes that successful operation of a
commercial-scale plant using the Rentech GTL Technology would substantially
enhance the marketing of its technology. In order to achieve commercialization
of the technology, Rentech plans to acquire and retrofit one or more existing
methanol plants to use the Rentech GTL Technology. See "Republic Financial
Corporation."
The potential customers and markets for the Rentech GTL Technology are
diversified and worldwide. Industries and other business segments most likely to
use the Rentech GTL Technology include the following:
15
<PAGE> 16
o Existing industrial plants, such as underutilized methanol plants that
are now uneconomical because of low market prices for methanol.
o Refineries, which can improve efficiency and profits by adding the
Rentech GTL Technology to better utilize an increasingly heavier crude
oil supply and growing inventory of refinery bottoms as feedstock.
o Owners of stranded natural gas seeking an economical way to develop and
transport to market these resources.
o Owners of offshore natural gas located at a distance from existing
pipelines that desire to convert the gas into transportable liquid
hydrocarbons through plants mounted on barges that use the Rentech GTL
Technology.
o Owners of substandard natural gas that is not useable through
traditional means because it contains excessive amounts of carbon
dioxide, nitrogen or other diluents.
o Owners of oil fields where flaring of natural gas is outlawed or
penalized, or where natural gas is reinjected into oil wells but
interferes with oil production from the wells.
o Owners of coal resources, including but not limited to, low grade or
high sulfur coal deposits.
o Municipalities that are required by clean air laws to operate fleets of
cleaner buses and other vehicles.
While the Rentech GTL Technology was successfully used for a short
period in the Synhytech plant, it is not now using the technology on a
commercial basis. While Rentech's management believes all conditions for
cost-effective use of the technology are in place, the energy industry, except
for a few of the major oil and gas companies, has hesitated to accept and make
definite plans for use of F-T technology. Rentech has therefore adopted a
business strategy through which it seeks to hasten actual use of the Rentech GTL
Technology for natural gas in commercial-size plants by joint ventures in which
Rentech owns a share of profits. See "Republic Financial Corporation --
Retrofitting Methanol Plants."
BUSINESS STRATEGY
Rentech's broad strategy for obtaining commercial use of the Rentech
GTL Technology falls into several categories:
o Providing technical services and research to Texaco to integrate
Rentech GTL Technology with Texaco's gasification technology to enable
Texaco to use and sublicense the combined technologies as soon as
feasible.
o Starting commercial use of Rentech GTL Technology as soon as possible
by retrofitting existing, underutilized methanol plants through joint
ventures with Republic Financial Corporation and others, including
plant owners.
o Marketing licenses of Rentech GTL Technology to owners of 100% natural
gas feedstock for use in plants they construct and own.
16
<PAGE> 17
o Arranging for process system performance insurance through a reputable
insurance company to insure plant owners and their lenders that the
process underlying Rentech GTL Technology, used properly in a plant,
will work as designed upon completion of a plant.
o Continuing to broaden the fields of use of the Rentech GTL Technology
through such innovations as alternative means of producing synthesis
gas (see "Thermal Conversion Corp.") and designing a small scale
modular plant (see "Phoenix Gas Systems").
o Participating with Texaco, General Electric Power Systems, Praxair,
Inc. and Brown and Root Services, a division of Kellogg, Brown & Root,
Inc., in the design and development of a new generation of
multi-purpose energy plants that produce electricity or heat from coal
as well as transportation fuels and petrochemicals (see "Early Entrance
Coproduction Plant").
LICENSES, CONTRACTS AND JOINT VENTURES
Rentech has granted Texaco an exclusive, worldwide license (except in
India, for which Donyi Polo Petrochemicals Ltd. holds an exclusive license), to
use and sublicense Rentech GTL Technology for conversion of solid and liquid
feedstocks in plants where a gasification process is used. See "Texaco." Rentech
retains all rights to license its technology for projects using all natural gas
feedstock.
License agreements are generally 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 use of the Rentech GTL Technology or based upon some other
measure of product value. Licenses may be granted either exclusive or
non-exclusive rights to use the Rentech GTL Technology in identified countries
or other geographic areas. The license fees and terms are individually
negotiated and may vary.
Rentech's licensees are responsible for financing, constructing and
operating their own conversion plants that use the Rentech GTL Technology and
catalyst. Licensees will also be required to pay for synthesis gas reactor
modules that may be 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, liquids 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 modular
systems that are trucked into remote locations where inexpensive sources of
feedstock may be available. Plants with the largest production capabilities may
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 the
feedstock is a gas or carbon-bearing solid that must first be converted to
synthesis gas, and other factors.
The designs of plants for use of Rentech GTL Technology are complex.
Each design must be developed to fit 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.
17
<PAGE> 18
TEXACO
TECHNOLOGY LICENSE. On October 8, 1998, Rentech entered into a
licensing agreement with Texaco for use of the Rentech GTL Technology. Under the
license, Texaco will use Rentech GTL Technology in combination with Texaco's
proprietary gasification technology to produce liquid hydrocarbon products such
as transportation fuel, naphtha, and specialty products. The Texaco gasification
process is a proprietary technology for producing synthesis gas from a broad
range of feedstocks such as coal, petroleum coke, residual oils, and byproducts
generated in refineries and chemical plants. Worldwide there are 68 Texaco-owned
or licensed gasification plants operating or under construction. Texaco may also
sublicense the Rentech GTL Technology to third parties that may use Texaco's
gasification technology or similar gasifiers provided by third parties such as
Lurgi, Royal Dutch/Shell or others.
Under the terms of the agreement, Texaco has an exclusive, worldwide
license, except in India, to use for its own account, and sublicense the Rentech
GTL Technology to third parties in projects where solid and liquid hydrocarbons
(non-gaseous materials) are used as feedstocks for the generation of synthesis
gas in a gasification process such as the proprietary Texaco gasification
process. Additionally, Texaco received a non-exclusive license to use Rentech
GTL Technology anywhere in the world except India, for its own account with 100%
natural gas feedstock. Texaco was not granted the right to sublicense to third
parties the Rentech GTL Technology for natural gas, and Rentech retains the
right to license to others the entire range of its technology for use with
natural gas. Rentech received a license fee for granting the Texaco license.
Texaco is also paying Rentech advanced license fees. Texaco is to pay for all
costs of further developing, marketing and deploying its use of the Rentech GTL
Technology. Texaco and Rentech will share revenues from plants licensed under
the Texaco license agreement. The license to Texaco enables it to terminate the
agreement upon certain payments to Rentech.
TECHNICAL SERVICES AGREEMENT. On June 15, 1999, Texaco entered into a
technical services agreement with Rentech to follow up their 1998 licensing
agreement. Under the 1999 contract, Rentech is undertaking the necessary tasks
required for the integration of the Rentech GTL Technology with Texaco's
gasification process. The combination of these technologies will allow for the
use of a broad range of feedstocks such as coal, petroleum coke, residual oils
and byproducts generated in refineries and chemical plants.
The 1999 agreement provides that Rentech will perform technical and
development work at its development and testing laboratory in Denver. Rentech's
work is being conducted in cooperation with Texaco's personnel. The work will be
carried out over the next 18 months. Texaco is paying Rentech for its technical
services and costs. Based on the tasks to be performed, Rentech estimates that
these payments will approximate $2 million.
EARLY ENTRANCE COPRODUCTION PLANT. In August 1999, Rentech and its team
led by Texaco were selected by the U.S. Department of Energy to develop the data
and designs for what the DOE calls a coproduction facility, or more
specifically, an "Early Entrance Coproduction Plant" (EECP). Texaco plans to
combine its gasification technology with the Rentech GTL Technology to produce
high quality transportation fuels and electricity from coal and petroleum coke.
The Texaco proposal was one of three proposals selected by the DOE in
August 1999 to proceed on this program. The DOE's contract is intended to
encourage private industry to develop a set of entirely new multi-purpose energy
plants that combine several energy processes into a single facility. The DOE
contract requires designs that enable highly efficient conversion of the energy
in fossil fuels into electricity or heat as well as transportation fuels and
chemicals.
18
<PAGE> 19
The DOE is making a contract award of approximately $8 million to
Texaco's project team. The work is anticipated to continue for several years.
The team members will use Texaco's gasification technology, the Rentech GTL
Technology, General Electric's power generation design, Praxair's oxygen plant
design and Kellogg, Brown and Root's engineering capabilities. After a
feasibility study and successful completion of an integrated design, the team
will develop an engineering design package for a conversion plant to use the
combined technology.
Rentech considers the DOE contract award to be an important recognition
of the significance of utilizing the Rentech GTL Technology with Texaco's
gasification process to produce synthetic liquid hydrocarbons from non-gaseous
fossil fuels. Rentech believes the DOE contract will hasten commercial use of
the Rentech GTL Technology, not only with this type of feedstock, but also with
other potential feedstocks.
REPUBLIC FINANCIAL CORPORATION -- RETROFITTING METHANOL PLANTS
Rentech and Republic Financial Corporation entered into a joint venture
in June 1999 to pursue retrofitting existing North American methanol plants with
the Rentech GTL Technology. The two companies intend to acquire interests in
existing methanol plants that are not operating economically because of reduced
market prices for methanol. Rentech will be responsible for retrofitting the
plants to use the Rentech GTL Technology for the production of high value liquid
hydrocarbons such as synthetic lubrication base oil. Republic Financial is
responsible for arranging financing for the costs of acquisition and
retrofitting the plants. Rentech and Republic Financial are currently conducting
an evaluation of the costs of converting a specific methanol plant and a
marketing study of the products to determine the economic feasibility of this
strategy.
Rentech's management believes that retrofitting one or more existing
methanol plants would enable it to commercialize its technology more quickly
than would building a new plant. Existing methanol plants have in place the
front-end equipment to prepare synthesis gas. In addition, established methanol
plants have other facilities that could be used as they are, including boiler
feed water systems, control rooms, fire protection, product transportation
facilities, security fencing and permits. To retrofit a plant, Rentech would add
its conversion reactor equipment to the existing front-end system. The cost
savings could be 30% or more compared to building a new plant.
There are 20 methanol plants in North America. While Rentech does not
know how many of the owners of these plants might agree to make some arrangement
for using the Rentech GTL Technology, it hopes that one or more agreements will
be reached.
With financing provided by Republic Financial, the two companies may be
able to invest in one or more methanol plants. In other instances, the plant
owner or others may joint venture with Rentech and Republic Financial or simply
license the Rentech GTL Technology.
Successful conversion of an existing methanol plant would provide
several benefits to Rentech. Sale of the products would provide new revenue
streams to Rentech, assuming the retrofitting project is economically successful
and sales are made at a profit. Economic operation of a retrofitted plant would
likely encourage others to build commercial plants using the Rentech GTL
Technology, and the commercialization of the Rentech GTL Technology would be
accelerated.
Republic Financial is a 28-year old privately held asset acquisition
and financial services firm headquartered in Denver, Colorado. It has ownership
interests in energy, chemicals, natural resources, commercial aircraft and
commercial real estate.
19
<PAGE> 20
OROBOROS AB LICENSE
Rentech entered into a letter of intent in October 1999 to grant a
license to Oroboros AB, a Swedish corporation headquartered in Gateborg, Sweden.
The license would allow Oroboros to use Rentech's gas-to-liquids technology in
Oroboros's steel plant located at Oxelosund, Sweden.
The steel plant currently generates approximately 140 million normal
cubic meters per year of off-gases. These industrial off-gases are now flared
into the atmosphere. The flaring, which occurs daily, produces about 100,000
tons of carbon dioxide, a greenhouse gas, and 20,000 tons of de-ionized water
per year. By using Rentech's gas-to-liquids technology, these industrial
off-gases, a mixture of hydrogen and carbon monoxide, can be converted into
clean burning, synthetic fuels and other useful products rather than polluting
the atmosphere. Oroboros has estimated that use of Rentech's technology in this
one steel plant could reduce carbon dioxide emissions in Sweden by 100,000 tons
per year or the equivalent of one-quarter of one percent of the total annual CO2
emissions in Sweden.
Oroboros plans to produce what it refers to as eco-paraffin, sometimes
called ecodiesel. According to an assessment by Oroboros, the cost of producing
eco-paraffin will be lower than for other alternative fuels, such as
reformulated diesel fuel, currently available in Sweden. Additionally, no engine
modifications are necessary for vehicles that use eco-paraffin.
If the terms of a license are agreed upon, the license will apply only
to the steel plant in question. No schedules have been announced for beginning
construction, completing construction, or start up of operations of the proposed
Fischer-Tropsch plant.
ESPERANCE POWER PROJECT
Texaco, Hillcrest Resources N.L., an Australian entity, and Australian
Power & Energy Corporation (APEC) announced on October 29, 1999 that they have
agreed to enter into a joint venture that would use the gas-to-liquids
technology that Rentech has licensed to Texaco. If negotiations to complete the
joint venture are completed, the joint venture would develop an electrical power
and Fischer-Tropsch fuels project in West Australia. The feedstock would be a
large lignite deposit controlled by APEC which it reports exceeds two billion
tons.
The lignite deposit is located approximately 60 miles north of the port
town of Esperance, Australia. The parties call their proposal the Esperance
Power Project.
Texaco's gasification technology would be used to gasify the lignite to
produce a synthesis gas consisting of hydrogen and carbon monoxide. The syngas
would in turn be used to produce electricity in a power plant as well as to feed
a Fischer-Tropsch reactor using Rentech's gas-to-liquids technology to produce
synthetic fuels, and other liquid hydrocarbons.
The principals in the proposed joint venture have preliminarily
estimated that the project would consist of a 200 megawatt electrical power
plant and a 6000 barrel per day Fischer-Tropsch plant. Those principals have
announced that they expect to invest approximately $500 million in constructing
the project. No construction or completion schedule has been announced.
20
<PAGE> 21
Under the terms of Rentech's license of its technology to Texaco,
Rentech is entitled to receive a portion of the license fees, royalties,
catalyst sales and other consideration that Texaco receives from the project.
THERMAL CONVERSION CORP.
In August 1998, Rentech entered into a joint venture with Thermal
Conversion Corporation (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 to convert carbon
bearing gases induced into the reactor into synthesis gas. The TCC technology is
a thermal and chemical process referred to as plasma technology. Tests are being
conducted by TCC to determine whether TCC's plasma technology, when used with
Rentech's catalyst, economically converts natural gas into synthesis gases of
predetermined compositions. If so, the synthesis gases produced by this process
could be suitable for use in plants that use the Rentech GTL Technology,
avoiding the expense of an oxygen unit to prepare the synthesis gas. Successful
combination of TCC's plasma technology with the Rentech 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 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 initial demonstration of using Rentech's catalyst with TCC's plasma
technology has yielded positive results. The energy lost in the conversion of
methane to syngas was as low as 1%. Syngas mixtures were controlled close to the
compositions predicted by chemical equilibrium calculations. Carbon deposition
(or soot), a wasteful byproduct of syngas produced by other thermal methods, was
controlled to insignificant levels. Continuing tests are now focused on
optimizing the process for energy efficiency and cost.
The U.S. Department of Energy made a $175,000 grant in July 1999 to
support the Rentech-TCC demonstration project. The DOE's grant funds are being
used to test whether introducing steam to natural gas feedstocks of various
compositions increases the energy efficiency and cost effectiveness of the
combined Rentech-TCC technologies.
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
Fischer-Tropsch projects. To date no revenues have been earned related to this
license.
PHOENIX GAS SYSTEMS
Rentech has joined with Phoenix Gas Systems, LLC to develop a modular
plant design for using the Rentech GTL Technology in small scale plants designed
to produce 1,000 barrels per day or less of liquid hydrocarbon products.
Successful development of a cost-effective, small modular system would make it
possible to use the Rentech GTL Technology for remote and stranded natural gas
and other sources of feedstock for which large plants would not be economic.
Rentech and Phoenix Gas are also testing the
21
<PAGE> 22
feasibility of using an under-oxidized burner to produce the synthesis gas in
efforts to avoid the expense of an oxygen generation unit.
DONYI POLO PETROCHEMICALS
In September 1992, Rentech granted exclusive rights to ITN, Inc., a
Colorado corporation, to market the Rentech GTL Technology in India. ITN, Inc.
is owned by Dr. Mohan S. Misra, who also owns a majority of ITN Energy Systems,
Inc. See "BUSINESS--Advanced Technologies (ITN Energy Systems, Inc.)." ITN, Inc.
is entitled to 20% of Rentech's royalty, license fee or other revenues from
plants in India.
Through the efforts of ITN, Inc., Rentech granted a license to Donyi
Polo Petrochemicals Ltd. for a plant in India using the Rentech GTL Technology.
The plant is to be a 360 barrel per day plant, designed to use flared gas in the
state of Arunachal Pradesh in northeastern India. Gas feedstock that is
presently flared from oil wells has been allocated to this project by the state
government of Arunachal Pradesh. Rentech completed a $300,000 preliminary
contract for the basic design of the plant in 1995. Also in 1995, Donyi Polo
purchased Rentech's Pueblo, Colorado plant and moved the components to India for
reassembly. In addition to a $250,000 contract for preliminary engineering
services awarded to Rentech, Donyi Polo Petrochemicals contracted with Humphries
& Glasgow, Mumbai, India, for the prime engineering contract. In 1998, the
detailed engineering design of the plant was completed by Humphries & Glasgow.
Rentech has earned $240,000 as payments due toward its license fee. 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 manufacturing plant, using the Company's patents, to produce
catalyst for its plant.
Donyi Polo has not announced a decision to proceed with completion of
the Indian plant. Rentech does not expect additional engineering design
contracts, license fees or revenues from it in the foreseeable future.
DRESSER ENGINEERING
Rentech and Dresser Engineering Company of Tulsa, Oklahoma have agreed
in principle that Dresser will have exclusive rights to provide engineering
services and to design and construct the synthesis reactor modules for natural
gas-to-liquids plants that use the Rentech GTL Technology. The rights granted to
Dresser exclude the exclusive rights granted to Texaco for converting liquids
and solids to liquid hydrocarbons and the non-exclusive rights granted to Texaco
and its affiliates for natural gas, as well as the rights previously granted to
Donyi Polo for India. Dresser's parent company, Dresser Engineers &
Constructors, Inc., and Rentech also exchanged ownership of minority blocks of
their shares on a tax-free exchange basis. Dresser Engineers & Constructors
acquired 7.5% of the Common Stock of Rentech outstanding as of September 30,
1999 (3,680,168 shares), and Rentech acquired 5% of the common stock of
privately held Dresser Engineers & Constructors, Inc.
Rentech and Dresser are in the process of preparing a license agreement
to reflect the terms of their initial agreement. In addition to that master
license, separate licenses to use the Rentech GTL Technology for individual
plants will be issued to Dresser for specific sites as projects are identified.
The arrangement allows the two companies to take advantage of each
other's strengths to further develop and jointly market the Rentech GTL
Technology on a worldwide basis. The companies intend to pursue small to
medium-sized projects, ranging from 500 to 20,000 barrels per day of GTL
products. While the companies would be free to pursue larger projects, both
companies believe that small to medium size
22
<PAGE> 23
projects are economic and represent a substantial portion of the near-term GTL
market. Rentech believes its relationship with Dresser provides a natural next
step toward commercial deployment of the Rentech GTL Technology.
BC PROJECTOS, LTD.
Rentech has designated BC Projectos, Ltd., a Brazilian engineering
firm, as Rentech's exclusive engineering representative in Brazil. BC Projectos
is one of Brazil's foremost engineering firms in the field of cogeneration
plants, thermoelectric power generation and energy optimization studies. Its
staff has designed Brazil's first combined cycle plant (a highly efficient
electric plant powered by natural gas and steam). They have also designed more
than 70% of Brazil's capacity of thermoelectric plants using gas turbines. BC
Projectos has provided services to Amoco, Consolidated Natural Gas, Enron,
Shell, Total, Union Carbide, Petrobas, the national oil and gas company of
Brazil, and numerous other South American customers.
Rentech and BC Projectos intend to jointly identify projects for use of
the Rentech GTL Technology, conduct feasibility studies, identify potential
joint venture parties and financing, and cooperatively provide detailed
engineering support for the projects.
COMPETITION IN GTL TECHNOLOGY
Based on information from public announcements made by other companies
and from other published information, Rentech's competitors include several of
the major oil and gas companies as well as a few small companies.
Rentech's principal competitors in the gas-to-liquids field are
companies that have developed their own Fischer-Tropsch technology and have
operated full scale plants, or at least pilot plants, and who are actively
seeking customers to license their technology or to use it on some shared basis.
These other arrangements include use of the technology by a joint venture
between the owner of the technology and the owner of a source of feedstock.
Additional competitors in the field are those who are developing
Fischer-Tropsch technology, but who have not yet completed their research or
tested their technology in an operating pilot plant. Those other competitors
include several major oil and gas companies.
Several major oil companies are involved in large-scale synthetic fuel
development. These competitors include Royal Dutch/Shell, Exxon, and South
African Synthetic Oil, Ltd. (Sasol), a South African company. Syntroleum
Corporation, a smaller public company, offers its Fischer-Tropsch technology to
licensees and joint ventures in which it has a part interest.
Exxon has operated a 200 barrel per day plant in Baton Rouge,
Louisiana, to demonstrate its process. While the plant was operated for several
years, it is not now being operated.
Shell operated a 12,500 barrel per day plant in Bintulu, Malaysia that
produced diesel fuel and other products from natural gas. The diesel fuel was
sold to two refineries located in California and used for blending stock with
commercial diesel. This Fischer-Tropsch plant was shut down in December 1997
because of an explosion in the air handling unit, not the Fischer-Tropsch
reactor. Shell's plant is expected to be on-line again in 2000 with increased
production capacity.
23
<PAGE> 24
Sasol currently operates three Fischer-Tropsch plants that produce
about 160,000 barrels per day of liquid hydrocarbons. The feedstock is synthesis
gas produced from coal. Mossgas also uses Sasol's technology in South Africa to
produce in excess of 20,000 barrels per day of synthetic oil from natural gas.
In June 1999, Sasol and Chevron signed a Memorandum of Understanding for the
creation of a new global alliance to implement ventures based on Sasol's
gas-to-liquids technology.
According to public reports issued by Syntroleum Corporation, it has
operated a pilot plant with a nominal production capacity of two barrels per
day. Syntroleum reports that its pilot plant has successfully demonstrated
certain elements and variations of Syntroleum's Fischer-Tropsch process. In July
1999, Syntroleum announced the commencement of operations at its 70 barrel per
day pilot plant owned with ARCO at ARCO's Cherry Point refinery in the state of
Washington.
In 1999, Shell announced that it had used a cobalt catalyst in a slurry
reactor for conversion of synthesis gas from natural gas. Exxon filed claims of
patent infringement against Shell alleging infringement of certain patent rights
related to use of cobalt catalysts in slurry reactors used for Fischer-Tropsch
reactions. While it is impossible to know whether Exxon will succeed against
Shell, Exxon may claim exclusive patent rights to use cobalt catalysts in slurry
reactors designed for Fischer-Tropsch technology. The other users of cobalt
catalysts report they have performed extensive patent research and concluded
that their catalyst use does not infringe upon patents held by Exxon or others.
Unlike iron-based Fischer-Tropsch technologies, the cobalt-based
Fischer-Tropsch technologies are currently only used for the conversion of
synthesis gas produced from natural gas. Cobalt-based technologies can be used
to convert synthesis gas from liquids and solids, but such a plant requires the
addition of expensive equipment that would likely cause reduced product yields
and increased capital and operating costs.
Rentech's GTL Technology uses an iron-based catalyst, as does Sasol. No
claims of patent infringement have been made against Rentech, and none, to its
knowledge, have been made against Sasol. Sasol has announced business
arrangements with Chevron that indicate Sasol currently intends to only license
its technology for conversion of natural gas to companies with sources of the
feedstock who enter a joint venture arrangement with Sasol and Chevron to
jointly share profits.
Rentech's management believes its Fischer-Tropsch technology can
successfully compete against the technology of the others who are engaged in the
same business. Rentech, Exxon, Shell, Sasol and now Syntroleum/ARCO are the only
companies in the world that have operated a Fischer-Tropsch plant at larger than
laboratory scale. Currently, the others only use their technology for their own
account or for projects in which they acquire an equity interest.
Rentech's management believes that its patents protect several unique
features of the Rentech GTL Technology, including its catalyst, that give
Rentech competitive advantages in costs and product yields over those of its
competitors. See "Proprietary Designs, Intellectual Property and Patents."
Compared to cobalt-based catalysts, Rentech's iron-based catalyst:
o Is less expensive because the raw materials for the catalyst are
readily available.
o Is more tolerant of sulphur contained in the feedstock.
o Does not generate a hazardous waste.
24
<PAGE> 25
o Works with gas, liquid and solid feedstocks because it uses any
hydrogen to carbon monoxide ratio.
o Produces more olefinic products, which may create better fuels and
petrochemical feedstocks.
o Has the disadvantage of a shorter catalyst life, which is offset by the
lower cost of the catalyst.
GOVERNMENTAL REGULATION OF GTL PROCESSES AND PRODUCTS
Conversion plants using 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 unusual capital expenditures by Rentech
or its licensees. Compliance with governmental regulations is the responsibility
of the owners and operators of the plants, who will usually be Rentech's
licensees. If Rentech acquires a controlling interest and operates a plant,
Rentech would have to comply with applicable governmental regulations.
Because Rentech's iron-based catalyst is not a hazardous material and
is not regulated, Rentech believes that the cost of governmental compliance will
not be significantly affected by regulations governing hazardous materials.
Rentech's management believes the non-hazardous nature of its catalyst gives its
technology some advantages over its competitors that use a cobalt catalyst,
which is a regulated material.
While Rentech's management believes the risks related to use of the
Rentech GTL Technology are low, those plants that require the use of oxygen
producing systems to convert the feedstock into synthesis gas involve risks of
accidents. Special permits are typically required by local governments for the
oxygen systems. Oxygen is highly flammable and explosive. Personal injuries and
property damages would likely result from such incidents. Widespread market
acceptance of the Rentech GTL Technology could be delayed by this situation.
Rentech believes its ecodiesel could help users meet the increasingly
stringent requirements for cleaner fuels. 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 mandated reductions in diesel fuel sulphur to 0.05% weight maximum.
The state of California and several other state and local governments, have also
adopted legislation establishing allowable levels of exhaust emissions for
vehicles and businesses. Limits adopted by the California Air Resources Board
include 0.05% sulphur weight maximum and lowering aromatics content to a maximum
of 10% by volume. Initial studies 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 also found to
reduce hydrocarbon and carbon monoxide emissions. Lowering the sulphur content
of diesel fuel helps reduce particulate matter emissions.
OTHER BUSINESSES
OKON, INC.
In March 1997, Rentech entered into the business of manufacturing and
marketing water-based wood stains, concrete stains, block pluggers and other
water repellent sealers on a wholesale basis by purchasing the
25
<PAGE> 26
assets of Okon, Inc. (Okon), located in Lakewood, Colorado. The coatings
produced and sold by the Okon subsidiary are biodegradable and environmentally
clean.
Okon has been engaged in the business since 1973. 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. 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 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.
Okon primarily manufactures and markets standard products, but it also
prepares 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.
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 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
nationwide market. Rentech believes that Okon products are competitive based on
the quality of its products and their unique properties, including the absence
of V.O.C. ingredients due to the fact that the products are water-based and
biodegradable.
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.
PETROLEUM MUD LOGGING, INC.
In June 1999, Rentech entered into the business of providing well
logging services to the oil and gas industry. This occurred through its purchase
of the assets of two established and related companies that have been providing
services in these fields since 1964. Rentech is using the assets to continue
these businesses through its wholly-owned subsidiary, Petroleum Mud Logging,
Inc. (PML). The business is operated from Oklahoma City, Oklahoma. The services
are provided to customers located in Oklahoma, Texas, Kansas, Louisiana and
Arkansas.
26
<PAGE> 27
Petroleum Mud Logging, Inc. owns 18 mobile well logging units that are
moved from well to well. Through state of the art instruments, the logging
equipment measures traces of gases and water throughout the depth of a well hole
by analyzing the drilling mud recovered from the well as drilling progresses.
The results are transmitted to customers immediately by either land lines or
satellite uplink. The mineral owners use this information to detect the presence
of oil and gas deposits in underground formations.
The assets of Petroleum Mud Logging also include a comprehensive
library of well logs accumulated over the past 35 years. The well logs are
available for examination by customers for a charge.
In the last several years, the assets have been used to log less for
oil wells and more for gas wells. Rentech expects this trend to continue as
exploration for natural gas intensifies due to increasing demand for that energy
source.
REN CORPORATION
On April 16, 1999, Rentech entered into a letter of intent to purchase
51% of the outstanding stock of Ren Corporation. Ren is an Oklahoma corporation
organized in 1980 and located in Stillwater, Oklahoma. Ren is engaged in the
manufacture of complex microprocessor controlled industrial systems. Ren's
primary market has been automated test equipment for the fluid power industry.
Ren manufactures test instruments for various types of equipment such as
automatic hydraulic presses, transmissions, diesel fuel injection pumps and
gearbox and power supply systems. Ren's customer base currently consists of some
of the world's largest heavy-equipment manufacturers, including Boeing, Case
Corporation, Caterpillar, Inc., John Deere, Sauer-Sundstrand, Eaton and Vickers.
Rentech believes this potential acquisition would complement its
present business organization. Rentech expects that Ren would have a positive
cash flow, would retain its present management, and would be able to expand its
business with minimum capital expenditures.
Ren has a significant backlog of orders. Rentech has loaned Ren
$300,000 to enable it to accelerate its production output. The note bears
interest at 8% and is collateralized by the assets of Ren. Upon closing of this
transaction, the note receivable will be applied to the purchase price. If the
transaction does not close, then Ren is to repay the note no later than six
months from the Company's written notice that the purchase will not be
completed. Completion of the stock purchase is subject to Rentech's final due
diligence, funding of the purchase price, and approval by the boards of
directors of the two companies.
ADVANCED TECHNOLOGIES
ITN ENERGY SYSTEMS, INC. (ITN/ES)
Rentech owns 10% of ITN Energy Systems, Inc. (ITN/ES), a privately
owned Colorado corporation established in 1995. The core technologies of ITN/ES
include a thin multi-layer deposition process; intelligent processing;
structures and materials; and photovoltaic power system design, integration, and
installation. ITN/ES intends to develop and commercialize new, innovative
products for defense and commercial markets based on advanced materials and
structures technologies.
ITN/ES's business approach is to do basic development for specific
technologies with the support of government contracts and then to identify a
strategic partner to provide the necessary capital to commercialize the specific
products of that technology. ITN/ES's goal is to develop its technologies
adequately to attract
27
<PAGE> 28
federal research funds that will help ITN/ES retain some control over the
direction of future government research and a larger proprietary ownership of
the results. The current customers of ITN/ES are the U.S. Air Force Research
Laboratory, Defense Advanced Research Projects Agency, the National Aeronautical
Space Administration (NASA), and the U.S. Department of Energy.
Using its core technologies, ITN/ES is developing several products to
be offered for commercial uses. These products include a lightweight, flexible
Copper Indium Diselenide (CIS) photovoltaic (PV) module and a lithium ion solid
state thin film battery. ITN/ES's thin film PV technology is designed to make PV
systems more affordable while its thin film battery product is designed to
address needs in the portable, remote, and premium power markets. ITN/ES has
identified several other technologies that it is developing for commercial uses.
These include thin film solid state batteries, flexible electronic circuits,
ceramic membranes, and fly ash compaction. ITN/ES also plans to develop an
understanding of volume manufacturing issues and to develop markets and
marketing strategies in this field.
In April 1999, Rentech announced that ITN/ES has received eight
research and development contracts totaling $3.1 million from various federal
government entities. The size of the contracts vary from $69,871 for a six-month
study to $747,832 for a two-year project. The awards were granted by NASA, NASA
Jet Propulsion Laboratory, NASA Johnson Space Center, the Air Force Research
Laboratory and the U.S. Department of Naval Defense. The contracts range from
study phase work to programs that will develop and demonstrate actual prototype
systems. The projects will incorporate the expertise of ITN/ES in light-weight
thin film technologies, including thin film batteries; flexible photovoltaic
panels; flex circuitry; radio frequency circuitry (RF); shape memory alloys;
lightweight high energy power storage; and lightweight development systems for
space.
GLOBAL SOLAR ENERGY LLC
ITN/ES has developed technology for manufacturing flexible photovoltaic
(PV) modules. Currently, ITN/ES owns 50% of an Arizona limited liability company
called Global Solar Energy LLC (Global Solar Energy) which is using ITN/ES's
technology. 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 LLC, 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 started production in
the third quarter of 1999, and is designed to annually 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. The plant's production capacity is
expected to be expanded substantially to meet increasing demands for an
environmentally safe energy source. The joint venture expects that the
innovative manufacturing technology used in the new plant can reduce production
costs of PV modules below that of other existing solar energy technologies.
Rentech's ownership interest in ITN/ES provides Rentech an indirect interest
amounting to 5% of Global Solar Energy although the interest of the owners will
be reduced proportionately by any equity interest granted to a lender of funds
used to expand the Tucson plant.
28
<PAGE> 29
In 1999, the National Aeronautical Space Administration (NASA) awarded
a contract for approximately $600,000 to Global Solar Energy. The purpose of the
two-year contract is to develop a high voltage photovoltaic module to provide a
300-volt test unit for a possible space flight experiment.
ITN/ES ELECTRONIC SUBSTRATES LLC
In order to facilitate and participate in ITN/ES's development of
technologies, Rentech and ITN/ES have formed and each own 50% of a Colorado
limited liability company called ITN Electronic Substrates LLC. The LLC intends
to develop and introduce several technologies into the commercial marketplace
that are spinoffs from other developments originally conceived by the principals
of ITN/ES within the aerospace and military sector. The LLC is seeking a large
investment from a third party to fund its various advanced technologies, none of
which have been fully developed and readied for production. ITN Electronic
Substrates LLC also has technology for production of Radio Frequency
Identification Tags. The RFID tags would be used to identify and locate a wide
variety of objects in which the tags are embedded.
CERAMIC MEMBRANE TECHNOLOGY
Rentech is also participating with ITN/ES in the development of ceramic
membrane technology. The ceramic membranes would be used to separate selective
gas components from industrial and atmospheric gases by use of advanced ceramic
filters. Applications for patents with claims to use of the technology in that
field are now being prepared. Rentech is entitled to 20% of the revenues from
any use of the technology, and ITN/ES will receive the remaining 80%. Rentech
also has the right to direct marketing efforts of the ceramic membrane
technology when used with gas-to-liquids processes.
EMPLOYEES
At September 30, 1999, Rentech had 44 employees. Of the total, its
wholly-owned subsidiary, Okon, Inc., had six full-time employees and one
part-time employee. Rentech's wholly-owned subsidiary, Petroleum Mud Logging,
Inc., had 23 employees.
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 $119,328 per year. Rentech believes that its
existing space is adequate to meet its current needs and to accommodate
anticipated growth.
DEVELOPMENT AND TESTING LABORATORY
Rentech owns a development and testing laboratory located in Denver.
The facility consists of a 7,000 square foot laboratory located within a 20,000
square foot industrial building. The remainder of the building is rented to
tenants and constitutes potential expansion space for the laboratory. Rentech
renovated the building in fiscal 1999 to provide a state-of-the-art laboratory
and support facilities for Fischer-Tropsch technology. Rentech's small scale
reactor is operated at the facility for continued development of
29
<PAGE> 30
Fischer-Tropsch technology. Rentech's lab equipment and the laboratory were
upgraded in 1999 by approximately $500,000 in capital expenditures. Rentech
believes that its laboratory is one of the most comprehensive Fischer-Tropsch
facilities in the field today.
OKON FACILITY
Okon, Inc., a wholly owned subsidiary, rents an industrial building
located in Lakewood, Colorado, where its production facilities and offices are
located. The building contains approximately 12,000 square feet of office and
warehouse space. The lease expires March 14, 2000 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 approximately $32,900 a
year.
PETROLEUM MUD LOGGING PROPERTIES
The offices of Petroleum Mud Logging Inc., a wholly owned subsidiary,
are located in Oklahoma City, Oklahoma. The space consists of 1,930 square feet
of rental property that is adequate to meet the current needs of the subsidiary
and accommodate future growth. The lease extends to May 31, 2001. If the term is
not extended, alternative space is available at similar rental rates. The rent
is $19,300 per year plus taxes, insurance and maintenance.
Petroleum Mud Logging, Inc. also owns a shop building in Oklahoma City,
Oklahoma and personal property. These include 18 mobile vehicles equipped as
well logging units, including specialized logging equipment. The subsidiary also
owns an extensive library of well logs that provide information about the
results of previous oil and gas or natural gas exploration wells. Rentech
believes that its existing shop space and well logging units are adequate for
its current needs and to accommodate anticipated growth. The shop building is
adequate for maintenance of the vehicles, and the well logging units are in good
condition.
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 16, 1999.
At the meeting, Dennis L. Yakobson and John P. Diesel were elected to terms
ending in 2002 as members of the board of directors. The terms of John J. Ball,
Ronald C. Butz, Douglas L. Sheeran and Erich W. Tiepel as directors continue
after the meeting. In addition, the proposal to authorize the board of directors
for one year from the date of the annual meeting, to effect, in its discretion,
a reverse stock split of the outstanding shares of the Company's Common Stock on
the basis of one share for each five shares of the reverse stock split was
approved.
The following tabulation shows the votes cast at the meeting on each
matter voted upon, including election of directors.
<TABLE>
<CAPTION>
For Withheld/Against Not Voted
---------- ---------------- ---------
<S> <C> <C> <C>
Election of Directors:
Dennis L. Yakobson 34,932,490 637,070 0
John P. Diesel 34,796,163 773,397 0
Authorization of Reverse Stock
Split in Discretion of Directors 27,608,159 7,820,691 140,710
</TABLE>
30
<PAGE> 31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company trades on the OTC Bulletin Board under
the symbol RNTK. Before August 17, 1999, Rentech's common stock was traded on
the Nasdaq SmallCap Market under the same symbol. 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
1999 1998 1997
Low High Low High Low High
------ ------- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jan.-Mar $ 5/32 $1-5/14 $13/16 $ 3-3/32 $ 1/8 $ 15/32
Apr.-Jun 3/8 27/32 1-1/2 2-29/32 1/8 1/2
Jul.-Sep 31/64 29/32 13/16 1-21/32 7/32 31/32
Oct-Dec -- -- 5/8 1-7/32 23/64 2-9/64
</TABLE>
The approximate number of shareholders of record of the common stock of
the Company as of September 30, 1999 was 454. The number of beneficial owners is
estimated by management at not less than 6,000.
No dividends have been declared with respect to the common stock during
the 12-month fiscal year ended September 30, 1999. The Company currently expects
that it will retain future earnings for use in the operation and expansion of
its business and does not anticipate paying any cash dividends in the
foreseeable future. Dividends on the common stock may not be paid unless all
accumulated and unpaid dividends due on the 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>
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)
</TABLE>
31
<PAGE> 32
<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>
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)
June 1, 1999 Common 100,000 (6) 0 Unaccredited Rules 505, 506,
Stock Investors Section 4(2)
Jul. 13, 1999 Common 1,514 (7) 0 Accredited Rules 505, 506,
Stock Investor Section 4(6)
Jul. 27, 1999 Common 100,000 (8) 0 Accredited Rules 505, 506,
Stock Investor Section 4(6)
</TABLE>
32
<PAGE> 33
<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>
Sep. 30, 1999 Common 3,680,168 (9) 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) Holders of Series 1998-B Preferred Shares may convert their preferred
shares into 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) Shares issued for investment banking services provided.
(6) Shares issued as partial consideration for the purchase of Petroleum
Mud Logging, Inc., an Oklahoma corporation, by the Company.
(7) Shares issued in exchange for consulting services.
(8) 25,000 shares were issued to each of the outside directors of the
Company, John J. Ball, John P. Diesel, Douglas L. Sheeran and Dr. Erich
W. Tiepel, in lieu of directors' fees.
(9) The consideration received was 5% of the common stock of Dresser
Engineers & Constructors, Inc. pursuant to a September 28, 1999
agreement for a 5% interest in that company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
For the years ended September 30, 1999 and 1998, the Company had net
losses of $3,442,661 and $2,180,855, respectively. The increase of approximately
73% in loss for fiscal 1999 compared to fiscal 1998
33
<PAGE> 34
is primarily due to a $1,532,690 increase in general and administration costs
attributable to salary and benefit costs associated with hiring of additional
sales, laboratory and clerical staff and salary increases, increased public
relations costs, expenses associated with PML from acquisition date, June 1,
1999 to September 30, 1999, and increased legal expenses. Gross profit which was
contributed totally by Okon in fiscal year 1998 has increased by $421,304 due to
the acquisition of the Real Estate segment in February 1999 and the acquisition
of PML in June 1999.
During the year ended September 30, 1999, the Company recognized
$1,960,764 for sales of water-based paints, sealers and coatings as compared to
$1,987,586 for the year ended September 30, 1998. 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 has the right to use Rentech's
GTL (Solids to Liquids) Technology alone and in combination with Texaco's
proprietary gasification technology to produce liquid hydrocarbon products such
as naphtha, fuel and specialty products. Under this agreement the Company earned
$340,000 in royalty income during the year ended September 30, 1999 as compared
to no royalty income for the prior year. Under a contract with Texaco, the
Company began billing for technical services in April 1999. Revenues for
technical services for the year ended September 30, 1999 were $211,246 as
compared to no technical service revenue for the prior year. On June 1, 1999,
the Company acquired the assets of PML. The revenue contributed from this
subsidiary was $295,512 for the year ended September 30, 1999 as compared to no
revenue for the prior year. The Company recorded the revenue earned from PML and
the revenue earned from Texaco as service revenues for the year ended September
30, 1999. In February 1999, the Company acquired the land and building occupied
by its research department and three other tenants. Rental income from this
facility contributed $73,378 in revenue for the year ended September 30, 1999 as
compared to no rental income for the prior year.
During the year ended September 30, 1999, costs of sales increased to
$1,416,078 as compared to $944,068 for the prior year. The $472,010 increase
relates almost entirely to costs associated with the additions of new revenues
as detailed above. During the year ended September 30, 1999, costs of sales
related to water-based paints, sealers and coatings was $919,609, a $24,458
decrease as compared to the year ended September 30, 1998.
The gross profit of $1,464,822 for the year ended September 30, 1999 as
compared to $1,043,518 in the prior year is a result of the contributions of new
revenues for the year ended September 30, 1999 offset by a slight decrease in
sales of water-based paints, sealers and coatings.
During the year ended September 30, 1999, general and administrative
expenses increased by $1,532,690 over the comparable year ended September 30,
1998. The increase is caused by approximately $125,000 in expenses associated
with PML which were not included in the prior year, increased costs related to
public relations of approximately $372,000, and approximately $838,000 in
expense from the hiring of additional sales, laboratory and office staff and
salary increases during 1999.
For the year ended September 30, 1999, the Company incurred $488,713 in
depreciation and amortization expense of which $121,395 is included in cost of
sales compared to $391,650 in depreciation and amortization for the year ended
September 30, 1998. The increase in depreciation and amortization is
attributable to the additional equipment at the laboratory acquired during
fiscal 1999, the assets acquired with the acquisition of PML during June 1999
and depreciation on the rental property which was acquired in February 1999.
34
<PAGE> 35
During fiscal 1999, the Company expensed its $233,279 non-refundable
deposit related to a potential acquisition as the Company decided not to acquire
the business.
Research and development expense increased by $135,241 during the year
ended September 30, 1999 over the comparable year ended September 30, 1999. This
is primarily due to the Company's undertaking of new research and development
work in fiscal 1999 to accelerate the commercial use of the Rentech GTL
Technology.
Loss from operations for the year ended September 30, 1999 increased by
$1,455,574 to a loss of $3,442,392 compared to a loss of $1,986,818 for the year
ended September 30, 1998. The increased loss is primarily due to increases in
general and administrative expenses. This increase is partially offset by an
increase in gross profit contributed by the Company's GTL alternative fuel
segment resulting from royalty income received in fiscal 1999 and an operating
profit from the real estate operation.
Total other expense decreased by $193,768 for the year ended September
30, 1999 over the comparable year ended September 30, 1998. During fiscal 1998,
the Company recorded a loss from the Synhytech plant held for sale as the
Company anticipated that it would not recover its investment. Interest income
increased by $35,170 for the year ended September 30, 1999 compared to the prior
year due to the increase in the average amount of cash on hand in fiscal 1999
compared to fiscal 1998. Interest expense decreased by $59,098 for the year
ended September 30, 1999 compared to the prior year because the average amount
of debt outstanding during fiscal 1999 was less than the average amount of debt
outstanding during fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital of $115,457 as
compared to working capital of $3,195,381 at September 30, 1998. The decrease in
working capital is primarily due to the use of cash for operations and investing
activities partially offset by cash provided from the issuance of the Company's
common stock and Series 1998-B convertible preferred stock during fiscal 1999.
On October 12, 1999, the Company began a private placement offering of
up to $7,500,000 of its securities according to the terms of its private
placement memorandum. The Company is offering for sale Units consisting of four
shares of its $.01 par value common stock and one redeemable stock purchase
warrant for the purchase of one share of common stock. The purchase price is
$2.40 per Unit. First Union Securities is the private placement agent for this
offering. As of January 12, 2000 the Company has raised $1,600,000 from this
private placement offering, and has an additional $600,000 in subscription
agreements to be funded in January 2000. The cash received from this private
placement, the cash generated from the Company's subsidiary operations, the cash
generated from the Texaco contract and the Texaco royalty fees are expected to
be adequate to fund the Company's operations at the current level through fiscal
2000.
On January 7, 2000, the Company and Republic Financial purchased the
"Sand Creek" methanol facility, and all the supporting infrastructure,
buildings, and the underlying 17 acre site. The Company and Republic Financial
are developing a plan to convert the facility to a gas-to-liquids (GTL) plant
making Fischer-Tropsch diesel, naphtha, petroleum waxes and other products. The
new owner of the facility will be Sand Creek Energy, LLC (SCE) which is 50
percent owned by Rentech Development Corp., a newly wholly-owned subsidiary of
the Company and 50 percent owned by RFC-Sand Creek Development, LLC, a
wholly-owned subsidiary of Republic Financial. This acquisition does not have a
significant impact on the Company's Financial Statements.
35
<PAGE> 36
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 Energy Systems, Inc., formerly known as Texaco Natural
Gas, Inc., for commercialization of Rentech's GTL Technology.
The Company has net deferred tax assets offset by a full valuation
allowance at September 30, 1999 and 1998. Management is not able to determine if
it is more likely than not that the net deferred tax assets will be realized.
See Note 8 to the Consolidated Financial Statements.
YEAR 2000 COMPLIANCE
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.
During the first week of January 2000, the Company did not have any
interruptions of its business due to the Year 2000 Issue. During the next few
months, the Company will continue to monitor its operations and assess whether
the Year 2000 Issue has an impact on the Company.
ANALYSIS OF CASH FLOW
The Company had net losses of $3,442,661 during the year ended
September 30, 1999, and $2,180,855 during the year ended September 30, 1998.
During the year ended September 30, 1999, non-cash expenses included
depreciation, which increased by $95,917 during fiscal 1999, primarily due to
additional equipment at the laboratory, the assets acquired with the acquisition
of PML during June 1999 and depreciation on the rental property which was
acquired in February 1999. During the year ended September 30, 1999, the Company
did not incur noncash interest expense associated with convertible notes payable
as compared to $45,621 of non-cash interest in the prior year. The Company
recorded a $99,500 write-down of
36
<PAGE> 37
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. During the year ended September 30, 1999, the Company wrote off a $233,279
non-refundable deposit related to a potential acquisition as the Company decided
not to acquire the business. Common stock in the amount of $62,500 was issued
for services during the year ended September 30, 1999 as compared to $94,908
during the year ended September 30, 1998. Options to purchase common stock were
granted for services valued at $7,152 and $52,933 during fiscal 1999 and 1998.
Changes in operating assets and liabilities are primarily due to accounts
receivable acquired with the operations of PML in 1999 and accounts receivable
arising from billing laboratory services. Increases in accounts payable and
accrued liabilities are primarily due to accounts payable and accrued expenses
acquired after the operations of PML. The total net cash used in operations
increased to $2,651,686 in the year ended September 30, 1999 compared to cash
used in operations of $1,430,770 during the year ended September 30, 1998. The
increase reflects increased cash costs for general and administrative expenses,
including PML acquired June 1999, partially offset by royalty income, rental
income from the real estate operations, gross profit from the Texaco service
contract and gross profit from PML's operations, none of which existed in fiscal
1998.
Investing activities during the year ended September 30, 1999 included
purchases of $1,054,646 in building and equipment, primarily in facilities for
the Company's Fischer-Tropsch research, compared to $61,785 for equipment in the
prior year. The Company used $597,812 in cash to acquire certain of the assets
of PML during the year ended September 30, 1999. The Company used $2,072 in
cash, in addition to common stock, to acquire a 5% interest in Dresser
Engineering Company during the year ended September 30, 1999 as compared to cash
of $252,665 used to acquire a 10% interest in ITN/ES during the year ended
September 30, 1998. Other assets increased by $536,278 during the 1999 period
compared to an increase of $85,044 in the 1998 period, primarily due to
preliminary investments in future business acquisitions.
Financing activities during the year ended September 30, 1999 provided
$312,319 in cash from the issuance of common stock compared to $725,971 during
the year ended September 30, 1998. During the year ended September 30, 1998, the
Company received net proceeds of $1,834,844 from the issuance of 1998 Series B
convertible preferred stock as compared to net proceeds of $4,399,185 during the
year ended September 30, 1998. The Company entered into a mortgage to finance
the purchase of land and building in February 1999, entered into two notes
payable and assumed certain long-term debt in connection with the acquisition of
PML during June, 1999. During the year ended September 30, 1999, the Company
repaid $66,657 on these debt obligations. During the year ended September 30,
1997, the Company received $690,000 ($90,000 from a related party) as proceeds
from notes payable. These notes were repaid in full during fiscal 1998. During
the year ended September 30, 1998, the Company received an additional $60,000 as
proceeds of convertible notes payable. The net cash provided by financing
activities during the year ended September 30, 1999 was $2,080,506, compared to
$4,495,156 cash provided by financing activities during the year ended September
30, 1998.
Cash decreased during the year ended September 30, 1999 by $2,748,197
compared to an increase of $2,664,892 during the year ended September 30, 1998.
These changes decreased the ending cash balance to $308,182 at September 30,
1999 from $3,056,379 at September 30, 1998.
ITEM 7. FINANCIAL STATEMENTS
The financial statements identified in Item 13 are filed as part of
this Annual Report on Form 10-KSB.
37
<PAGE> 38
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 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
Mark S. Bohn Vice President - Engineering 1998 to date --
Ronald C. Butz(2) Vice President, Chief Operating 1984 to date 2001
Officer, Secretary and Director
Jack P. Diesel(1) Director 1998 to date 2002
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 2002
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. Mr. Samuels failed to file a Form 4 due by September
15, 1999 to report an exercise of stock options. The transaction was reported on
a Form 5 filed on December 22, 1999.
38
<PAGE> 39
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 62, has served as a director of Rentech since 1984. He
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 October 1989, Mr. Butz was appointed vice
president of Rentech, in June 1990 he was appointed secretary, and in May 1998
he was appointed chief operating officer.
Douglas L. Sheeran, Director--
Mr. Sheeran, age 61, has served as a director of Rentech since 1998. He
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. In 1986 he 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 managing director of FCI, Inc.
CLASS II DIRECTORS (WITH TERMS EXPIRING IN 2002):
Dennis L. Yakobson, President, Chief Executive Officer, Director and
Chairman of the Board--
Mr. Yakobson, age 63, has served as a director of Rentech and chairman
of the board since 1983. He 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, his final position with it being
contract administrator with responsibility
39
<PAGE> 40
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. 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 become
a director and assume the presidency of Rentech.
John P. Diesel, Director--
Mr. Diesel, age 73, has served as a director of Rentech since 1998. He
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, and 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 its 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, Fansteel Inc., and
Telepad Corporation.
CLASS III DIRECTORS (WITH TERMS EXPIRING IN 2000):
Erich W. Tiepel, Director--
Dr. Tiepel, age 56, has served as a director of Rentech since 1983. He
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 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.
40
<PAGE> 41
John J. Ball, Director--
Mr. Ball, age 56, has served as a director of Rentech since 1998. He
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
admitted to the Nova Scotia Bar in 1970 and the Ontario Bar in 1971. After his
admission 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 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 Cup, which sponsors 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. 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.
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.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers and other key employees of Rentech and its
subsidiaries are as follows:
Dennis L. Yakobson, President and Chief Executive Officer. (See background
experience under "Directors").
Ronald C. Butz, Vice President-Legal, Secretary and Chief Operating Officer.
(See background experience under "Directors").
Charles B. Benham, Vice President-Research and Development--
Dr. Benham, age 63, was a founder of Rentech and has been an officer of
Rentech since its inception in 1981. He served as president until 1983 and as a
director from inception until 1996. He 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
41
<PAGE> 42
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.
Dr. Benham devotes his full time to the business of Rentech.
Mark S. Bohn, Vice President-Engineering--
Dr. Bohn, age 49, a founder of Rentech, served as a director from its
organization in 1981 to June 1998. Since November 9, 1998 he has been employed
by Rentech as Vice President-Engineering. He received a Bachelors degree in
Mechanical Engineering from Georgia Institute of Technology, Atlanta, Georgia,
in 1972, and a Master of Science degree in Mechanical Engineering in 1973 and a
Ph.D. in Mechanical Engineering in 1976, both from the California Institute of
Technology, Pasadena, California. He was employed from 1976 through 1978 at the
General Motors Research Laboratories in Warren, Michigan. From 1978 to November,
1998 he was employed by Midwest Research Institute at the Solar Energy Research
Institute (now National Renewable Energy Laboratory) in Golden, Colorado. Dr.
Bohn is a registered Professional Engineer in Colorado and a Member of the
American Society of Mechanical Engineers and the American Institute of Chemical
Engineers. He has published numerous articles on liquid fuel production, organic
waste, heat transfer, power cycles, aerodynamics, optics, acoustics, solar
thermal energy, and co-authored the textbook Principles of Heat Transfer (Brooks
Cole Publishing).
James P. Samuels, Vice President-Finance, Treasurer, and Chief
Financial Officer--
Mr. James P. Samuels, age 52, has served as Vice President-Finance,
Treasurer and Chief Financial Officer of Rentech since May 1, 1996. He 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.
42
<PAGE> 43
Frank L. Livingston, Vice President and General Manager, Okon, Inc.--
Mr. Frank L. Livingston, age 57, has served as Vice President and
general manager of Okon, Inc, a wholly-owned subsidiary of Rentech, since
Rentech acquired Okon in March 1997. Mr. Livingston joined Okon in 1975 as sales
manager and was promoted to Vice President of Sales in 1984. Mr. Livingston also
became a 24% owner of Okon at that time. In addition to his sales and marketing
responsibilities, he was also responsible for manufacturing and research and
development for Okon. Mr. Livingston also served on Okon's board of directors.
With the sale of Okon to Rentech in 1997, Mr. Livingston continues to serve on
its board of directors. He received a Bachelor of Science Degree in Chemistry
from Colorado State University in 1965. He was employed by Mallinckrodt Chemical
Co. from 1965 to 1971. While with it, 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.
Jimmie D. Fletcher, General Manager, Petroleum Mud Logging, Inc.--
Mr. Jimmie D. Fletcher, age 46, is general manager of Petroleum Mud
Logging, Inc. Mr. Fletcher has 26 years of experience in mud logging. From 1995
to August 15, 1999, Mr. Fletcher was employed by Penson Well Logging as its
general manager and marketing officer. From 1988 through 1994, Mr. Fletcher
worked for Petroleum Mud Logging, Inc., of Oklahoma City, owned by Hoyt L.
Hudspeth, as a mud logging technician. From 1981 to 1988, Mr. Fletcher was
employed by OFT Exploration in Oklahoma City as a well site geologist, and also
worked as a consulting geologist. His first work experience was with Dresser
Industries in 1973 to 1974 as a mud logger. Mr. Fletcher obtained a B.S. in
Business Administration and a minor in Geology and Economics from Southwestern
State College of Oklahoma in 1974.
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
four 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 $100,000.
43
<PAGE> 44
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Restricted Securities
Principal Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
- ------------------ -------- -------- -------- ------------ ---------- ------------ --------- ------------
($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dennis L. Yakobson 1999 $161,676 -- -- -- 35,000 -- --
Chief Executive 1998 $132,090 -- -- -- 20,000 -- --
Officer 1997 $114,954 -- -- -- 462,400 -- --
Ronald C. Butz 1999 $150,972 -- -- -- 35,000 -- --
Chief Operating 1998 $128,058 -- -- -- 20,000 -- --
Officer 1997 $110,970 -- -- -- 450,880 -- --
Charles B. Benham 1999 $134,308 -- -- -- 30,000 -- --
Vice President - 1998 $128,058 -- -- -- 20,000 -- --
Research & 1997 $110,970 -- -- -- 450,880 -- --
Development
Mark S. Bohn 1999 $122,609 -- -- -- 30,000 -- --
Vice President - 1998 -- -- -- -- -- -- --
Engineering 1997 -- -- -- -- -- -- --
James P. Samuels 1999 $133,144 -- -- -- 30,000 -- --
Chief Financial 1998 $128,058 -- -- -- 20,000 -- --
Officer 1997 $ 94,731 -- -- -- 579,500 -- --
</TABLE>
- ---------------
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
Options/SARs Options/SARs
Shares at FY-End(#) at FY-End
Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized ($) Unexercisable Unexercisable ($)
- ---- -------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Dennis L. Yakobson -- -- 537,400 (1) $157,259
Ronald C. Butz -- -- 465,880 (1) 135,796
Charles B. Benham -- -- 520,880 (1) 152,896
Mark S. Bohn -- -- 322,092 (1) 90,142
James P. Samuels 49,500 $12,375 564,000 (1) 169,178
</TABLE>
- --------------
(1) Exercisable.
44
<PAGE> 45
EMPLOYMENT CONTRACTS
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 elected.
The Company employs Messrs. Yakobson, Benham and Butz pursuant to
employment contracts that extend through March 31, 2002. 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.
Mr. Fletcher is employed according to a contract that extends to August 15,
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. The contracts provide for
annual cost of living adjustments. 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.
Rentech's success with its technology and in implementing its business
plan to develop advanced technology businesses are both substantially dependent
upon the contributions of its executive officers and key employees. The
individuals include Dr. Charles B. Benham, Dr. Mark S. Bohn, and Dennis L.
Yakobson, each of whom have jointly and individually invented various aspects of
the Rentech GTL Technology. At this stage of the Company's development, economic
success of the Rentech GTL Technology depends upon design of conversion plants
and their startup to achieve optimal plant operations. That effort and
establishment of the Company's advanced technology businesses both require
knowledge, skills, and relationships unique to the Company's key personnel.
Moreover, to successfully compete with its Rentech GTL Technology and advanced
technologies, the Company will be required to engage in continuous research and
development regarding processes, products, markets and costs. Loss of the
services of the executive officers or other key employees could have a material
adverse effect on Rentech's business, operating results and financial condition.
Rentech does not have key man life insurance. Rentech believes its employment
contracts with its key personnel will be extended.
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.
45
<PAGE> 46
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
Number of % of Total Market
Securities Options/SARs Price on
Underlying Granted to Exercise or Date of
Options/SARs Employees in Base Price Grant Expiration
Name Granted(#) Fiscal Year ($/Sh) ($/Sh)* Date
- ---- ----------- ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Dennis L. Yakobson 35,000 12.50% $.625 $.625 07/26/04
Ronald C. Butz 35,000 12.50% .625 .625 07/26/04
Charles B. Benham 30,000 10.71% .625 .625 07/26/04
Mark S. Bohn 30,000 10.71% .625 .625 07/26/04
James P. Samuels 30,000 10.71% .625 .625 07/26/04
</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.
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 1,000 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 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 $35,265 and $14,352 to the plan for the years
ended September 30, 1999 and 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 10,
1999 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 executive
officers named in the tables under "Executive Compensation" and by all executive
officers and directors as a group:
46
<PAGE> 47
<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 75,000 of record *
201 City Centre Dr., Ste.701 (42,000 indirectly)(1)
Mississauga, Ontario
L5B 2T4
Charles B. Benham Vice President - Research 275,440 of record 1.5%
12401 E. 37th Avenue and Development (520,880 indirectly)(1)
Denver, CO 80239
Mark S. Bohn Vice President - 443,431 of record 1.5%
12401 E. 37th Avenue Engineering (322,092 indirectly)(1)
Denver, CO 80239
Ronald C. Butz Vice President, Chief 244,151 of record(2) 1.4%
1331 17th Street, Ste. 720 Operating Officer, (465,880 indirectly)(1)
Denver, CO 80202 Secretary and Director
John P. Diesel Director 75,000 of record *
1224 U.S. Highway #1, Ste. D (40,000 indirectly)(1)
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, 180,500 of record 1.4%
1331 17th St., Suite 720 Chief Financial Officer (564,000 indirectly(1)
Denver, CO 80202
Douglas L. Sheeran Director 165,850 of record *
c/o FCI, Inc. (40,000 indirectly)(1)
621 Shrewsbury Avenue
Shrewsbury, NJ 07702
Erich W. Tiepel Director 198,277 of record 1.0%
3900 S. Wadsworth, Ste. 155 (302,448 indirectly)(1)
Lakewood, CO 80235
Dennis L. Yakobson President, Chief Executive 374,154 of record 1.8%
1331 17th Street, Suite 720 Officer and Director (537,400 indirectly)(1)
Denver, CO 80202
</TABLE>
47
<PAGE> 48
<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>
Dresser Engineers & Shareholder 3,680,168 of record 7.1%
Constructors, Inc.
325 N. St. Paul Street
Dallas, TX 75201
All Directors and Executive Officers and Directors 2,071,803 of record 9.6%
Officers and a Group (2,900,700 indirectly) (4.0% of
(10 persons) record)
</TABLE>
- ---------------
*Less than 1%.
(1) Includes shares of common stock underlying presently exercisable stock
options.
(2) Does not include 257,432 shares of common stock held of record by Mr.
Butz's spouse as to which shares he disclaims beneficial ownership and
investment and voting power.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No information is provided under this item.
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 Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Summary of Accounting Policies
Notes to Consolidated Financial Statements
(b) No reports on Form 8-K have been filed during the last quarter of
the period covered by this report.
48
<PAGE> 49
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.
/s/ Dennis L. Yakobson
--------------------------------------
Date: January 12, 2000 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>
/s/ Dennis L. Yakobson
---------------------------------------------
Date: January 12, 2000 Dennis L. Yakobson, President, Chief
---------------------- Executive Officer and Director
/s/ Ronald C. Butz
---------------------------------------------
Date: January 12, 2000 Ronald C. Butz, Chief Operating Officer,
---------------------- Vice President, Secretary and Director
/s/ James P. Samuels
---------------------------------------------
Date: January 12, 2000 James P. Samuels, Vice President - Finance,
---------------------- Chief Financial Officer
/s/ John J. Ball
---------------------------------------------
Date: January 12, 2000 John J. Ball, Director
----------------------
/s/ John P. Diesel
---------------------------------------------
Date: January 12, 2000 John P. Diesel, Director
----------------------
/s/ Douglas L. Sheeran
---------------------------------------------
Date: January 12, 2000 Douglas L. Sheeran, Director
----------------------
/s/ Erich W. Tiepel
---------------------------------------------
Date: January 12, 2000 Erich W. Tiepel, Director
----------------------
</TABLE>
49
<PAGE> 50
RENTECH, INC. AND SUBSIDIARIES
CONTENTS
================================================================================
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-14
Notes to Consolidated Financial Statements F-15 - F-37
F-1
<PAGE> 51
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 Subsidiaries (the "Company") as of September 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. 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
subsidiaries as of September 30, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
November 12, 1999, except for Note 12 which is as of January 12, 2000.
Denver, Colorado
F-2
<PAGE> 52
RENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
Years Ended September 30, 1999 1998
- ------------------------- ------------ ------------
<S> <C> <C>
ASSETS (Note 5)
CURRENT:
Cash $ 308,182 $ 3,056,379
Accounts receivable, net of $2,000
allowance for doubtful accounts (Note 11) 374,683 224,933
Other receivables 59,378 --
Inventories 90,482 99,574
Prepaid expenses and other current assets 184,998 209,179
------------ ------------
Total current assets 1,017,723 3,590,065
------------ ------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization
of $329,238 and $180,258 (Note 2) 3,415,921 320,057
------------ ------------
OTHER:
Licensed technology, net of accumulated
amortization of $1,401,694 and $1,172,951 2,029,454 2,258,197
Goodwill, net of accumulated
amortization of $207,771 and $123,402 (Note 1) 1,169,382 1,085,382
Investment in ITN/ES (Note 3) 3,079,107 3,079,107
Investment in Dresser (Note 4) 1,840,084 --
Technology rights, net of accumulated
amortization of $55,907 and $28,776 231,839 258,970
Deposits and other assets 426,471 123,472
------------ ------------
Total other assets 8,776,337 6,805,128
------------ ------------
$ 13,209,981 $ 10,715,250
============ ============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-3
<PAGE> 53
RENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
Years Ended September 30, 1999 1998
- ------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 344,696 $ 315,116
Accrued liabilities 113,544 79,568
Current portion of long-term debt (Note 5) 444,026 --
------------ ------------
Total current liabilities 902,266 394,684
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion (Note 5) 1,237,669 --
Lessee deposits 9,248 --
------------ ------------
Total long-term liabilities 1,246,917 --
------------ ------------
Total liabilities 2,149,183 394,684
------------ ------------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY (Notes 6 and 12)
Series A convertible preferred stock - $10 par value; 200,000 shares
authorized; 50,000 shares issued and outstanding in 1998; $10 per share
liquidation value (in the aggregate $528,347 including accrued dividends of
$28,347 as of September 30, 1998) -- 500,000
Series B convertible preferred stock - $10 par value; 800,000
shares authorized; 133,332 and 107,500 shares issued and outstanding; $10
per share liquidation value (in the aggregate $1,370,742 and $1,081,000
including accrued dividends of $37,422 and $6,000) 1,333,320 1,075,000
Series C participating preferred stock - $10 par value;
500,000 shares authorized; no shares issued and outstanding -- --
Common stock - $.01 par value; 100,000,000 shares
authorized; 49,272,747 and 40,075,292 shares issued
and outstanding 492,725 400,750
Additional paid-in capital 26,291,017 21,426,487
Accumulated deficit (17,056,264) (13,081,671)
------------ ------------
Total stockholders' equity 11,060,798 10,320,566
------------ ------------
$ 13,209,981 $ 10,715,250
============ ============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-4
<PAGE> 54
RENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Years Ended September 30, 1999 1998
- ------------------------- ------------ ------------
<S> <C> <C>
REVENUES: (Note 11)
Product sales $ 1,960,764 $ 1,987,586
Service revenues 506,758 --
Royalty income 340,000 --
Rental income 73,378 --
------------ ------------
Total revenues 2,880,900 $ 1,987,586
COST OF SALES 1,416,078 944,068
------------ ------------
GROSS PROFIT 1,464,822 1,043,518
OPERATING EXPENSES:
General and administrative expense 4,111,151 2,578,461
Depreciation and amortization 367,318 391,650
Writeoff of deposits related to acquisition 233,279 --
Research and development 195,466 60,225
------------ ------------
Total operating expenses 4,907,214 3,030,336
------------ ------------
LOSS FROM OPERATIONS (3,442,392) (1,986,818)
OTHER INCOME (EXPENSE):
Write-down of Synhytech plant held for sale -- (99,500)
Interest income 75,665 40,495
Interest expense (75,934) (135,032)
------------ ------------
Total other expense (269) (194,037)
------------ ------------
NET LOSS (3,442,661) (2,180,855)
Dividend requirements on preferred stock (Note 6) 531,932 1,164,992
------------ ------------
LOSS APPLICABLE TO COMMON STOCK $ (3,974,593) $ (3,345,847)
------------ ------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (.09) $ (.10)
------------ ------------
BASIC AND DILUTED WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 43,838,417 33,289,164
============ ============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-5
<PAGE> 55
RENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
For the Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------------------------------
Series A Series B
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, October 1, 1997 -- $ -- -- $ --
Common stock issued for cash on
options and warrants exercised -- -- -- --
Common stock issued for investment -- -- -- --
Common stock issued for technology rights -- -- -- --
Common stock issued for interest expense
on convertible notes payable -- -- -- --
Common stock issued for redemption
of convertible notes payable,
net of $279,723 in offering costs -- -- -- --
Common stock issued for services
and prepaid expenses -- -- -- --
Preferred stock issued for cash,
net of offering costs of $696,572 200,000 2,000,000 300,000 3,000,000
Common stock issued for
conversion of preferred stock (150,000) (1,500,000) (192,500) (1,925,000)
Deemed dividends on convertible
preferred stock -- -- -- --
Stock warrants issued for
Investment -- -- -- --
Technology rights -- -- -- --
Offering costs -- -- -- --
Stock options issued for services -- -- -- --
Dividends on preferred stock -- -- -- --
Net loss -- -- -- --
<CAPTION>
Common Stock Additional
------------------------------ Paid-In Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C>
Balance, October 1, 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
and prepaid expenses 166,000 1,660 221,373 --
Preferred stock issued for cash,
net of offering costs of $696,572 -- -- (696,572) --
Common stock issued for
conversion of preferred stock 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)
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-6
<PAGE> 56
RENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------------------------------
Series A Series B
Shares Amount Shares Amount
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1998 50,000 $ 500,000 107,500 $ 1,075,000
Common stock issued for cash -- -- -- --
Common stock issued for cash on
options and warrants exercised -- -- -- --
Common stock issued for acquisition (Note 1) -- -- -- --
Common stock issued for investment (Note 4) -- -- -- --
Common stock issued for services -- -- -- --
Preferred stock issued for cash,
net of offering costs of $248,476 -- -- 208,332 2,083,320
Common stock issued for
conversion of preferred stock (50,000) (500,000) (182,500) (1,825,000)
Deemed dividends on convertible
preferred stock -- -- -- --
Stock warrants issued for prepaid expenses -- -- -- --
Stock options issued for services -- -- -- --
Dividends on preferred stock -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ -------------
Balance, September 30, 1999 -- -- 133,332 $ 1,333,320
============ ============ ============ =============
<CAPTION>
Common Stock Additional
----------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, September 30, 1998 40,075,292 $ 400,750 $ 21,426,487 $(13,081,671)
Common stock issued for cash 150,000 1,500 48,500 --
Common stock issued for cash on
options and warrants exercised 940,110 9,401 252,918 --
Common stock issued for acquisition (Note 1) 100,000 1,000 49,000 --
Common stock issued for investment (Note 4) 3,680,168 36,802 1,801,210 --
Common stock issued for services 100,000 1,000 61,500 --
Preferred stock issued for cash,
net of offering costs of $248,476 -- -- (248,476) --
Common stock issued for
conversion of preferred stock 4,227,177 42,272 2,371,550 (54,477)
Deemed dividends on convertible
preferred stock -- -- 440,033 (440,033)
Stock warrants issued for prepaid expenses -- -- 81,143 --
Stock options issued for services -- -- 7,152 --
Dividends on preferred stock -- -- -- (37,422)
Net loss -- -- -- (3,442,661)
------------ ------------ ------------ ------------
Balance, September 30, 1999 49,272,747 $ 492,725 $ 26,291,017 $(17,056,264)
============ ============ ============ ============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE> 57
RENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,442,661) $ (2,180,855)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 149,401 53,484
Amortization 339,312 338,166
Interest expense -- 45,621
Write-off of deposits 233,279 --
Write-down of Synhytech plant held for sale -- 99,500
Write-down of accounts receivable -- 167,206
Common stock issued for services 62,500 94,908
Stock options issued for services 7,152 52,933
Changes in operating assets and liabilities,
net of business combination:
Accounts receivable (149,750) (74,022)
Other receivables (59,378) --
Inventories 9,092 7,577
Prepaid expenses and other current assets 129,638 (28,366)
Accounts payable 29,580 46,022
Accrued liabilities 30,901 (52,944)
Leasee deposits 9,248 --
------------ ------------
Net cash used in operating activities $ (2,651,686) $ (1,430,770)
------------ ------------
</TABLE>
F-8
<PAGE> 58
RENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1999 1998
------------ ------------
<S> <C> <C>
INVESTING ACTIVITIES:
Purchase of property and equipment (1,054,646) (61,785)
Proceeds from disposal of vehicles 13,791 --
Cash used in purchase of business (597,812) --
Cash used in purchase of investment (2,072) (252,665)
Increase in deposits and other assets (536,278) (85,044)
------------ ------------
Net cash used in investing activities (2,177,017) (399,494)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of offering costs 312,319 725,971
Proceeds from issuance of convertible
preferred stock, net of offering costs 1,834,844 4,399,185
Proceeds from convertible note payable -- 60,000
Payments on long-term debt and notes payable (66,657) (690,000)
------------ ------------
Net cash provided by financing activities 2,080,506 4,495,156
------------ ------------
INCREASE (DECREASE) IN CASH (2,748,197) 2,664,892
CASH, beginning of year 3,056,379 391,487
------------ ------------
CASH, end of year $ 308,182 $ 3,056,379
============ ============
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-9
<PAGE> 59
RENTECH, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
BASIS OF Rentech, Inc. (the "Company" or "Rentech") was incorporated on
PRESENTATION 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 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. In June 1999 with the acquisition of Petroleum Mud
Logging, Inc. and Petroleum Well Logging, Inc. ("PML"), the
Company entered into the business of logging the progress of
drilling operations for the oil and gas industry.
PRINCIPLES OF The accompanying consolidated financial statements include the
CONSOLIDATION accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH EQUIVALENTS The Company considers highly liquid investments 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 Company
TECHNOLOGY 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.
GOODWILL Goodwill, which relates to the acquisition of Okon in 1997 and
the acquisition of PML discussed in Note 1, is being amortized
over a 15 year period using the straight-line method.
F-10
<PAGE> 60
RENTECH, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
PROPERTY, Property and equipment is stated at cost. Depreciation and
EQUIPMENT, amortization expense are computed using the straight-line
DEPRECIATION AND method over the estimated useful lives of the assets, which
AMORTIZATION range from three to thirty 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. The
Company capitalizes interest cost as part of
construction-in-progress. Interest cost capitalized in fiscal
1999 was not material.
INVESTMENT IN The Company has a 10% investment in ITN Energy Systems, Inc.
ITN/ES The investment is stated at cost. The investment is evaluated
periodically and is carried at the lower of cost or estimated
net realizable value.
INVESTMENT IN The Company has a 5% investment in Dresser Engineers &
DRESSER Constructors, 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 are recorded at cost and are being amortized
RIGHTS on a straight-line method over a 10 year estimated life.
LONG-LIVED Long-lived assets, identifiable intangibles, and associated
ASSETS 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 asset and its eventual disposition is less than the
carrying amount of the asset, an impairment loss is recognized
and measured using the asset's fair value.
REVENUE Sales of water-based stains sealers and coatings are
RECOGNITION recognized when the goods are shipped to the customers.
Revenues from mud logging services are billed at the
completion of the service.
Rental income from tenant leases is recognized in the period
earned.
Laboratory research revenues are recognized upon completion of
a project.
Royalty fees are recognized when the revenue earning
activities that are to be provided by the Company have been
performed and no future obligation to perform services exist.
F-11
<PAGE> 61
RENTECH, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
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 Statement of Financial Accounting Standards No. 128, "Earnings
PER COMMON Per Share" ("SFAS No. 128") provides for the calculation of
SHARE "Basic" and "Diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income
(loss) applicable to common stock 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.
For the years ended September 30, 1999 and 1998, total stock
options of 3,265,700 and 3,106,200 and total stock warrants of
1,163,347 and 2,336,007 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 1998 financial
statements in order for them to conform to the 1999
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 consist primarily of cash and
accounts receivable.
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.
F-12
<PAGE> 62
RENTECH, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
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 estimate
FINANCIAL the fair value of each class of financial instruments for
INSTRUMENTS 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.
Mortgages and Notes Payable
Substantially all of these mortgages and notes bear interest
at a rates of interest based upon current lending rates of
interest at the date they are issued. These interest rates are
between 8.25% and 10%.
STOCK OPTION The Company applies APB Opinion 25, "Accounting for Stock
PLAN Issued to Employees", and related Interpretations 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
options granted is less than the market price of the
underlying common stock on the date of grant.
Statement of Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income
(loss) 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.
F-13
<PAGE> 63
RENTECH, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
COMPREHENSIVE The Company has adopted SFAS No. 130, "Reporting Comprehensive
INCOME Income". Comprehensive Income is comprised of net loss and all
changes to the consolidated statement of stockholders' equity,
except those changes made due to investments by stockholders,
changes in paid-in capital and distributions to stockholders.
The adoption of SFAS No. 130 had no impact on the Company's
1999 and 1998 financial statements.
RECENT The Financial Accounting Standards Board ("FASB") has recently
ACCOUNTING issued SFAS No. 133 "Accounting for Derivative Instruments and
PRONOUNCEMENTS Hedging Activities". 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 all
fiscal quarters of all fiscal years beginning after June 15,
2000. Management believes the adoption of this statement will
have no material impact on the Company's consolidated
financial statements.
F-14
<PAGE> 64
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. BUSINESS On June 1, 1999, the Company acquired the assets of Petroleum
ACQUISITION Mud Logging, Inc. and Petroleum Well Logging, Inc. ("PML") for
$550,000 in cash, $50,000 in the Company's common stock,
assumption of debt in the amount of $154,250, a one year note
in the amount of $205,000, a two year note in the amount of
$400,000 and acquisition costs of $47,812. The acquisition was
recorded using the purchase method of accounting by which the
assets were valued at fair market value at the date of
acquisition. The operating results of this acquisition have
been included in the accompanying consolidated financial
statements from the date of acquisition. The allocation of the
purchase price was as follows:
Prepaid shop supplies $ 24,314
Property and equipment 1,215,310
Goodwill 167,438
----------
Total purchase price $1,407,062
==========
The following unaudited pro forma information presents the
consolidated results of operations of the Company as if the
acquisition of PML occurred at the beginning of fiscal year
1998. 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.
F-15
<PAGE> 65
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
Year Ended September 30, 1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 3,471,080 $ 3,168,894
Operating expenses 6,968,210 5,156,283
Other expense (4,554) 194,037
------------ ------------
Net loss (3,501,684) (2,181,426)
Dividend requirements on
preferred stock 531,932 1,164,992
------------ ------------
Loss applicable to
common stock $ (4,033,616) $ (3,346,418)
============ ============
Basic and diluted loss per
common share from operations $ (.09) $ (0.10)
============ ============
</TABLE>
2. PROPERTY AND Property and equipment consist of the following:
EQUIPMENT
<TABLE>
<CAPTION>
September 30, 1999 1998
---------- ----------
<S> <C> <C>
Land and buildings $1,782,997 $ --
Machinery and equipment 1,332,252 139,753
Office furniture and equipment 371,607 165,328
Construction-in-progress 129,907 --
Vehicles 95,172 23,117
Leasehold improvements 33,224 172,117
---------- ----------
3,745,159 500,315
---------- ----------
Less accumulated
depreciation and amortization 329,238 180,258
---------- ----------
$3,415,921 $ 320,057
========== ==========
</TABLE>
F-16
<PAGE> 66
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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.
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 ("TEPC"). TEPC 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. In the event that the Company cannot redeem and
repurchase the Rentech shares for cash within 60 days of the
demand to repurchase, then the Company will reassign to ITN
the proportionate amount of ITN shares owned by the Company.
ITN may request the Company to redeem up to 1,500,000 Rentech
shares per year only once during any 12-month period. 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.
F-17
<PAGE> 67
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. INVESTMENT On September 28, 1999, the Company issued 3,680,168 shares of
IN DRESSER its common stock for a 5% ownership in the common stock of a
privately held company called Dresser Engineers &
Constructors, Inc. ("Dresser"), and incurred $2,072 in
acquisition costs. The Company valued its investment in
Dresser based on the Company's common stock market value of
$1,838,012 at the date of issuance. Dresser will have
exclusive rights to provide engineering services and to design
and construct the synthesis reactor modules for natural
gas-to-liquids plants that use the Rentech GTL Technology.
5. LONG-TERM Long-term debt consists of the following:
DEBT
<TABLE>
<CAPTION>
September 30, 1999 1998
----------- ------------
<S> <C> <C>
Promissory note dated June 1, 1999; monthly principal and
interest payments of $18,590 and interest of 9.75% as of
September 30, 1999, unpaid principal and accrued interest due
July 1, 2001; collateralized by assets of PML and guaranteed
by the Company (1). $ 361,580 $ --
Promissory note dated June 1, 1999; interest of 9.75% as of
September 30, 1999, unpaid principal and accrued interest due
July 1, 2000; collateralized by assets of PML and guaranteed
by the Company (1). 206,464 --
Mortgage dated February 8, 1999; monthly principal and
interest payments of $7,517 and interest of 8.25% as of
September 30, 1999, unpaid principal and accrued interest due
March 1, 2029; collateralized by land and building. 992,105 --
Mortgage dated August 1, 1997; monthly principal and interest
payments of $988 and interest of 9.00% as of September 30,
1999, unpaid principal and accrued interest due August 1,
2001; collateralized by land and building (1). 69,353 --
</TABLE>
F-18
<PAGE> 68
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
September 30, (continued) 1999 1998
----------- -----------
<S> <C> <C>
Promissory note dated November 27, 1998; monthly principal and
interest payments of $2,000 and interest of 10.00% as of
September 30, 1999, unpaid principal and accrued interest due
February 25, 2000; collateralized by substantially all assets
of PML (1). 11,846 --
Promissory note dated December 3, 1997; monthly principal and
interest payments of $693 and interest of 8.5% as of September
30, 1999, unpaid principal and accrued interest due December
2, 2002; collateralized by an automobile (1). 23,638 --
Promissory note dated January 16, 1997; monthly principal and
interest payments of $466 and interest of 9.5% as of September
30, 1999, unpaid principal and accrued interest due February
2, 2002; collateralized by a truck (1). 12,127 --
Promissory note dated May 24, 1996; monthly principal and
interest payments of $528 and interest of 9.75% as of
September 30, 1999, unpaid principal and accrued interest due
June 8, 2000; collateralized by a truck (1). 4,582 --
---------- --------
Total long-term debt 1,681,695 --
Less current maturities 444,026 --
---------- --------
Long-term debt, less current maturities $1,237,669 $ --
========== ========
</TABLE>
(1) During June 1999, the Company acquired the assets of PML
and assumed certain long-term debt (see Note 1).
F-19
<PAGE> 69
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Future maturities of long-term debt as of September 30, 1999
are as follows:
<TABLE>
<CAPTION>
Years ending September 30, 1999
----------
<S> <C>
2000 $ 444,026
2001 250,685
2002 21,033
2003 14,132
2004 12,933
Thereafter 938,886
----------
$1,681,695
==========
</TABLE>
6. STOCKHOLDERS' Preferred Stock
EQUITY
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 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. During fiscal 1999,
certain holders of the Series A Preferred Stock converted
their remaining 50,000 shares plus $55,761 in accrued
dividends into 782,617 common shares of the Company.
F-20
<PAGE> 70
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
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 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 at 82.5% of the average closing
bid for the five trading days preceding the date of conversion.
During fiscal 1998, the Company issued 300,000 shares of 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.
During fiscal 1999, the Company issued 208,332 shares of Series
B Preferred stock for $2,083,320 in cash before offering costs
of $248,476. The Company recorded a deemed dividend of $440,033
when it issued the Series B Preferred Stock. During fiscal
1999, certain holders of the Series B Preferred Stock converted
182,500 of their shares plus $33,062 in accrued dividends into
3,444,560 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, for cash
equal to $11.50 per share plus any accumulated and unpaid
dividends.
During fiscal 1999, the Company amended its articles of
incorporation authorizing the issuance of 500,000 shares of
Series 1998-C Participating Cumulative Preferred Stock ("Series
C Preferred Stock"). The holders of the Series C Preferred
Stock are entitled to dividends in the event that the Company
declares a dividend or distribution on the common stock. The
holders of Series C Preferred Stock are entitled to vote on all
matters submitted to a vote of the
F-21
<PAGE> 71
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
stockholders of the Company. Whenever dividends on the Series C
Preferred Stock are in arrears for six quarterly dividends, the
holders of such stock (voting as a class) have the right to
elect two directors of the Company until all cumulative
dividends have been paid in full.
Common Stock
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 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.
During fiscal 1999 the Company issued 940,110 shares of its
common stock upon exercise of 120,500 and 819,610 in stock
options and stock warrants for cash proceeds of $262,319.
During fiscal 1999, the Company issued 100,000 shares of its
common stock with a market value of $50,000 as partial
consideration to acquire the net assets of PML (See Note 1).
During fiscal 1999, the Company recorded the issuance of
150,000 of its common stock for cash proceeds of $50,000 in
recognition of settlement of a legal action in favor of the
Company pertaining to a misrepresentation of services during
1996, in which a consultant did not perform the agreed upon
services.
During fiscal 1999, the Company issued 100,000 shares of its
common stock with a market value of $62,500 in payment for
director's fees.
F-22
<PAGE> 72
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Stock Options and Stock Warrants
At September 30, 1999, the Company has four 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 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.
In October 1997, warrants to purchase 200,000 shares were
issued as partial consideration to reacquire all rights that
RIG 86 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 on March 3, 2000. The
Company recorded the $125,246 fair value of the warrants to
technology rights.
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.
F-23
<PAGE> 73
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
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).
In March 1999, warrants to purchase 750,000 shares were issued
as partial consideration for public relations services to be
provided to the Company. The warrants can be exercised at $1.00
per share through March 20, 2002. The Company recorded the
$81,143 fair value of the warrants to public relations expense.
In July 1999, the Company issued options to purchase 25,000 of
the Company's $.01 par value common shares in connection with
consulting services. These options may be exercised at $.625
per share through July 11, 2004. The Company recorded the
$7,152 fair value of the options to consulting expense.
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, 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
-------- ------------ ----- ----------
Outstanding at
September 30, 1999 570,000 $.1875-$ .30 $ .24 2001-2002
======== ============ ===== ==========
</TABLE>
F-24
<PAGE> 74
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number of Price Price Expiration
Outstanding at Shares Per Share Per Share Dates
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
1994 Stock Option Plan
Outstanding at
October 1, 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
Granted 8,000 $.6250 $.6250 2004
---------- ------------ ------ ---------
Outstanding at
September 30, 1999 280,000 $.1875-$1.27 $ .62 2000-2004
========== ============ ====== =========
1996 Stock Option Plan
Outstanding at
October 1, 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
Granted 30,000 $.625 $ .625 2004
---------- ------------ ------ ---------
Outstanding at
September 30, 1999 340,000 $.1875-$ .82 $ .339 2001-2004
========== ============ ====== =========
1998 Stock Option Plan
Outstanding at
October 1, 1997 -- -- -- --
Granted 181,000 $.30-$ 1.78 $ .823 2003
---------- ------------ ------ ---------
Outstanding at
September 30, 1998 181,000 $.30-$ 1.78 $ .823 2003
Granted 167,000 $.625 $ .625 2004
---------- ------------ ------ ---------
Outstanding at
September 30,1999 348,000 $.30-$ 1.78 $ .773 2003-2004
========== ============ ====== =========
Other Stock Options
Outstanding at
October 1, 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 1,733,200 $.125-$ .75 $ .17 1999-2002
Granted 75,000 $ .625 $ .625 2004
Exercised (120,500) $.125-$ .25 $ .233 --
---------- ------------ ------- ---------
</TABLE>
F-25
<PAGE> 75
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number of Price Price Expiration
Outstanding at Shares Per Share Per Share Dates
---------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at
September 30, 1999 1,727,700 $.125-$ .75 $.211 2000-2004
========= =========== ===== =========
Total stock options outstanding,
September 30, 1999 3,265,700 $.125-$1.78 $.306 2000-2004
========= =========== ===== =========
</TABLE>
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, 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
Granted 750,000 $ 1.00 $ 1.00 2002
Exercised (819,610) $.2812-$.3564 $.2825 --
Expired (1,103,050) $.2686-$.3564 $ .289 --
---------- ------------- ------ ---------
Outstanding at
September 30, 1999 1,163,347 $ .25-$1.641 $1.041 1999-2003
========== ============= ====== =========
</TABLE>
<TABLE>
<CAPTION>
Options Warrants
---------- -------------
<S> <C> <C>
Weighted average fair
value of options and
warrants granted
during 1999 $ 0.52 $ 0.11
Weighted average fair
value of options and
warrants granted
during 1998 $ 0.40 $ 0.62
========== =============
</TABLE>
F-26
<PAGE> 76
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
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 1999
and 1998, respectively; dividend yield of 0 percent for all
years; expected volatility of 39 to 43 percent in 1999 and 25
to 43 percent in 1998; risk-free interest rates of 5.16 to 5.62
percent in 1999 and 5.14 to 6.22 percent in 1998; and expected
lives of 3 to 5 years in 1999 and 2 to 5 years in 1998 for the
Plans and stock awards.
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, 1999 1998
------------ ------------
<S> <C> <C>
Loss applicable to common stock:
As reported $ (3,974,593) $ (3,345,847)
Pro forma $ (4,112,355) $ (3,415,072)
Loss per common share:
As reported $ (.09) $ (.10)
Pro forma $ (.09) $ (.10)
============ ============
</TABLE>
F-27
<PAGE> 77
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
The following information summarizes stock options outstanding
and exercisable at September 30, 1999.
<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>
$.125-$1.27 1,652,700 1 $ .19 1,652,700 $ .19
$.1875-$.30 1,032,000 3 $ .25 1,032,000 $ .25
$.6250 280,000 5 $ .625 280,000 $ .625
$.75-$1.78 301,000 4 $ .80 301,000 $ .80
--------------- ------------ ------------- -------- ----------- --------
$.125-$1.78 3,265,700 2.25 $ .30 3,265,700 $ .30
=============== ============ ============= ======== =========== =======
</TABLE>
The following information summarizes stock warrants outstanding
and exercisable at September 30, 1999.
<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-$1.00 263,347 1 $ .82 263,347 $ .82
$1.00 750,000 3 $ 1.00 750,000 $ 1.00
$1.64 150,000 4 $ 1.64 150,000 $ 1.64
-------------- ----------- ------------- -------- ----------- --------
$.25-$1.64 1,163,347 2.67 $ 1.04 1,163,347 $ 1.04
============== ========== ============= ======= =========== ========
</TABLE>
Stockholder Rights Plan
On October 28, 1998, the Company announced the adoption of a
Stockholder Rights Plan, intended to protect from unfair or
coercive takeover attempts. The Rights become exercisable only
if a tender offer is made. The grant of the rights was made to
stockholders of record on November 10, 1999.
F-28
<PAGE> 78
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
7. COMMITMENTS Employment Agreements
The Company has entered into employment agreements that extend
to March 14, 2000 through March 31, 2002 with six of its
officers. The employment agreements set forth annual
compensation to the six officers of between $130,000 and
$190,000 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 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 $35,265 and $14,352 to the plan for the
years ended September 30, 1999 and 1998.
Operating Leases
The Company leases office space under a noncancelable operating
lease which expires October 31, 2003, with a renewal option for
an additional five years. The Company also leases office and
warehouse space for its Okon operation, under a lease which
expires during March 2000. 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
F-29
<PAGE> 79
during the lease term. The Company also has various operating
leases which expire through August 2005.
Future minimum lease payments as of September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Years Ending September 30,
<S> <C> <C>
2000 $167,000
2001 147,000
2002 134,000
2003 134,000
2004 22,000
---- ------
Total $604,000
===== ========
</TABLE>
Total lease expense for the years ended September 30, 1999 and
1998 was approximately $156,000 and $63,000.
The Company leases a majority of its building located in
Denver, Colorado, to third parties. The Company accounts for
these leases as operating leases. The leases expire from
December 31, 2000 to April 30, 2003. Future minimum lease
payment receivables under non-cancelable leasing arrangements
as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Years Ending September 30, Amount
--------
<S> <C> <C>
2000 $103,000
2001 88,000
2002 86,000
2003 51,000
---- --------
Total $328,000
===== ========
</TABLE>
F-30
<PAGE> 80
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Letter of Intent
On April 16, 1999, the Company entered into a letter of intent,
to acquire 51% of the stock of REN Corporation ("REN") for
approximately $1,200,000. As of September 30, 1999, the Company
had loaned $300,000 to REN. The note is included in deposits
and other assets as of September 30, 1999. The note bears
interest at 8% and is collateralized by the assets of REN. Upon
closing of this transaction, the note receivable will be
applied to the purchase price. If the transaction does not
close, then REN is to repay the note no later than six months
from the Company's written notice that the purchase will not be
completed.
The final agreement is subject to the completion of the
Company's due diligence, the funding of the purchase and
approval by the management of each company.
8. INCOME There was no provision for income taxes required for the years
TAXES ended September 30, 1999 and 1998 due to operating losses in
those years. At September 30, 1999, the Company had available
net operating loss carry forwards and capital loss carry
forwards of approximately $12,011,000 and $238,000 for tax
reporting purposes. The operating loss carry forwards expire
through 2019, and the capital loss carry forwards expire in
2000. These carry forwards are subject to various limitations
imposed by the rules and regulations of the Internal Revenue
Service.
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 carry forwards. 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
F-31
<PAGE> 81
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
a 100 percent valuation allowance at September 30, 1999 and
1998. The tax effect on the components is as follows:
<TABLE>
<CAPTION>
September 30, 1999 1998
------------ ------------
<S> <C> <C>
Net operating loss carry forwards $ 4,343,000 $ 3,197,000
Capital loss carry forwards 89,000 89,000
Compensation expense for common
stock options and common stock
not allowed for income tax purposes 79,000 46,000
Accruals for financial statement
purposes not allowed for income
taxes - cash basis 3,000 59,000
Basis difference relating to
licensed technology 343,000 265,000
Basis difference in property and
equipment (19,000) (62,000)
Basis difference in other assets (30,000) (19,000)
Basis difference in goodwill (14,000) --
Basis difference in technology rights 8,000 7,000
Basis difference relating to Synhytech
plant held for sale 75,000 75,000
------------ ------------
4,877,000 3,657,000
Valuation allowance $ (4,877,000) $ (3,657,000)
============ ============
</TABLE>
A reconciliation of the income taxes at the federal statutory
rate to the effective tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended September 30, 1999 1998
------------ ------------
<S> <C> <C>
Federal income tax benefit computed
at the Federal statutory rate $ (1,171,000) $ (741,000)
State income tax benefit net of
Federal benefit (59,000) (39,400)
Other - permanent differences 10,000 22,500
Change in valuation allowance 1,220,000 757,900
------------ ------------
Income tax benefit $ -- $ --
============ ============
</TABLE>
F-32
<PAGE> 82
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9. SUPPLEMENTAL Years Ended September 30, 1999 1998
DATA TO ------------ ------------
STATEMENTS OF
CASH FLOWS Cash payments for interest $ 75,936 $ 89,411
============ ============
</TABLE>
Excluded from the statements of cash flows for the years ended
September 30, 1999 and 1998 were the effects of certain
noncash investing and financing activities as follows:
<TABLE>
<CAPTION>
Years Ended September 30, 1999 1998
---------- ----------
<S> <C> <C>
Issuance of common stock from
conversion of preferred
stock and dividends $2,853,855 $4,555,645
Issuance of common stock for
interest expense on
convertible notes payable $ -- $ 45,621
Issuance of common stock for
redemption of convertible
notes payable $ -- $ 620,500
Issuance of common stock for
services $ 62,500 $ 94,908
Issuance of common stock for
investment in ITN/ES $ -- $2,728,125
Issuance of common stock for
investment in Dresser $1,838,012 $ --
Issuance of common stock for
acquisition of business $ 50,000 $ --
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 $ -- $ 93,317
Issuance of stock warrants for
technology rights $ -- $ 125,246
Issuance of stock warrants for
offering costs $ -- $ 375,480
</TABLE>
F-33
<PAGE> 83
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
Years Ended September 30,(continued) 1999 1998
-------- --------
<S> <C> <C>
Issuance of stock warrants for
prepaid expenses $ 81,143 --
Issuance of stock options for
services 7,152 $ 52,933
Property and equipment financed
with accounts payable $ -- $138,893
Increase in accrued dividends $ 3,075 $ 34,347
Accounts receivable offset with
accrued liability $ -- $ 24,000
Purchase of land and building
financed with mortgage payable $989,100 $ --
Long-term debt issued in connection
with the business acquisition $605,000 $ --
Long-term debt assumed in connection
with the business acquisition $154,250 $ --
======== ========
</TABLE>
10. SEGMENT The Company has adopted Statement of Financial Accounting
INFORMATION Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
131 established revised standards for public companies
relating to the reporting of financial and descriptive
information about their operating segments in financial
statements. The Company operates in four business segments as
follows:
o Paint - The Company manufactures and distributes
water-based stains, sealers and coatings.
o Alternative Fuels - The Company develops and markets
processes for conversion of low-value, carbon-bearing
solids or gases into valuable liquid hydrocarbons.
o Mud Logging Services - The Company is in the business
of logging the progress of drilling operations for
the oil and gas industry.
o Real Estate - The Company leases office and warehouse
space to third parties.
F-34
<PAGE> 84
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company's reportable operating segments have been
determined in accordance with the Company's internal
management structure, which is organized based on operating
activities. The accounting policies of the operating segments
are the same as those described in the summary of accounting
policies. The Company evaluates performance based upon several
factors, of which the primary financial measure is segment
operating income.
<TABLE>
<CAPTION>
Years Ended September 30, 1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Paint $ 1,960,764 $ 1,987,586
Alternative Fuels 551,246 --
Mud Logging Services 295,512 --
Real Estate 73,378 --
------------ ------------
$ 2,880,900 $ 1,987,586
============ ============
Operating Income (Loss):
Paint $ 195,018 $ 337,270
Alternative Fuels (3,598,275) (2,324,088)
Mud Logging Services (80,502) --
Real Estate 41,367 --
------------ ------------
$ (3,442,392) $ (1,986,818)
============ ============
Depreciation and amortization:
Paint $ 105,594 $ 102,798
Alternative Fuels 320,433 288,852
Mud Logging Services 35,117 --
Real Estate 27,569 --
------------ ------------
$ 488,713 $ 391,650
============ ============
</TABLE>
F-35
<PAGE> 85
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
Years Ended September 30, (continued) 1999 1998
------------ ------------
<S> <C> <C>
Expenditures for additions and long-lived assets:
Paint $ 9,059 $ 175,484
Alternative Fuels 602,115 463,230
Mud Logging Services 1,385,185 --
Real Estate 1,429,713 --
------------ ------------
$ 3,426,072 $ 638,714
============ ============
Total assets:
Paint $ 1,489,599 $ 1,610,200
Alternative Fuels 8,804,273 9,105,050
Mud Logging Services 1,487,951 --
Real Estate 1,428,158 --
------------ ------------
$ 13,209,981 $ 10,715,250
============ ============
</TABLE>
11. SIGNIFICANT As of September 30, 1999 two customers accounted for 26% and
CUSTOMERS 12% of total accounts receivable and two customers accounted
for 29% and 17% of total revenues. As of September 30, 1998,
two customers accounted for 23% and 18% of accounts receivable
and two customers accounted for 41% and 24% of total revenues.
12. SUBSEQUENT Private Placement
EVENTS
On October 12, 1999 the Company began offering for sale its
common stock in a private placement memorandum for the purpose
of raising $7,500,000. First Union Securities is the placement
agent for this offering. The Company is offering for sale
Units consisting of four shares of its $.01 par value common
stock and one redeemable stock purchase warrant for the
purchase of one share of common stock. The purchase price is
$2.40 per Unit. The Company has granted the placement agent an
option, exercisable within 45 days from the date of the
memorandum, to purchase shares of common stock equal to 15% of
the shares included in the Units sold, to cover
over-allotments, if any, sold to investors in this offering.
F-36
<PAGE> 86
RENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The stock purchase warrants entitle investors to purchase one
share of the Company's common stock at an exercise price of
$1.20 for a period of five years from the date of this
memorandum. The warrants may be redeemed for $.05 per warrant
by the Company at any time prior to their expiration date upon
written notice 30 days in advance to the holders of the
warrants if the market price of the common stock exceeds 120%
of the exercise price of the Warrants for a period of 20
consecutive trading days prior to a call for redemption by the
Company, and if the holders do not exercise their warrant
during the 30-day period. The warrants include anti-dilutive
provisions. The holders of shares of common stock, the
additional shares of common stock to be issued upon exercise
of the warrants and any over-allotment shares will be entitled
to piggyback registration rights and the provisions of the
Company's stockholder Rights Plan (see Note 6).
As of January 12, 2000 the Company has raised $1,600,000 from
this private placement memorandum, and has an additional
$600,000 in subscription agreements to be funded in January
2000.
Purchase of Sand Creek Facility
On January 7, 2000, the Company and Republic Financial
Corporation ("Republic") purchased the "Sand Creek" methanol
facility and all the supporting infrastructure, buildings, and
the underlying 17-acre site. The Company and Republic are
developing a plan to convert the facility to a gas-to-liquids
(GTL) plant making Fischer-Tropsch diesel, naphtha, petroleum
waxes and other products.
The new owner of the facility will be Sand Creek Energy, LLC
("SCE") which is 50 percent owned by Rentech Development
Corp., a newly formed, wholly-owned subsidiary of the Company,
and 50 percent owned by RFC-Sand Creek Development, LLC, a
wholly-owned subsidiary of Republic Financial Corporation.
F-37
<PAGE> 87
EXHIBIT INDEX
The following exhibits are filed with this Form 10-KSB or incorporated herein by
the following references:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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. (incorporated herein by
reference from Exhibit No. 3.(I).2 to Registrant's Form 10-KSB
filed with the SEC on January 13, 1999).
EX-3.(I).4 Articles of Amendment dated December 4, 1998 to Articles of
Incorporation
-Designation, Preferences and Rights of Series 1998-C
Participating Cumulative Preference Stock of Rentech, Inc.
pertaining to its Shareholder Rights Plan (incorporated herein
by reference from Exhibit No. 3.(I).4 to Registrant's Form
10-KSB filed with the Securities and Exchange Commission on
January 13, 1999).
EX-3.(ii) Bylaws dated January 19, 1999.
EX-4.1 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-4.2 Form of Warrant issued to investors in the 1999 private
placement of securities.
EX-4.3 Form of Registration Rights Agreement issued to investors in
the 1999 private placement of securities.
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).
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
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 (incorporated herein by reference from
Exhibit 10.5 to Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on January 13, 1999).
EX-10.6 Form of employment contract with Charles B. Benham, Dennis L.
Yakobson, Ronald C. Butz, James P. Samuels and Mark Bohn.
EX-10.7 Articles of Organization of ITN Electronic Substrates LLC
dated August 14, 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 (incorporated herein by
reference from Exhibit 10.10 to Registrant's Form 10- KSB
filed with the Securities and Exchange Commission on January
13, 1999). *Portions of the exhibit were omitted pursuant to a
Request for Confidential Treatment.
EX-23.1 Consent of Independent Certified Public Accountants.
EX-27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3
BYLAWS
OF
RENTECH, INC.
<PAGE> 2
BYLAWS
OF
RENTECH, INC.
ARTICLE I
OFFICES
Section 1.1. Principal Office. The principal office of the corporation in the
state of Colorado shall be located in the City and County of Denver. The
corporation may also have offices at such other places within or without the
state of Colorado as the board of directors (the "Board") may from time to time
determine or the business of the corporation may require.
Section 1.2. Registered Office. The registered office of the corporation,
required by the Colorado Business Corporation Act (the "Act") to be maintained
in the state of Colorado, may be, but need not be, identical with the principal
office in the state of Colorado, and the address of the registered office may be
changed from time to time by the Board.
ARTICLE II
SHAREHOLDERS
Section 2.1. Annual Meeting of Shareholders.
Section 2.1.1. Time of Meeting. The annual meeting of the shareholders
shall be held at such time on such day of each year as shall be fixed annually
by the Board, for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday in the state of Colorado, such meeting
shall be held on the next succeeding business day.
Section 2.1.2. Election of Directors. If the election of directors
shall not be held on the day designated herein for any annual meeting of
shareholders, or at any adjournment thereof, the Board shall cause the election
to be held at a special meeting of the shareholders as soon thereafter as may be
convenient.
Section 2.2. Special Meetings of Shareholders. Unless otherwise controlled by
statute, special meetings of the shareholders may be called for any purpose or
purposes by the president or by the Board. The president shall call a special
meeting of the shareholders if the corporation receives one or more written
demands for a special meetings, stating the purpose or purposes for holding the
meeting, signed and dated by the holders of shares representing at least ten
percent of all votes entitled to be cast on any issue proposed to be considered
at the meeting. Business transacted at a special meeting shall be confined to
the purposes stated in the notice.
Section 2.3. Place of Shareholder Meetings. The Board may designate any place,
either within or outside the state of Colorado, as the place of meeting for any
annual meeting or for an special meeting of shareholders called by the Board. If
no designation is made, or if a special meeting is called other than by the
president or Board, the place of meeting shall be the principal office of the
corporation in the state of Colorado.
<PAGE> 3
Section 2.4. Notice of Meeting of Shareholders.
Section 2.4.1. General Notice Provisions. Written notice stating the
place, day and hour of a meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall, unless
otherwise prescribed by statute, be given not less than ten nor more than sixty
days before the date of the meeting, except that if the number of authorized
shares is to be increased, at least thirty days notice shall be given.
Section 2.4.2. Notice of Purposes of Meetings. Notice of a special
meeting shall include a description of the purpose or purposes of the meeting.
Notice of an annual meeting need not include a description of the purpose or
purposes of the meeting except the purpose or purposes shall be stated with
respect to:
(a) an amendment to or restatement of the articles of
incorporation;
(b) a merger or share exchange in which the corporation is a
party and, with respect to a share exchange, in which the corporation's shares
will be acquired;
(c) a sale, lease, exchange or other disposition, other than
in the usual and regular course of business, of all or substantially all of the
property of the corporation or of another entity which this corporation
controls, in each case with or without the goodwill;
(d) a dissolution of the corporation;
(e) any other purpose for which a statement of purpose is
required by the Act.
Section 2.4.3. Means of Giving Notice. Notice shall be given personally
or by mail, private carrier, telegraph, teletype, electronically transmitted
facsimile or other form of wire or wireless communication by or at the direction
of the president, the secretary, or the officer or persons calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed and if
in a comprehensible form, such notice shall be deemed to be given and effective
when deposited in the United States mail, addressed to the shareholder at the
shareholder's address as it appears in the corporation's current record of
shareholders, with postage prepaid. If notice is given other than by mail, and
provided that such notice is in a comprehensible form, the notice shall be
deemed to be given and effective on the date received by the shareholder.
Section 2.4.4. Expense of Notice. If requested by the person or
persons lawfully calling such meeting, the notice shall be given at corporate
expense.
Section 2.4.5. Adjournment. When a meeting is adjourned to another
date, time or place, notice need not be given of the new date, time or place if
the new date, time or place of such meeting is announced before adjournment at
the meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than one hundred twenty days,
or if a new record date is fixed for the adjourned meeting, a new notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
at the meeting as of the new record date.
2
<PAGE> 4
Section 2.4.6. Waiver of Notice. A shareholder may waive notice of a
meeting before or after the time and date of the meeting by a writing signed by
such shareholder. Such waiver shall be delivered to the corporation for filing
with the corporate records. Further, by attending a meeting either in person or
by proxy, a shareholder waives objection to lack of notice or defective notice
of the meeting unless the shareholder objects at the beginning of the meeting to
the holding of the meeting or the transaction of business at the meeting because
of lack of notice or defective notice. By attending the meeting, the shareholder
also waives any objection to consideration in the meeting of a particular matter
not within the purpose or purposes described in the meeting notice unless the
shareholder objects to considering the matter when it is presented.
Section 2.4.7. Change of Shareholder's Address. No notice need be sent
to any shareholder if three successive notices mailed to the last known address
of such shareholder have been returned as undeliverable until such time as
another address for such shareholder is made known to the corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the corporation in writing of any change in such
shareholder's mailing address as shown on the corporation's books and records.
Section 2.5. Meeting of All Shareholders. If all of the shareholders shall meet
at any time and place, either within or outside the state of Colorado, and
consent to holding of a meeting at such time and place, such meeting shall be
valid without call or notice, and at such meeting any corporate action may be
taken.
Section 2.6. Closing of Transfer Books or Fixing of Record Date.
Section 2.6.1. Closure of Books in General. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any distribution, or in order to make a determination of shareholders
for any other purpose, the Board may provide that the share transfer books shall
be closed for a stated period but not to exceed, in any case, seventy days.
Section 2.6.2. Closure of Books for Shareholder Meetings. If the share
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten days immediately preceding such meeting.
Section 2.6.3. Board Action in Lieu of Closing Books. In lieu of
closing the share transfer books, the Board may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than seventy days and, in case of a meeting of shareholders, not
less than ten days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken.
Section 2.6.4. Fixing Record Date in Lieu of Closing Books. If the
share transfer books are not closed and no record date is fixed for
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a distribution, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board declaring such distribution is adopted, as the case may
be, shall be the record date for such determination of shareholders.
Section 2.6.5. Provisions Applicable to Adjournment. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in sections 2.6.1 through 2.6.4, such determination
shall apply to any adjournment thereof unless the meeting is adjourned to a date
more
3
<PAGE> 5
than one hundred twenty days after the date fixed for the original meeting,
in which case the Board shall make a new determination as provided in this
section.
Section 2.7. Voting Record.
Section 2.7.1. Preparation. After a record date is fixed for a meeting
of shareholders, the officer or agent having charge of the stock transfer books
for shares of the corporation shall make, as of the record date, a complete
record of the shareholders entitled to be given notice to vote at such meeting
of shareholders or any adjournment thereof, arranged by voting groups and within
each voting group by class or series of shares, in alphabetical order within
each class or series, with the address of and the number of shares held by each
shareholder in each class or series.
Section 2.7.2. Available for Inspection. For a period beginning the
earlier of ten days before the meeting for which the record was prepared or two
business days after notice of the meeting is given and continuing through the
meeting, the record shall be kept on file at the principal office of the
corporation or at a place identified in the notice of the meeting in the city
where the meeting will be held, whether within or outside the state of Colorado,
and shall be subject to inspection by any shareholder upon written demand at any
time during usual business hours. Such record shall be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purposes of the
meeting.
Section 2.7.3. Shareholders Entitled to Inspection. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine the record or transfer books or to vote at any meeting of
shareholders.
Section 2.8. Quorum of Shareholders.
Section 2.8.1. Majority Required. A majority of the votes entitled to
be cast on the matter by a voting group, represented in person or by proxy,
constitutes a quorum of that voting group for action on that matter. If no
specific voting group is designated in the articles of incorporation or under
the Act for a particular matter, all outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a voting
group. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal during such
meeting of that number of shareholders whose absence would cause there to be
less than a quorum.
Section 2.8.2. Adjournment. In the absence of a quorum at any such
meeting, a majority of the shares so represented may adjourn the meeting from
time to time for a period not to exceed one hundred twenty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.
Section 2.9. Action by Shareholders at a Meeting. If a quorum is present, an
action is approved if a majority of the votes within each class present at the
meeting favor the action and such action shall be the act of the shareholders,
unless the vote of a greater proportion or number or voting by groups is
otherwise required by the Act, the articles of incorporation or these bylaws.
Notwithstanding the foregoing, the
4
<PAGE> 6
approval of two-thirds of the outstanding shares within each class entitled to
vote shall be required in order for the action to be an act of the shareholders
with respect to any of the following actions:
(a) an amendment to the articles of incorporation;
(b) a merger or share exchange in which the corporation is a
party and, with respect to a share exchange, in which the corporation's shares
will be acquired;
(c) a sale, lease, exchange or other disposition, other than
in the usual and regular course of business, of all or substantially all of the
property of the corporation or of another entity which this corporation
controls, in each case with or without the goodwill; or
(d) a dissolution of the corporation.
Section 2.10. Proxies of Shareholders.
Section 2.10.1. Appointment of Proxy. At all meetings of shareholders,
a shareholder may vote by proxy by signing an appointment form or similar
writing, either personally or by the shareholder's duly authorized
attorney-in-fact. A shareholder may also appoint a proxy by transmitting or
authorizing the transmission of a telegram, teletype, or other electronic
transmission providing a written statement of the appointment to the proxy, a
proxy solicitor, proxy support service organization, or other person duly
authorized by the proxy to receive appointments as agent for the proxy, or to
the corporation.
Section 2.10.2. Contents, Submission and Period of Proxy. The
transmitted appointment shall set forth or be transmitted with written evidence
from which it can be determined that the shareholder transmitted or authorized
the transmission of the appointment. The proxy appointment form or similar
writing shall be filed with the secretary of the corporation before or at the
time of the meeting. The appointment of a proxy is effective when received by
the corporation and is valid for eleven months unless a different period is
expressly provided in the appointment form or similar writing, or the proxy
applies only to a specific meeting of shareholders and adjournments of that
meeting.
Section 2.10.3. Substitution of Original. Any complete copy, including
an electronically transmitted facsimile, of an appointment of a proxy may be
substituted for or used in lieu of the original appointment for any purpose for
which the original appointment could be used.
Section 2.10.4. Revocation of a Proxy.
(a) Revocation of a proxy does not affect the right of the
corporation to accept the proxy's authority unless:
(I) the corporation had notice that the appointment was
coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or
agent authorized to tabulate votes before the proxy exercises
the proxy's authority under the appointment; or
5
<PAGE> 7
(ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized
to tabulate votes before the proxy exercises the proxy's
authority under the appointment.
(b) Other notice of revocation may, in the discretion of the
corporation, be deemed to include the appearance at a shareholders'
meeting of the shareholder who granted the proxy and his or her voting
in person on any matter subject to a vote at such meeting.
(c) The death or incapacity of the shareholder appointing a
proxy does not affect the right of the corporation to accept the
proxy's authority unless notice of the death or incapacity is received
by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his or her authority under the appointment.
(d) The corporation shall not be required to recognize an
appointment made irrevocable if it has received a writing revoking the
appointment signed by the shareholder (including a shareholder who is a
successor to the shareholder who granted the proxy) either personally
or by his or her attorney-in-fact, notwithstanding that the revocation
may be a breach of an obligation of the shareholder to another person
not to revoke the appointment.
Section 2.11. Voting of Shares.
Section 2.11.1. Manner of Voting. At all meetings of shareholders,
voting shall be by a written stock vote. Such vote shall be taken by ballot, and
the secretary or inspector of election shall record the name of the shareholder
voting, the number of shares voted, and, if such vote shall be by proxy, the
name of the proxy holder.
Section 2.11.2. Entitlement to Vote.
(a) Unless otherwise provided by these bylaws or the articles
of incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting
of shareholders, and each fractional share shall be entitled to a
corresponding fractional vote on each such matter. If two or more
persons hold shares as cotenants or fiduciaries and the vote for those
shares is cast in a name that purports to be the name of at least one
of them and the person voting in person or signing a proxy vote appears
to be acting on behalf of all the cotenants or fiduciaries, the
corporation may accept the vote. If more than one cotenant or fiduciary
votes, the act of the majority shall bind all of the votes, and if the
votes are evenly divided, each cotenant or fiduciary may vote the
shares proportionately according to their beneficial interest. A
shareholder shall not be entitled to vote where the transfer books of
the corporation shall have been closed or a date shall have been fixed
as a record date for the determination of shareholders entitled to vote
prior to that shareholder becoming a shareholder.
(b) Each record holder of stock shall be entitled to vote on
the election of directors and shall have as many votes for each
director as the shares owned by him and for whose election he has the
right to vote.
6
<PAGE> 8
(c) At each election of directors, that number of candidates
equaling the number of directors to be elected, having the highest
number of votes cast in favor of their election, shall be elected to
the board of directors.
(d) Except as otherwise ordered by a court of competent
jurisdiction upon a finding that the purpose of this Section would not
be violated in the circumstances presented to the court, the shares of
the corporation are not entitled to be voted if they are owned,
directly or indirectly, by a second corporation, domestic or foreign,
and the first corporation owns, directly or indirectly, a majority of
the shares entitled to vote for directors of the second corporation,
except to the extent the second corporation holds the shares in a
fiduciary capacity.
(e) Redeemable shares are not entitled to be voted after
notice of redemption is mailed to the holders and a sum sufficient to
redeem the shares has been deposited with a bank, trust company or
other financial institution under an irrevocable obligation to pay the
holders the redemption price upon surrender of the shares.
Section 2.12. Conduct of Meetings. The meeting shall be conducted as determined
by the president or other presiding officer of the meeting. Roberts Rules of
Order shall be applied to the extent and as determined by the president or other
presiding officer.
Section 2.12.1. Written Consents. Any action that may be taken by vote
may be taken without a meeting if the action is evidenced by one or more written
consents describing the action taken, signed by each shareholder entitled to
vote and delivered to the secretary of the corporation for inclusion in the
minutes or for filing with the corporate records. Such written consent of the
shareholders entitled to vote has the same force and effect as an unanimous vote
of such shareholders and may be stated as such in any document. Action taken
under this Section is effective as of the date the last writing necessary to
effect the action is received by the corporation, unless all of the writings
specify a different effective date, in which case such specified date shall be
the effective date for such action. If any shareholder revokes his consent as
provided for herein prior to what would otherwise be the effective date, the
action proposed in the consent shall be invalid. The record date for determining
shareholders entitled to take action without a meeting is the date the
corporation first receives a writing upon which the action is taken. Any
shareholder who has signed a writing describing and consenting to action taken
pursuant to this Section may revoke such consent by a writing signed by the
shareholder describing the action and stating that the shareholder's prior
consent thereto is revoked, if such writing is received by the corporation
before the effectiveness of the action.
Section 2.13. Action by Shareholders Without a Meeting.
Section 2.13.2. Electronic Transmission of Consent. Any such written
consent may be received by the corporation by electronically transmitted
facsimile or other form of wire or wireless communication providing the
corporation with a complete copy thereof, including a copy of the signature
thereto.
Section 2.14. Cumulative Voting. No shareholder shall be permitted to cumulate
that shareholder's votes.
Section 2.15. Corporation's Acceptance of Votes. If the name signed on a vote,
consent, waiver, proxy appointment, or proxy appointment revocation corresponds
to the name of a shareholder, the corporation,
7
<PAGE> 9
if acting in good faith, is entitled to accept the vote, consent, waiver, proxy
appointment or proxy appointment revocation and give it effect as the act of the
shareholder. If the name signed on a vote, consent, waiver, proxy appointment or
proxy appointment revocation does not correspond to the name of a shareholder,
the corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment or proxy appointment revocation and to
give it effect as the act of the shareholder if:
(a) the shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(b) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the corporation
requests, evidence of fiduciary status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(c) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, proxy appointment or proxy appointment revocation;
(d) the name signed purports to be that of a pledgee, beneficial owner
or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign for
the shareholder has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(e) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-tenants or fiduciaries, and the person signing appears to be acting on behalf
of all the co-tenants or fiduciaries; or
(f) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules established by the
corporation that are not inconsistent with this Section.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary, inspector of
election, or other officer or agent authorized to tabulate votes, acting in good
faith, has reasonable basis for doubt about the validity of the signature on it
or about the signatory's authority to sign for the shareholder.
Neither the corporation, an inspector, nor its officers nor any agent
who accepts or rejects a vote, consent, waiver, proxy appointment or proxy
appointment revocation in good faith and in accordance with the standards of
this Section shall be liable in damages for the consequences of the acceptance
or rejection.
Section 2.16. Inspectors. The Board or president of the corporation, in advance
of or at any meeting of shareholders, may appoint one or more inspectors to act
at such meeting or any adjournment thereof. If inspectors are not so appointed
or if any of them shall fail to appear or act, the chairman of the meeting may
appoint inspectors. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and
8
<PAGE> 10
according to the best of his or her ability. The inspectors shall determine the
number of shares outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the chairman of the meeting or any shareholder entitled to vote
thereat, the inspector or inspectors shall make a report in writing of any
challenge, request or matter determined by them and shall execute a certificate
of any fact found by them. No director or candidate for the office of director
shall act as an inspector of an election of directors. Inspectors need not be
shareholders.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the corporation shall
be managed by its Board, except as otherwise provided in the Act or the articles
of incorporation.
Section 3.2. Performance of Duties.
Section 3.2.1. Standard of Care. A director of the corporation shall
perform that director's duties as a director, including that director's duties
as a member of any committee of the Board upon which the director may serve, in
good faith, in a manner in which that director reasonably believes to be in the
best interests of the corporation, and with such care as an ordinarily prudent
person in a like position would use under similar circumstances. A person who so
performs that person's duties shall not have any liability by reason of being or
having been a director of the corporation.
Section 3.2.2. Reliance Upon Other Persons and Written Materials. In
the performance of the director's duties, a director shall be entitled to rely
on information, opinions, reports, or statements, including financial statements
and other financial data, in each case prepared or presented by persons and
groups listed in paragraphs (a), (b), and (c) of this Section, but the director
shall not be considered to be acting in good faith if that director has
knowledge concerning the matter in question that would cause such reliance to be
unwarranted. Those persons and groups on whose information, opinions, reports,
and statements a director is entitled to rely are:
(a) One or more officer or employees of the corporation whom
the director reasonably believes to be reliable and competent in the
matters presented;
(b) Legal counsel, public accountants, or other persons as to
matters which the director reasonably believes to be within their
professional or expert competence; or
(c) A committee of the Board upon which the director does not
serve, duly designated in accordance with the provisions of the
articles of incorporation and the bylaws, as to matters within its
designated authority, which committee the director reasonably believes
to merit confidence.
Section 3.3. Number, Tenure and Qualifications. The Board shall consist of not
less than three nor more than nine members, as may be fixed from time to time by
resolution of the Board, provided,
9
<PAGE> 11
however, there need be only as many directors as there are shareholders in the
event that the outstanding shares are held of record by fewer than three
shareholders. Directors shall be natural persons at least eighteen years of age,
but need not be shareholders nor residents of the state of Colorado. Each
director shall hold office until the third succeeding meeting of the
shareholders or until the director's successor shall have been elected and
qualified.
Section 3.4. Nominations for the Board. Nominations for the election of
directors may be made by the Board or by a shareholder entitled to vote in the
election of directors. A shareholder entitled to vote in the election of
directors, however, may make such a nomination only if written notice of such
shareholder's intent to do so has been given, either by personal delivery or by
United States mail, postage prepaid, and received by the corporation (a) with
respect to an election to be held at an annual meeting of shareholders,
not later than sixty nor more than ninety days prior to the first anniversary of
the preceding year's annual meeting and (b) with respect to an election to be
held at a special meeting of shareholders called for that purpose, not later
than the close of business on the tenth day following the date on which notice
of the special meeting was first mailed to the shareholders of the corporation.
Each shareholder's notice of intent to make a nomination shall set
forth in writing: (I) the name and address of the shareholder who intends to
make the nomination and of the person or persons to be nominated; (ii) a
representation that the shareholder (a) is a holder of record of stock of the
corporation entitled to vote at such meeting, (b) will continue to hold such
stock through the date on which the meeting is held, and (c) intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (iii) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination is to be made by the
shareholder; (iv) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to Regulation 14A promulgated under Section 14 of the Securities
Exchange Act of 1934, as amended, as now in effect or hereafter modified, had
the nominee been nominated by the Board; and (v) the written consent of each
nominee to serve as a director of the corporation if so elected. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the qualifications of
such person to serve as a director. No person shall be eligible for election as
a director unless nominated either (I) by a shareholder in accordance with the
foregoing procedure or (ii) by the Board.
Section 3.5. Eligibility Requirements. No person who has asserted or hereafter
asserts any Claim against the corporation or any Subsidiary (any such person, a
"Plaintiff"), and no person who is or becomes an Affiliate or Associate of any
Plaintiff (while such person continues to be such an Affiliate or Associate)
(any such person, a "Related Person"), shall be eligible to be elected or to
serve as a director of the corporation until such Claim has been finally
resolved ("Finally Resolved"); provided, however, that a director of the
corporation who is validly nominated and elected a director but who after such
election becomes a Plaintiff or Related Person, shall not solely by reason of so
becoming or being a Plaintiff or Related Person cease to be a director and
instead shall continue as a director for the remainder of the term for which
such director was elected or until such director's resignation or removal;
provided, further, however, that it shall be the duty of any such director
promptly to notify the Board that such director is or has become a Plaintiff or
Related Person and it also shall be the duty of any such director, either to
promptly take all steps as may be necessary to cause such director to be neither
a Plaintiff nor a Related Person, or, if all such steps cannot be or have not
been taken and such director continues to be either a Plaintiff or a Related
Person and the pertinent Claim has not been Finally Resolved within 45 days
10
<PAGE> 12
of the date on which a director notifies the Board or the Board determines such
director is or has become a Plaintiff or Related Person, which period may be
extended by the Board ("Resolution Period"), to resign as a director of the
corporation, effective immediately, at or before the end of such Resolution
Period.
For purposes of this Section 3.5, the following terms shall have the
following respective meanings:
(I) "Affiliate" means any person (or group of persons having
any written or unwritten agreement, arrangement or understanding,
whether or not enforceable, relating to any Claim) who or which,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, any Plaintiff. For
purposes of the foregoing definition, the term "control" (including the
terms "controlling," "controlled by" and "under common control with")
means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise,
and a "controlling" relationship between any person (or such a group)
and another person shall be deemed to exist whenever (but is not
limited to the situation in which) the former person (or members of
such a group) directly or indirectly holds or owns at least ten percent
of the outstanding securities of any class or series of voting
securities issued by, or at least ten percent of the aggregate voting
power with respect to, the latter person.
(ii) "Associate" means any person who or which:
(1) is an officer, partner, director, trustee or
similar fiduciary of, or authorized to act in any similar
capacity with respect to, any Plaintiff, any Affiliate or any
other Associate of a Plaintiff;
(2) is, directly or indirectly, the holder or owner
of at least ten percent of any class or series of equity
securities issued by any Plaintiff or Affiliate;
(3) has a substantial beneficial interest in any
Plaintiff or Affiliate which is a trust or estate; or
(4) is a member of the immediate family of any
Plaintiff, any Affiliate or any other person described in (1),
(2) or (3) of this Section.
For purposes of the foregoing definition, a person's "immediate family" includes
such person's spouse, children, siblings, parents, parents-in-law, sons and
daughters-in-law and brothers and sisters-in-law.
(iii) "Claim" means any claim, cross-claim, counter-claim or
third-party claim pled in any action, suit or proceeding (whether at
law, in equity or otherwise and regardless of the character of the
relief sought) before or subject to the jurisdiction of any court,
governmental agency or instrumentality, arbitrator, or similar body or
authority, other than:
(1) one which (when aggregated with all other claims,
cross-claims, counter- claims and third-party claims asserted
by the pertinent Plaintiff or any Related Person of such
Plaintiff against the corporation or any Subsidiary that have
not been Finally Resolved), if it (and all other aggregated
claims, cross-claims, counter-claims and third-
11
<PAGE> 13
party claims) were decided adversely to the corporation or a
Subsidiary, could result in an order or orders compelling the
corporation, any Subsidiary, or both of them, to pay out or
otherwise dispose of cash or any other assets having an
aggregate value in excess of 10% of the consolidated current
assets of the corporation as of the quarter then most recently
ended or render the corporation insolvent;
(2) one asserted in the right of the corporation.
(iv) When used with respect to a particular Claim, the term
"Finally Resolved" means that a final order has been rendered with
respect to such Claim and all available appeals from such order have
been exhausted or the time for seeking such review has expired.
(v) "Subsidiary" means any corporation or other entity at
least fifty percent of the equity of which is owned, directly or
indirectly, by the corporation.
Section 3.6. Regular Meetings of Directors. A regular meeting of the Board shall
be held without notice other than this bylaw immediately after, and at the same
place as, the annual meeting of the shareholders or at such other time and place
as the Board may select. The Board may provide, by resolution, the time and
place, either within or without the state of Colorado, for the holding of
additional regular meetings without other notice than such resolution.
Section 3.7. Special Meetings of Directors. Special meetings of the Board may be
called by or at the request of the president or any two directors. The person or
person authorized to call special meetings of the Board may fix any place,
either within or without the state of Colorado, as the place for holding any
special meeting of the Board called by them, provided that no meeting shall be
called outside the state of Colorado unless a majority of the Board has so
authorized.
Section 3.8. Notice of Director Meetings. Except as to regular meetings of
directors for which no notice is required, written notice of meetings of
directors shall be given as follows:
Section 3.8.1. Means of Notice. By mail to each director at his
business address at least two days prior to the meeting; or by personal
delivery, facsimile or telegram at least twenty-four hours prior to the meeting
to the business address of each director, or in the event such notice is given
on a Saturday, Sunday or holiday, to the residence address of each director.
Section 3.8.2. When Effective. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, so addressed, with
postage thereon prepaid. If notice is given by facsimile, such notice shall be
deemed to be delivered when a confirmation of the transmission of the facsimile
has been received by the sender. If notice is given by telegram, such notice
shall be deemed to be delivered when the telegram is delivered to the telegraph
company.
Section 3.8.3. Waiver. A director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board need be specified in the
notice or waiver of notice of such meeting. When
12
<PAGE> 14
any notice is required to be given to a director, a waiver thereof in writing
signed by such director, whether before, at or after the time stated therein,
shall constitute the giving of such notice.
Section 3.9. Quorum. A majority of the number of directors fixed by or pursuant
to section 3.3 of this Article III, or if no such number is fixed, a majority of
the number of directors in office immediately before the meeting begins, shall
constitute a quorum for the transaction of business at any meeting of the Board,
but if less than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice.
Section 3.10. Action by Directors at a Meeting. Except as otherwise required by
law or by the articles of incorporation, the affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board.
Section 3.11. Informal Action by Directors or Committee Members.
Section 3.11.1. Written Consents. Unless the articles of incorporation
or these bylaws provide otherwise, any action required or permitted to be taken
at a meeting of the Board or any committee designated by the Board may be taken
without a meeting if the action is evidenced by one or more written consents
describing the action taken, signed by each director or committee member, and
delivered to the secretary for inclusion in the minutes or for filing with the
corporate records.
Section 3.11.2. When Effective. Action taken under this section is
effective when all directors or committee members have signed the consent,
unless the consent specifies a different effective date. Such consent has the
same force and effect as a unanimous vote of the directors or committee members
and may be stated as such in any document.
Section 3.12. Participation by Electronic Means. Any members of the Board or any
members of a committee designated by the Board may participate in a meeting of
the Board or committee by means of telephone conference or similar communication
equipment by which all person participating in the meeting can hear each other
at the same time. Such participation shall constitute presence in person at the
meeting.
Section 3.13. Vacancies.
Section 3.13.1. Manner of Filling. Any vacancy on the Board, including
vacancies resulting from an increase in the number of directors in accordance
with section 3.3 of this Article III, may be filled by the affirmative vote of a
majority of the Board. If the directors remaining in office constitute fewer
than a quorum of the Board, the directors may fill the vacancy by the
affirmative vote of the majority of all directors remaining in office.
Section 3.13.2. Term of Director Filling Vacancy. A director elected to
fill a vacancy shall hold office for the unexpired term of that director's
predecessor in office.
Section 3.14. Resignation. Any director may resign at any time by giving written
notice to the secretary of the corporation. The resignation of any director
shall take effect upon receipt of notice thereof or at such later time as shall
be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. When
one or more directors shall resign
13
<PAGE> 15
from the Board, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective.
Section 3.15. Removal. Subject to any limitations contained in the articles of
incorporation, any director or directors of the corporation may be removed only
for cause, and only upon the vote of two-thirds of the shares outstanding of
each class of stock which elected said director or directors, subject to the
requirements of the Act.
Section 3.16. Committees. By resolution adopted by a majority of the Board, the
directors may designate two or more directors to constitute a committee, any of
which shall have such authority in the management of the corporation as the
Board shall designate and as shall be prescribed by the Act. To the extent
provided in the resolution, each committee shall have all the authority of the
Board, except that no such committee shall have the authority to (I) authorize
distributions, (ii) approve or propose to shareholders actions or proposals
required by the Act to be approved by shareholders, (iii) fill vacancies on the
Board or any committees thereof, (iv) amend articles of incorporation, (v)
adopt, amend or repeal the bylaws, (vi) approve a plan of merger not requiring
shareholder approval, (vii) authorize or approve the reacquisition of share
unless pursuant to a formula or method prescribed by the Board, or (viii)
authorize or approve the issuance or sale of shares, or contract for the sale of
shares or determine the designations and relative rights, preferences and
limitations of a class or series of shares, except that the Board may authorize
a committee or officer to do so within limits specifically prescribed by the
Board. The committee shall then have full power within the limits set by the
Board to adopt any final resolution setting forth all preferences, limitations
and relative rights of such class or series and to authorize an amendment of the
articles of incorporation stating the preferences, limitations and relative
rights of a class or series for filing with the Secretary of State under the
Act.
Sections 8, 9, 10, 11, 12 or 13 of Article III, which govern meetings,
notice, waiver of notice, quorum, voting requirements and action without a
meeting of the Board, shall apply to committees of the Board and their members
appointed under this Section 3.16. Neither the designation of any such
committee, the delegation of authority to such committee, nor any action by such
committee pursuant to its authority shall alone constitute compliance by any
member of the Board or a member of the committee in question with his or her
responsibility to conform to the standard of care set forth in Article III,
Section 3.2.1 of these bylaws.
Section 3.17. Compensation. By resolution of the Board and irrespective of any
personal interest of any of the directors, or the Board, each director may be
paid that director's expenses, if any, of attendance at each meeting of the
Board, and may be paid a stated salary as director or a fixed sum for attendance
at each meeting of the Board or both. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
Section 3.18. Presumption of Assent. A director who is present at a meeting of
the Board or committee of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless:
(a) the director objects at the beginning of the meeting, or
promptly upon that director's arrival, to the holding of the meeting or the
transaction of business at the meeting and does not thereafter vote for or
assent to any action taken at the meeting;
14
<PAGE> 16
(b) the director contemporaneously requests that the dissent
or abstention of that director as to any specific action taken be entered in the
minutes of the meeting; or
(c) the director causes written notice of that director's
dissent or abstention as to any specific action to be received by the presiding
officer of the meeting before its adjournment or by the corporation promptly
after the adjournment of the meeting.
The right to dissent to a specific action taken at a meeting of the Board or a
committee of the Board shall not be available to a director who voted in favor
of such action.
Section 3.19. Chairman of the Board; Person Presiding at Meetings. The directors
shall choose one of their number to be chairman of the board (the "Chairman").
The Chairman shall, if present, preside at each meeting of the Board and shall
be an ex officio member of all committees of the Board. The Chairman shall
perform all such duties as may from time to time be assigned to him by the
Board. In the absence of the Chairman at a meeting of the Board, the president,
or in his absence the next highest ranking officer, shall preside as to matters
of procedure and to facilitate the conduct of the meeting. In the event there be
two or more persons of equal title present at a meeting of the Board, a chairman
of the meeting, chosen by the Board, shall preside. A person other than a
director authorized to preside at a meeting of the Board does so only for the
foregoing limited purposes, and these bylaws in no way confer authority upon
such person to infringe upon or alter the duties and powers held by the Chairman
and the Board.
ARTICLE IV
OFFICERS
Section 4.1. Number and Offices. The officers of the corporation shall be a
president, a secretary, and a treasurer, each of whom must be a natural person
who is eighteen years of age or older and shall be elected by the Board. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board. Any two or more offices may be held by the same
person except the offices of president and secretary.
Section 4.2. Election and Term of Office. The officers of the corporation to be
elected by the Board shall be elected annually by the Board at the first meeting
of the Board held after the annual meeting of the shareholders. If the election
of the officers shall not be held at such meeting, such election shall be held
as soon thereafter as practicable. Each officer shall hold office for the
ensuing year or until the officer shall resign or shall have been removed in the
manner hereinafter provided or until such officer's death or incapacity.
Section 4.3. Removal and Resignation of Officers.
Section 4.3.1. Removal. Any officer or agent may be removed by the
Board at any time, with or without cause, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4.3.2. Resignation. An officer or agent may resign at any time
by giving written notice of resignation to the secretary of the corporation. The
resignation is effective when the notice is received by the corporation unless
the notice specifies a later effective date.
15
<PAGE> 17
Section 4.4. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board for the
unexpired portion of the term. If an officer resigns and his resignation is made
effective at a later date, the Board, or officer or officers authorized by the
Board, may permit the officer to remain in office until the effective date and
may fill the pending vacancy before the effective date if the Board or officer
or officers authorized by the Board provide that the successor shall not take
office until the effective date. In the alternative, the Board, or officer or
officers authorized by the Board, may remove the officer at any time before the
effective date and may fill the resulting vacancy.
Section 4.5. President. The president shall be the principal executive officer
of the corporation and, subject to the control of the Board, shall in general
supervise and control all of the business and affairs of the corporation. The
president shall, when present, preside at all meetings of the shareholders, and,
in the absence of the Chairman, of the Board. The president may sign, with the
secretary or any other proper officer of the corporation thereunto authorized by
the Board, certificates for shares of the corporation, and any deeds, mortgages,
bonds, contracts, or other instruments which the Board has authorized to be
executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board or these bylaws to some other officer or agent
of the corporation, or shall be required by law to be otherwise signed or
executed. The president shall have such additional authority and duties as are
appropriate and customary for the office of president and chief executive
officer, except as the same may be expanded or limited by the Board from time to
time.
Section 4.6. Vice President. In the absence of the president or in the event of
the president's death, inability or refusal to act, the vice president shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The vice
president shall perform such other duties as from time to time may be assigned
by the president or by the Board.
Section 4.7. Secretary. The secretary shall attend all meetings of the Board and
of the shareholders, and record all votes and minutes of all proceedings in a
book or books to be kept for that purpose. The secretary shall keep in safe
custody the seal of the corporation and affix it to any instrument when
authorized, and the secretary shall keep all the documents and records of the
corporation as required by law or otherwise in a proper and safe manner. When
required the secretary shall prepare or cause to be prepared and available at
each meeting of shareholders entitled to vote thereat, a list of shareholders
indicating the number of shares of each respective class held by each. In
general the secretary shall perform all duties incident to the office of
secretary and such other duties as may be prescribed from time to time by the
president or the Board.
Section 4.8. Treasurer. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in the corporate books. The treasurer shall deposit all money and
other valuables in the name and to the credit of the corporation in such
depositories as may be designated by the Board and disburse the funds of the
corporation as may be ordered or authorized by the Board and preserve proper
vouchers for such disbursements. The treasurer shall render to the president and
Board at the regular meetings of the Board, or whenever they require it, an
account of all of the treasurer's transactions as treasurer and of the financial
condition of the corporation, and the treasurer shall render a full financial
report at the annual meeting of the shareholders if so requested. The treasurer
shall be furnished, at his or her request, with such reports and statements as
the treasurer may require from the corporate officers and agents as to all
financial transactions of the
16
<PAGE> 18
corporation. In general the treasurer shall perform all duties as are given by
these bylaws or as from time to time are assigned by the Board or president.
Section 4.9. Assistant Officers. The Board may elect (or delegate to the
Chairman or to the president the right to appoint) such other officers and
agents as may be necessary or desirable for the business of the corporation.
Such other officers may include one or more assistant secretaries and treasurers
who shall have the power and authority to act in place of the officer to whom
they are elected or appointed as an assistant in the event of the officer's
inability or unavailability to act in such officer's official capacity.
Section 4.10. Sureties and Bonds. In case the Board shall so require, any
officer or agent of the corporation shall execute to the corporation a bond in
such sum and with such surety or sureties as the Board may direct. The bond
shall be conditioned upon the officer's or agent's faithful performance of such
officer's or agent's duties to the corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
corporation which may come into such officer's or agent's hands.
Section 4.11. Salaries. The salaries of the officers shall be fixed from time to
time by the Board, and no officer shall be prevented from receiving such salary
by reason of the fact that the officer is also a director of the corporation.
ARTICLE V
EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by the president and
secretary, respectively, or by such other officer or officers or other person or
persons as the Board may from time to time designate.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 6.1. Certificates. The Board shall be authorized to issue any of its
classes of shares with or without certificates. The fact that the shares are not
represented by certificates shall have no effect on the rights and obligations
of shareholders. If the shares are represented by certificates, such shares
shall be represented by consecutively numbered certificates signed, either
manually or by facsimile, in the name of the corporation by the president or one
or more vice presidents and the secretary or an assistant secretary. In case any
officer who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, such certificate may nonetheless be issued by the corporation with the
same effect as if he were such officer at the date of its issue. All
certificates shall be consecutively numbered, and the names of the owners, the
number of shares, and the date of issue shall be entered on the books of the
corporation. Each certificate representing shares shall state upon its face:
(a) that the corporation is organized under the laws of Colorado;
(b) the name of the person to whom issued;
(c) the number and class of the shares and the designation of the
series, if any, that the certificate represents;
(d) the par value, if any, of each share represented by the
certificate;
17
<PAGE> 19
(e) At the direction of the Board, a summary on the front or the
back, of the designations, preferences, limitations, and
relative rights applicable to each class, the variations in
preferences, limitations, and rights determined for each
series, and the authority of the Board to determine variations
for future classes or series or a conspicuous statement, on
the front or the back, that the corporation will furnish to
the shareholder, on request in writing and without charge,
information concerning the designations, preferences,
limitations, and relative rights applicable to each class, the
variations in preferences, limitations, and rights determined
for each series, and the authority of the Board to determine
variations for future classes or series; and
(f) Any restrictions imposed by agreement of shareholders or the
corporation or law upon the transfer of the shares represented
by the certificate.
Section 6.2. Consideration for Shares. Certificated or uncertificated shares
shall not be issued until the shares represented thereby are fully paid. The
Board may authorize the issuance of shares for consideration consisting of any
tangible or intangible property or benefit to the corporation, including cash,
promissory notes, services performed or other securities of the corporation.
Future services shall not constitute payment or partial payment for shares of
the corporation. The promissory note of a subscriber or an affiliate of a
subscriber shall not constitute payment or partial payment for shares of the
corporation unless the note is negotiable and is secured by collateral, other
than the shares being purchased, having a fair market value at least equal to
the principal amount of the note. For purposes of this Section, "promissory
note" means a negotiable instrument on which there is an obligation to pay
independent of collateral and does not include a non-recourse note.
Section 6.3. Lost or Destroyed Certificates. The Board may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate to be lost or destroyed. When authorizing such issue of a new
certificate or certificates the Board may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and give the corporation a bond in such sum
and with such surety or sureties as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 6.4. Transfer of Shares.
Section 6.4.1. Transfers. Upon surrender to the corporation or a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law and
evidence of compliance with all applicable securities laws and other
restrictions, the corporation shall issue a new certificate or certificates to
the person entitled thereto, and cancel the old certificate. Every such transfer
of stock shall be entered on the stock books of the corporation which shall be
kept at its principal office or by the corporation's duly appointed transfer
agent and at the place designated by contract or the Board.
Section 6.4.2. Claimants to Shares. Except as otherwise expressly
provided in Article II, Section 11, and except for the assertion of dissenters'
rights to the extent provided in Article 113 of the Act, the corporation shall
be entitled to treat the registered holder of any shares of the corporation as
the owner thereof for all purposes, and the corporation shall not be bound to
recognize any equitable or other claim
18
<PAGE> 20
to, or interest in, such shares or rights deriving from such shares on the part
of any person other than the registered holder, including without limitation any
purchaser, assignee or transferee of such shares or rights deriving from such
shares, unless and until such other person becomes the registered holder of such
shares, whether or not the corporation shall have either actual or constructive
notice of the claimed interest of such other person.
Section 6.5. Transfer Agent, Registrars and Paying Agents. The Board may at its
discretion appoint one or more transfer agents, registrars and agents for making
payment upon any class of stock, bond, debenture or other security of the
corporation. Such agents and registrars may be located either within or outside
Colorado. They shall have such rights and duties and shall be entitled to such
compensation as may be agreed.
Section 6.6. Restrictions on Stock. The Board may restrict the transfer of any
stock issued by giving the corporation or any shareholder "first right of
refusal to purchase" the stock, by making the stock redeemable or by otherwise
restricting the transfer of the stock under such terms and in such manner as the
Board may deem necessary and as are not inconsistent with the articles of
incorporation or the laws of the state of Colorado. The Board may also restrict
the transfer of stock in connection with compliance with federal and states
securities laws or in connection with any other matter as may be duly authorized
by the corporation or required by law. Any stock whose transfer is so restricted
must carry a stamped legend on the face of the certificate setting out the
restriction.
ARTICLE VII
PROVISION OF INSURANCE
By action of the Board, notwithstanding any interest of the directors
in the action, the corporation may purchase and maintain insurance, in such
scope and amounts as the Board deems appropriate, on behalf of any person who is
or was a director, officer, employee, fiduciary or agent of the corporation, or
who, while a director, officer, employee, fiduciary or agent of the corporation,
or who, while a director, officer, employee, fiduciary or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, fiduciary or agent of any other foreign or
domestic profit or nonprofit corporation or of any partnership, joint venture,
trust, profit or nonprofit unincorporated association, limited liability
company, other enterprise or employee benefit plan, against any liability
asserted against, or incurred by, him in that capacity or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of Article XI or applicable law.
Any such insurance may be procured from any insurance company designated by the
Board of the corporation, whether such insurance company is formed under the
laws of Colorado or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an equity interest
or any other interest, through stock ownership or otherwise.
ARTICLE VIII
DISTRIBUTIONS
The Board may from time to time declare, and the corporation may pay,
distributions, including dividends, on its outstanding shares in the manner and
upon the terms and conditions provided by the Act and the articles of
incorporation.
19
<PAGE> 21
ARTICLE IX
CORPORATE SEAL
The Board shall provide a corporate seal which shall be circular in
form and bear the name of the corporation, the state of incorporation, and the
words "CORPORATE SEAL" OR "SEAL." The seal on the certificates for shares or on
any corporate obligation for the payment of money may be a facsimile, engraved
or printed.
ARTICLE X
AMENDMENTS
The bylaws may be amended, repealed or adopted by a majority vote of
the Board or by the vote of two-thirds of the outstanding shares of each class
of stock entitled to vote.
ARTICLE XI
INDEMNIFICATION AND LIMITATION OF LIABILITY
The officers, directors and agents of the corporation shall be
indemnified as provided in the articles of incorporation, and the liability of
directors shall be limited as provided in the articles of incorporation.
ARTICLE XII
FISCAL YEAR
The fiscal year of the corporation shall be designated by the Board.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Receipt of Notices by the Corporation. Notices, shareholder
writings consenting to action, and other documents or writings shall be deemed
to have been received by the corporation when they are actually received: (I) at
the registered office of the corporation in Colorado; (ii) at the principal
office of the corporation (as that office is designated in the most recent
document filed by the corporation with the secretary of state for Colorado
designating a principal office) addressed to the attention of the secretary of
the corporation; (iii) by the secretary of the corporation wherever the
secretary may be found; or (iv) by any other person authorized from time to time
by the Board or the president to receive such writings, wherever such person is
found.
Section 13.2. Gender and Tense. The masculine gender is used in these bylaws as
a matter of convenience only and shall be interpreted to include the feminine
and neuter genders as the circumstances indicate. Where the context or
construction requires, all words used in the plural shall be deemed to have been
used in the singular and vice verse, and the present tense shall include the
past and future tense, and vice versa.
20
<PAGE> 22
Section 13.3. Conflicts. In the event of any irreconcilable conflict between
these bylaws and either the corporation's articles of incorporation or
applicable law, the latter shall control.
Section 13.4. Definitions. Except as otherwise specifically provided in these
bylaws, all terms used in these bylaws shall have the same definition as in the
Colorado Business Corporation Act.
CERTIFICATE OF ADOPTION
I hereby certify that the foregoing bylaws, consisting of twenty-five
(25) pages, including this page, were duly adopted by the Board of Directors on
January 19, 1999 to supersede all bylaws then in effect.
By:
-----------------------------------
Ronald C. Butz, Secretary
21
<PAGE> 1
EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT. THE HOLDER OF THIS WARRANT AND ANY SHARES ISSUED PURSUANT TO THIS WARRANT
AGREES THAT THE COMPANY MAY REFUSE TO ISSUE SUCH SHARES OR TRANSFER THIS WARRANT
OR SUCH SHARES UNLESS THE COMPANY RECEIVES EVIDENCE SATISFACTORY TO IT AS TO
COMPLIANCE WITH SUCH EXEMPTIONS.
VOID AFTER 5:00 P.M., DENVER TIME, ON OCTOBER 12, 2004, OR IF NOT A BUSINESS
DAY, AS DEFINED HEREIN, AT 5:00 P.M., DENVER TIME, ON THE NEXT BUSINESS DAY.
WARRANT TO PURCHASE
_______________ SHARES OF
RENTECH, INC.
This certifies that, for good and valuable consideration, the
sufficiency of which is hereby acknowledged, _______________________________,
whose address is ____________________ ____________________________________, and
its registered, permitted assigns (collectively, the "Warrantholder"), is
entitled to purchase from Rentech, Inc., a corporation incorporated under the
laws of the state of Colorado (the Company), subject to the terms and conditions
hereof, at any time before 5:00 P.M., Denver time, on October 12, 2004, (or, if
such day is not a Business Day, at or before 5:00 P.M., Denver time, on the next
following Business Day), _______________ shares of fully paid and nonassessable
Common Stock, par value $.01 per share, at the Exercise Price. The Exercise
Price and the number of shares purchasable hereunder are subject to adjustment
from time to time as provided in Article III hereof.
ARTICLE I
Section 1.01: Definition of Terms. As used in this Warrant, the
following capitalized terms shall have the following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other
day on which banks in the State of Colorado are authorized by law to
remain closed.
(b) Common Stock: Common Shares, $.01 par value, of the
Company.
(c) Common Stock Equivalents: Securities that are convertible
into or exercisable for shares of Common Stock.
(d) Exchange Act: The Securities Exchange Act of 1934, as
amended.
(e) Exercise Price: $1.20 per Warrant Share, as such price may
be adjusted from time to time pursuant to Article III hereof.
1
<PAGE> 2
(f) Expiration Date: 5:00 P.M., Denver time, on October 12,
2004, or if such day is not a Business Day, the next succeeding day
which is a Business Day.
(g) Holder: A Holder of Warrants.
(h) NASD: National Association of Securities Dealers, Inc.,
and NASDAQ: NASD Automated Quotation System.
(i) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any
department or agency thereof.
(j) SEC: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the
Exchange Act.
(k) Securities Act: The Securities Act of 1933, as amended.
(l) Warrants: This Warrant and all other warrants that may be
issued in its or their place (together evidencing the right to purchase
an aggregate of 3,125,000 shares of Common Stock), originally issued to
First Union Securities, Inc.
(m) Warrantholder: The Person to whom this Warrant is
originally issued, or any successor in interest to whom the related
Units of Rentech, Inc. have been transferred, each Unit consisting of
four shares of Common Stock and one Warrant for the purchase of one
share of Common Stock, in whose name this Warrant is registered upon
the books to be maintained by the Company for that purpose. Only such
successors in interest shall be deemed "permitted assigns" and only
such assignments shall be deemed "permitted transfers" for purposes of
this Warrant.
(n) Warrant Shares: Common Stock, Common Stock Equivalents and
other securities purchased or purchasable upon exercise of the
Warrants.
(o) $ or Dollars: United States dollars.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
Section 2.01: Duration of Warrant. The Warrantholder may exercise this
Warrant at any time and from time to time before 5:00 P.M., Denver time, on the
Expiration Date. If this Warrant is not exercised on or before the Expiration
Date, it shall become void, and all rights hereunder shall thereupon cease. The
Warrants have been issued as part of a private placement by the Company of
3,125,000 Units, each consisting of four shares of Common Stock and one Warrant
for the purchase of one share of Common Stock. The Warrants may not be
transferred by a Warrantholder apart from the Units.
Section 2.02: Exercise of Warrant.
(a) The Warrantholder may exercise this Warrant, in whole or
in part, by presentation and surrender of this Warrant to the Company
at its corporate office at 1331 17th
2
<PAGE> 3
Street, Suite 720, Denver, Colorado 80202, or at the office of its
stock transfer agent, if any, with the Subscription Form annexed hereto
duly executed and accompanied by payment of the full Exercise Price for
each Warrant Share to be purchased by means of a cashier's check.
(b) Upon receipt of this Warrant with the Subscription Form
fully executed and accompanied by payment of the aggregate Exercise
Price for the Warrant Shares for which this Warrant is then being
exercised, the Company shall cause to be issued certificates for the
total number of whole shares of Common Stock for which this Warrant is
being exercised (adjusted to reflect the effect of the anti-dilution
provisions contained in Article III hereof, if any, and as provided in
Section 2.04 hereof) in such denominations as are requested for
delivery to the Warrantholder, and the Company shall thereupon deliver
such certificates to the Warrantholder. The Warrantholder shall be
deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates
representing such shares of Common Stock may not then be actually
delivered to the Warrantholder. Notwithstanding any other provision of
this Warrant, if at the time this Warrant is exercised and the Warrant
Shares issuable upon exercise of this Warrant are not registered, the
Company may require the Warrantholder to make such representations, may
place such legends on certificates representing the Warrant Shares, and
may place such stop transfer instructions and other transfer
restrictions as may be reasonably required in the opinion of counsel to
the Company to permit the Warrant Shares to be issued without such
registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased
under this Warrant, the Company shall execute a new Warrant in the form
of this Warrant for the balance of such Warrant Shares and deliver such
new Warrant to the Warrantholder.
(d) The Company shall pay any and all stock transfer and
similar taxes which may be payable in respect of the issue of this
Warrant or in respect of the issue of any Warrant Shares.
Section 2.03: Reservation of Shares. The Company hereby agrees that, at
all times following the execution of this Warrant, it will reserve for issuance
and delivery upon exercise of this Warrant such number of shares of Common Stock
or other shares of capital stock of the Company from time to time issuable upon
exercise of this Warrant. All such shares shall be duly authorized, and when
issued upon such exercise, shall be validly issued, fully paid and
non-assessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale and free and clear of all preemptive
rights.
Section 2.04: Fractional Shares. The Company shall not be required to
issue any fraction of a share of its capital stock in connection with the
exercise of this Warrant, and in any case where the Warrantholder would, except
for the provisions of this Section 2.04, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of this Warrant, the
Company shall, upon the exercise of this Warrant and receipt of the Exercise
Price, issue the greatest number of whole shares purchasable upon exercise of
this Warrant for which payment in full of the Exercise Price has been received.
The Company shall not be required to make any cash or other adjustment in
respect of such fraction of a share to which the Warrantholder would otherwise
be entitled.
3
<PAGE> 4
Section 2.05: Listing. Prior to the issuance of any shares of Common
Stock upon exercise of this Warrant, the Company shall secure the listing of
such shares of Common Stock upon each national securities exchange or automated
quotation systems, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation system.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
Section 3.01: Mechanical Adjustments.
(a) If at any time prior to the exercise of this Warrant in
full, the Company shall (I) declare a dividend or make a distribution
on the Common Stock payable in shares of its Common Stock; (ii)
subdivide, reclassify or recapitalize the outstanding Common Stock into
a greater number of shares of Common Stock; (iii) combine, reclassify
or recapitalize its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue any shares of its
capital stock by reclassification of its Common Stock (including any
such reclassification in connection with a consolidation or a merger in
which the Company is the continuing corporation), the Exercise Price in
effect at the time of the record date of such dividend, distribution,
subdivision, combination, reclassification or recapitalization shall be
adjusted so that the Warrantholder shall be entitled to receive the
aggregate number and kind of shares which, if this Warrant had been
exercised in full immediately prior to such event, he would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, distribution, subdivision, combination, reclassification or
recapitalization. Any adjustment required by this paragraph 3.01(a)
shall be made successively and become effective immediately after the
record date, in the case of a dividend or distribution, or the
effective date, in the case of a subdivision, combination,
reclassification or recapitalization, to allow the purchase of such
aggregate number and kind of shares.
(b) If at any time prior to the exercise of this Warrant in
full, the Company shall fix a record date for the issuance or making a
distribution to all holders of the Common Stock (including any such
distribution to be made in connection with a consolidation or merger in
which the Company is to be the continuing corporation) of evidences of
its indebtedness, any other securities of the Company or any cash,
property or other assets or securities, including without limitation
shares of a subsidiary's capital stock (excluding a common stock
dividend, combination, reclassification, recapitalization or issuance
referred to in Section 3.01(a)), regular cash dividends or cash
distributions in the ordinary course of business or subscription
rights, options or warrants for Common Stock or Common Stock
Equivalents (any such nonexcluded
4
<PAGE> 5
event being herein called a Special Dividend), then, except as provided
in paragraph 3.01(c), the Exercise Price shall be decreased immediately
after the record date for such Special Dividend to a price determined
by multiplying the Exercise Price then in effect by a fraction, the
numerator of which shall be the then current market price of the Common
Stock (as defined in Section 3.01(e)) on such record date less the fair
market value (as determined by the Company's Board of Directors) of the
evidences of indebtedness, securities or property, or other assets
issued or distributed in such Special Dividend applicable to one share
of Common Stock or of such subscription rights or warrants applicable
to one share of Common Stock, and the denominator of which shall be the
then current market price per share of Common Stock (as so determined).
Any adjustment required by this paragraph 3.01(b) shall be made
successively effective on the record date for the Special Dividend and
in the event that such distribution is not so made, the Exercise Price
shall again be adjusted to be the Exercise Price that was in effect
immediately prior to such record date.
(c) If at any time prior to the exercise of this Warrant in
full, the Company shall make a distribution to all holders of the
Common Stock of stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an adjustment in the
Exercise Price or the number of Warrant Shares purchasable upon the
exercise of this Warrant, each Warrantholder, upon the exercise hereof
at any time after such distribution, shall be entitled to receive from
the Company, such subsidiary or both, as the Company shall determine,
the stock or other securities to which such Warrantholder would have
been entitled if such Warrantholder had exercised this Warrant
immediately prior thereto, all subject to further adjustment as
provided in this Article III, and the Company shall reserve, for the
life of the Warrant, such securities of such subsidiary or other
corporation; provided, however, that no adjustment in respect of
dividends or interest of such stock or other securities shall be made
during the term of this Warrant or upon its exercise.
(d) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to one or more of paragraphs (a), (b) and
(c) of this Section 3.01, the number of Warrant Shares issuable upon
payment of the Warrant Price shall simultaneously be adjusted by
multiplying the number of Warrant Shares issuable upon exercise of each
Warrant immediately prior to such adjustment by the Exercise Price in
effect immediately prior to such adjustment and dividing the product so
obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under this Section
3.01, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for 20
consecutive trading days commencing 30 trading days before such date.
The closing price for each day shall be the last sale price regular way
or, in case no such reported sales take place on such day, the average
of the last reported bid and asked prices regular way, in either case
on the principal national securities exchange on which the Common Stock
is admitted to trading or listed, or if not listed or admitted to
trading on such exchange, the representative closing bid price as
reported by NASDAQ, or other similar organization if NASDAQ is no
longer reporting such information, or if not so available, the fair
market price as determined in good faith by the Board of Directors of
the Company.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least ten cents ($.10) in such price; provided, however,
5
<PAGE> 6
that any adjustments which by reason of this paragraph (f) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 3.01
shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Notwithstanding anything in this Section
3.01 to the contrary, the Exercise Price shall not be reduced to less
than the then existing par value, if any, of the Common Stock as a
result of any adjustment made hereunder.
(g) In the event that at any time, as a result of any
adjustment made pursuant to Section 3.01(a), the Warrantholder
thereafter shall become entitled to receive any shares of the Company
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock
contained in Section 3.01(a).
(h) In the case of an issue of additional Common Stock or
Common Stock Equivalents for cash, the consideration received by the
Company therefor, without deducting therefrom any discount or
commission or other expenses paid by the Company for any underwriting
of, or otherwise in connection with, the issuance thereof, shall be
deemed to be the amount received by the Company therefor. To the extent
that such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amounts of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as reasonably determined in
good faith by the Board of Directors of the Company. The term issue
shall include the sale or other disposition of shares held by or on
account of the Company or in the treasury of the Company, but until so
sold or otherwise disposed of such shares shall not be deemed
outstanding.
Section 3.02: Notices of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price is adjusted as herein provided, the Company shall
prepare and deliver forthwith to the Warrantholder a certificate signed by its
President, and by any Vice President, Treasurer or Secretary, setting forth the
adjusted number of shares purchasable upon the exercise of this Warrant and the
Exercise Price of such shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which adjustment was made. The certificate of any independent
firm of public accountants of recognized standing selected by the Board of
Directors of the Company shall be conclusive evidence of the arithmetic
correctness of any computation made under this Section 3.
Section 3.03: No Adjustment for Dividends. Except as provided in
Section 3.01 of this Agreement, no adjustment in respect of any cash dividends
shall be made during the term of this Warrant or upon the exercise of this
Warrant.
Section 3.04: Preservation of Purchase Rights in Certain Transactions.
In case of any consolidation or merger of the Company with or into another
Person (other than a merger with a subsidiary in which the Company is the
continuing corporation and that does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock) or in case
of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition to such transaction cause such
successor or purchasing corporation, as the case may be, to execute with the
Warrantholder an agreement granting the Warrantholder the right thereafter, upon
payment of the Exercise Price in effect
6
<PAGE> 7
immediately prior to such transaction, to receive upon exercise of this Warrant
the kind and amount of shares and other securities and property which he would
have owned or have been entitled to receive as a result of such transaction had
this Warrant been exercised immediately prior to such action. Such agreement
shall provide for adjustments in respect of such shares of stock and other
securities and property, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article III and shall
provide that such rights may be exercised at any time prior to the Expiration
Date. In the event that in connection with any such transaction, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Article III. The provisions of this Section 3.04
shall similarly apply to successive reclassifications, capital reorganizations,
consolidations, mergers, sales or conveyance.
Section 3.05: Form of Warrant After Adjustments. The form of this
Warrant need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in the Warrant, as initially issued.
Section 3.06: Treatment of Warrantholder. Prior to due presentment for
registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANTHOLDER
Section 4.01: No Rights as Shareholders; Notice to Warrantholders.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to vote or to receive
dividends or to consent or to receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or of any
other matter, or any rights whatsoever as shareholders of the Company. The
Company shall give notice to the Warrantholder by registered mail if at any time
prior to the expiration or exercise in full of the Warrants, any of the
following events shall occur:
(a) the Company shall authorize the payment of any dividend to
all holders of Common Stock;
(b) the Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or Common Stock
Equivalents or of rights, options or warrants to subscribe for or
purchase Common Stock or Common Stock Equivalents or of any other
subscription rights, options or warrant;
(c) a dissolution, liquidation or winding up of the Company;
or
(d) a capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding
Common Stock) or any consolidation or merger
7
<PAGE> 8
of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing
corporation and that does not result in any reclassification or change
of Common Stock outstanding) or in the case of any sale or conveyance
to another corporation of the property of the Company as an entirety or
substantially as an entirety.
Such giving of notice shall be completed at least 15 Business Days prior to the
date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution, or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the stock transfer
books, as the case may be. Failure to provide such notice shall not affect the
validity of any action taken in connection with such dividend, distribution or
subscription rights, or proposed merger, consolidation, sale, conveyance,
dissolution, liquidation or winding up.
Section 4.02: Lost, Stolen, Mutilated or Destroyed Warrants. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, upon receipt
by the Company of evidence of ownership reasonably satisfactory to it and on
such terms as to indemnity or otherwise as it may in its discretion impose
(which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as, and in
substitution for, this Warrant.
Section 4.03: Split-Up, Combination, Exchange and Transfer of Warrants.
This Warrant may be split up, combined or exchanged for another Warrant or
Warrants containing the same terms to purchase a like aggregate number of
Warrant Shares. If the Warrantholder desires to split up, combine or exchange
this Warrant, he or it shall make such request in writing delivered to the
Company and shall surrender to the Company this Warrant and any other Warrants
to be so split-up, combined or exchanged. Upon any such surrender for a
split-up, combination or exchange, the Company shall execute and deliver to the
person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Company shall not be required to effect any split-up, combination
or exchange which will result in the issuance of a Warrant entitling the
Warrantholder to purchase upon exercise a fraction of a share of Common Stock or
a fractional Warrant.
Section 4.04: Registration Rights. The Warrant Shares, once issued, are
subject to the rights and benefits of the Registration Rights Agreement
pertaining to the Warrant Shares, between the Company, First Union Securities,
Inc., and others; provided, however, that notwithstanding anything in such
Registration Rights Agreement to the contrary, the Company hereby consents to
the transfer of the registration rights contained therein with respect to the
Warrant Shares to the extent that transfers of the Warrant and the Warrant
Shares are permitted hereunder.
Section 4.05: Redemption. This Warrant may be redeemed by the Company
at any time after sixty (60) days from the date of its original issuance and
prior to the Expiration Date upon at least thirty (30) days' written notice (the
"Notice of Redemption") to the holder of this Warrant for $.05 per Warrant Share
if the closing high bid quotation of the Company's common stock exceeds one
hundred twenty percent (120%) of the Exercise Price for a period of twenty (20)
consecutive trading days immediately preceding the mailing by the Company of the
Notice of Redemption. The Notice of Redemption shall be sent to the last known
address of the Holder of this Warrant as maintained on the books and records of
the Company. The redemption date shall be fixed in the Notice of Redemption and
shall be not earlier than thirty (30) days after the date of mailing of the
Notice of Redemption. Upon receipt of a Notice of
8
<PAGE> 9
Redemption, the Holder of this Warrant may exercise this Warrant to the extent
of the number of Warrant Shares called for redemption until the last business
day prior to the redemption date. A "business day" shall mean any day other than
Saturday, Sunday or other day on which banks are required or authorized to be
closed in the City of Denver or the State of Colorado. If on the redemption date
the Company shall have paid the redemption price or shall have reserved and set
apart an amount sufficient to pay the redemption price, then this Warrant shall
expire to he extent of the number of Warrant Shares called for redemption
pursuant to the Notice of Redemption. Warrants called for redemption in whole or
in part shall be tendered to the Company on or before the redemption date. The
redemption price shall be paid to the Warrantholder within three (3) business
days after the redemption date, and shall be delivered by check sent to the last
known address of the warrant holder maintained on the books and records of the
Company.
ARTICLE V
OTHER MATTERS
Section 5.01: Amendments and Waivers. The provisions of this Warrant,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waiver or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority of the outstanding Warrants. Holders shall be bound by
any consent authorized by this section whether or not certificates representing
such Warrants have been marked to indicate such consent.
Section 5.02: Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the state of Colorado.
Section 5.03: Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
Section 5.04: Computations of Consent. Whenever the consent or approval
of Holders of a specified percentage of Warrants is required hereunder, Warrants
held by the Company or its affiliates (other than the Warrantholder or
subsequent Holders if they are deemed to be such affiliates solely by reason of
their holdings of such Warrants) shall not be counted in determining whether
such consent or approval was given by the Holders of such required percentage.
Section 5.05: Notice. Any notices or certificates by the Company to the
Holder and by the Holder to the Company shall be deemed delivered if in writing
and delivered in person or by registered mail (return receipt requested) to the
Holder addressed to him in care of First Union Securities, Inc. at the following
address:
1001 Fannin, 22nd Floor
Houston, TX 77002-6760
Attention: John Bishop, Managing Director
9
<PAGE> 10
or, if the Holder has designated by notice in writing to the Company any other
address, to such other address. If notice is to the Company, such notice is to
be addressed to Rentech, Inc. at:
1331 17th Street, Suite 720
Denver, CO 80202
Attention: Chief Operating Officer
The Company may change its address by written notice to the Holder and
the Holder may change its address by written notice to the Company.
Section 5.06: Investment Representation of the Holder. By accepting
delivery of this Warrant, the Holder represents to the Company that it has
acquired this Warrant solely for its own account for investment and not with a
view to distribution or sale in violation of the Securities Act, but subject,
nevertheless, to any requirement of law that the disposition of the Holder's
property be at all times within its control. The Holder represents that it
understands that this Warrant has been issued in a transaction that is exempt
from the registration requirements of the Securities Act and that this Warrant
must be held by the Holder and may not be resold unless subsequently registered
under the Securities Act or an exemption from such registration is available,
and if so resold, may only be resold and assigned with the shares of Common
Stock of the Company acquired by the Warrantholder concurrently with this
Consent through a private placement transaction with the Company. The Holder
also represents that it understands and acknowledges that this Warrant may only
be exercised by the Warrantholder.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
as of the ______ day of _______________, 1999.
RENTECH, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
--------------------------------
10
<PAGE> 11
ASSIGNMENT
(To be executed only upon a permitted assignment of Warrant Certificate)
For value received, the undersigned __________________________________
having transferred the Units of Rentech, Inc. that are registered in the records
of Rentech, Inc. as owned by the undersigned, each Unit consisting of four
shares of the Common Stock of Rentech, Inc. and one warrant for the purchase of
one share of Common Stock of Rentech, Inc., to the assigns identified below,
hereby sells, assigns and transfers unto _________________________
______________________ the within Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
___________________________ ____________________, as attorney to transfer said
Warrant Certificate on the books of the within-named Company with respect to the
number of Warrants set forth below, with full power of substitution in the
premises:
<TABLE>
<CAPTION>
Name(s) of
Assignee(s) Address No. of Warrants
--------------------------------------------------------------
<S> <C> <C>
</TABLE>
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants registered by said
Warrant Certificate.
Dated: Signed:
---------------- -------------------------------------------------
NOTE: The above signature should correspond exactly with
the name on the face of this Warrant Certificate
11
<PAGE> 12
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant)
To: Rentech, Inc.
1331 17th Street, Suite 720
Denver, CO 80202
The undersigned permitted Warrantholder hereby irrevocably elects to
exercise the right of purchaser represented by the within Warrant Certificate
for, and to purchase thereunder, ____________________ shares of Common Stock, as
provided for therein, and tenders herewith payment of the purchase price in full
in the form of cash or a certified or cashier's check for the amount of
$______________________.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name
-----------------------------------------------
(Please print Name, Address and Social Security No.)
Signature
------------------------------------------
NOTE: The above signature should correspond exactly
with the name on the first page of this Warrant
Certificate or with the name of the permitted
assignee appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
12
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of
___________________, 1999, is entered into by and among Rentech, Inc., a
Colorado corporation (the Company), First Union Securities, Inc., and the
individuals and entities listed on Exhibit A hereto (collectively, the
Shareholders);
Background Circumstances:
A. The Company and each of the Stockholders have entered into a
Subscription Agreement (the Subscription Agreement) relating to the purchase by
Stockholders of an aggregate of 12,500,000 shares of Common Stock, par value
$.01 per share (Shares) and 3,125,000 warrants to purchase Common Stock in
Units, consisting of four shares and one redeemable stock purchase warrant
(Warrant) to purchase one share of Common Stock, at an exercise price of $1.20
per share.
B. In order to induce the Stockholders to enter into the Subscription
Agreement, the Company has agreed to grant certain registration rights to the
Stockholders with respect to the Shares and Warrant Shares;
C. In connection with the private placement of the Shares with the
Stockholders, the Company has granted to First Union Securities, Inc. a warrant
to purchase one share of Common Stock for each 50 Shares of Common Stock sold in
the offering of the Units (the First Union Securities, Inc. Warrant Shares) at
an exercise price of $.66 per share.
D. The Company has agreed to grant certain registration rights to First
Union Securities, Inc. with respect to the First Union Securities, Inc. Warrant
Shares;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions.
As used herein, the following terms have the indicated meanings, unless
the context otherwise requires:
"Act" means the Securities Act of 1933, as amended.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a Stockholder who owns Registrable Securities or any
permitted transferee thereof who owns Registrable Securities Rights under this
Agreement may not be exercised except by persons who purchased Units from
Rentech, Inc., each Unit consisting of four shares of Common Stock and one
Warrant for the purchase of one share of Common Stock, or persons to whom both
the shares and the Warrant comprising the Units have been transferred.
"Registrable Securities" means the Shares, Warrant Shares, First Union
Securities, Inc. Warrant Shares and any other securities issued or issuable by
the Company with respect to the Shares, Warrant Shares or the First Union
Securities, Inc. Warrant Shares by way of a stock dividend or other distribution
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or reorganization. Any Registrable Securities will cease
to be such when (i) a registration statement covering such Registrable
Securities has been declared effective by the Securities and Exchange Commission
and
<PAGE> 2
such Registrable Securities have been disposed of pursuant to such effective
registration statement, (ii) such Registrable Securities may be distributed to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Act or (iii) the Company has delivered a new certificate or other evidence
of ownership for such Registrable Securities not bearing the legend required
pursuant to the Subscription Agreement or a Warrant to Purchase Common Stock
regarding the Warrant Shares or the First Union Securities, Inc. Warrant Shares
and such Registrable Securities may be resold to the public without restriction
under the Act in accordance with Rule 144(k).
"Selling Holder" means a Stockholder or permitted transferee thereof
who is selling Registrable Securities pursuant to a registration statement.
2. Piggy-Back Registration.
(a) If the Company proposes to file a registration statement under the
Act with respect to an offering by the Company of any class of equity security
for cash, including any security convertible into or exchangeable for any equity
securities (other than (i) a registration statement on Form S-4 or S-8 (or any
substitute form for comparable purposes that may be adopted by the Commission),
(ii) a registration statement filed in connection with an exchange offer or an
offering of securities solely to the Company's existing security holders, or
(iii) in connection with the registration statement that is on a form pursuant
to which an offering of the Registrable Securities cannot be registered, then
the Company shall in each case give written notice of such proposed filing to
the Holders at least 30 days before the anticipated filing date, and such notice
shall offer the Holders the opportunity to register such number of Registrable
Securities as each such Holder may request. Upon the written request of any
Holder received by the Company within 15 business days after the date of the
Company's delivery of its notice to the Holders of its intention to file such a
registration statement, the Company shall, subject to the conditions and in
accordance with the procedures set forth herein, use its best efforts to cause
the managing underwriter or underwriters, if any, of a proposed underwritten
offering to permit the Registrable Securities requested by the Holder to be
included in the registration statement for such offering on the same terms and
conditions as any similar securities of the Company included therein (a
"Piggy-Back Registration"). Notwithstanding the foregoing, if the managing
underwriter or underwriters of an offering indicates in writing to the Holders
who have requested that their Registrable Shares be included in such offering,
its reasonable belief that because of the size of the offering intended to be
made, the inclusion of the Registrable Securities requested to be included might
reasonably be expected to jeopardize the success of the offering of the
securities of the Company to be offered and sold by the Company for its own
account, then the amount of securities to be offered for the account of the
Holders shall be reduced on a pro rata basis among the selling Holders
(according to he total amount of securities owned by selling Holders) other than
the Company to the extent necessary to reduce the total amount of securities to
be included in such offering to the amount recommended by such managing
underwriter or underwriters. The Company will bear all Registration Expenses (as
hereinafter defined) in connection with a Piggy-Back Registration.
(b) The Company may, without the consent of any Selling Holder,
withdraw any registration statement prior to the effectiveness thereof and
abandon any proposed offering initiated by the Company, notwithstanding the
request of a Holder to participate therein in accordance with this Section 2, if
the Company determines that such action is in the best interests of the Company.
(c) Notwithstanding anything contained herein to the contrary, the
Company will have no obligation under this Section 2 to register any Registrable
Securities unless at least 20,000 shares (as adjusted for stock splits, stock
dividends or similar transaction) of Registrable Securities in the aggregate are
requested to be included in such offering.
3. Restrictions on Public Sale by Holder of Registrable Securities.
To the extent not inconsistent with applicable law, each Holder whose
Registrable Securities are included in a registration statement pursuant to
Section 2 agrees not to effect any public sale or
2
<PAGE> 3
distribution of the security being registered or a similar security of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 under the Act, during the
90-day period (or such shorter period as may be required by the Company or the
managing underwriter or underwriters with respect to any officer or director or
shareholder of the Company) beginning on the effective date of a registration
statement (except, in each case, as part of such registration), if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
4. Registration Procedures.
Whenever the Holders have requested that any Registrable Securities be
included in a registration pursuant to Section 2 hereof, the Company shall
(unless such registration statement is not filed or is withdrawn) use its best
efforts to effect the registration and the sale of such Registrable Securities
as soon as reasonably practicable, and in connection with any such request, the
Company shall (unless such registration statement is not filed or is withdrawn):
(a) (I) prior to filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to each Selling Holder and counsel
selected by each Selling Holder copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel, (ii)
furnish to each Selling Holder, prior to filing a registration statement, copies
of such registration statement as proposed to be filed, and thereafter furnish
to each Selling Holder such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as any Selling Holder may
reasonably require in order to facilitate the disposition of the Registrable
Securities owned by the Selling Holder, and (iii) after the filing of the
registration statement, promptly notify each Selling Holder of Registrable
Securities covered by such registration statement of any stop order issued or
threatened by the Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered;
(b) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
each Selling Holder reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Selling Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by the Selling Holder; provided, however, that the Company will not be
required to (I) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (b), (ii)
subject itself to taxation in any such jurisdiction where it is not then so
subject or (iii) consent to general service of process in any such jurisdiction;
(c) use its best efforts to cause such Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable the Selling Holder thereof to consummate the disposition of such
Registrable Securities;
(d) notify the Selling Holder, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to the Selling
Holder any such supplement or amendment;
(e) enter into or arrange for the furnishing of customary agreements
and documents (including an underwriting agreement in customary form) and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities;
3
<PAGE> 4
(f) make available for inspection by each Selling Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other professional retained by the
Selling Holder or underwriter (collectively, the Inspectors), all financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries (collectively, the Records) as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's and its subsidiaries' officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with such
registration statement. Each Selling Holder agrees that information obtained by
it as a result of such inspections that is material and deemed confidential
shall not be used by it as the basis for any market transactions in securities
of the Company unless and until such is made generally available to the public.
The Selling Holder further agrees that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential;
(g) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of 12 months, beginning
within three months after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Act; and
(h) use its reasonable efforts to cause all such Registrable Securities
to be quoted on the Nasdaq Market System, if the Common Stock is then so quoted,
or to be listed on any securities exchange on which the Common Stock is then
listed.
The Company may require the Selling Holder as to which any registration
is being effected to furnish to the Company such information regarding the
Selling Holder and the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing and such other
information as may be legally required in connection with such registration.
In no event shall the Company be required to amend any registration
statement filed pursuant to this Agreement after it has become effective or to
amend or supplement any prospectus to permit the continued disposition of shares
of Common Stock owned by a Selling Holder registered under any such registration
statement beyond the period during which the Company is required to maintain the
effectiveness thereof pursuant to the terms of this Agreement.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 4(d)
hereof, the Selling Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until the Selling Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 4(d) hereof, and, if so directed
by the Company, the Selling Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in the Selling
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. Each Selling Holder also agrees
to notify the Company of any event relating to the Selling Holder that occurs
that would require the preparation of a supplement or amendment to the
prospectus so that such prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
As used herein, the term "Current Market Price" per share of Common
Stock or any other security at any date shall mean, on any date of determination
(a) the average of the daily closing sale price for the 10 trading days
immediately preceding such date if the security has been listed on the New York
Stock Exchange, the American Stock Exchange or other national exchange or the
Nasdaq National Market for at least 10 trading days prior to such date, (b) if
such security is not so listed or traded, the average of the daily closing bid
price for the 10 trading days immediately preceding such date if the security
has been quoted on a national over-the-counter market for at least 10 trading
days, and (c) otherwise, the value of the security most recently determined as
of a date within the six months preceding such day by the Company's Board of
Directors.
4
<PAGE> 5
5. Registration Expenses.
All expenses incident to the Company's performance of or compliance
with this Agreement, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), rating agency fees, printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the fees and expenses incurred in connection with
the listing of the securities to be registered on the Nasdaq Market System and
all securities exchanges on which similar securities issued by the Company are
then quoted or listed, and fees and disbursements of counsel for the Company and
its independent certified public accountants (including the expenses of any
special audit or comfort letters required by or incident to such performance),
securities act liability insurance (if the Company elects to obtain such
insurance), the fees and expenses of any special experts retained by the Company
in connection with such registration, and fees and expenses of other persons
retained by the Company, in connection with each registration hereunder (but not
including any underwriting discounts or commissions attributable to the sale of
Registrable Securities (which are hereinafter referred to as "Selling Expenses")
and the reasonable fees and expenses of one counsel for the Selling Holders,
(collectively, the "Registration Expenses") will be borne by the Company in the
event of a registration of Registrable Securities pursuant to Section 2 or 3
hereof. All Selling Expenses shall be borne solely by the Selling Holders.
6. Indemnification; Contribution.
(a) Indemnification by the Company. To the extent permitted by
applicable law, the Company agrees to indemnify and hold harmless each Selling
Holder, its officers, directors, partners and agents and each person, if any,
who controls a Selling Holder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages (whether in contract, tort or otherwise), liabilities and expenses
(including reasonable costs of investigation) whatsoever (as incurred or
suffered) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of, or are based upon, any such untrue statement or omission or allegation
thereof based upon information furnished in writing to the Company by such
Selling Holder or on behalf of such Selling Holder expressly for use therein and
provided, that with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus was not sent or given to the person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Registrable Securities concerned to such person
if it is determined that the Company had previously provided such Selling Holder
with such current copy of the prospectus, it was the responsibility of such
Selling Holder to provide such person with such current copy of the prospectus
and such current copy of the prospectus would have cured the defect giving rise
to such loss, claim, damage, liability or expense. The Company also agrees to
indemnify any underwriters of the Registrable Securities, their officers,
partners and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Selling
Holder provided in this Section 7 or such other indemnification customarily
obtained by underwriters at the time of offering.
(b) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
a Selling Holder (or its officers, directors, partners, attorneys or agents) or
any person controlling such Selling Holder in respect of which indemnity may be
sought from the Company, the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Selling Holder, and
shall assume the payment of all expenses. Each Selling Holder or any controlling
person of a Selling Holder shall have the right to
5
<PAGE> 6
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Selling Holder or such controlling person unless (I) the Company has agreed
to pay such fees and expenses or (ii) the named parties to any such action or
proceeding (including any impleaded parties) include both the Selling Holder or
such controlling person and the Company, and the Selling Holder or such
controlling person shall have been advised by counsel that there may be one or
more legal defenses available to such Selling Holder or such controlling person
which are different from or additional to those available to the Company (in
which case, if such Selling Holder or such controlling person notifies the
Company in writing that it elects to employ separate counsel at the expense of
the Company, the Company shall not have the right to assume the defense of such
action or proceeding on behalf of such Selling Holder or such controlling
person) or (iii) the use of counsel chosen by the Company to represent the
Selling Holder would present such counsel with a conflict of interest or (iv)
the Company shall not have employed counsel satisfactory to the Selling Holder
to represent the Selling Holder within a reasonable time after notice of the
institution of such action; it being understood, however, that the Company shall
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for each Selling Holder, which firm shall
be designated in writing by such Selling Holder). The Company shall not be
liable for any settlement of any such action or proceeding effected without the
Company's written consent, but if settled with its written consent, or if there
be a final judgment for the plaintiff in any such action or proceeding, the
Company agrees to indemnify and hold harmless each Selling Holder and
controlling person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Company shall not, without
the prior written consent of the Selling Holder, settle or compromise or consent
to the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the Selling Holders are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each Selling Holder from all
liability arising out of such claim, action, suit or proceeding.
(c) Indemnification by Holder of Registrable Securities. Each Selling
Holder agrees to indemnify and hold harmless the Company, its directors and
officers and each person, if any, who controls the Company within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Selling Holder, but
only with respect to information furnished in writing by the Selling Holder or
on the Selling Holder's behalf expressly for use in any registration statement
or prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. In case any action or
proceeding shall be brought against the Company or its directors or officers, or
any such controlling person, in respect of which indemnity may be sought against
a Selling Holder, such Selling Holder shall have the rights and duties given to
the Company, and the Company or its directors or officers or such controlling
person shall have the rights and duties given to a Selling Holder, by the
preceding paragraph. The Selling Holder also agrees that it will enter into an
indemnity agreement to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 7(c). Notwithstanding
the foregoing, the liability of a Selling Holder pursuant to this Section 7(c)
shall not exceed the amount of the aggregate proceeds of the Registrable
Securities of the Selling Holder.
(d) Contribution. If the indemnification provided for in this Section 7
is unavailable to the Company or a Selling Holder in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (I) as between the
Company and such Selling Holder on the one hand and the underwriters on the
other, in such proportion as is appropriate to reflect the relative benefits
received by the Company and a Selling Holder on the one hand and the
underwriters on the other from the offering of the Registrable Securities, or if
such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the
6
<PAGE> 7
Company and such Selling Holder on the one hand and of the underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations and (ii) as between the Company, on the one hand, and a
Selling Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of such Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Company and a Selling Holder on the one
hand and the underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and such Selling Holder bear to the total underwriting discounts and commissions
received by the underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of the Company and such Selling
Holder on the one hand and of the underwriters on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company and such Selling
Holder or by the underwriters. The relative fault of the Company on the one hand
and of such Selling Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and each Selling Holder agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and a Selling Holder
shall not be required to contribute any amount in excess of the amount of the
total price at which the Registrable Securities of the Selling Holder were
offered to the public. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(e) Indemnification Payments. The indemnification and contribution
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability are incurred.
7. Participation in Underwritten Registrations.
No person may participate in any underwritten registration hereunder
unless such person (a) agrees to sell such person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required by the Company
or managing underwriter under the terms of such underwriting arrangements and
this Agreement.
7
<PAGE> 8
8. Rule 144 and Reports.
The Company shall timely file the reports required to be filed by it
under the Securities Act and the Exchange Act (including but not limited to the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities
Act) and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, will, upon the request of any
holder of Registrable Securities, make publicly available other information) and
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule of regulation hereafter adopted by the Commission. Upon the request
of any holder of Registrable Securities, the Company will deliver to such holder
a written statement as to whether it has complied with such requirements.
9. Miscellaneous.
(a) Binding Effect. Unless otherwise provided herein, the provisions of
this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs and legal representatives and permitted
transferees, successors and assigns. The rights and obligations of a Holder
hereunder cannot be assigned or transferred without the prior written consent of
the Company except by will or intestacy or by operation of law.
(b) Amendment. This Agreement may be amended or terminated only by a
written instrument signed by the Company and each of the Holders.
(c) Applicable Law. The internal laws of the State of New York (without
regard to choice of law provisions thereof) shall govern the interpretation,
validity and performance of the terms of this Agreement.
(d) Notices. All notices provided for herein shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
registered or certified mail, postage prepaid:
<TABLE>
<S> <C> <C>
(I) if to the Company, to: With a copy to:
Rentech, Inc. Brega & Winters P.C.
1331 17th Street, Suite 720 1700 Lincoln St., #2222
Denver, CO 80202 Denver, CO 80203
Attention: President Attn: Mr. Loren Mall
(ii) if to First Union Securities, Inc.: With a copy to:
First Union Securities Vinson & Elkins L.L.P.
1001 Fannin, 22nd Floor 2300 First City Tower
Houston, TX 77002-6760 1001 Fannin
Attn: Mr. John Bishop Houston, TX 77002-6760
Attention: Mr. T. Mark Kelly
(iii) if to the Stockholders, to the respective addresses
set forth on Exhibit A hereto.
</TABLE>
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one instrument.
8
<PAGE> 9
(f) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
RENTECH, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
FIRST UNION SECURITIES, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
STOCKHOLDERS:
-----------------------------------------
9
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made effective as of ____________,
by and between RENTECH, INC., a Colorado corporation (the "Company") and
_______________ _______________ (the "Employee").
WHEREAS, the Employee has been employed by the Company as its
________________, [and has been a founding shareholder and director of the
Company]; and
WHEREAS, the services, abilities, and ideas of the Employee have
constituted a major factor in the growth and development of the Company; and
WHEREAS, the Company desires to employ, retain and make secure for
itself the experience, abilities and services of the Employee and to prevent the
loss of such services or the availability thereof to other persons, concerns or
entities on the terms and under the conditions set forth herein; and
WHEREAS, the Employee desires to serve as an employee of the Company on
the terms and under the conditions set forth herein;
NOW THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT. The Company shall employ the Employee and the Employee
shall perform services for and continue in the employment of the Company, all in
accordance with the provisions of this Agreement, as more specifically described
in Section 2 hereof, for the period commencing on ____________________ and
ending on ____________________, subject to the terms and conditions hereof.
2. DUTIES. The Employee shall serve as the ___________________________
of the Company with such duties, powers and responsibilities as the Board of
Directors of the Company may reasonably specify from time to time, including,
without limitation, continuing the business of the company as it is currently
being conducted. The Employee shall devote his full time to his responsibilities
hereunder and to the business and affairs of the Company and shall not be
employed by any other person or entity.
3. COMPENSATION. The Employee shall be paid a base salary of
___________________________________ Dollars ($__________) per annum, in monthly
installments, adjusted annually by an appropriate Denver, Colorado cost of
living index. The Company's obligation to compensate the Employee shall
terminate and cease upon the termination of the Employee's employment hereunder
for any reason except if the Company terminates the Employee without cause. In
that case, the Employee shall be entitled to full compensation as set forth in
this Section 3.
3.1. PROFIT SHARING PLAN. The Company will adopt a profit-sharing plan
for the benefit of all employees, including management personnel and the
Employee. The plan will be administered by a committee appointed by the board of
directors which shall have discretion in the award of bonuses. Awards by the
committee to members of the committee will be subject to approval by the
disinterested members of the board of directors. Awards shall not aggregate in
excess of five percent of audited pre-tax earnings before depreciation,
amortization and extraordinary income for the preceding fiscal year. In no
event, however, shall any bonuses be payable from the profit pool unless the
audited pre-tax earnings before depreciation, amortization and extraordinary
income for the preceding fiscal year exceed $500,000.00.
3.2. EXPENSES AND FRINGE BENEFITS. The Employee shall be reimbursed for
reasonable out-of-pocket expenses incurred by him in the performance of his
duties hereunder in accordance with the general policies of the Company. During
the term of this Agreement, the Employee shall be entitled to
1
<PAGE> 2
participate in all those regular fringe benefits, including vacations, which are
provided to the executive officers of the Company from time to time.
4. NON-COMPETITION.
4.1. COVENANT NOT TO COMPETE. The Company and the Employee recognize
that the services to be rendered to the Company by the Employee under this
Agreement are special, unique and of extraordinary character in that the
Employee has been involved in developing and marketing and will continue to be
involved in developing and marketing its proprietary process for the conversion
of carbon- bearing solids or gases into valuable liquid hydrocarbons, including
the composition and use of the company's related catalyst, upon which technology
the business of the Company is based. Therefore, during the term of his
employment hereunder and for three (3) years following the termination for such
employment for any reason whatsoever (the "Non-Competition Period"), the
Employee covenants and agrees not to, without the express written consent of the
Company, which consent it may withhold in its sole and absolute discretion,
directly or indirectly own, manage, operate, control, advise, lend money to,
endorse the obligations of, or participate in or be connected as an officer,
director, five percent (5%) or more stockholder of a publicly-held Company,
stockholder, employee, partner, agent, consultant or otherwise of a closely held
Company or any enterprise or individual engaged in the business of developing,
manufacturing or marketing processes, technology, products or services that are
similar to processes, technology, products or services which have been are being
developed or are planned (as documented by memoranda, instruments, writings or
other compilations of information of the Company) to be developed by the Company
and will not, in any manner, either directly or indirectly, compete with the
Company in its business.
4.2. OUTSIDE BUSINESS ACTIVITY. The Employee, during the term of his
employment by the Company hereunder, shall at all times keep the Company
informed of any outside business activity and shall not engage in any such
activity which may be in conflict with the Company's interests.
5. CONFIDENTIALITY. The Employee acknowledges that he has learned and will learn
confidential Information, as defined in Section 5.1 hereof, relating to the
business presently being conducted and to be conducted by the Company. The
Employee agrees that he will not, except in the normal and proper course of his
duties hereunder, disclose or use or enable anyone else to disclose or use,
either during the Non-Competition Period or at any time subsequent thereto, any
such Confidential Information without the prior written consent of the Company,
which consent it may withhold in its sole and absolute discretion. The Employee
further agrees not to accept any employment which would inherently involve the
disclosure or use of Confidential Information.
5.1. CONFIDENTIAL INFORMATION. "Confidential Information" includes, but
is not limited to, the following types of information, both existing and
contemplated, and regarding the Company or its proprietary process for the
conversion of carbon-bearing solids or gases into valuable liquid hydrocarbons,
including the composition, manufacturing and use of the Company's related
catalysts: corporate information, including contractual licensing arrangements,
business plans, strategies, tactics, policies, resolutions, patent applications,
and any litigation or negotiations; marketing information, including sales or
product plans, strategies, tactics, methods, customers, prospects, or market
research data; financial information, including cost and performance data, debt
arrangement, equity structure, investors, and holdings; operational, scientific
and engineering information, including patent applications, proprietary
information, trade secrets, secret formulae, control and inspection practices,
manufacturing processes and methods, process methods, catalyst injection
methods, suppliers and parts; technical information, including engineering
designs and equipment, designs, drawings and specifications; and personnel
information, including personnel lists, resumes, personal data, organizational
structure and performance evaluations. Confidential Information shall not
include information which (a) is or becomes publicly known through no fault of
the Employee, or (b) is generally or readily obtainable by the public or within
the scientific or medical fields, or (c) is known by the Employee from general
skills, knowledge, and experience not specific to the Company's proprietary
technology acquired by the Employee before or during his employment with the
Company, or both.
2
<PAGE> 3
5.2. TRADE SECRETS. "Trade secrets" includes, without limitation,
information, including a formula, pattern, compilation, program device, method,
technique or process which is used in one's business, and which gives him an
opportunity to obtain an advantage over competitors who do not know or use it.
5.3. BOOKS AND RECORDS. The Employee agrees that all documents and
other tangible property of any nature pertaining to activities of the Company or
to any Confidential Information, in his possession now or at any time during the
period of his employment with the Company, including without limitation
formulae, processes, memoranda, notebooks, financial records, notes, data
sheets, records, blueprints, designs and electronic or mechanical data storage
devices and records, are and shall be the property of the Company and that they
and all copies of them shall be surrendered to the Company whenever requested by
the Company from time to time during the Non-Competition Period and upon request
upon termination thereof.
6. KEY MAN INSURANCE. The Employee agrees to submit to physical
examinations and take other actions and cooperate as appropriate in furtherance
of the Company's application for key man life insurance on the life of Employee.
The proceeds of any such policy shall be payable to the Company.
7. TERMINATION OF EMPLOYMENT. Prior to the stated termination, neither
party shall terminate the Employee's employment hereunder except as hereinafter
provided.
7.1. CAUSE BY EMPLOYEE. The Company may at any time terminate the
Employee's employment hereunder without notice for "cause" as hereinafter
defined. Cause for purposes of this Agreement shall include dereliction from
duty, habitual absence from work, failure or refusal to perform the duties
assigned to him in a manner satisfactory to the Company, any actions detrimental
to the best interests of the Company, any unauthorized disclosure or use of
proprietary information or Confidential Information, any breach by the Employee
of the terms of this Agreement, or any other matter which would constitute
"cause" under the statutory or decisional law of the State of Colorado. The
Employee's employment hereunder shall terminate automatically upon the death or
permanent disability of the Employee or the termination of the business of the
Company.
7.2. BREACH BY COMPANY. The Employee may terminate his employment with
the Company at any time for and upon any breach by the Company of any of its
covenants or obligations hereunder, if such breach shall not have been cured
within thirty (30) days after written notice to the Company.
7.3. WITHOUT CAUSE BY COMPANY. If the Company terminates the Employee's
employment hereunder without "cause" as defined in Section 7.1, the Company
shall pay Employee the salary due to him pursuant to this Agreement for the
remainder of the term or for one year, whichever is more.
8. JUDICIAL CONSTRUCTION. The Employee believes and acknowledges that
the provisions contained in this Agreement, including the covenants contained in
sections 4 and 5 of this Agreement, are fair and reasonable. Nonetheless, it is
agreed that if a court finds any of these provisions to be invalid in whole or
in part under the laws of any state, such finding shall not invalidate the
covenants, nor the Agreement in its entirety, but rather the covenants shall be
construed, reformed and rewritten by the court as if the most restrictive
covenants permissible under applicable law were contained herein.
9. RIGHT TO INJUNCTIVE RELIEF. The Employee acknowledges that a breach
by the Employee of any of the terms of sections 4 and 5 of this Agreement will
cause irreparable harm to the Company, and that the Company shall therefore be
entitled to any and all equitable relief, including, but not limited to,
injunctive relief, and to any other remedy that may be available under any
applicable law or agreement between the parties, and to recover from the
Employee all costs of litigation including, but not limited to, reasonable
attorneys' fees and court costs. The parties hereto further agree that this
Agreement shall be enforced wherever the Company is doing business at the
termination of the Employee's employment hereunder and wherever the Company at
such time reasonably foresees, plans and expects to do business during the
Non-Competition Period.
3
<PAGE> 4
10. ENTIRE AGREEMENT. The Company and the Employee acknowledge that
this Agreement contains the full and complete agreement between and among the
parties, that there are no oral or implied agreements or other modifications not
specifically set forth herein, and that this Agreement supersedes any prior
agreements or understandings, if any, between the Company and the Employee,
whether written or oral. The parties further agree that no modifications of this
Agreement may be made except by means of a written agreement or memorandum
signed by the parties.
11. GOVERNING LAW. The parties acknowledge that the Company's principal
place of business is located in the State of Colorado, that this Agreement has
been entered into in the state of Colorado and that they wish legal certainty
and predictability as to the terms of their undertaking. Accordingly, the
parties hereby agree that this agreement shall be constructed in accordance with
the laws of the State of Colorado, without giving consideration to the choice of
law provisions thereof.
12. CAPTIONS. The captions or section headings used in this Agreement
are for ease of reference only and shall have no bearing whatsoever upon the
construction, interpretation and effect of this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Company and its successors and assigns. This
Agreement shall be binding upon and shall inure to the benefit of the Employee
and his heirs, executors, administrators and legal representatives, but shall
not be assignable by the Employee.
14. CONTINUING EFFECT. The covenants and undertakings of the Employee
specified in this Agreement shall survive expiration or other termination of
this Agreement to the extent expressed herein.
IN WITNESS WHEREOF, the Company has hereunder signed its name and the
Employee hereunder has signed his name, all as of the day and year first above
written.
RENTECH, INC.
By:
- ------------------------------- --------------------------------
Dennis L. Yakobson
("Employee") President
4
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Rentech, Inc.
Denver, Colorado 80202
We hereby consent to the incorporation by reference in Registration Statement
No. 333-47317 of Rentech, Inc. on Form S-3, and in Registration Statements No.
33-90250 and No. 333-46003 of Rentech on Form S-8 of our report dated November
12, 1999, except for Note 12 which is as of January 12, 2000, relating to the
consolidated financial statements appearing in the Annual Report on Form 10-KSB
of Rentech, Inc. for the year ended September 30, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectuses that are part of such Registration Statements.
/s/ BDO Seidman, LLP
January 12, 2000
Denver, Colorado
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at September 30, 1999 and the Statement of Operations for the 12 months
ended September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 308,182
<SECURITIES> 0
<RECEIVABLES> 374,683
<ALLOWANCES> 2,000
<INVENTORY> 90,482
<CURRENT-ASSETS> 1,017,723
<PP&E> 3,745,159
<DEPRECIATION> 329,238
<TOTAL-ASSETS> 13,209,981
<CURRENT-LIABILITIES> 902,266
<BONDS> 0
0
1,333,320
<COMMON> 492,725
<OTHER-SE> 9,234,753
<TOTAL-LIABILITY-AND-EQUITY> 13,209,981
<SALES> 1,960,764
<TOTAL-REVENUES> 2,880,900
<CGS> 1,416,078
<TOTAL-COSTS> 6,323,292
<OTHER-EXPENSES> 269
<LOSS-PROVISION> 2,400
<INTEREST-EXPENSE> 75,934
<INCOME-PRETAX> (3,442,661)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,442,661)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
