Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
STARTECH ENVIRONMENTAL CORPORATION
(Exact name of registrant as specified in its charter)
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Colorado 84-1286576
State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification
Number)
(Primary Standard Industrial
Classification Code Number)
3559
15Old Danbury Road, Suite 203, Wilton, Connecticut
06897-2525 (Address of principal executive offices
including zip code)
(203) 762-2499
(Registrant's telephone number, including area code)
Joseph F. Longo, President
(Name of Agent for Service)
Copies to:
Peter Landau, Esq. Kevin M. Black, Esq.
Foreht Last Landau Miller & Katz, LLP Sr. Vice President &
415 Madison Ave General Counsel
New York, NY 10017 Phone (203) 762-2499
Phone (212) 935-8880 Fax (203) 761-0839
Fax (212) 935-5554
Approximate date of commencement of proposed sale to public: From time to time
after the effective date of the Registration Statement, as determined by market
conditions.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 145 under the Securities Act of
1933, check the following box: [X]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of Each Class Amount Aggregate Offering Proposed Maximum
Of Securities To Be Price Per Aggregate Offering Amount of
Registered Registered (1) Share Price Registration Fee
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<S> <C> <C> <C> <C>
Series A Convertible 284,250 $10.00 $2,842,500 $750.42
Preferred Stock Shares
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Common Stock
Issuable upon
Conversion of
Series A
Convertible Preferred 710,625 $6.00(2) $4,267,750 $1,126.69
Stock Shares
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Common Stock
Issued upon
Conversion of
Series A
Convertible Preferred 143,878 $13.50(3) $1,942,353 $512.78
Stock Shares
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Warrants 396,464 NIL NIL NIL
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Common Stock
Issuable upon
Exercise of Warrants 396,464(5) $15.00(4) $5,946,960 $1,569.99
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Total $3,959.88
=========
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</TABLE>
(1) Represents the maximum number of securities that could be issued in the
transactions described in the Registration Statement.
(2) Based on the maximum conversion price of the Preferred Stock.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the high and low closing
sale price on April 20, 2000, as reported on the National Association of
Securities Dealers' Over-The-Counter Bulletin Board a date within five business
days of the date of filing of the Registration Statement.
(4) Based on the exercise price of the Warrants
(5) An indeterminate number of shares of Common and Preferred Stock that may
become issuable pursuant to the anti-dilution provisions of the Preferred Stock
and Warrants are also being registered pursuant to Rule 416.
The registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1993 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The Information in this Preliminary prospectus is not complete and may be
changed. We cannot sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities, and it is not soliciting an offer to buy
these securities in any state where an offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 27, 2000
PROSPECTUS
STARTECH ENVIRONMENTAL CORPORATION
1,250,967 Shares of Common Stock
284,250 Shares of Series A Convertible Preferred Stock
396,464 Warrants
All of the shares of common stock and preferred stock and all of the warrants
being sold in this offering are for the accounts of selling security holders. We
will not receive any of the proceeds from the sale of shares of common stock,
preferred stock or warrants by the selling security holders. We will receive the
exercise prices with respect to the exercise of any warrants. See "Selling
Security Holders".
The selling security holders may sell the shares of common stock, preferred
stock and warrants to or through underwriters, and also may sell them directly
to other purchasers or through agents from time to time in the over-the-counter
market at prevailing prices in such market. See "Plan of Distribution".
Our common stock is quoted on the National Association of Securities
Dealers Over-the-Counter Bulletin Board under the symbol "STHK". At present,
there is no market for the preferred stock or the warrants and there is no
assurance that any market will develop.
On April 20, 2000 the average of the last bid and asked prices of our
common stock in the Over-the-Counter market as reported by the NASD was $14.875.
See "Certain Market Information and Dividends".
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Investing in our common stock involves a high degree of risk.
See "Risk Factors" Beginning on page 11"
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or
passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is
a criminal offense.
May , 2000
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Table Of Contents
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Prospectus Summary ...........................................................5
Risk Factors ................................................................11
Forward-Looking Statements...................................................19
How We Intend to Use any Proceeds from this Offering.........................20
Price Range of Common Stock..................................................20
Dividend Policy..............................................................21
Capitalization...............................................................21
Selected Financial Data .....................................................22
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................23
Business.....................................................................27
Management...................................................................40
Certain Transactions.........................................................44
Principal Stockholder........................................................45
Selling Security Holders.....................................................46
Plan of Distribution.........................................................49
Description of Securities....................................................49
Shares Eligible for Future Sale .............................................52
Legal Matters................................................................52
Experts......................................................................52
Where Can You Find More Information About Us ................................52
Index To Financial Statements................................................54
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our company. You should read the entire prospectus
carefully, including "Risk Factors" and our financial statements, before making
an investment decision.
Our Business
We are an environmental equipment technology company positioned and
dedicated to the production and marketing of low cost waste minimization,
resource recovery, and pollution prevention systems which process all forms of
hazardous and nonhazardous organic and inorganic waste and by-products and
convert most into valuable commodity products. We have designed, and intend to
sell our Plasma Waste Converter systems that achieve this mission at a
relatively low cost, with operating performance that is far superior to the
environmental standards of the United States Environmental Protection Agency,
and other comparable international environmental regulatory agencies.
We are committed to the commercial development and worldwide deployment of
our Plasma Waste Converter closed loop elemental recycling equipment. Our
business is manufacturing and selling our Plasma Waste Converter systems. We
will not be in the business of processing wastes of any sort, nor will we be in
the waste treatment, storage, disposal or transportation business.
Our system provides significant benefits over other forms of waste removal
and disposal. The most common methods of treatment and disposal of hazardous and
non-hazardous wastes and industrial by-products include incineration, land
filling, deep-well injection, wet chemistry processes such as neutralization and
bio-remediation, on-site containment (including industrial lagoons), and direct
release to the environment. All of these methods have serious transportation,
treatment, environmental or safety risks. In addition, most of these treatment
and disposal methods themselves generate large volumes of problematic waste,
which may require further treatment prior to final disposal. Some cannot process
inorganic wastes. As a result, many of the methods are being met with increasing
public resistance and more stringent regulations which will lead to an increased
cost of compliance, and in some cases, outright prohibitions. The only reason
many of these methods are allowed to continue is because of the lack of viable
alternatives. The current methods are harmful and dangerous, yet they are
allowed to continue in operation.
Our primary sales revenues will be produced by the combination of the
equipment purchase price supplemented by ongoing usage, or tolling fees. The
tolling fees will be based on the hourly metered runtime, the data for which
will be automatically reported back to us for billing purposes by an onboard
computer through phone lines. Depending on the customer's application, tolling
fees may range between two and twenty cents per pound, and be compiled by
electrical meter power-on time. There will be minimum monthly tolling fees
embodied in the sales agreements, although these fees may not be possible until
after the first few systems are operating in commercial applications.
Our Markets
The two principal target markets that will be penetrated by us will be (1)
government facilities, and (2) industrial facilities. Primarily our executives
will conduct sales to government facilities and agencies. Sales to industrial
and non-governmental customers will be managed by us and conducted by
commissioned representatives working in close collaboration with us. The
strategic use of specialized commissioned representatives in the sale of waste
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industry capital equipment is a marketing activity with which we have long and
successful experience. The use of representatives will allow us to penetrate the
industrial markets with the greatest speed, breadth, and depth of coverage. The
use of commissioned representatives in the formative years of our anticipated
growth is financially beneficial in keeping the cost of producing sales as a
variable expense rather than a fixed expense, and on balance, favoring the
preservation of cash in these early years. We will conduct sales through
representatives to customers, with the price set by us with assistance of the
representative.
Our Strategy
National and international Startech sales are also anticipated from our
distributors. Our distributors will operate in an area of prime responsibility.
An "area" may be a geographic area or a market segment. The distributor will buy
our system and add its markup to produce the price to the customer. Distributors
will be used in parts of the world inconvenient for our direct sales. A
distributor will be required to be relatively self-sufficient and will have the
obligation to acquire an industrial-sized demonstration system to support its
sales activities. The distributor will also be responsible for installation and
service. In some cases, where we have agreed to exclusivity, the distributor
will be required to produce a minimum annual sales dollar volume in order to
maintain the distributorship. In addition, the distributor will be required to
sign a non-disclosure agreement and a non-compete agreement. Distributors have
the obligation to have a facility in which to conduct plasma waste converter
demonstrations for potential customers.
National and international sales are also anticipated from our strategic
alliance partners. We intend to vigorously attempt to expand the number of
quality strategic alliance partners to help further develop our market scope and
penetration. Pursuant to separate agreements entered into with certain strategic
partners, they have agreed to mutually seek opportunities that may utilize our
proprietary process and their particular expertise and know-how. In general,
each of the agreements provide for the negotiation, on a non-exclusive basis,
for the formation of mutually agreeable business arrangements concerning the
commercialization of the our process, and the termination by either company upon
written notice, except for survival of confidentiality, and intellectual
property provisions. Each of us and the other companies have conducted due
diligence with respect to each other's technology in accordance with the
confidentiality provisions of the agreements. Each brings special well-proven
skills and capabilities to us, and is important to our future success.
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Our Company
We were incorporated in Colorado on May 1, 1991, as Kapalua Acquisitions,
Inc. ("Kapalua"). At the time of our incorporation, we had no specified business
plan, but were instead a "blind pool" where by our common stock was sold to the
public to provide us with capital to be used to investigate and acquire an
interest in one or more business opportunities.
On November 17, 1995, we acquired all of the capital stock of Startech
Corporation, a company founded in 1994 and owned by Joseph F. Longo our Chairman
and President and Leonard V. Knap, one of our founding stockholders, in exchange
for 4,000,000 shares of Kapalua common stock, which represented 80.5% of the
outstanding capital stock of Kapalua after the acquisition. In January 1996, we
changed our name to Startech Environmental Corporation.
Our principal office is located at 15 Old Danbury Road, Suite 203, Wilton,
Connecticut 06897-2525. Our telephone number at this office is (203) 762-2499,
and our website is located at http//:www.startech.net. Information contained at
our website is not part of this prospectus.
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The Offering
Securities Offered Hereby......... 1,250,967 Shares of common stock; 284,250
shares of preferred stock; and 396,464
warrants
Of the 1,250,967 shares of common stock
being offered, 710,625 shares are to be
issued from time to time upon conversion of
preferred stock; 396,464 shares are to be
issued from time to time upon exercise of
396,464 warrants; and 143,878 shares were
issued in connection with the conversion of
preferred stock.
Common stock outstanding
prior to this offering........... 7,558,278 shares
Common stock to be outstanding
after the offering............... 8,665,367 shares assuming the conversion of
284,250 shares of preferred stock at the
lowest conversion rate of $4.00 per share of
common stock and assuming the exercise of
the 396,464 warrants, offered hereby.
Preferred stock outstanding
prior to the offering............ 568,500 shares
In the period April through October 20, 1999
696,978 shares of preferred stock were
issued at $10.00 per share in connection
with a private placement under Section 4(2)
of the Securities Act of 1933 as amended. We
agreed to file a registration statement with
respect to one half of such shares (348,459)
and the underlying common shares.
Preferred stock to be outstanding
after the offering............... 284,250 shares, assuming the conversion of
the 284,250 shares of preferred stock
offered hereby.
Outstanding warrants prior to
the offering..................... 396,464 warrants
Outstanding warrants after the
offering......................... none; we agreed to file a registration
statement with respect to such shares.
Use of Proceeds................... This offering is being made by selling
security holders and we will not receive any
of the proceeds of such sales. We may
receive cash proceeds to extent any of the
warrants are exercised. See "How We Intend
to Use any Proceeds From This Offering".
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Risk Factors...................... This offering involves a high degree of
risk. See "Risk Factors."
NASD OTC
Bulletin Board Symbol............. STHK
The number of shares of common stock to be outstanding after this offering
is based upon the number of shares outstanding as of April 10, 2000 and does not
include the following:
o 1,639,411 shares of common stock subject to options issued at a
weighted average exercise price of $3.61 per share under our 1995
Stock Option Plans
o 360,589 shares of common stock reserved for issuance under our 1995
reserve option plan and 1,000,000 shares of common stock reserved for
issuance under our 2000 Stock Options Plans.
o other warrants to purchase 313,996 shares at a weighted average
exercise price of $7.70 per share.
Please see "Capitalization","Selling Security Holders" and "Description of
Securities" for a more complete discussion regarding the outstanding shares of
common stock, preferred stock, warrants, and options to purchase common stock
and related matters.
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Summary financial data
The following summary financial data information should be read in
conjunction with our financial statements and their related notes and
"Management Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus. The statement of operations data for
the years ended October 31, 1997, 1998 and 1999 is derived from, and is
incorporated by reference to, the audited financial statements included in this
prospectus. The statement of operations date for the years ended October 31,
1995 and 1996 have been derived from audited financial statements not included
in this prospectus. The statement of operations data for the three months ended
periods ended January 31, 1999 and 2000 and the balance sheet data at January
31, 2000 labeled "Actual" are derived from, and incorporated by reference to,
our unaudited interim financial statements included in this prospectus.
<TABLE>
<CAPTION>
Three Months
Statement of Operations Data: Year Ended October 31 Ended January 31,
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1995 1996 1997 1998 1999 1999 2000
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(unaudited)
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ................... $ 0 $ 26 $ 10 $ 1,088 $ 2,269 $ 1,048 $ 598
Gross Profit .............. 0 26 10 642 131 263 359
(loss) from operations .... (36) (664) (898) (474) (1,346) (11) (331)
Net income (loss) ......... (36) (670) (878) (463) (1,289) 5 (281)
Net income (loss) per share (0.04) (.12) (.12) (.07) (.19) .00 (.04)
Weight average shares
outstanding basic ......... 996 5,482 6,695 6,887 6,875 6,857 7,304
</TABLE>
January 31, 2000
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(in thousands)
(unaudited) As
Balance Sheet Data: Actual Adjusted(1)
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Cash and cash equivalents .................... $ 6,409 $12,306
Working capital .............................. 6,860 12,757
Total assets ................................. 8,014 13,911
Total stockholders' equity ................... 7,560 13,457
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(1) The "As adjusted" column assumes the exercise of 396,464 warrants at a
assumed price of $15.00 per share, after deducting estimated expenses of $50,000
payable by U.S.
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business, results of operations and
financial condition and could result in a complete loss of your investment.
We have only been an operating business for a short time and your basis for
evaluating us is limited
We were organized in May, 1991, and from our inception have been engaged
principally in organizational activities, including developing a strategic
operating plan, entering into contracts, raising capital, hiring personnel, and
developing our Plasma Waste Converters for demonstration and test purposes. We
were considered a development stage company for accounting purposes until 1998
because we had not generated any material revenues to that date. Revenues from
shipments and services began to be recognized in calendar 1998. Nevertheless, we
are subject to all of the business risks associated with a new enterprise,
including, but not limited to, risks of unforeseen capital requirements, failure
of market acceptance, failure to establish business relationships, and
competitive disadvantages as against larger and more established companies.
We have incurred losses and anticipate continued losses
We had revenues of $1,088,782, $2,268,694, and $598,000 for each of the
fiscal years ended October 31, 1998 and 1999, and the three months ended January
31, 2000 and our net loss for each of these periods was $463,051, $1,289,192 and
$281,635 respectively. We do not expect to generate any material revenues until
after we successfully complete the manufacture and installation of a significant
number of Plasma Waste Converters for on-site customer applications. Our
accumulated deficit at the end of these periods was $2,048,150, $3,353,358 and
$3,783,097, respectively.
We have no experience on a large - scale commercial basis
Our Plasma Waste Converter has never been utilized on a large-scale
commercial basis. While we have demonstrated the Plasma Waste Converter's
ability to process and dissociate waste feedstocks and recover resources in
pilot scale and industrial-sized Plasma Waste Converters, this does not assure
that the same or similar results could be obtained on a large-scale continuing
commercial basis or on any specific project. We have never utilized the Plasma
Waste Converter under the conditions and in the volumes that will be required to
be profitable and cannot predict all of the difficulties that may arise.
Obstacles to larger-scale commercialization include the following:
o further research and development
o design
o testing
o regulatory clearances
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In addition, our ability to operate our business successfully will depend
on a variety of factors, many of which are outside our control and include the
following:
o competition
o cost
o availability of strategic components
o changes in governmental initiatives and requirements
o changes in regulatory requirements
o costs associated with equipment repair and maintenance. See
"Business."
We are dependent on third parties for manufacturing and key components
Our products and systems are manufactured by Bauer Howden Inc., pursuant to
our engineering drawings and specifications. Bauer Howden is an experienced
manufacturing company and also a strategic partner. We currently have a limited
number of sources of supply for some of our Plasma Waste Converter components.
Business disruptions or financial difficulties of the manufacturer or suppliers,
or raw material shortages or other causes beyond our control, could adversely
affect us by increasing the cost of goods sold or reducing the availability of
such components. In our development to date, we have been able to obtain
adequate supplies of these key components. However, as we accelerate commercial
activities, we expect to experience a rapid and substantial increase in our
requirements for these components. If we were unable to obtain a sufficient
supply of required components, we could experience significant delays in the
manufacture of the Plasma Waste Converter, which could result in the loss of
orders and customers, and could have a material adverse effect on our business,
financial condition and results of operations. Although we plan to purchase
inventories of these strategic components, we may still require alternative
sources of such components if we experience delays in obtaining them. The
occurrence of any such events would have a material adverse effect on our
business, financial condition and results of operations. In addition, if the
cost of raw materials or finished components were to increase, we may not be
able to pass such increases to our customers.
We are uncertain of market acceptance
Many prospective users of the Plasma Waste Converter have committed
substantial resources to other forms of process stream treatments or
technologies. Our growth and future financial performance will depend on our
ability to demonstrate to prospective users the technical and economic
advantages of the Plasma Waste Converter over these alternatives. There can be
no assurance that the Company will be successful in this effort. Furthermore, it
is possible that competing alternatives may be perceived to have or may actually
have, certain advantages over the Plasma Waste Converter for certain industries
or applications. The failure to achieve market acceptance for our Plasma Waste
Converter could materially and adversely affect our business, results of
operations, and financial conditions.
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We may require additional financing
To date, financing for all of our activities has been provided by private
sales of our securities to individual investors and groups of investors. We
believe our cash reserves, cash generated from operations and other existing
sources of capital will be adequate to fund our operations over the next two
years. In the event we accelerate our manufacturing expansion plans we may need
to seek additional financing. Our inability to obtain necessary capital or
financing to fund future expansions could materially and adversely affect our
business, results of operations and financial condition. Additional financing
may not be available when needed or may not be available on terms acceptable to
us. If additional funds are raised by issuing equity securities, stockholders
may incur dilution. If adequate funds are not available, we may be required to
delay, scale back or eliminate one or more of our development programs or
otherwise limit the development, manufacture or sale of Plasma Waste Converters,
which could materially and adversely affect our business, results of operations
and financial condition.
We face risks associated with our plans to market and distribute our Plasma
Waste Converter internationally
We intend to market the Plasma Waste Converter in international markets,
including both industrialized and developing countries. International operations
entail various risks including:
o changes in foreign government regulations and technical standards
o difficulty of protecting intellectual property
o export license requirements, tariffs, taxes and other trade barriers
o requirements of preferences of foreign nations for domestic products
o fluctuations in currency exchange rates relative to the U.S. dollar
o difficulties in collecting accounts receivable
o extended accounts receivables cycles
o political and economic instability
o potentially adverse tax consequences
We may acquire other companies, product lines or technology
As part of our growth strategy we may pursue acquisitions and investments
that could provide complementary (including competitive) new technologies,
products, or businesses. Future acquisitions or investments may involve the use
of significant amounts of cash, potentially dilutive issuance of equity
securities, incurrence of debt or amortization of expenses related to goodwill
and other intangible assets.
In addition, acquisitions involve numerous risks, including:
o difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company
o the diversion of management's attention from other business concerns
o risks of entering markets in which we have no or limited prior
experience
o the potential loss of key employees of ours or of the acquired company
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We currently have no commitments with respect to any acquisition or
investment. In the event that such an acquisition or investment does occur and
we are unable to successfully integrate businesses, products, technologies, or
personnel that we acquire, our business, results of operations and financial
condition could be materially adversely affected.
Certain current stockholders own a large portion of our voting stock
Following the closing of this offering, our officers, directors, and
affiliated entities together will beneficially own approximately 44.4% of our
outstanding common stock. As a result, these stockholders may be able to
substantially influence all matters requiring approval and thereby, our
management and affairs. Matters that typically require stockholder approval
include:
o election of directors
o merger or consolidation
o sale of all or substantially all of our assets
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock.
You will suffer dilution in the value of your shares
Investors in this offering will incur immediate and substantial dilution in
the net tangible book value per share of our common stock issued upon the
conversion of the Preferred Stock or the exercise of the Warrants.
We do not expect to pay cash dividends
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for use in operation and
expansion of our business. The terms of our Preferred Stock agreements prohibits
us from paying cash dividends without the consent of the Preferred Shareholders.
Therefore, we do not expect to pay any cash dividends in the foreseeable future.
Our future operating results are likely to fluctuate
Our quarterly and annual operating revenues, expenses, and operating
results may fluctuate due to a variety of factors, many of which are beyond our
control, including:
o the timing of orders from, and shipments to, significant customers
o the timing of new product introductions by our competitors or us
o delays in manufacturing
o timely payments of our invoices
o possible decreases in average selling prices of our products in
response to competitive pressures
o market acceptance of new and enhanced versions of our products
o availability and cost of key components
o negotiation of final government contract overhead rates
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Due to all of the foregoing factors, we do not believe that
period-to-period comparisons of our historical results of operations are
indications of future performance. Further more, it is possible that in some
future quarters our results of operations may fall below the expectations of
securities analysts and investors. In such event, the price of our stock on the
NASD Over-the-Counter Bulletin Board will likely be materially and adversely
affected.
We may be unable to find appropriate strategic alliances
We have made use and plan to continue to make use of our resources in
manufacturing technology, marketing and sales of our Plasma Waste Converter
systems products through collaborative agreements with corporate and business
partners. Such strategic alliances may include cooperative agreements for
sharing of information, cooperative marketing agreements, or other business
relationships such as equity investments or joint ventures. We have developed
several strategic alliances to assist in commercializing and manufacturing our
Plasma Waste Converter.
Our current alliances are intended to facilitate our entry into the market
place and accelerate the development and commercialization of our products.
The terms of such alliances may require us and our partners to share
revenues and expenses from certain activities or for us to grant our partners
licenses to manufacture, market, and sell our products. Our current alliances
provide for cost sharing and technology sharing with respect to jointly
developed technologies. Such terms could be part of any future strategic
alliance and could materially impact our business, results of operations and
financial condition.
We may be unable to find appropriate future strategic alliances in markets
in which we have little experience, which could prevent is from bringing our
products to these markets in a timely manner, or at all. If we do not enter into
effective alliances, our products may not achieve this significant market
penetration, which could materially adversely affect our business, results of
operations and financial condition.
We have the potential risk of product liability
Our Plasma Waste Converter systems will be utilized in a variety of
industrial and other settings, and will be used to handle materials resulting
from the user's generation of hazardous waste. The equipment will therefore be
subject to risks of breakdowns and malfunctions, and it is possible that claims
for personal injury and business losses arising out of such breakdowns and
malfunctions will be made against us. We cannot ensure that our product
liability insurance will provide coverage against all claims, and claims may be
made against us (even if covered by our insurance policy) for amounts
substantially in excess of applicable policy limits. Such an event could have a
material adverse effect on our business, financial conditions and results of
operations.
There has been no prior public market for our convertible preferred stock or our
warrants
There is no public market for our convertible preferred stock and our
warrants, and there is no likelihood that an active trading market will develop.
The primary purpose of this offering is to enable the holders of the convertible
preferred stock and warrants who are included herein as selling security holders
to convert their convertible preferred stock into common stock, or exercise
their warrants and purchase the underlying shares.
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Future sales of our common stock may have an adverse effect on the market place
Future sales of our common stock by stockholders under Rule 144 of the
Securities Act of 1933, as amended or through the conversion into common stock
or exercise of warrants to purchase our common stock pursuant to outstanding
registration rights granted to the purchasers of our convertible preferred stock
or the holders of the warrants in this offering could have an adverse effect on
the market price of the securities. Sales of substantial amounts of common stock
or the perception that such sales could occur could adversely affect prevailing
market prices for the shares of common stock issuable upon conversion of the
convertible preferred stock. See "Shares Eligible For Future Sale".
There are risks associated with our use of hazardous materials
We use, generate and discharge toxic, volatile or otherwise hazardous
chemicals and wastes in our research and development and manufacturing
activities. Therefore, we are subject to a variety of federal, state and local
government regulations related to the storage, use and disposal of those
materials. Failure to comply with present or future regulations could result in
an imposition of fines on us, suspension of production or a cessation of
operations. We are not aware of any environmental investigation, proceeding or
action by federal or state agencies involving any of our facilities. However,
under certain federal and state statutes and regulations, a government agency
may seek recovery and response costs from both operators and owners of property
where releases of hazardous substances were committed by previous occupants of
the property or have occurred or are ongoing. If we fail to control the use of,
or to restrict adequately the discharge of, hazardous substances, we could be
subject to substantial financial liabilities, which could have a material
adverse effect on our business, results of operations and financial condition.
Our customers and we may be subject to government regulations.
We and our customers may be required to comply with a number of federal,
state and local laws and regulations in the areas of safety, health and
environmental controls, including without limitation, the Resource Conservation
and Recovery Act, and the Occupational Safety and Health Act of 1970, which may
require us, our prospective working partners or our customers to obtain permits
or approvals to utilize the Plasma Waste Converter(TM) and related equipment on
certain job sites. In as much as we intend to market the Plasma Waste
Converter(TM) internationally, we will be required to comply with laws and
regulations and, when applicable, obtain permits in those other countries.
We cannot ensure that:
o required permits and approvals will be obtained
o new environmental regulations will not be enacted or that if they are
we and our customers can meet stricter standards of operation or
obtain additional operating permits or approvals.
Failure to obtain such permits, or otherwise to comply with such regulatory
requirements, could have a material adverse effect on our business, financial
condition and results of operations.
16
<PAGE>
Our success depends on protection of our intellectual property
The success and competitiveness of our products depends in part upon our
ability to protect our current and future technology and manufacturing processes
through a combination of patent, trademark, trade secret and unfair competition
laws.
Patent applications in the United States are maintained in secrecy until
patents issue, and the publication of discoveries in the scientific literature
tends to lag behind actual discoveries. Therefore, we cannot be certain that we
will be the first creator of future inventions for which we seek patents or the
first to file patent applications on any such inventions. Patent applications
filed in foreign countries are subject to laws, rules and procedures, which
differ from those of the United States. We cannot ensure the following:
o patents will be issued from future applications
o any future patents will be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to us
o foreign intellectual property laws will protect our intellectual
property
o others will not independently develop similar products, duplicate our
products or design around any patents which may be issued to us
We enter into confidentiality and non-disclosure of intellectual property
agreements with our employees, consultants and certain vendors and generally
control access to and distribution of our proprietary information.
Notwithstanding these precautions, it may be possible for a third party to copy
or otherwise obtain and use our proprietary information without authorization or
to develop similar information independently.
Policing unauthorized use of intellectual property is difficult. The laws
of other countries may afford little or no effective protection of our
technology. We cannot assure you that the steps taken by us will prevent
misappropriation of our technology or that agreements entered into for that
purpose will be enforceable. In addition, litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade secrets
and to determine the validity and scope of the proprietary rights of others.
Litigation may result in substantial costs and diversion of resources, either of
which could have a material and adverse effect on our business, results of
operations and financial condition.
We must keep pace with technological changes.
Our primary target markets will be government, industrial and institutional
facilities and agencies and private sector industrial facilities that produce or
are in possession of hazardous and toxic wastes. Other participants in both the
private and public sectors include several large domestic and international
companies and numerous small companies, many of who have substantially greater
financial and other resources and more manufacturing marketing and sales
experience than we do. As other technology evolves, the Plasma Waste Converter
may be rendered obsolete by one or more competing technologies. Any one or more
competitors, or one or more other enterprises not presently known to us, may
develop technologies which are superior to the Plasma Waste Converter or other
technologies utilized by us. To the extent that our competitors are able to
offer more cost-effective technology alternatives, our ability to compete could
be materially and adversely affected.
17
<PAGE>
Contracts with federal and state governments subject us to certain risks
including termination and audit.
We intend to continue our policy of participating in selective research and
sales opportunities involving federal and state governments. Contracts with the
United States government are subject to various risks, including the risk of
termination at the convenience of the government. Revenues from these potential
relationships are subject to time-consuming audit procedures under various
federal statutes.
We are dependent on key personnel.
Due to the nature of our business, we are highly dependent on the continued
service of, and on the ability to attract and retain, qualified engineering,
technical, manufacturing, sales, marketing and senior management personnel. The
competition for such personnel is intense. The loss of any key employees or
principal members of management could have material adverse effect on our
business and operating results. In addition, if we are unable to hire additional
qualified personnel as needed, we may not be able to adequately manage and
implement our plans for expansion and growth. We may not be able to continue to
attract and retain the qualified personnel necessary for the development of our
business.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties, which may include statements about our:
o business strategy
o expansion of our manufacturing capabilities
o plans for hiring additional personnel
o plans for entering into collaborative agreements
o anticipated sources of funds, to fund our operations following the
date of this prospectus
o plans, objectives, expectations and intentions contained in this
prospectus that are not historical fact
When used in this prospectus, the words "expects," "anticipate," "intends,"
'plans," 'believes," "seeks," "estimates," and similar expressions are generally
intended to identify forward-looking statements. Because these forward-looking
statements involve risks and uncertainties, actual results could differ
materially from those expressed or implied by these forward-looking statements
for a number of reasons, including those discussed under "Risks Factors" and
elsewhere in this prospectus. We assume no obligation to update any
forward-looking statements.
19
<PAGE>
HOW WE INTEND TO USE ANY PROCEEDS FORM THIS OFFERING
Selling security holders are making this offering and we will not receive
any of the proceeds of such sales. We may receive cash proceeds to the extent
any warrants are exercised. Any such proceeds will be used for working capital
and general corporate purposes. Pending the use of any such proceeds they will
be invested in short term investment grade, interest-bearing securities. We
estimate our expense in connection with this offering will be $50,000.
PRICE RANGE OF COMMON STOCK
Our common stock has traded on the NASD OTC Bulletin Board under the symbol
"STHK" since November 1995. Prior to that time, there had been no active trading
in our common stock.
The table below sets forth the high and low bid range of quotations for our
common Stock for the quarters indicated as reported by the NASD:
High Low
---- ---
1998
Quarter ending January 31, 1998 $ 9.75 $ 4.84
Quarter ending April 30, 1998 11.75 5.00
Quarter ending July 31, 1998 11.25 5.00
Quarter ending October 31, 1998 7.75 3.25
1999
Quarter ending January 31, 1999 $ 8.62 $ 4.62
Quarter ending April 30, 1999 7.12 5.00
Quarter ending July 31, 1999 9.71 6.00
Quarter ending October 31, 1999 8.56 5.25
2000
Quarter ending January 31, 2000 $ 8.12 $ 5.12
Quarter ending April 30, 2000
(thru April 20, 2000) 18.75 8.87
Such over-the-counter market quotations reflect inter dealer prices without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.
On April 10, 2000 the last bid price reported on the NASD OTC Bulletin
Board for our common stock was $17.25 per share. On April 10, 2000, we had
7,558,278 shares of Common Stock outstanding. We had approximately 1,591
stockholders of record.
20
<PAGE>
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. The
current policy of the Board of Directors is to retain any earnings to provide
for the development and growth. Consequently, no cash dividends are expected to
be paid in the foreseeable future on shares of common stock. We are obligated to
pay dividends on the outstanding shares of preferred stock in additional shares
of preferred stock.
CAPITALIZATION
The following table sets forth our capitalization as of January 31, 2000.
All information set forth below should be read in conjunction with the financial
statements and notes thereto in this Prospectus.
<TABLE>
<CAPTION>
January 31, 2000
----------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Long-term debt $ 7,718 $ 7,718
Short-term debt 8,057 8,057
------------ ------------
15,775 15,775
============ ============
Stockholders' equity
Preferred Stock; Authorized 10,000,000 (no par value)
shares of which 2,500,000 are designated as
Cumulative Convertible Redeemable Preferred Stock 5,526,530 5,526,530
668,998 shares issued and outstanding at 01/31/00
Common stock; 800,000,000 (no par value) shares authorized
7,516,454 shares issued and outstanding at 01/31/00 5,816,631 11,713,631
Additional paid-in capital 300 300
Accumulated deficit (3,783,097) (3,783,097)
------------ ------------
Total stockholders' equity $ 7,560,364 $ 13,457,364
------------ ------------
Total capitalization $ 7,544,589 $ 13,441,589
============ ============
</TABLE>
21
<PAGE>
SELECTED FINANCIAL DATA
The following summary financial information should be read in conjunction
with our financial statements and their related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements and Supplementary Data" which are incorporated herein by
reference. The acquisition of Startech Corporation by the Registrant occurred on
November 17, 1995. The financial information reflects the operations of both
companies combined for all the periods presented. The statement of operations
data for the years ended October 31, 1997, 1998, and 1999, and the balance sheet
data as of October 31, 1997, 1998, and 1999 have been derived from audited
financial statements included in this prospectus. The statement of operations
data for the years ended October 31, 1995, and 1996 and the balance sheet data
as of October 31, 1995 and 1996 have been derived from audited financial
statements some of which are not included in this prospectus. The statement of
operations data for the three months ended January 31, 2000 and 1999 and the
balance sheet data at January 31, 2000 and 1999 are derived from, and
incorporated by reference to, our unaudited interim financial statements
included in this prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended October 31, Ended January 31,
-------------------------------------------------- -----------------
Statement of operations data: 1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 0 $ 26 $ 10 $ 1,089 $ 2,269 $ 1,048 $ 598
Cost of revenues 0 0 0 446 2,138 786 239
------- ------- ------- ------- ------- ------- -------
Gross profit 0 26 10 642 131 262 359
Operating expenses:
General and administrative expenses 36 624 681 665 1,156 234 567
Selling expenses 0 66 226 451 321 39 123
Total operating expenses 36 690 907 1,116 1,477 273 690
------- ------- ------- ------- ------- ------- -------
Loss from operations (36) (664) (898) (474) (1,346) (11) (331)
Other expense (income):
Interest expense 0 9 9 9 33 0 0
Other expense (income) 0 (3) (29) (24) (101) (17) (51)
------- ------- ------- ------- ------- ------- -------
Loss before income taxes (36) (669) (877) (459) (1,278) (17) (51)
Income tax expense 0 1 1 4 11 0 2
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ (36) $ (670) $ (878) $ (463) $(1,289) $ 6 $ (282)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share -basic (0.04) (0.12) (0.12) (0.07) (0.19) 0 (.04)
======= ======= ======= ======= ======= ======= =======
Weighted-average shares
outstanding - basic 997 5,482 6,695 6,888 6,876 6,857 7,304
</TABLE>
<TABLE>
<CAPTION>
Three Months
Year Ended October 31, Ended January 31,
------------------------------------------- -----------------
Balance Sheet Data: 1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash equivalents $ 83 $ 281 $ 988 $ 156 $5,496 $ 539 $6,409
Working capital .......... (36) (153) 965 539 5,665 512 6,860
Total assets ............. 85 392 1,202 1,824 6,374 2,111 8,014
Total stockholders' equity (36) (53) 1,103 661 6,015 666 7,560
Long-term obligations .... 0 0 0 0 7 0 7
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the related notes appearing at the end of this prospectus. Our
discussion contains forward-looking statements our based upon current
expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
"Risk Factors," "Business" and elsewhere in this prospectus.
For the three months ended January 31, 2000, approximately 100% of our
revenue was generated by sales to customers located outside the United States.
We believe that international sales will continue to account for a significant
portion of our sales for the foreseeable future. Current sales are denominated
in U.S. dollars and foreign exchange rate fluctuations have not had an impact on
our results of operations.
Substantially all of our revenue and costs from government contracts are
subject to audit under various federal statutes. In December 1999 an audit was
conducted with the DCAA (Greater Connecticut branch office) in conjunction with
the US Army Chemical and Biological Defense Command. With the completion of this
audit we are currently awaiting final payment from our prime contractor Burns &
Roe for our final two invoices totaling $483,189 and we expect to be receiving
payment for Burns and Roe in the near future.
Comparison of three months ended January 31, 1999 and 2000
Revenues. Our total revenues were $598,000 for the three months ended
January 31, 2000, as compared to $1,048,000for the same period in 1999, a
decrease of $450,000, or 43.0%. Our decrease in revenue was due to the fact that
in the 1999 period we completed an Army contract which represented 98% of our
revenue in that period, whereas we had no Army contract revenue for the three
months ended January 31, 2000.
Gross Profit. Our gross profit was $ 359,000 for the three months ended
January 31, 2000 an increase of $96,000, or 36% from the same period in 1999.
Our gross margins on revenue were 60% for the three months ended January 31,
2000. In the similar period for 1999 the gross margins on revenues was 25%. The
gross margins on revenue for the 2000 period was attributable to revenues earned
from distributorship fees and consulting, while the 1999 gross margins resulted
mainly from the Assemble Chemical Weapons Assessment Army (ACWA) project.
General and administrative expenses. Our general and administrative
expenses for the three months ended January 31, 2000 were $567,000, up $332,000,
or 142%, from the same period in 1999. The increase is due to a higher level of
salaries as a result hiring additional personnel to support our growth,
professional fees, moving expenses associated with our moving into new offices
in December, 1999, and insurance expenses.
Selling Expenses. Our selling expenses for the three months ended January
31, 2000 were $123,000, an increase of $84,000, or 211%, from the similar period
1999. The increase is due to higher salary costs, higher travel costs, and
higher printing and material costs, plus customer demonstrations and marketing
relating to efforts at the Aberdeen Proving Grounds.
23
<PAGE>
Interest expense. Our interest expense for the three months ended January
31, 2000 was 0 as compared to 0 in the similar 1999 period.
Interest income. Our interest income for the three months ended January 31,
2000 was $48,000, as compared to $17,000 in the similar period 1999 an increase
of 182%. The increase is due to higher cash balances as a result of the recently
completed preferred private placement dated October 20, 1999.
Income taxes. Income taxes for the three months ended January 31, 2000 were
$1,750 as compared with $250 in the similar period 1999. We have minimal tax
obligations due to the fact that we have not had meaningful profitability to
this point. We have tax loss carry forwards of $3.1 million to offset against
future profits, if any.
Comparison of Years Ended 1999 and 1998
Revenues. Our total revenues for the year ended October 31, 1999 were $2.3
million, an increase of $1.2 million, or 108%, for the year ended October 31,
1998. Our increase in revenue was due to the award of the ACWA Army contract,
which we demonstrated at the Aberdeen Proving Grounds. This Army contract
represented 98% of revenues for both years ended October 31, 1999 and 1998.
Gross Profit. Our gross profit was $131,000 for the year ended October 31,
1999 a decrease of $511,000, or 80% from the year ended in October 31, 1998. Our
gross margins on revenue was 5% for the year ended October 31, 1999 compared to
gross margins on revenues of 59% for the year ended October 31, 1998. The 1999
decrease in gross profit margin resulted mainly from the completion of the Army
demonstrations for ACWA program in Aberdeen, Maryland.
General and administrative expenses. Our general and administrative
expenses for the year ended October 31, 1999 were $1.2 million, up $491,000, or
74%, from the year ended October 31, 1998. The increase is due to a higher level
of salaries as a result of the hiring additional personnel to support our
growth, professional fees, insurance, stockholder relations.
Selling Expenses. Our selling expenses for the year ended October 31, 1999
were $321,000, an decrease of $130,000, or 29%, from $451,000 for the year ended
October 31, 1998. The decrease is due to lower customer demonstration activity
at Aberdeen Proving Grounds, Maryland.
Interest expense. Our interest expense for the year ended October 31, 1999
was $33,000, an increase of $24,000, or 266%, from $9,000 for the year ended
October 31, 1998. The increase is due to interest expenses relating to a note
payable to Connecticut Development Authority.
Interest income. Our interest income for the year ended October 31, 1999
was $101,000, an increase of $78,000, or 339%, from $23,000 for the year ended
October 31, 1998. The increase is due to higher cash balances as a result
private placement completed on October 20, 1999.
24
<PAGE>
Income taxes. Income taxes for the year ended October 31, 1999 were $11,000
as compared with $4,000 in the similar period 1998.
Comparison of Years Ended 1998 and 1997
Revenues. Our total revenues for the year ended October 31, 1998 were $1.1
million an increase of $1.1 million, or 11,000.% over the $10,000 in revenues
for the year ended October 31, 1997. Our increase in revenue was due to the
award of the ACWA Army contract. This Army contract represented 98% of revenues
in the year ended October 31, 1998 compared to 0% of revenue in the year ended
October 31, 1997.
Gross Profit. Our gross profit was $643,000 for the year ended October 31,
1998 an increase of $633,000 or 6,300% from the year ended in October 31, 1997.
Our gross margins on revenue were 59% for the year ended October 31, 1998 was
our first year that we were not classified as a development stage company. Our
gross margins were derived from the Army in 1998. In 1997 we had $10,000 in
consulting fees.
General and administrative expenses. Our general and administrative
expenses for the year ended October 31, 1998 were $665,000, a decrease of
$17,000, or 2%, from the year ended October 31, 1997. The decrease was due
primarily to lower legal fees and automobile expense.
Selling Expenses. Our selling expenses for the year ended October 31, 1998
were $451,000, an increase of $225,000, or 99%, from $226,000 for the year ended
October 31, 1997. The increase is due to higher salary costs, higher travel
costs, and higher printing and material costs.
Interest expense. Our interest expense for the year ended October 31, 1998
and 1997 was $9,000.
Interest income. Our interest income for the year ended October 31, 1998
was $24,000, a decrease of $6,000, or 20%, from $30,000 for the year ended
October 31, 1997. The decline in interest income was attributable to a reduction
in our cash balances for the funding of working capital, and design work.
Income taxes. Income taxes for the year ended October 31, 1998 were $4,000
as compared with $550 in the similar period for 1997.
25
<PAGE>
Liquidity and capital resources
As of January 31, 2000, we had cash of $6,409,000 and working capital of
$6,860,000. During the quarter ended January 31, 2000, our cash increased by
$912,900. This was primarily due to the issuance of additional common stock,
offset by purchases of fixed assets and cash utilized in operating activities of
approximately $400,000.
Our investing activities have consisted primarily of short-term high
quality liquid investments, with a maturity with three months or less when
purchased, which are considered cash equivalents. The primary investment are
high quality commercial paper, U.S. treasury notes and Treasury-bills.
We believe that cash generated from operations, our current cash balances,
and other sources of capital, will be sufficient to satisfy our projected
working capital and planned capital expenditures for at least 24 months.
26
<PAGE>
BUSINESS
We are an environmental equipment technology company positioned and
dedicated to the production and marketing of low cost waste minimization,
resource recovery, and pollution prevention systems which process all forms of
hazardous and nonhazardous organic and inorganic waste and by-products and
convert most into valuable commodity products. We have designed, and intend to
sell our Plasma Waste Converter systems that achieve this mission at a
relatively low cost, with operating performance that is far superior to the
environmental standards of the United States Environmental Protection Agency,
and other comparable international environmental regulatory agencies.
We are committed to the commercial development and worldwide deployment of
our Plasma Waste Converter Closed Loop Elemental Recycling equipment. We are in
the business of manufacturing and selling our Plasma Waste Converter systems. We
will not be in the business of processing wastes of any sort, nor will we be in
the waste treatment, storage, disposal or transportation business.
The PWC provides significant benefits over other forms of waste removal and
disposal. The most common methods of treatment and disposal of hazardous and
non-hazardous wastes and industrial by-products include incineration, land
filling, deep-well injection, wet chemistry processes such as neutralization and
bio-remediation, on-site containment (including industrial lagoons), and direct
release to the environment. All of these methods have serious transportation,
treatment, environmental or safety risks. In addition, most of these treatment
and disposal methods themselves generate large volumes of problematic waste,
which may require further treatment prior to final disposal. Some cannot process
inorganic wastes. As a result, many of the methods are being met with increasing
public resistance and more stringent regulations which will lead to an increased
cost of compliance, and in some cases, outright prohibitions. The only reason
many of these methods are allowed to continue is because of the lack of
alternatives. They are harmful and dangerous, yet they are allowed to continue
in operation. We intend to take full advantage of this problem and aggressively
market its equipment as a proven, cost effective and environmentally safe
alternative.
Based upon the dangers and risks involved in current methods of waste
disposal, our extensive waste industry experience concludes that the primary
factors, which will create demand for our Plasma Waste Converters, include:
o the need for customers to reduce the costs for hazardous and toxic
waste disposal;
o the need to comply with present and anticipated environmental
regulations in a cost-effective manner;
o the need to eliminate the personal and organizational liability
associated with hazardous and toxic waste disposal, and;
o the needs to economically process hazardous and non-hazardous wastes
and industrial by-products while recovering commodity products for
re-use or sale.
In addition, compared to other treatment methods, the Plasma Waste
Converter minimizes or eliminates the creation of residual waste, thereby
significantly reducing the costs and risks associated with residual waste
disposal. The demand for systems with a high degree of environmental performance
will increase as a result of anticipated increasingly stringent environmental
regulations in North America and abroad. The Plasma Waste Converter has
27
<PAGE>
demonstrated environmental standards of performance that will encourage and
allow the promulgation of more stringent but achievable economically affordable
standards for the public health and safety, both here and abroad, and it is
expected that this will create a greater demand for our systems.
The United Nations Development Program projects the global market to meet
mandatory environmental standards to reach $500 billion a year in the year 2000.
The expected exponential population growth in the United States will bring
the number of people in the country to well over a half a billion people in
sixty years. This means, among other things, the U.S. infrastructure will have
to double, and that its ability to safely manage its waste problems will also
have to double. The great challenge to the industrialized societies of the world
is to be able to sustain economic growth in the face of exponential population
growth without destroying quality of life. We believe our technology is soundly
positioned to help meet the waste-related challenge of sustainable development.
In addition to the environmental benefits of our system, another major attribute
is that it recycles wastes to valuable energy products and other commodity
products in an environmentally and economically meritorious way. We regard all
wastes as valuable renewable resources.
Hazardous waste, based upon data obtained from the United States
Environmental Protection Agency ("EPA"), is produced at the rate of more than
200 million tons annually in the Untied States alone. All of it is classified as
hazardous or toxic under the Resource Conservation Recovery Act ("RCRA") or the
Toxic Substance Control Act ("TSCA"). The costs of the hazardous waste treatment
and disposal methods continue to rise, but now range from about $900 to more
than $2,000 per ton. These numbers do not include the additional processing,
handling, packaging and management costs sustained by the hazardous waste
generator within its facility prior to final disposal. There is no reason to
expect that these costs will not continue to escalate. Our processing cost,
including capital cost, labor and energy, is estimated to be about 8 - 12 cents
per pound, or about $160 - $240 per ton for small-scale industrial systems, such
as our five (5) ton and ten (10) ton per day systems. The cost per pound to the
end user of the PWC will decrease as the scale of the system increases.
It is estimated that other categories of industrial waste including RCRA
"special wastes", industrial waste by-products, non-hazardous waste and
municipal solid waste create a total non-hazardous and industrial waste market
of approximately 13 billion tons annually. Materials classified as RCRA special
wastes are generated primarily by the mining and oil and gas industries,
manufacturing industries, cement kilns and coal-fired electric utilities.
Special wastes, while not currently categorized as hazardous, are not generally
environmentally benign and do pose a risk to the public health and safety. They
are regulated separately under state law and these wastes are materials that can
be safely and economically processed and remediated using the Startech system.
Our strategy
Our long-term strategy is to achieve broad market acceptance of the Plasma
Waste Converter as an advantageous process of relieving the waste remediation
problems of the private sector and government. We are targeting the hazardous
and toxic waste industry as our initial market. We anticipate we will initially
manufacture on-site, factory packaged, transportable, and skid mounted Plasma
28
<PAGE>
Waste Converters. We believe that once there is a broad installed base of our
product in the above markets, waste generators in other market segments are
likely to be attracted to the Plasma Waste Converter. Any one system will allow
the customer to dispose of between four tons and fifty tons of waste per day.
Multiple systems may be installed in a facility processing greater than fifty
tons per day. A four hundred pound per hour industrial size Plasma Waste
Converter has been installed and continues to process various waste streams at
Aberdeen Proving Grounds in Aberdeen, Maryland.
We do not intend to operate Plasma Waste Converters. We intend to
manufacture our Plasma Waste Converters and sell or lease the Plasma Waste
Converters to customers. Leasing will be used on a case-by-case basis. We do not
intend to hold or finance leases. We entered into agreements with several
customers for the sale of Plasma Waste Converters in the first fiscal quarter of
2000. We have a manufacturing agreement with Bauer Howden Inc., located in
Bristol, Connecticut.
Primary Markets
Our system, in the process of converting the molecules of hazardous wastes
into valuable commodity products, destroys wastes totally and irreversibly. This
"total and irreversible destruction" capability is extremely important and
imperative in most hazardous waste applications.
We have identified our primary initial target markets in two principal
categories:
o government facilities and agencies producing or in possession of
hazardous and toxic wastes, and;
o institutional and industrial facilities producing or in possession of
hazardous and toxic wastes
The initial government target markets include agencies and facilities (such
as the Department of Defense, Department of Energy, Department of Agriculture,
Department of Justice, National Institutes of Health, and the Treasury
Department) in control of or producing hazardous products, some of which are of
the sort that would be found in industry, along with hazardous materials such as
explosives ("energetics"), chemical warfare weapons ("Agent"), radioactive
wastes, diseased plants, animals and organisms, lethal viruses, confiscated
drugs and other materials such as contaminated sludge and solid found at
military facilities and military base closure sites.
The initial industrial target markets include the chemical and
petrochemical industries, metal processing and manufacturing industries;
hazardous and non-hazardous waste process treatment facilities, hospital
infectious and hazardous waste generators, pharmaceuticals, and applications
involving mixed and contaminated post-consumer plastics. However, many more
hazardous waste markets have been identified along with the municipal solid
waste market noted below.
The Plasma Waste Converter can be utilized to process and minimize the
volume of Low Level Radioactive Waste, which can also be further contaminated by
other hazardous waste components. Demonstrations on Low Level Radioactive Waste
surrogate waste streams have shown volume reductions of approximately 300 to 1,
thereby minimizing the volume of the Low Level Radioactive Waste solid material
for decay-storage or for disposal. Present methods of volume reduction include
compaction and incineration that produce overall volume reductions of about 8 to
1. Our system does not reduce the radioactivity of the Low Level Radioactive
Waste nor does any other system, but we reduce the volume of that waste to such
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a degree that it is reasonable for some Low Level Radioactive Waste generators,
such as utilities, labs and hospitals, to store the reduced Low Level
Radioactive Waste material on-site for the required decay period (usually ten
"half lives"). Our system can increase a site's storage capacity by factors of
hundreds to one. A site using a Startech system that has only 2 years of Low
Level Radioactive Waste storage capacity left will now have 200 or more years of
storage capacity. Radioactive waste that is further contaminated, as is often
the case, by other hazardous materials is referred to as "mixed wastes.
Our system is also cost effective for processing many nonhazardous wastes
such as Municipal Solid Waste, although this market is not expected to be the
initial focus of the Company. Nevertheless, Americans generate billions of tons
of nonhazardous solid waste each year. We have produced preliminary designs for
Municipal Solid Waste facilities as large as 3,000 tons per day. Municipal solid
waste is a major renewable resource and a good commodity producer well suited
for the Startech elemental recycling process.
The largest immediate market is for skid-mounted systems that range from
300 to 600 pounds per hour of throughput. These systems will be manufactured in
production quantities that favor fast, reliable delivery commitments and the
maximization of profits. The Plasma Waste Converter is a manufactured piece of
durable capital goods. It is not a chemical processing plant.
The configurations can be truck mounted. Much larger systems can be barge
mounted. Two ton per day systems can be air lifted by C-130s for quick
deployment in tropical, arctic and desert environments. For example, a two-ton
per day system will process all of the wastes generated by a 1,000 person
military base.
Plasma waste converter development and technology
Our management team has been issued patents in and has been designing,
manufacturing, and marketing engineered solid-waste capital equipment to the
waste industry worldwide since 1969. That experience includes the development
and marketing of capital equipment for hazardous, non-hazardous, and radioactive
wastes, industrial by-products and recycled process. The Plasma Waste Converter
is the culmination of the experience of the management team over the past 30
years in the waste equipment industry.
Some of our management team have also been consultants, designers, and
manufacturers of solid waste systems for the U.S. Navy from 1973 to 1993, and
waste industry equipment consultants for special programs for Union Carbide, the
New York City Department of Sanitation, Nippon IDC, New York Life, Metropolitan
Life, AutoPak, the City of Mount Vernon and others. The capital equipment
experience since 1969 includes:
Shredders Balers
Compactors and MSW transfer stations Densifiers
Hoggers Granulators
Mechanical and electrohydraulic grabs Hazardous waste incinerators
and grapples Plastic metal systems ("Panelite")
Rare metal recovery incinerators Recycling polymer masticator
Hammer mills Live floor waste movers
Live wall waste storage systems Compactor conveyors, linear and nonlinear
Auger conveyor compactors Magnetic separators
Air conveyors for waste Recycled-plastic turbulator scrubbers
Various waste material handling
systems
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Because of our involvement over the years in product development and
innovations in waste industry technologies, and because of management's
knowledge of the waste industry in North America and abroad our interest in the
application of plasma technology to the waste industry arose as a result of a
technical article read by Mr. Longo in the 1970s which stated that two Atomic
Energy Commission fusion scientists, Mr. Bernard Eastlund and Mr. William Gough
speculated that plasma might be able to be used to blast waste back into its
constituent atoms, and that the atoms could be reclaimed for total reuse. The
scientists also speculated that the technology would not be commercially
developed until the year 2000. Through the use of publicly available information
and internal research and development conducted by Mr. Longo and Mr. Knap with
various configurations and various waste streams, it was decided that the PWC
was ready for commercial adaptation and scale.
Plasma torches have been used in the metallurgical industry for many years,
with the first plasma torches being employed in the nineteenth century. The
Plasma Waste Converter is an electrically driven system that produces an intense
field of radiant energy that causes the dissociation (breaking apart) of the
molecular bonds of solid, liquid, and gaseous compounds or materials of both
hazardous and non-hazardous wastes. This is often referred to as molecular
dissociation.
The molecules of the waste material (the matter) are separated into their
elemental atomic components, and reformed into recoverable non-hazardous
commodity products by the Startech system. The process is not a combustion or
burning process, and the system should not be confused with an incinerator or a
vitrification process. The dissociation process is caused by the intense energy
field produced by the plasma gun (sometimes referred to as the torch or rod)
operating within the Plasma Waste Converter chamber.
Plasma is a gas (the gas can be ordinary air) that has been ionized (the
alteration of the electrical charge of the gas) so that the gas becomes an
effective electrical conductor. The plasma (electrified gas stream) is
discharged within the chamber in a continuous arc of lightning-like energy that
can produce temperatures up to the range of 40,000 degrees Fahrenheit, although
the overall chamber temperature is much lower. When the waste materials
(hazardous and nonhazardous) are confronted with the intensity of the energy
within the Plasma Waste Converter chamber, the excitation of the molecular bonds
is so great that the waste material's molecules dissociate (break apart) into
their elemental atomic components.
Our Plasma Waste Converter chamber operates at normal atmospheric pressure
quietly and safely. Our Plasma Waste Converter is a manufactured
capital-equipment system consisting of many process components currently used in
the metallurgical and chemical industries.
Solid wastes being fed to our system ordinarily do not have to be
preconditioned or shredded. The wastes can be fed to the system in bulk form.
They are automatically fed to the system through an air-locked infeed port, and
the feeding is ordinarily on a continuous basis. Liquids, gases and sludges can
also be fed or pumped directly into the chamber through a pipe port, and it is
also able to feed-in liquids, gases and sludge along with bulk solids at the
same time.
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The plasma converted synthesis gas recovered from our system after
dissociation occurs is drawn out of the top of the chamber and put through a
conventional gas-polishing unit. The silicates, inorganics and metals are
removed at the lower side of the Plasma Waste Converter chamber through a trap.
The plasma waste converter is a "closed-loop elemental recycling system"
whose recovered products can be used or sold as commodities employed in various
manufacturing processes. For example, it is expected that most of the Plasma
Converted Gas will be used as a fuel gas and to a lesser degree, as a chemical
feed stock; silicate materials recovered will be used in the ceramics, abrasives
or the construction industries; the metallic components can be used or be
readily available for sale with little or no additional processing.
The economic justification for the use of our systems in hazardous waste
applications does not depend on the revenues that may be derived from the use or
sale of the recovered commodity products, although the sale and use of such
products will improve the customer's specific economic justification for the
acquisition of the system.
In November of 1998 we completed the manufacture of our first industrial
sized Plasma Waste Converter that was ultimately delivered to the US Army Base
at Aberdeen Proving Ground, Maryland. The Plasma Waste Converter was put through
a rigorous and diversified four-month test program. Our Plasma Waste Converter
processed every material provided at a level far exceeding the current
environmental standards and well within the guidelines promulgated by the Army
Program testing the technology. The proprietary data received from the Program
included the results from thousands of samples analyzed by various independently
approved EPA certified laboratories. These results have provided us with an
excellent marketing tool.
Sales strategy
Our primary sales revenues will be produced by the combination of the
equipment purchase price supplemented by ongoing usage, or tolling fees. The
tolling fees will be based on the hourly metered runtime, the data for which
will be automatically reported back to us for billing purposes by an onboard
computer through phone lines. Depending on the customer's application, tolling
fees may range between two and five cents per pound, and be compiled by
electrical meter power-on time. It is expected that there will be minimum
monthly tolling fees embodied in sales agreement after the first few systems are
operating in commercial applications.
The two principal target markets that will be penetrated by us will be (1)
government facilities, and (2) industrial facilities. Sales to government
facilities and agencies will be primarily conducted by our executives. Sales to
industrial and non-governmental customers will be managed by us and conducted by
commissioned representatives working in close collaboration with us. The
strategic use of specialized commissioned representatives in the sale of waste
industry capital equipment is a marketing activity with which we have long and
successful experience. The use of representatives will allow us to penetrate the
industrial markets with the greatest speed, breadth, and depth of coverage. The
use of commissioned representatives in the formative years of our anticipated
growth is financially beneficial in keeping the cost of producing sales as a
variable expense rather than a fixed expense, and on balance, favoring the
preservation of cash in these early years. We will conduct sales through
representatives to customers, with the price set by us with assistance of the
representative.
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National and international sales are also anticipated from strategic
alliance partners and distributors. We have appointed distributors who will
operate in an "area" of prime responsibility. An "area" may be a geographic area
or a market segment. The distributor will buy our system and add its markup to
produce the price to the customer. Distributors will be used in parts of the
world inconvenient for our direct sales. A distributor will be required to be
relatively self-sufficient and will have the obligation to acquire an
industrial-sized demonstration system to support its sales activities. The
distributor will also be responsible for installation and service. In some
cases, where we have agreed to exclusivity, the distributor will be required to
produce a minimum annual sales dollar volume in order to maintain the
distributorship. In addition, the distributor will be required to sign a
non-disclosure agreement and a non-compete agreement. Distributors have the
obligation to have a facility in which to conduct Plasma Waste Converter
demonstrations for potential customers.
We believe that the market for our systems overseas is larger than the
United States market, and in many respects has economic and environmental
imperatives for the purchase of our systems in newly industrializing countries
that are even more compelling than those in the United States. According to the
World Bank each year the world's population increases by thirty-three million
people. This population growth will further increase the need for our systems.
Our systems are designed in configurations that make their ability to be
factory-made and shipped to overseas markets reasonable and desirable. We will
continue to hire commissioned sales representatives overseas as well as for the
U.S. market. Our management has many years of international marketing
experience, including licensing, in manufactured capital equipment, and
anticipates the likelihood of a limited number of license agreements and/or
joint venture partnerships for certain areas of the world, where market
penetration can be best maximized by a licensee and/or joint venture partners,
as compared to exporting to that area.
We do not intend to seek participation with customers in the offsets or
revenues that may be generated from the commodity products produced by the
system, Those financial benefits will be enjoyed by the customer as an
additional financial incentive to acquire our systems. We will receive the
initial revenue from the purchase of the system plus the ongoing tolling fees
from the processing of the materials, based on metered (electrical usage)
operating time.
Competition
The market for our Plasma Waste Converter system is based on its
cost-effective waste minimization, pollution prevention, and its recycling and
recovery of valuable commodity products from the hazardous, nonhazardous and
noxious wastes being generated in the industrialized and transitional countries
of the world.
There are other technologies in various stages of development that claim to
achieve some, but not all, of the objectives achieved by our system. There are
also other plasma technologies being developed and marketed. Many of these
technologies are limited to narrow and specific waste feed-streams, and are
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vulnerable to aberrant and mischievous waste components that must be expected in
any waste-feed stream. Many of these technologies have yet to demonstrate
capabilities beyond small laboratory or bench scale devices. Many produce
undesirable and hazardous by-products. Many have only uncertain, preliminary
estimates on the cost of the commercial production process and on commercial
scale-up difficulties. However, any of these technologies may be competitors in
the waste industry market
We believe the following technologies to be the potential competition
category: Bio-remediation; Bio-oxidation; Super Critical Water Oxidation; Wet
Air Oxidation and Neutralization (chemical hydrolysis). Most cannot process
inorganic wastes. Our Plasma Waste Converter processes both organic and
inorganic wastes. Among the field of new technologies is another technology that
has recently received wide interest called a "molten metal" process. While the
molten metal process claims to accomplish many of the commercial objectives of
our system, we believe that the molten metal process is much more expensive and
complicated than our system, and is much more limited as to the wastes and the
waste forms it claims to be able to process safely and economically. The
following Companies are our direct competitors:
o AEA Technology Ltd
o Teledyne-Commodore Corporation
o General Atomics Corporation
o Aerosptiale Ltd.
o Retech Incorporated
o Resorption Canada Limited
o Plasma Environmental Technologies
o Plasma Environmental Applied Technologies
Many of the companies with which we may compete may have substantially
greater financial, marketing and human resources than us. We may also have to
compete with these organizations in recruiting scientific personnel. There can
be no assurances that we can compete successfully, in the future, in this
industry.
In addition to the above, we believe that other factors may be considered
as competition. These factors are summarized as follows:
Landfill dumping - the least expensive, in the short term, and one of the
most environmentally dangerous of all waste disposal methods.
Incineration - even though the permitting of new incinerator installations
is being dramatically reduced, and the technology has fallen into great disfavor
both here and abroad, this rather primitive method of disposal is still the
choice of many, notwithstanding the fact that emissions and products of
incomplete combustion are regarded as pollutants, and that the large quantities
of toxic bottom ash and fly ash produced by incineration are eventually
deposited into landfills in the community.
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Strategic Alliances
Below are listed the strategic alliances we have entered to help further
develop our market scope and penetration. Pursuant to separate agreements
entered into with each strategic partner, we have both agreed to mutually seek
opportunities that may utilize our proprietary process and the particular
expertise and know-how of the other company in its field. In general, each of
the agreements provide for the negotiation, on a non-exclusive basis, for the
formation of mutually agreeable business arrangements concerning the
commercialization of our process, and the termination by either company upon
written notice, except for survival of confidentiality, and intellectual
property provisions. Each of us and the other companies have conducted due
diligence with respect to each other's technology in accordance with the
confidentiality provisions of the agreements. Each brings special well-proven
skills and capabilities to us, and is important to the future success.
Skidmore Owings & Merrill, LLP
Skidmore Owings & Merrill is a privately held partnership that offers
architecture and engineering services. The firm has offices located in Chicago,
New York, San Francisco, Los Angeles, Washington D.C., and Skidmore Owings
affiliates maintain offices in Hong Kong, London and Sao Paolo. We have signed a
strategic alliance agreement that provides for Skidmore Owings & Merrill's
participation with the design and construction of Plasma Waste Converter
Resource Recovery Centers.
UXB International, Inc.
UXB International, Inc., is a private company, located in Ashburn,
Virginia. UXB is one of the largest internationally recognized explosive
ordnance disposal companies in the world. Unexploded Ordnance and Explosive
Ordnance refers to munitions and weapons such as landmines, rockets, bomblets,
mortars, propellants and Chemical Warfare Materiel found on military bases,
firing and bombing ranges, and former war zones scattered throughout the world.
Energy Research Corporation
ERC is a public company preeminent in the field of the development,
manufacturing and the marketing of Molten Carbonate Fuel Cells. Fuel Cells are
battery like systems that convert hydrogen gas directly into DC electricity. The
Plasma Converted Gas produced by our system can be used directly in ERC's fuel
cells. ERC and we will cooperate in the technical development and sales of
systems that convert wastes into fuel cell gas to produce electricity.
Ontario Hydro Ltd.
Ontario Hydro, a Canadian corporation, is one of the largest electric
utilities in the world. Ontario Hydro Technologies, a business unit of Ontario
Hydro, is a scientific and technical research and development laboratory
employing approximately 350 scientists, engineers and technicians located in
Toronto, Ontario which assists us in new product development and in special
customer opportunities for thermo-chemical and nuclear waste applications.
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Ensign-Bickford Company
Ensign-Bickford, founded in 1836, is a preeminent explosives manufacturing,
engineering and services company with extensive experience and expertise in the
field of advanced explosives, detonation and ordnance science and technologies
for both private and government sector markets. We and Ensign-Bickford are
working together to obtain contracts to sell equipment, products and services of
both companies to process and destroy various forms of chemical weapons,
demilitarization wastes and unexploded ordnance worldwide. We have also been
working together on non-incineration systems for the destruction of the U.S.
Chemical Weapons Stockpile.
Chase Environmental Corporation
Chase Environmental is a private company headquartered in Louisville,
Kentucky comprised of engineers and scientists with extensive expertise in
operating, siting, and permitting radioactive waste processing facilities. Chase
will assist us in the production of sales of the Company's systems to customers
generating radioactive wastes.
Bauer Howden Inc.
Bauer Howden is manufacturing systems in the U.S. in a modern, fully
integrated, 90,000 square foot manufacturing and engineering facility in
Bristol, Connecticut. This facility is also fully qualified as a production
facility in manufacturing compliance with the military and government
specifications of the U.S. and many nations of the world. Bauer-Howden has a
team of its own technical service people strategically located in various market
areas outside of the U.S. and these service people will assist in the
installation.
Calumet Coach Company
Calumet Coach of Calumet City, Illinois is a privately held Company that
has been building mobile units in both semi-trailer, and self-propelled
configurations for the past fifty years serving special health care, military
and industrial applications throughout the world. Our agreement provides for the
incorporation of the Plasma Waste Converter into various semi-trailer and
self-propelled mobile configurations. These systems will process hazardous
wastes that reside in remote locations.
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Intellectual property
To date, we have not applied for and have not been issued any patents
surrounding our proprietary plasma technology. We intend to file applications
for United States patents with respect to equipment invention disclosures and
process invention disclosures and may in the future file foreign patent
applications. Our success depends, in part, on our ability to obtain patents,
maintain trade secrecy, and operate without infringing on the proprietary rights
of third parties. There can be no assurance that the patents of others will not
have an adverse effect on our ability to conduct its business, that any of our
pending patent applications will be approved, that we will develop additional
proprietary technology which is patentable or that any patents issued to us will
provide competitive advantages or will not be challenged by third parties.
Furthermore, there can be no assurance that others will not independently
develop similar or superior technologies, duplicate any of our technologies or
design around processes and devices developed by us. We are currently the
licensee of 2 existing U.S. patents: U.S. Patent 5516742, issued May 14, 1996
and U.S. Patent 5710087, issued January 20, 1998. It is possible we may need to
acquire licenses for, or to contest the validity of, issued or pending patents
of third parties relating to our technology. There can be no assurance that any
license under such patents would be made available to us on acceptable terms, if
at all, or that we would prevail in any such contest. In addition, we could
incur substantial costs in defending ourself in suits brought against us or in
bringing suits against other parties. We will also protect our trade secrets and
proprietary know-how and technology by non-disclosure agreement and non-compete
agreements with its collaborators, employees and consultants. However, there can
be no assurance that these agreements will not be breached, that we would have
adequate remedies for any breach, and that our trade secrets and proprietary
know-how will not otherwise become known or be independently discovered by
others.
Government regulation
We and our customers are required to comply with a number of federal, state
and local laws and regulations in the areas of safety, health and environmental
controls, including without limitation, the Resource Conservation and Recovery
Act, as amended and the Occupational Safety and Health Act of 1970, which may
require us, our prospective working partners or its customers to obtain permits
or approvals to utilize the Plasma Waste Converter and related equipment on
certain job sites. In addition, if we begin to market the Plasma Waste Converter
internationally, we will be required to comply with laws and regulations and,
when applicable, obtain permits or approvals in those other countries. There is
no assurance that such required permits and approvals will be obtained.
Furthermore, particularly in the environmental remediation market, we may be
required to conduct performance and operating studies to assure government
agencies that the Plasma Waste Converter and its by-products do not prove to be
environmental risks. There is no assurance that such studies, if successful,
will not be more costly or time-consuming than anticipated. Further, if new
environmental legislation or regulations are enacted or existing legislation or
regulations are amended or are interpreted or enforced differently, our
prospective working partners and/or its customers may be required to meet
stricter standards of operation and/or obtain additional operating permits or
approvals. There can be no assurance that we will meet all of the applicable
regulatory requirements.
Environmental matters
Our operations, as well as the use of specialized technical equipment by
our customers, are subject to numerous federal, state and local regulations
relating to the storage, handling and transportation of certain regulated
materials. Although our role is generally limited to the sale or leasing of its
specialized technical equipment for use by our customers, there is always the
risk of the mishandling of such materials or technological or equipment
failures, which could result in significant claims against us. Any such claims
against us could materially adversely affect our business, financial condition
and results of operations.
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Manufacturing operations
Our products and systems are presently being manufactured pursuant to a
manufacturing agreement with Bauer Howden based on our engineering drawings,
specifications and production methods. Bauer Howden is an experienced
manufacturing company and also a strategic alliance partner. Bauer Howden is
manufacturing our systems in the United States in a modern, fully integrated,
90,000 square foot manufacturing and engineering facility in Bristol,
Connecticut. This facility is also fully qualified as a production facility in
manufacturing, in compliance with the military and government specifications of
the United States and many nations of the world. Bauer Howden has a team of
technical service people strategically located in various market areas outside
of the United States, and these service people will assist in the installation,
maintenance and training that may be required by our customers.
Research and development
While the principal research and development to produce commercial Plasma
Waste Converters has been completed, we will continue to perform research and
development activities with respect to product improvement and new product
development, utilizing internal technical staff as well as independent
consultants. Such activities have to date been entirely company-sponsored.
We intend to expand our research and development efforts. In addition to
conducting ongoing tests, demonstrations and enhancements of the Plasma Waste
Converter, our efforts are expected to focus on the development of patentable
proprietary inventions in the field of high temperature thermochemistry.
Employees
As of April 10, 2000, we had 12 full-time employees, including six with
engineering degrees. In addition, we have hiring commitments from two additional
employees who are scheduled to start in late April 2000. From time to time, we
hire contract engineers for particular projects and for a limited time. We
believe that we have been successful in attracting experienced and capable
personnel. All of our employees have entered into agreements requiring them not
to disclose any proprietary information, assigning all rights to inventions made
during their employment, and prohibiting them from competing with us. Our
employees are not represented by any labor union, and we believe that our
relations with our employees are satisfactory.
Properties
Our offices are located at 15 Old Danbury Road, Suite 203, Wilton, Connecticut
06897-2525 where we lease 5,800 square feet of office space from CD Station, LLC
as landlord. The lease provides for monthly payments of $ 14,017, increasing
annually to December 2004, when the lease expires. There is an option for us to
extend the lease for a five (5) year term with the Landlord having the right to
cancel the lease after two (2) years of the extended term if the buildings main
tenant, The Common Fund, requires the additional space for their corporate
offices.
Legal proceedings
We and certain officers, both in their capacity as officers and personally,
are defendants in litigation brought in Bridgeport, Connecticut, USA Federal
Court, in February 1998 by John Easton of Canada. The complaint demands payment
of 475,000 shares of our common stock, for commissions and/or fees for services
rendered to us to acquire the funds needed to consummate the reverse
acquisition, that occurred on November 17, 1995, of Startech Corporation by
Kapalua Acquisitions, Incorporated (since renamed to Startech Environmental
Corporation). The proceedings are in their discovery stage. We have, and will
continue to, vigorously contest the matter. In addition to our own defense, we
will file a counter claim at the appropriate stage against Mr. Easton for his
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actions and those of his agents at or around the time of the reverse
acquisition. Shortly after the above action was filed, an additional action was
commenced against us by Mr. Easton's two sons, Dexter Easton and Spencer Easton,
for our refusal to lift a restrictive legend on stock issued to his two sons for
alleged services rendered at the time of the reverse acquisition. The two
actions were joined as they arise from the same fact pattern and transaction. It
is impossible to predict the outcome of either case at this stage, however an
adverse ruling against us requiring a significant monetary payment to the
Plaintiff would severely restrict our ability to implement its business strategy
and would consume a large percentage of our cash reserves. A settlement
conference is scheduled for May 26, 2000
On December 19, 1997 we brought suit in Federal Court, District of
Connecticut, seeking a preliminary injunction to enforce a Non-disclosure and
Non-compete provisions with respect to four Distributorship Agreements executed
by David Ivey in his personal capacity and in his capacity as a corporate
officer for these four companies. We believe that Mr. Ivey had plans to use the
information provided to him in his capacity as a Distributor to gain knowledge
of our confidential information. After being sued by us, Mr. Ivey has now filed
a counterclaim claiming that we misrepresented certain material facts
surrounding our technology and our ability to produce our product. This lawsuit
is no longer pending against the Company as the Federal District Court entered a
Stipulation of Judgment of Dismissal with Prejudice in this suit on March 15,
2000. The Stipulation was entered into without costs to either party.
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MANAGEMENT
The names and ages of the Directors and Executive Officers of Startech and
their positions are as follows:
Name Age Position
- ---- --- --------
Joseph F. Longo 67 Chairman, CEO, President, Chief
Financial Officer, and Director
Joseph S. Klimek 63 Executive Vice President Chief
Operating Officer
Kevin M. Black 37 Senior Vice President, General
Counsel Secretary, and Director
Robert L. DeRochie 35 Vice President, Investor Relations
Peter J Scanlon 51 Vice President and Director of
Finance and Administrative Services
John R. Celentano 52 Director
Joseph F. Longo
Prior to founding Startech Corporation, a predecessor of the Company, in
1994, Mr. Longo was founder and Chief Operating Officer of the International
Dynetics Corp., a waste industry capital equipment manufacturing company with
multinational customers from 1969 to 1990. Prior thereto, he was Manager of New
Product and Business Development for AMF from 1959 to 1969. He has been awarded
many waste industry equipment patents, all of which have been successfully
commercialized. He is a mechanical engineer and operating business executive,
with more than 25 years of waste industry management experience. Mr. Longo has
been our Chairman, President and a Director since November 1995.
Joseph S. Klimek
Prior to joining us in December 1998, Mr. Klimek was a Program Director and
Vice President for Burns and Roe Services Company where he was also a member of
its Board of Directors. At Burns and Roe, he was responsible for its
Telecommunications programs, and its Defense and Aerospace Program. Prior to
joining Burns and Roe, Mr. Klimek was the Director of Business Operations for
the Grumman Aerospace Company where he led many major programs that include the
Apollo Space Mission Module, the Space Shuttle, the F-14, A6 and other combat
aircraft. In addition, under his leadership, his division secured the contract
and was responsible for Launch Operations of the NASA Kennedy Space Center.
Mr. Klimek is an internationally recognized expert in the safe destruction of
lethal chemical weapons and other dangerous materials. He has presented
technical papers to the National Research Council, the Russian Academy of
Sciences, the Military Institute of Chemistry and Radiometry, the Air Force
Institute of Technology and Management and to other academic and environmental
organizations.
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Kevin M. Black
Mr. Black has been Secretary and a member of our Board of Directors since
November 1995. In October 1999 he joined us on a full time basis as Senior
Vice-President and General Counsel. From October 1994 to October 1999 Mr. Black
was an Assistant States Attorney with the State of Connecticut, Division of
Criminal Justice. From January 1993 to October 1994, Mr. Black was associated
with the law firm of Reid, Corsello and Cafero, Norwalk, Connecticut, in the
general practice of corporate and criminal law. From January 1991 to October
1992, Mr. Black was associated with the law firm Feinstein & Hermann, P.C.
Norwalk, Connecticut. Prior to 1991, Mr. Black was an insurance industry
executive with the Heffner Insurance Agency, Inc.
Robert L. DeRochie
Mr. DeRochie was appointed to his present position as Vice President of
Investor Relations in June of 1999. Prior to joining us, Mr. DeRochie was Vice
President of Queensway Investment Counsel, a Canadian company, from March 1997
through February 1999. At Queensway, he was responsible for managing the
investment portfolios of 14 U.S. financial companies. Prior to Queensway, from
June 1987 through December 1996, Mr. DeRochie was an officer at National
Reinsurance Corporation, where he was responsible for portfolio management as
well as communications with analysts and institutional traders.
Peter J. Scanlon
Mr. Scanlon joined us as Controller in December 1998 and was appointed to
his present position in September 1999. Prior to joining us, Mr. Scanlon was
Director of Financial Services for Vivax Medical Corporation, a publicly traded
manufacturing company located in Bristol, Connecticut, from November 1996 to
December 1998. Prior to Vivax, Mr. Scanlon's extensive corporate financial and
systems background includes 18 years with the IBM Corporation in the accounting,
finance and financial systems areas. As Manager of International Finance Systems
Development, Mr. Scanlon was successful in the development and installation of
the reporting system being used by IBM's six largest international subsidiaries.
While on a three-year assignment in London, England, he also developed and
implemented financial procedures and controls for IBM's European manufacturing
headquarters in Brentford, England.
John R. Celentano
Mr. Celentano was elected a Director of our Company on February 25, 2000.
Mr. Celentano has been involved with us as a paid consultant and a commissioned
representative of our products since 1996. He is currently the President of
Global Ventures Group, Inc., a position he has held since 1990. Global is a
consulting company that provides client companies with services that include
international market development, intellectual property licensing, alliances and
partnering, and mergers and acquisitions. Prior to forming Global Ventures
Group, Inc., Mr. Celentano was Vice President - International at United Media in
New York City where he directed the company's business growth in more than 50
countries. During his nine years at United Media, Mr. Celentano established a
worldwide network of sales agents covering Europe, Latin America, and Asia, and
set up regional sales offices in the European Union and the Pacific Rim. Before
United Media, he was an international marketing executive at Fisher-Price Toys,
Aerospatiale, and Mack Trucks.
Mr. Celentano is a graduate of Monmouth College, Illinois, and holds a
M.B.A. from Lehigh University, Bethlehem, PA. He serves on the Advisory Board of
the Business Development Center at the University of Connecticut's Graduate
School of Business, and is a member of the Licensing Executives Society.
41
<PAGE>
All Directors are elected for a period of one year at the Company's Annual
Meeting of Shareholders and serve until their successor is duly elected and
qualified. Officers are appointed and serve at the pleasure of the Board of
Directors.
The entire Board of Directors acts on compensation matters concerning
salaries and incentive compensation for our executive officers and administers
our employee stock option plans. In addition to the foregoing, our directors
discharge their responsibilities throughout the year through personal meetings
and other communications, including considerable telephone contact with the
Chairman and others regarding matters of interest and concern.
Directors, who are currently officers and employees of the Company, receive
no additional compensation for acting as a director. Outside Directors will
receive compensation of $10,000 per year and the reimbursement for out-of-pocket
expenses.
Executive compensation
Summary compensation table
The following table sets forth information concerning the compensation of
our Chief Executive Officer and those other executive officers whose total
salary, bonus and other compensation earned for fiscal years ending October 31,
1997, 1998 or 1999 exceeded $100,000:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
# Shares
Name and Fiscal Other Annual Underlying All
Principal Position Year Salary Bonus Compensation (1) Options other
- ------------------ ---- ------ ----- ---------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Longo, 1999 $151,170 -- 3,353 -- --
Chairman, CEO 1998 $100,000 -- 1,770 -- --
1997 $105,564 -- -- -- --
Joseph S. Klimek, 1999 $127,606 -- -- -- --
Chief Operating
Officer
</TABLE>
(1) Mr. Longo has full time use of an automobile, which is paid for by
Startech.
Employment Agreements. There are no employment agreements between the Company
and any officers or directors.
42
<PAGE>
Employee Benefit Plans
1995 Stock Option Plan
We adopted a Stock Option Plan (the 1995 "Plan") in November 1995 under
which a total of 2,000,000 shares are currently reserved for issuance to
employees (including officers and directors who are employees) and other persons
associated with us whose services have benefited us. Options granted pursuant to
the plan are non-qualified stock options. The Plan is administered by the
compensation committee of the board of directors which selects the employees to
whom the options are granted, determines the number of shares subject to each
option, sets the time or times when the options will be granted, determines the
time when the options may be exercised and establishes the exercise date and
price. The board determines the term of each option granted under the Plan, but
in no event may such term exceed ten years. As of January 31, 2000, options to
purchase an aggregate of 1,639,411 shares were issued at a weighted average
exercise price of $3.61 per share and 360,589 shares remained available for
future option grants under the Plan.
2000 Stock Option Plan
Our 2000 Stock Option Plan was adopted by our board of directors in January
2000 and was approved by our stockholders in February 2000. The 2000 plan
authorizes the issuance of up to 1,000,000 shares of our common stock. No
options have been granted to date.
The 2000 plan provides for the grant of incentive stock options intended to
qualify under section 422 of the Internal Revenue Code and nonstatutory stock
options. Our officers, directors, employees and consultants, and certain
employees and consultants of our majority-owned affiliated companies, are
eligible to receive awards under the 2000 plan.
Optionees receive the rights to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Generally, no
portion of an incentive stock option may vest within twelve months of the grant.
We may grant options at an exercise price greater than or equal to the fair
market value of our common stock on the date of grant or not less than 110% of
the fair market value in the case of incentive stock options granted to
optionees holding more than 10% of the voting power of the company. Fair market
value for purposes of the 2000 plan is the closing market price of our common
stock as reported on the OTC Bulletin Board on the relevant date.
Our compensation committee administers the 2000 plan. The committee has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. Our compensation
committee selects the recipients of awards and determines the number of shares
of common stock covered by the options and the dates upon which such options
become exercisable and terminate, subject to certain provisions of the 2000
plan. Incentive stock options must terminate within ten years of the grant.
Nonstatutory options must terminate within fifteen years of the date of grant.
The compensation committee has right to alter the terms of any option when
granted or while outstanding pursuant to the terms of the 2000 plan except the
option price.
All options automatically become excisable in full in the event of a change
in control (as defined in the 2000 plan), death or disability of the optionee or
as decided by the compensation committee. Upon retirement options held at least
one year become exercisable in full. If an optionee's employment with us is
terminated for any reason, except death, disability or retirement, the optionee
has three months in which to exercise an option (but only to the extent
exercisable immediately after termination) unless the option by its terms
expires earlier. Termination or other changes in employment status may affect
the exercise period.
43
<PAGE>
Elimination of monetary liability for directors and officers
Our Articles of Incorporation contains certain provisions permitted under
the General Corporation Laws of Colorado relating to the liability of directors.
The provisions eliminate a director's liability for monetary damages for a
breach of fiduciary duty, including gross negligence, except in circumstances
involving certain wrongful acts, such as breach of a director's duty of loyalty
or acts or omissions which involve intentional misconduct or a knowing violation
of the law. These provisions do not eliminate a director's duty of care nor do
they prevent recourse against directors through equitable remedies such as
injunctive relief. Moreover, the provisions do not apply to claims against a
director for violations of certain laws, including federal securities laws.
There are also agreements indemnifying the officers of the Company to the same
extent that the directors are indemnified by the Articles of Incorporation
Indemnification of officers and directors
Our Articles of Incorporation contains provisions to indemnify the
directors to the fullest extent permitted by the General Corporation Law of
Colorado. These provisions may have the practical effect in certain cases of
eliminating the ability of shareholders to collect monetary damages from
directors. We believe that these provisions will assist us in attracting or
retaining qualified individuals to serve as directors. There are also agreements
indemnifying the officers of the Company to the same extent that the directors
are indemnified by the Articles of Incorporation
Compensation committee interlocks and insider participation
The Board of Directors acted as the Compensation Committee for fiscal 1999.
Except with respect to their compensation arrangements, Mr. Longo, Chairman and
President of the Company and Mr. Klimek, Executive Vice President and Chief
Operating Officer participated in executive compensation deliberations and
recommendations of the Board of Directors. During the fiscal year ended October
31, 1999, no executive officer served on the board of directors or compensation
committee of another company that had an executive officer serving on our Board
of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. John R. Celentano, who became a director of the Company on February 25,
2000, performed various paid consulting projects for the Company for the fiscal
year ended October 31, 1999 and continues his involvement as a commissioned
representative for the Company's products. His total compensation for such
services in fiscal 1999 was $52,322.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 10, 2000 by (i) each Shareholder who
owns beneficially 5% or more of the outstanding shares of Common Stock, (ii)
each of the Company's directors, (iii) each named executive officer and (iv) all
directors and executive officers of the Company as a group. Except as otherwise
indicated we believe that the beneficial owners of the common stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
No. of Percent of
Name and Address of Beneficial Owner Shares Total
- ------------------------------------ ------ -----
Joseph F. Longo (1) ** 1,879,898 22.95%
Leonard V. Knap 1,878,898 22.95%
140 West 3rd Street
Hamilton, Ontario L9C-3K7
Canada
Kevin M. Black**(1) 41,404 *
Joseph S. Klimek (1) 3,000 *
Peter J. Scanlon(1) (4) 2,000 *
Robert L. DeRochie (1) (3) 42,575 *
Paradigm Group LLC (2) 720,620 8.80%
3000 Dundee Road, Suite 105
Northbrook, IL 60062
All Officers and Directors as a Group (6 persons) 3,847,775 46.97%
** Less than one (1%) percent
(1) Unless otherwise noted the addresses all of persons listed above are in care
of the Company at 15 Old Danbury Road, Suite 203, Wilton, Connecticut,
06897-2525.
(2) Based upon a calculation of 8,665,367 shares outstanding as of April 10,
2000. In addition to the 7,558,278 common shares actually outstanding, this
number treats as outstanding common shares that would be issued if Paradigm
presently converted all of its 719,745 shares of preferred stock into common
shares, at the applicable conversion ratio on April 10, 2000. 178,643 warrants
held by Paradigm which are currently exercisable. Presently convertible
preferred shares and presently exercisable options and warrants are those
convertible or exercisable within 60 days of the date of this prospectus held by
beneficial owners that are included in the first column.
(3) Includes 41,155 shares held directly and 1,420 shares held in name of his
children, as to which he disclaims beneficial ownership.
(4) Includes 1,000 held directly and 1,000 shares held in name of his spouse, as
to which he disclaims beneficial ownership.
45
<PAGE>
SELLING SECURITY HOLDERS
An aggregate of up to 1,107,089 shares of our common stock may be offered
by warrant holders, by holders of convertible preferred stock who upon exercise
their warrants or conversion of their convertible preferred stock will be
entitled to receive 396,464 shares and 710,625 shares respectively of the common
stock offered in this prospectus. Another 143,878 shares of our common stock is
being offered hereby by persons who have converted their shares of convertible
preferred stock into shares of our common stock. All of these securities were
acquired by the holders thereof in a private placement completed in October
1999, and which granted registration rights with respect to 50% of the
convertible preferred stock and the common stock issuable upon conversion of the
convertible preferred stock and the warrants issued to the purchasers of the
convertible preferred stock as well as those issued as compensation to brokers
who participated in the private placement. None of the Selling Security Holders
has, or has had within the past three years any position, office or other
material relationship with us or any of our predecessors or affiliates, except
as noted. The following tables reflect such persons or entities ownership of
convertible preferred stock, warrants to purchase common stock and common stock
previously issued upon conversion of convertible preferred stock.
<TABLE>
<CAPTION>
Convertible Preferred Stock
---------------------------
Shares Beneficially
Owned After the Offering
Shares Beneficially Maximum ------------------------
Name of Beneficial Owner Owned Before the Offering No. of Shares to be sold Number Percentage(4)
- ------------------------ ------------------------- ------------------------ ------ -------------
Number(1) Percentage Preferred Common(2) Preferred Common(3) Preferred Common
--------- ---------- --------- --------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph A. McGee 1000 * 500 1250 500 1250 * *
Sam & Mary Papa 1000 * 500 1250 500 1250 * *
Fred Cohen 1250 * 625 1563 625 1563 * *
Walter & Mary Goss 1250 * 625 1563 625 1563 * *
Pat Ciampi 1250 * 625 1563 625 1563 * *
Sebastin J & Marie D. Filippone 1500 * 750 1875 750 1875 * *
Roy Toppel & Marianne Toppel 1500 * 750 1875 750 1875 * *
Peter Reilly 1502 * 751 1876 750 1876 * *
Joseph R Rindler Jr 2500 * 1250 3125 1250 3125 * *
Russell E. Wagner 2500 * 1250 3125 1250 3125 * *
Thomas Canning & Mary Canning 2500 * 1250 3125 1250 3125 * *
Alfred G Faller 2500 * 1250 3125 1250 3125 * *
James Wingard 2500 * 1250 3125 1250 3125 * *
Pierre A Rochat & Valerie T. Rochat 2500 * 1250 3125 1250 3125 * *
David Downs 2500 * 1250 3125 1250 3125 * *
Jeanne Johnston 2500 * 1250 3125 1250 3125 * *
Meta C. Mergott Foundation 2500 * 1250 3125 1250 3125 * *
Noel & Catherine Groeschel 2500 * 1250 3125 1250 3125 * *
Stephen & Kathy Schwab 2500 * 1250 3125 1250 3125 * *
William Van Syckle 2500 * 1250 3125 1250 3125 * *
Robert & Jeannette Salerno 3000 * 1500 3750 1500 3750 * *
Steve J. Lamb 3000 * 1500 3750 1500 3750 * *
Richard Dunham 3500 * 1750 4375 1750 4375 * *
In-x-Excess 3500 * 1750 4375 1750 4375 * *
Robert & Susan Egan 5000 * 2500 6250 2500 6250 * *
Charles F. Lubeck 5000 * 2500 6250 2500 6250 * *
Jeanne Turner 5000 * 2500 6250 2500 6250 * *
Norman & Geraldine Jaffe 5000 * 2500 6250 2500 6250 * *
Ann Ritson 7500 1.0% 3750 9375 3750 9375 * *
Rosetta & Rosario Celentano 10,000 1.4% 5000 12500 5000 12500 * *
John & Jennifer Hamlet 10,000 1.4% 5000 12500 5000 12500 * *
Scott Edwards & Kara Edwards 20,000 2.9% 10000 25000 10000 25000 1.5% *
Circle Group Internet, INC 50,000 7.1% 25000 62500 25000 62500 3.6% *
Larry Lacerte 100,000 14.3% 50000 125000 50000 125000 7.2% 1.4%
Paradigm Group LLC 297,748 42.7% 148874 372185 148874 372185 21.4% 4.3%
</TABLE>
- ----------
* Represent less than one percent.
(1) Represents number of shares purchased in private placement
(2) Represents number of shares of common stock issuable upon conversion of
preferred stock at $4.00 per share.
(3) Does not include any shares of common stock acquired other than by
conversion of the preferred stock which in any case is less that 1%
(4) Based upon a calculation of 8,501,142 shares outstanding as of April 10,
2000. In addition to the 7,558,278 common shares actually outstanding, this
number treats as outstanding common shares that would be issued if 50
percent of preferred stock was converted into common shares, at the
applicable conversion ratio on April 10, 2000.
46
<PAGE>
<TABLE>
<CAPTION>
Warrants
--------
Warrants/Shares Beneficially
Maximum Owned After the Offering
Warrants Beneficially No. of Warrants/ ------------------------
Name of Beneficial Owner Owned Before the Offering Shares to be sold Number Percentage
- ------------------------ ------------------------- ----------------- ------ ----------
Number(1) Percentage Warrants/Common(2) Warrants Common
--------- ---------- ------------------ -------- ------
<S> <C> <C> <C> <C> <C>
Joseph A. McGee 500 * 500 0 0
Sam & Mary Papa 500 * 500 0 0
Fred Cohen 625 * 625 0 0
Walter & Mary Goss 625 * 625 0 0
Pat Ciampi 625 * 625 0 0
Sebastin J & Marie D. Filippone 750 * 750 0 0
Roy Toppel & Marianne Toppel 750 * 750 0 0
Peter Reilly 751 * 751 0 0
Joseph R Rindler Jr 1250 * 1250 0 0
Russell E. Wagner 1250 * 1250 0 0
Thomas Canning & Mary Canning 1250 * 1250 0 0
Alfred G Faller 1250 * 1250 0 0
James Wingard 1250 * 1250 0 0
Pierre A Rochat & Valerie T. Rochat 1250 * 1250 0 0
David Downs 1250 * 1250 0 0
Jeanne Johnston 1250 * 1250 0 0
Meta C. Mergott Foundation 1250 * 1250 0 0
Noel & Catherine Groeschel 1250 * 1250 0 0
Stephen & Kathy Schwab 1250 * 1250 0 0
William Van Syckle 1250 * 1250 0 0
Robert & Jeannette Salerno 1500 * 1500 0 0
Steve J. Lamb 1500 * 1500 0 0
Richard Dunham 1750 * 1750 0 0
In-x-Excess 1750 * 1750 0 0
Robert & Susan Egan 2500 * 2500 0 0
Charles F. Lubeck 2500 * 2500 0 0
Jeanne Turner 2500 * 2500 0 0
Norman & Geraldine Jaffe 2500 * 2500 0 0
Ann Ritson 3750 * 3750 0 0
Rosetta & Rosario Celentano 5000 1.2% 5000 0 0
John & Jennifer Hamlet 5000 1.2% 5000 0 0
Scott Edwards & Kara Edwards 10,000 2.5% 10000 0 0
Circle Group Internet, INC 25,000 6.3% 25000 0 0
Larry Lacerte 50,000 12.6% 50000 0 0
Paradigm Group LLC 148874 37.5% 148874 0 0
A Richard Cierpik 1250 * 1250 0 0
Alan Parks 1250 * 1250 0 0
Ann Ritson 8000 2.0% 8000 0 0
Charles Schwab FBO F. J. Arkfeld/ 21740 5.5% 21740 0 0
Charles Schwab FBO F. J. Arkfeld/ 3750 * 3750 0 0
David L. Addazio & Greg Bergholtz 1250 * 1250 0 0
Francis J. & Theresa M. Arkfeld 2500 * 2500 0 0
Francis J. Arkfeld Trust 2500 * 2500 0 0
Fred & Mary Beth Marinelli 1250 * 1250 0 0
Greater Syracuse Moving & Storage 2500 * 2500 0 0
Jennifer & Paul Amrose 900 * 900 0 0
Josall Syracuse Inc. 2500 * 2500 0 0
Judith Landa 1250 * 1250 0 0
Mark Schmitz 1250 * 1250 0 0
Odisseas Lex Mirianthepoulos 1650 * 1650 0 0
Pru Sec John P. Cavanaugh IRA 500 * 500 0 0
Pru Sec Ray Holtman IRA 1000 * 1000 0 0
S.S.M. INC 750 * 750 0 0
Salvator Vigiotti Mary Ellen Vigiotti 750 * 750 0 0
Scott Fleming 5000 1.3% 5000 0 0
Stephen Firmender 1250 * 1250 0 0
Steven Franklin 1250 * 1250 0 0
Theresa M. Arkfeld Trust 200 * 200 0 0
Broker Warrants 47,975 12.1 47,975 0 0
- ----------
</TABLE>
* Represent less than one percent
(1) Represents number of warrants acquired in private placement
(2) Represents number of shares of common stock issuable upon exercise of
warrants at $15.00 per share.
47
<PAGE>
(3) Does not include any shares of common stock acquired other than through
exercise of the warrants, which in each case is less that 1%
(4) Based upon a calculation of 8,501,142 shares outstanding as of April 10,
2000. In addition to the 7,558,278 common shares actually outstanding, this
number treats as outstanding common shares that would be issued if 50
percent of the preferred stock were converted into common shares, at the
applicable conversion ratio on April 10, 2000.
<TABLE>
<CAPTION>
Common Stock
------------
Shares Beneficially
Maximum Owned After the Offering
Shares Beneficially No. of Shares ------------------------
Name of Beneficial Owner Owned Before the Offering to be sold Number Percentage
- ------------------------ ------------------------- ---------- ------ ----------
Number(1) Percentage Common(2) Common Common
--------- ---------- --------- ------ ------
<S> <C> <C> <C> <C> <C>
A Richard Cierpik 6020 * 3010 3010 *
Alan Parks 5608 * 2804 2804 *
Ann Ritson 39452 * 19726 19726 *
Charles Schwab Francis J. Arkfeld/ 105944 1.2% 52972 52972 *
Charles Schwab Francis J. Arkfeld/ 18474 * 9237 9237 *
David Addazio Mr. Bergholtz 6004 * 3002 3002 *
Francis J. & Theresa M. Arkfeld 10340 * 5170 5170 *
Francis J. Arkfeld Trust 10340 * 5170 5170 *
Fred & Mary Beth Marinelli 5192 * 2596 2596 *
Greater Syracuse Moving Co. 8714 * 4357 4357 *
Jennifer & Paul Amrose 3752 * 1876 1876 *
Josall Syracuse Inc. 8714 * 4357 4357 *
Judith Landa 5608 * 2804 2804 *
Mark Schmitz 6116 * 3058 3058 *
Odisseas Lex Mirianthepoulos 5752 * 2876 2876 *
Pru Securities C/O Ray Holtman IRA 3576 * 1788 1788 *
S.S.M. INC 2614 * 1307 1307 *
Salvator J. Vigiotti Mary Vigiotti 2614 * 1307 1307 *
Scott Fleming 17430 * 8715 8715 *
Stephen Firmender 6180 * 3090 3090 *
Steven Franklin 6116 * 3058 3058 *
Theresa M. Arkfeld Trust 824 * 412 412 *
</TABLE>
- ----------
* Represent less than one percent.
(1) Represents number of shares issued upon conversion of preferred stock
purchased in private placement
(2) Does not include any shares of common stock acquired other than by
conversion of the preferred stock which in each case is less that 1%
(3) Based upon a calculation of 8,501,142 shares outstanding as of April 10,
2000. In addition to the 7,558,278 common shares actually outstanding, this
number treats as outstanding common shares that would be issued if 50
percent of the preferred stock were converted into common shares, at the
applicable conversion ratio on April 10, 2000.
48
<PAGE>
PLAN OF DISTRIBUTION
The Selling Security Holders may sell the shares and warrants being offered
hereby: (i) through dealers or in ordinary broker transactions, in the
over-the-counter market or otherwise, (ii) "at the market" to or through market
makers or into an existing market for the securities, (iii) in other ways not
involving market makers, or established trading markets, including direct sales
to purchasers or effected through agents, or (iv) in combinations of any such
methods of sale. Sales may be made at fixed prices, which may be changed, at
market prices prevailing at the time or sale or at negotiated prices.
If a dealer is utilized in the sale of the securities in respect of which
the Prospectus is delivered, the Selling Security Holders will sell their
securities to the dealer, as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale.
Sales of Securities "at the market" and not at a fixed price, which are
made into an existing market for the securities, will be made by the Selling
Security Holders to or through a market maker, acting as principal or as agent.
Other sales may be made, directly or through an agent, to purchasers outside
existing trading markets.
A selling broker may act as agent or may acquire the securities or
interests therein as principal or pledgee and may, from time to time, effect
distributions of such securities of interest.
The Selling Security Holders and broker-dealers, if any, acting in
connection with the sale of the securities might be deemed to be "underwriters"
within the meaning of Section 2 (11) of the Securities Act and any commission
received by them and any profit on the resale of the securities might be deemed
to be underwriting discounts and commissions under the Securities Act.
The Securities offered hereby are eligible for sale only in certain states,
and in some of those states may be offered or sold only to "institutional
investors" as defined under applicable state securities law.
No sales or distributions other than as described herein may be effected
until after this prospectus shall have been appropriately amended or
supplemented.
DESCRIPTION OF SECURITIES
General
We are authorized by our Certificate of Incorporation to issue an aggregate
of 800,000,000 shares of Common Stock, no par value per share, and 10,000,000
shares of preferred stock no par value per share. Upon consummation of this
offering, 284,250 shares of preferred stock and 8,665,367 shares of commons
stock will be outstanding. The following description of our capital stock is
based upon, and is qualified in its entirety by reference to our articles of
incorporation, as amended and our by-law as amended.
Common stock
As of April 10, 2000 there were 7,558,278 shares of common stock
outstanding that were held of record by approximately 1,591 stockholders.
Holders of our common stock are entitled to one vote per share for each share
held on all matters submitted to a vote of the stockholders. We do not have
cumulative voting rights in the election of directors, and accordingly holders
of a majority of the shares entitled to vote in any election of directors may
49
<PAGE>
elect all of the directors standing for election. Subject to preferential rights
with respect to any outstanding preferred stock, holders of our common stock are
entitled to receive proportionately such dividends as may be declared by our
board of directors out of funds legally available. In the event of our
liquidation, dissolution or winding up, holders of our common stock are entitled
to share proportionately in our available assets after payments of all debts and
other liabilities. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights. Our outstanding shares of our common stock are,
and the shares of our common stock offered hereby, will upon completion of the
offering, be, validly issued, fully paid and non-assessable. The rights,
preferences and privileges of holders of our common stock are subject to and may
be adversely affected by rights of the holders of shares of currently issued and
outstanding preferred shares and any series of preferred stock, which we may
designate and issue in the future.
Preferred stock
Under the terms of our articles of incorporation as amended, our board of
directors is authorized to issue shares of preferred stock in one or more series
without stockholder approval. Our Board of Directors has the discretion to
determine the rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with raising capital as well as
for possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or could discourage a
third party from acquiring a majority of our outstanding voting stock. We have
no present plans to issue any additional shares of preferred stock.
In the fiscal year ended October 31, 1999 our board of directors authorized
the issuance of up to 2,500,000 shares of Series 8% cumulative convertible,
redeemable preferred stock of which 696,978 shares were issued and sold in a
private placement at $10.00 per share for aggregate proceeds of $6,969,780, less
commissions of $550,725.
For every two shares of preferred stock purchased, we granted one common
stock warrant exercisable at $15.00 per share. As of February 25, 2000 shares of
preferred stock converted into common stock, at a rate determined by dividing
the purchase price per share ($10) by eighty percent of the market price per
share of our common stock for the five trading days prior to conversion. In no
event shall the conversion price be less than $4 per share, or more than $6 per
share. On September 15, 2002, the preferred stock may be redeemed at the option
of the Company $10 per share, plus all accumulated and unpaid dividends. If we
do not redeem the shares of preferred stock they will automatically be converted
to shares of our common stock at the rate of $5 per share, or the closing market
price of the common stock on September 15, 2002, which ever is higher. We are
required to pay dividends on the shares of preferred stock at the rate of 8.00%
per year based on the $10 purchase price. The dividends are payable in
additional shares of preferred stock on the last business day of March, June,
September, and December.
The holders of the preferred stock will not be entitled to vote, except
that the affirmative vote of at least a majority of the outstanding shares of
preferred stock, voting as a class, shall be required to authorize, the creation
and issuance of any class or series of securities ranking senior to, or on
parity with, the preferred stock or any matter with respect to the declaration
and payment of dividends or distribution of assets on liquidation, dissolution,
or winding up of our Company.
50
<PAGE>
In the event of any voluntary liquidation, dissolution, or winding up of
our Company, before payment or distribution of our assets may be set apart to
the holders of common stock or any stock ranking junior to the Convertible
Preferred Stock, the holders of the preferred stock will be entitled to receive,
out of our assets legally available therefore, a liquidating distribution per
share equal to the redemption price on the date of such liquidation, plus any
accumulated and unpaid dividends. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of our Company, our assets are
insufficient to make full payment of such liquidating distribution per share
plus all accumulated and unpaid dividends to the holders of the preferred stock,
and similar payments on any other class of stock ranking on a parity with the
preferred stock upon liquidation, then the holders of the preferred stock and
such other shares shall share ratably in any such distribution of our Company's
assets in proportion to the full respective distributable amounts to which they
are entitled.
Warrants
In conjunction with our issuance of the preferred stock we issued warrants
to purchase 348,489 shares of our common stock at a price of $15.00 per share.
We also granted a total of 47,975 broker warrants to brokers who participated in
the private placement. The broker was entitled to additional warrants equal to
10 percent of the total dollars raised divided by the preferred price of $10.00
per share. These warrants will expire on August 31, 2001 provided the average
closing bid prices of our common stock for the previous thirty trading days is
$16.50 or higher. In the event the average closing bid price for our common
stock is lower than $16.50 per share, the exercise period of the warrants will
be extended until our common stock exceeds $16.50 per share for ten consecutive
trading days. At that point we can give the warrant holders thirty days notice
that the warrants will expire. Should we choose not to cause the expiration of
the warrants sooner, they will expire on August 31, 2004.
The Registration Statement of which this prospectus is a part includes
284,250 shares of the 696,978 shares of Series A preferred stock and 143,878
shares of our common stock into which such shares have been converted to date,
and 396,464 warrants and 396,464 shares of our common stock which may be issued
upon the exercise of all the warrants, pursuant to registration rights granted
to the purchasers of the Series A preferred stock and to warrants holders.
Colorado law and our charter and by-law provisions
Our Articles of Incorporation as amended contains certain provisions
permitted in the Colorado Business Corporation Act relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, including gross negligence, except in
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts of omissions which involve intentional
misconduct or a knowing violation of law. These provisions do not eliminate a
director's duty of care nor do they prevent recourse against directors through
equitable remedies such as injunctive relief. Moreover, the provisions do not
apply to claims against a director for violations of certain laws, including
federal securities laws.
Our Articles of Incorporation as amended also contains provisions to
indemnify the directors, officers, employees, or other agents to the fullest
extent permitted by the Colorado Business Corporation Act. These provisions may
have the practical effect in certain cases of eliminating the ability of our
stockholders to collect monetary damages from directors. We believe that these
provisions will assist us in attracting or retaining qualified individuals to
serve as directors.
51
<PAGE>
Transfer agent registrar
The transfer agent and registrar for our preferred stock and our common
stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite
430, Denver, CO 80209. The telephone number is (303) 282-4800. Our common stock
is traded on the over-the-counter bulletin board under the trading symbol, STHK.
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the shares covered by this Prospectus, an aggregate of
shares issuable upon the exercise of certain employee and other stock options at
price ranging from $ to $ per share and an aggregate of approximately shares
from previously issued private placements, and shares of other warrants not
included in this Registration Statement are "restricted securities", as that
term is defined under Rule 144 promulgated under the Securities Act. In
addition, 3,847,775 shares held by management, employees, and the directors may
be "control securities"' as that term is define under Rule 144. In general,
under Rule 144 as currently in effect, subject to the satisfaction of certain
other conditions of Rule 144, a person, including an affiliate of the Company
(or persons whose shares are aggregated), who has owned restricted securities of
the Company beneficially for a least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class or, if the Common Stock
is quoted on NASDAQ, the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned restricted shares of Common Stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above. As noted above shares included in this prospectus
may be publicly sold without regard to the limitations set forth in Rule 144.
See "Selling Security Holders". Market sales of a substantial number of shares
of common stock, or the availability of such shares for sale in the public
market, could adversely affect prevailing market prices of the common stock.
LEGAL MATTERS
The validity of the securities stock offered hereby is being passed upon
for us by Foreht Last Landau Miller & Katz, L.L.P., New York, New York.
EXPERTS
Our financial statements as of October 31, 1998 and 1999 and for each of
the years in the three-year period ended October 31, 1999 have been included
herein and in the Registration Statement in reliance upon the report of Kostin,
Ruffkess & Company, LLC independent certified public accountants appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE CAN YOU FIND MORE INFORMTAION ABOUT US
We have filed with the Securities and Exchange Commission in Washington,
D.C. a registration statement on Form S-1 under the Securities Act with respect
to the securities offered in this prospectus. This prospectus does not contain
all the information set forth in the registration statement and exhibits and
schedules thereto. For further information about our securities, and us we refer
you to the registration statement and to the exhibits and schedules filed with
it. Statements contained in this prospectus as to the contents of any contract
or other document referred to are not necessarily complete; we refer you to
52
<PAGE>
those copies of contracts or other documents that have been filed as exhibits to
the registration statement, and statements relating to such documents are
qualified in all respects by such reference. Anyone may inspect a copy of the
registration statement without charge at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any
portion of the registration statement by writing to the SEC's Public Reference
Room, 450 Fifth Street, N.W., Washington, D.C. 20549, and paying prescribed
fees. You may obtain Information on the operation, of the Public Reference Room
by calling the SEC at 1-800-SEC-0300. In addition, the SEC maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding companies such as ours that file electronically
with the SEC.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and therefore we file reports, proxy statements and
other information with the SEC. You can inspect and copy the reports, proxy
statements and other information that we file at the public reference facilities
maintained by the SEC at the Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You can also obtain copies of such material
from the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC also makes electronic filings publicly
available on its Web site within 24 hours of acceptance.
53
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Index to Financial Statements
Financial Statements For the Three Months Ended January 31, 2000 and 1999
Condensed consolidated balance sheets(unaudited)
as of January 31, 2000 and 1999 ................................F-2
Condensed consolidated statement of operations
(unaudited) for the three months ended
January 31, 2000 and 1999.......................................F-3
Condensed consolidated statement of cash flows
(unaudited) for the three months ended
January 31, 2000 and 1999........................................F-4
Financial Statements For the Three Years Ended October 31, 1999, 1998 and 1997
Report of Independent Auditors....................................F-5
Consolidated balance sheets as of October 31,
1999 and 1998...................................................F-6
Consolidated statement of operations for the
years ended October 31, 1999, 1998 and 1997 ...................F-7
Consolidated statement of changes in stockholders
equity for the years ended October 31, 1999,
1998, 1997 and 1996.............................................F-8
Consolidated statement of cash flow for the
years ended October 31, 1999, 1998 and 1997 ....................F-9
Notes to consolidated financial statements........................F-10
54
<PAGE>
<TABLE>
<CAPTION>
STARTECH ENVIRONMENTAL CORPORATION
BALANCE SHEET
(Unaudited)
January 31, January 31,
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,409,171 $ 539,328
Accounts Receivable 835,066 1,063,438
Inventory 24,347 330,385
Other current assets 44,146 22,869
----------- -----------
Total Current Assets 7,312,730 1,956,020
Property & Equipment 651,645 18,346
Other Assets 49,625 136,200
----------- -----------
$ 8,014,000 $ 2,110,566
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 195,574 $ 1,235,329
Notes payable - short term 0 100,000
Capital Lease-short term 8,057 0
Other accrued expenses 242,287 109,174
----------- -----------
Total Current Liabilities 445,918 1,444,503
Long-Term Liability:
Capital Lease Payable 7,718 0
Total Liabilities 453,636 0
Stockholders' equity:
Preferred stock, no par value
10,000,000 shares authorized,
668,998 shares issued and outstanding $ 5,526,530 $ 0
Common stock, no par value,
800,000,000 shares authorized;
shares issued and outstanding:
7,516,454 at January 31, 2000 and
6,845,965 at January 31, 1999 5,816,631 2,708,524
Additional paid-in capital 300 300
Accumulated deficit Net Income (loss) (3,783,097) (2,042,761)
----------- -----------
Total Stockholders' equity 7,560,364 666,063
----------- -----------
$ 8,014,000 $ 2,110,566
=========== ===========
F-2
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended Quarter Ended
January 31, 2000 January 31, 1999
---------------- ----------------
Revenue $ 598,000 $ 1,048,246
Cost of Sales 239,007 785,569
----------- -----------
Gross Profit 358,993 262,677
Operating Expenses
Selling expense 123,114 39,585
General and administrative expense 566,898 234,408
----------- -----------
Total Operating Expense 690,012 273,993
Gain(Loss) from Operations $ (331,019) $ (11,316)
Other income (expense):
Interest income 47,634 16,955
Other income 3,500 0
----------- -----------
Total other income (expense) 51,134 16,955
Income tax expense 1,750 250
----------- -----------
Net Income(Loss) $ (281,635) $ 5,389
=========== ===========
Net Gain(Loss) per share $ (0.04) $ 0.00
=========== ===========
Weighted average common
shares outstanding 7,304,058 6,857,196
=========== ===========
F-3
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
Quarter Ended Quarter Ended
January 31, 2000 January 31, 1999
---------------- ----------------
Cash flows from operating activities:
Net Income (Loss) $ (281,635) $ 5,389
Depreciation 1,226 1,226
(Increase) decrease in Accts. Rec'v (323,000) (170,965)
(Increase) decrease in Inventory (24,347) 322,070
(Increase) decrease in other current assets (35,243) (21,503)
(Increase) decrease in other assets 172,561 0
Increase (Decrease) in Accounts Payable (50,000) 200,556
Increase (Decrease) in Accrued Expense 144,178 80,174
----------- -----------
Net cash used in operating activities (396,260) 416,947
----------- -----------
Cash flows used in investing activities:
Purchase of Equipment (395,000) 0
Purchase of Furniture & Fixtures (91,088) 0
Leasehold Improvements (31,400) 0
Patents 0 (3,000)
Stock Offering 0 (31,086)
----------- -----------
Net cash used by Investing activities (517,488) (34,086)
----------- -----------
Cash flows from financing activities:
Proceeds from Common Stock Issuance 1,826,639 0
----------- -----------
Net increase in cash 912,891 382,861
Cash and cash equivalents at beginning of period 5,496,280 156,467
----------- -----------
Cash and cash equivalents at end of period $ 6,409,171 $ 539,328
=========== ===========
F-4
<PAGE>
KOSTIN, RUFFKESS & COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANTS
345 North Main Street
West Hartford, CT 06117-2521
(860) 236-1975
Toll Free: (800) 286-5726
FAX: (860) 236-1783
Internet: http://www.kostin.com
400 Bayonet Street, Suite 306
New London, CT 06320-2600
(860) 442-4373
Toll Free: (888) 666-5726
FAX: (860) 442-1124
Members of the Firm:
Jerrold M. Gold, CPA
Lawrence Marziale, CPA
Joseph W. Sparveri, Jr., CPA
Peter K. Askham, CPA
Richard V. Kretz, CPA
Edmund S. Kindelan, CPA
Michael T. Novosel, CPA
John S. Pavlik, CPA
Kimberly O. Nardone, CPA
Daniel Donofrio, CPA
Brian J. Newman, CPA
John P. Lanza, CPA
Michael D. Smith, CPA
Ronald W. Nossek, CPA
<PAGE>
To the Board of Directors
Startech Environmental Corporation
INDEPENDENT INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Startech
Environmental Corporation as of October 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended October 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Startech
Environmental Corporation as of October 31, 1999 and 1998, and the results of
its operations, changes in stockholders' equity and its cash flows for each of
the three years in the period ended October 31, 1999, in conformity with
generally accepted accounting principles.
/s/ KOSTIN, RUFFKESS & COMPANY, LLC
- -----------------------------------
KOSTIN, RUFFKESS & COMPANY, LLC
West Hartford, Connecticut
December 22, 1999
Members of:
American Institute of
Certified Public Accountants
Private Companies Practice Section
SEC Practice Section
Connecticut Society of
Certified Public Accountants
Kreston International
A worldwide network of
independent accountants
An Equal Opportunity Employer
F-5
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Balance Sheets
October 31, 1999 and 1998
1999 1998
----------- -----------
Assets
Current assets:
Cash $ 5,496,280 $ 156,468
Accounts receivable 512,066 892,473
Inventory -- 652,454
Other current assets 8,903 1,366
----------- -----------
Total current assets 6,017,249 1,702,761
Equipment, at cost, net of accumulated depreciation 135,383 19,573
Other assets 222,186 102,114
----------- -----------
$ 6,374,818 $ 1,824,448
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 245,574 $ 692,130
Capital lease - short-term 8,057 --
Note payable - short-term -- 100,000
Other accrued expenses 98,109 371,644
----------- -----------
Total current liabilities 351,740 1,163,774
Long-term liability:
Capital lease payable 7,718 --
----------- -----------
Total liabilities 359,458 1,163,774
----------- -----------
Stockholders' equity:
Preferred stock; no par value; 10,000,000 shares authorized;
696,978 shares issued and outstanding (aggregate
liquidation preference of $6,969,780) at October 31, 1999 6,384,199 --
Common stock; no par value; 800,000,000 shares authorized;
shares issued and outstanding: 6,905,257 at October 31,
1999 and 6,845,965 at October 31, 1998 2,984,219 2,708,524
Additional paid-in capital 300 300
Deficit (3,353,358) (2,048,150)
----------- -----------
Total stockholders' equity 6,015,360 660,674
----------- -----------
$ 6,374,818 $ 1,824,448
=========== ===========
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Operations
For The Years Ended October 31, 1999, 1998 and 1997
Year Ended October 31,
-----------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues $ 2,268,964 $ 1,088,782 $ 10,000
Cost of goods sold 2,138,259 446,222 --
----------- ----------- -----------
Gross profit 130,705 642,560 10,000
Selling, general and administrative
expenses 1,477,104 1,116,293 907,855
----------- ----------- -----------
Loss from operations (1,346,399) (473,733) (897,855)
----------- ----------- -----------
Other income (expense):
Interest income 101,521 23,664 29,497
Interest expense (33,450) (9,000) (9,000)
----------- ----------- -----------
Total other income 68,071 14,664 20,497
----------- ----------- -----------
Income tax expense 10,864 3,982 550
----------- ----------- -----------
Net loss $(1,289,192) $ (463,051) $ (877,908)
=========== =========== ===========
Net loss per share $ (0.19) $ (0.07) $ (0.12)
=========== =========== ===========
Average common
shares outstanding 6,875,999 6,887,736 6,695,316
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-7
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For The Years Ended October 31, 1999, 1998 and 1997
Additional
Common Preferred Paid-In
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
Balance, October 31, 1996 5,850,374 $ 653,834 -- $ -- $ 300 $ (707,191)
Shares issued for cash 820,151 1,843,206 -- -- -- --
Stock dividends issued 309,027 -- -- -- -- --
Shares issued during the year
for services rendered 39,000 103,844 -- -- -- --
Shares issued for the
purchase of inventory 45,000 97,722 -- -- -- --
Shares redeemed for
Trican note receivable (50,000) (100,000) -- -- -- --
Net loss during the year
ended October 31, 1997 -- -- -- -- -- (877,908)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1997 7,013,552 2,598,606 -- -- 300 (1,585,099)
Shares issued during the year
for services rendered 34,544 109,918 -- -- -- --
Shares returned and cancelled
as the result of a lawsuit (202,131) -- -- -- -- --
Net loss during the year
ended October 31, 1998 -- -- -- -- -- (463,051)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1998 6,845,965 2,708,524 -- -- 300 (2,048,150)
Shares issued during the year
for services rendered 45,792 226,445 -- -- --
Shares issued for cash 13,500 49,250 696,978 6,384,199 -- --
Net loss during the year
ended October 31, 1999 -- -- -- -- -- (1,289,192)
Dividends -- -- -- -- -- (16,016)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1999 6,905,257 $ 2,984,219 696,978 $ 6,384,199 $ 300 $(3,353,358)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-8
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Cash Flows
For The Years Ended October 31, 1999, 1998 and 1997
Year Ended October 31,
---------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(1,289,192) $ (463,051) $ (877,908)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expenses paid for through the
issuance of common stock 226,445 109,918 38,844
Depreciation 16,847 1,396 --
(Increase) decrease in:
Accounts receivable 380,407 (892,473) --
Prepaid expense -- 65,333 (333)
Inventory 552,454 (552,454) (2,278)
Other current assets (7,537) (1,366) 10,851
Other assets (120,072) (53,617) (48,497)
Increase (decrease) in:
Accounts payable (446,556) 624,962 39,763
Accrued expenses (289,551) 350,749 (16,367)
----------- ----------- -----------
Net cash used in operating activities (976,755) (810,603) (855,925)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of equipment (15,655) (20,969) --
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from preferred stock issuance 6,284,199 -- --
Proceeds from common stock issuance 49,250 -- 1,563,206
Proceeds from notes payable 750,000 -- --
Repayment of notes payable (750,000) -- --
Repayment of capital lease payable (1,227) -- --
----------- ----------- -----------
Net cash provided by financing activities 6,332,222 -- 1,563,206
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 5,339,812 (831,572) 707,281
Cash and cash equivalents, beginning 156,468 988,040 280,759
----------- ----------- -----------
Cash and cash equivalents, ending $ 5,496,280 $ 156,468 $ 988,040
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-9
</TABLE>
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies:
- ----------------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Startech Environmental Corporation
include the accounts of Startech Corporation, its wholly owned subsidiary. All
intercompany transactions have been eliminated in consolidation.
Company's Activities
- --------------------
The Company is an environmental technology corporation dedicated to the
development, production and marketing of low cost waste minimization, resource
recovery, and pollution prevention systems that convert waste into valuable
commodities. The Company is no longer considered to be in the development stage
as revenues from shipments and services performed have begun to be recognized in
calendar year 1998.
Basis of Presentation
- ---------------------
On November 17, 1995, Startech Environmental Corporation, formerly Kapalua
Acquisitions, Inc., acquired all the issued and outstanding shares of common
stock of Startech Corporation in exchange for 4,000,000 shares of Kapalua
Acquisitions, Inc.'s common stock. After the acquisition and exchange of stock,
the former shareholders of Startech Incorporated owned 80.5% of the common stock
of Kapalua Acquisitions, Inc. Subsequent to November 17, 1995, Kapalua
Acquisitions, Inc. filed registration statements with the Securities and
Exchange Commission to register certain securities.
On January 2, 1996, Kapalua Acquisitions, Inc. changed its name to Startech
Environmental Corporation. The financial statements of Startech Environmental
Corporation include all of the accounts of Startech Corporation. This
acquisition has been accounted for as a pooling-of-interests in the accompanying
financial statements. The fiscal year end for both companies before the
acquisition was October 31, and the financial statements for all periods
presented have been restated to reflect the combination of the two companies.
Management Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at October 31, 1999, 1998
and 1997, and revenues and expenses during the years then ended. The actual
outcome of the estimates could differ from the estimates made in the preparation
of the financial statements.
F-10
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ----------------------------------------------------
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. The primary investments
will be high quality commercial paper, U.S. Treasury Notes, and T-Bills.
Regarding supplementary cash flows information, income taxes paid were $2,577
for the year ended October 31, 1999, $3,982 for the year ended October 31, 1998
and $550 for the year ended October 31, 1997. Interest paid in 1999 was $33,450.
No interest was paid for the years ended October 31, 1998 and 1997.
The Company also had the following non-cash transactions:
<TABLE>
<CAPTION>
1999
----
Shares Amount
<S> <C> <C>
Common shares issued for services rendered in 1999 45,792 $ 226,445
Preferred stock issued to repay notes payable 10,000 100,000
Demonstration equipment transferred from inventory to equipment -- 100,000
Equipment acquired through capital lease -- 17,002
Accrued dividends on the preferred stock -- 16,016
1998
----
Shares Amount
Issued shares for services rendered in 1998 34,544 $ 109,918
Shares returned and cancelled in 1998 (202,131) --
1997
----
Shares Amount
Issued shares for services rendered in 1997 39,000 $ 103,844
Issued shares for inventory in 1997 45,000 97,722
Issued shares for which cash was received in 1996 161,000 280,000
Shares redeemed in the collection of a note receivable in 1997 50,000 100,000
</TABLE>
Inventory
- ---------
Inventory consists of work in process, and is stated at lower of cost or market.
Cost is determined by the first-in, first-out method.
F-11
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ----------------------------------------------------
Equipment
- ---------
Depreciation of equipment is provided using the straight-line method over the
estimated useful lives of the assets. Expenditures for major renewals and
betterments which extend the useful lives of the equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Other Assets
- ------------
Other assets consist of deposits on the purchase of office furniture, inventory
and the deposit on the office lease, in 1999. Other assets consist entirely of
deferred stock offering costs for 1998.
Income Taxes
- ------------
Income taxes consist of State taxes on capital. The Company has net operating
loss carry forwards of approximately $2,771,000 expiring in various years
through 2013.
Earnings (Loss) Per Share
- -------------------------
Earnings (loss) per share are based on the weighted average number of shares of
common stock outstanding during the year. The Company has 2,517,839 potential
common shares in 1999, and 758,276 potential common shares in 1998 and 1997 that
were not used in the computation of diluted earnings per share because they
would have been anti-dilutive for each of the three years ended October 31,
1999, 1998 and 1997. Subsequent to October 31, 1999, the Company had issued
569,693 additional common shares.
Off Balance Sheet Risk
- ----------------------
The Company had more than $100,000 in a single bank during the year. Amounts
over $100,000 are not insured by the Federal Deposit Insurance Corporation.
However, management does monitor the financial condition of the institution
where these funds are invested.
Note 2 - Property, Plant and Equipment:
- ---------------------------------------
Equipment is summarized by major classifications as follows:
1999 1998
------------- ------------
Computer equipment $ 23,250 $ 6,248
Demonstration equipment 114,720 14,721
Furniture and fixtures 1,653 --
Vehicles 14,002 --
------------- ------------
153,625 20,969
Less: accumulated depreciation 18,242 1,396
------------- ------------
$ 135,383 $ 19,573
============= ============
F-12
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 3 - Operating Lease:
- -------------------------
The Company leases its office under a lease agreement that expired in September
1999. The monthly rental payments were $2,109. Rental expense, including real
estate taxes for the years ended October 31, 1999, 1998 and 1997, were $28,847,
$24,531 and $23,644, respectively. On December 3, 1999, the Company entered into
a five-year lease for its new office space. There is an option for the Company
to extend the lease for a five-year term with the Landlord having the option to
cancel after two years. Annual non-cancelable rent payments for the next five
years are as follows:
October 31,
-----------
2000 $154,183
2001 168,000
2002 173,517
2003 184,633
2004 172,792
Note 4 - Note Payable:
- ----------------------
The $100,000 note payable is a demand note dated September 1, 1995, with 9%
interest payable to Mr. John Celentano. Mr. Celentano is a stockholder of the
Company and provides both sales and professional consulting services to the
Company. The note was repaid in 1999 through the issuance of 10,000 shares of
convertible preferred stock. All prior accrued interest was forgiven.
On December 29, 1998, the Company entered into a short-term loan agreement for
$750,000 with the Connecticut Development Authority (CDA). The note bore
interest at 6.55% and was due within one year or the completion of a public
offering, whichever comes first. The note was collateralized by the assets of
the Company. In addition, an officer/shareholder has personally guaranteed up to
28% of the balance and another officer/shareholder has pledged 100,000 shares of
his common stock of the Company. This note was paid off with proceeds from the
issuance of the preferred stock.
Note 5 - Stockholders' Equity:
- ------------------------------
Preferred Stock
- ---------------
During 1999 the Company issued 696,978 shares of its 8% Series A cumulative,
convertible, redeemable, preferred stock. The Company incurred commissions and
issuance costs of $585,581 in connection with issuance. The shares are
convertible into the Company's common stock, four months after the closing date,
at a rate determined by dividing the purchase price per share ($10) by eighty
percent of the market price per share of common stock from the average closing
price for the previous five trading days. However, in no event shall the
conversion price be less than $4 per share, or more than $6 per share. On
September 15, 2002, the convertible preferred stock may be redeemed at the
option of the Company for $10 per share, plus all accumulated and unpaid
dividends. If not redeemed, the shares will automatically be converted to common
shares at $5 per share, or the current market price of the common shares. The
dividends shall be paid in additional convertible preferred stock, and are
payable on the last business day of March, June, September, and December. On
September 30, 1999, the Company declared a dividend of $16,016.
F-13
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 5 - Stockholders' Equity: (Continued)
- ------------------------------
Warrants
- --------
In conjunction with the August 28, 1996, stock offering, the Company has
unregistered Warrants to purchase 744,774 shares of common stock; of which
625,417 of the Warrants were initially exercisable at a price of $4.00 per share
and were set to expire on December 31, 1998. At the discretion of the Company,
the exercise price of these Warrants was reduced to $3.50 per share and the
expiration date was extended to December 31, 1999. During 1999, 13,500 of these
Warrants were exercised. An additional 119,359 Warrants were initially
exercisable at a price of $12.00 per share, and were set to expire on June 30,
1999. At the discretion of the Company, the exercise price of these Warrants was
reduced to $9.00 per share, and the expiration date was extended to June 30,
2000. Initially, once the Warrants were exercised, the shares were restricted
for a two-year period. They are now restricted for a one year period, in
accordance with rule 144. The Company reserves the right to cancel or extend the
Warrants once the restriction period has been satisfied and the exercised period
fulfilled. The Warrants may be exercised in lots of 100 common shares or more up
to the total amount of Warrants for which each investor had originally
subscribed. In conjunction with the issuance of the preferred stock in 1999, the
Company issued warrants to purchase 589,113 shares of common stock at a price of
$15.00 per share. These Warrants will expire on August 31, 2001, provided the
average closing bid prices of the common stock for the previous thirty trading
days is $16.50 or higher. In the event the common stock is lower than $16.50 per
share, the exercise period of the Warrants will be extended until the common
stock exceeds $16.50 per share for ten consecutive trading days. At that point,
the Company can give the Warrant holders thirty days' notice that the Warrants
will expire. Should the Company choose not to cause the expiration of the
Warrants sooner, they will expire on August 31, 2004.
Note 6 - Non-qualifying Stock Option Plan:
- ------------------------------------------
In November 1995, the Company registered 2,000,000 common shares; issuable upon
exercise of stock options issued by the Company under its 1995 Non-qualifying
Stock Option Plan (the Plan) for employees, directors and other persons
associated with the Company whose services have benefited the Company.
The options must be issued within 10 years from November 20,1995. Determination
of the option price per share and exercise date is at the sole discretion of the
Compensation Committee. During the year ended October 31, 1997, the Company
issued 145,167 stock options with an additional 34,544 stock options being
issued during the year ended October 31, 1998, for services rendered. All
options were immediately exercised for one share of common stock. The exercise
price ranged from $.25 to $10.00 per share. The aggregate value of these
services is reflected as an increase in common stock. During the year ended
October 31, 1999, the Company issued 20,000 stock options, with an exercise
price of $5.00 per share. On the issuance date, the market value was the same as
the exercise price, therefore, no compensation expense was recorded.
Note 7 - Major Customer:
- ------------------------
Approximately 94 and 91 percent of revenues were derived from one major customer
in 1999 and 1998, respectively.
F-14
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 8 - Capital Lease Obligation:
- ----------------------------------
During 1999, the Company entered into a capital lease obligation for computer
equipment. The term of the lease is for 24 months, with principal and interest
due in monthly installments of $827 at 15.3%. The equipment was capitalized at
$17,002 and is being depreciated over five years. Depreciation expense for 1999
was $850 and accumulated depreciation at October 31, 1999, is $850.
Total remaining lease payments:
2000 $ 9,925
2001 8,270
-----------
18,195
Less: unamortized interest 2,420
-----------
15,775
Less: current portion 8,057
$ 7,718
===========
Note 9 - Fair Value of Financial Instruments:
- ---------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value:
Cash and other current assets are carried in the accompanying balance sheet at
cost, which is a reasonable estimate of their fair value. Accounts payable,
notes payable and accrued expenses are also carried at cost, which is a
reasonable estimate of their fair value.
Carrying Estimated
Amount Fair Value
------------- -------------
ASSETS:
Cash $ 5,496,280 $ 5,496,280
Accounts receivable 512,066 512,066
LIABILITIES:
Accounts payable 245,574 245,574
Capital lease payable 15,775 15,775
Accrued expenses 98,109 98,109
Note 10 - Commitments:
- ----------------------
The Company has committed to purchase new furniture and equipment and inventory
in the amount of $452,691. At October 31, 1999, the Company had made deposits on
these purchases in the amount of $175,061, which is included on the balance
sheet under other assets. In addition, the Company has an agreement with certain
individuals for the use of certain patents. The agreement provides for monthly
payments of $1,000 and has no expiration date.
F-15
<PAGE>
================================================================================
1,250,967 Shares of Common Stock
284,250 Shares of Series A Convertible Preferred Stock
396,464 Warrants
STARTECH
ENVIRONMENTAL CORP.
---------------
PROSPECTUS
---------------
STARTECH ENVIRONMENTAL CORPORATION
----------------
May , 2000
---------------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We and the selling stockholders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of our common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
================================================================================
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
SEC Registration Fee(degree).................................. $ 4,124.73
Accounting Fees............................................... $ 3,000.00
Legal Fees.................................................... $ 30,000.00
Printing, Engraving and Mailing............................... $ 3,000.00
Transfer agent and registrar's fees........................... $ 2,000.00
Blue Sky fees and expenses.................................... $ 2,000.00
Miscellaneous expenses........................................ $ 5,875.27
-------------
TOTAL................................................ $ 50,000.00
=============
(degree) Actual
Item 14. Indemnification of Directors and Officers
Article VII of the Company's Articles of Incorporation provides as follow:
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability to the corporation or to its
shareholders for monetary damages for (i) any breach of the directors' duty of
loyalty to the corporation or its shareholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) acts specified in Section 7 - 5-114 of the Colorado Corporation code;
or (iv) any transaction from which the director derived an improper benefit.
If the Colorado Corporation Code is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Colorado Corporation Code, as so amended.
Any repeal or modification of the foregoing provisions of this Article by
the shareholders of the Corporation shall not affect adversely any right or
protection of a director of he Corporation in respect of any acts or omissions
of such director occurring prior to the time of such repeal or modification.
In addition, by separate agreement, the Company has indemnified its
officers to the same extent as the directors are indemnified in the Articles of
Incorporation.
Insofar as indemnification arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the registrant's Amended articles of Incorporation, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
II-1
<PAGE>
Exchange Commission, such indemnification is against public policy as expressed
in the act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person in connection with the securities being registered), the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the following securities were sold or issued
by the Company without registration under the Securities Act.
In the period April 1, 1997 through June 30, 1997 the Company issued
119,359 shares of Common Stock together with 119,359 Warrants to purchase an
additional share of Common Stock in a private offering, for total proceeds of
$835,513, to 36 investors, 27 of whom were "accredited and nine of whom were
"non-accredited" investors, as those terms are defined in Regulations D under
the Act. Commissions of approximately $ $12,500 were paid in connection with
this transaction.*
In the period April thru October 20, 1999 the Company issued 696,978 shares
of Series A Cumulative Convertible Redeemable Preferred Stock at $10.00 per
share together with one common stock warrant excisable at $15.00 per share for
every two shares of preferred stock purchased, in a private offering to 55
investors, 48 of whom were "accredited" and seven of whom were "non-accredited"
investors as those terms are defined in Regulations D under the act. Commissions
of $550,725 were paid and warrants to purchase shares of common stock were
issued as additional compensation in connection with this transaction.*
The above securities were issued in reliance on the exemption from
registration under Section 4(2) as not involving any public offering. Claims of
such exemptions are based upon the following: (i) all of the purchasers in such
transactions were sophisticated investors with the requisite knowledge and
experience in financial and business matters to evaluate the merits and risk of
an investment in the Company, were able to bear the economic risk of an
investment in the Company, had access to or were furnished with the kinds of
information that registration under the Securities Act would have provided and
acquired securities for their own accounts in transactions not involving any
general solicitations or advertising, and not with a view to the distribution
thereof, and (ii) a restrictive legend was placed on each certificate evidencing
the securities; (iii) each purchaser acknowledged in writing that he knew the
securities were not registered under the Securities Act or any State securities
laws, and are Restricted Securities as that term is defined in Rule 144 under
the Securities Act, that the securities may not be offered for sale, sold or
otherwise transferred within the United States and except pursuant to an
effective Registration Statement under the Securities Act and any applicable
State securities laws, or pursuant to any exemption from registration under the
Securities Act, the availability of which is to be established to the
satisfaction of the Company.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
16(a) Exhibits
(2)(a) Agreement and Plan of Reorganization between Company and
Kapalua Acquisitions, Inc. dated November 17, 1995*
(3)(a) Articles of Incorporation of the Company**
(3)(a)i Articles of Amendment to the Articles of Incorporation
(3)(b) By-Laws of the Company**
(3)(c) Amendment to by-Laws of the Company dated January 24, 2000
(4)(a) Form of Common Stock Certificate
(4)(b) Form of Convertible Preferred Stock Certificate
(4)(c) Form of Warrant Agreement
(5)(a) Opinion of Foreht Last Landau Miller & Katz, LLP with respect to
the legality of the securities being registered***
(10)(a) 2000 Stock Option Plan
(16)(a) Letter, Re: Changes in Certifying Accountant*****
(24)(a) Consent of Kostin, Ruffkess and Company, LLC
(24)(b) Consent of Counsel (to be included in Exhibit 5 (a)
16(b) Financial Statement Schedules
Unless otherwise noted, all of the foregoing exhibits are being filed herewith
* Incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K dated November 17, 1995, File No. 0-25312
** Incorporated by reference to Registration Statement on Form 10,
File No. 0-25312 filed on February 19, 1995
*** To be filed by amendment
**** Incorporated by reference to Registration Statement on Form S-8,
File No. 33-99790, filed on November 20, 1995.
***** Incorporated by reference to the Company's Current Report on
Form 8-K dated January 30, 1996 File No. 0-25312
II-3
<PAGE>
Item 28. Undertakings
The Undersigned Registrant hereby undertakes:
(1) To file, during any the undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement
(2) That, for the purpose of determining any liability under the Securities Act
of 1933 each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities being offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering,
(4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the registrant's, Amended Articles of Incorporation by
- -Laws, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnifications against public policy
as expressed in the act and its therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person in connection with the securities being registered), the
Registrant will, unless in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilton, Connecticut on
April 27, 2000.
STARTECH ENVIRONMENTAL CORPORATION
By: /S/ JOSEPH F. LONGO
------------------------------------------------
Joseph F. Longo
President, Chief Executive Officer,
Chief Financial Officer, and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/S/ Joseph F. Longo President, Treasurer, Chief Executive
- ------------------------------ Officer, Chief Financial Officer, April 27, 2000
and Director
/S/ Joseph S. Klimek Executive Vice President and Chief
- -------------------------------- Operating Officer April 27, 2000
/S/ Kevin M. Black Sr. Vice President, General Counsel,
- -------------------------------- Secretary and Director April 27, 2000
/S/ John R. Celentano Director April 27, 2000
- --------------------------------
/S/ Peter J. Scanlon Vice President and Director of
- -------------------------------- Finance and Administrative Services,
and Principal Accounting Officer April 27, 2000
55
</TABLE>
Secretary of the State
Corporations Section
1560 Broadway - Suite 200
Denver, Colorado 80202
Fax (303) 894-2242
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
STOCK CHANGE
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendments to its
Articles of Incorporation:
FIRST: The name of the corporation is Startech Environmental Corporation.
SECOND: the following amendment to the Articles of Incorporation was adopted on
August__ 1999, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
No shares have been issued or Directors Elected - Action by Incorporators.
- ----
No shares have been issued but Directors Elected - Action by Directors.
- ----
X Such amendment was adopted by the board of directors where shares have been
- ---- issued and shareholder action was not required.
Such amendment was adopted by a vote of the shareholders. The number of
- ---- shares voted for the amendment was sufficient for approval.
THIRD: The Articles of Incorporation are hereby amended by the addition of
paragraph seven to Article IV thereof which contains a provision stating the
number, designation, relative rights, preferences, and limitations of a series
of 2,500,000 shares of Series A Cumulative Convertible Redeemable Preferred
Stock, no par value per share, under authority contained in the Articles of
Incorporation.
7. The Articles of Incorporation are hereby amended by the addition of
paragraph seven to Article IV thereof which contains a provision stating
the number, designation, relative rights, preferences, and limitations of a
series of 2,500,000 shares of Series A Cumulative Convertible Redeemable
Preferred Stock, no par value per share, under authority contained in the
Articles of Incorporation, as follows:
(a) Designation. The Series A Cumulative Convertible Redeemable Preferred Stock
no par value per share, is hereinafter called the "Convertible Preferred
Stock". The shares of the Preferred Stock shall be fully paid and
non-accessible.
<PAGE>
(b) Dividends. The holders of the Convertible Preferred Stock will be entitled
to receive, if, when and as declared by the Board of Directors out of funds
legally available therefore, cumulative dividends at the rate of 8% per
share per annum, payable in additional shares of Convertible Preferred
Stock quarterly on the last business day of April, July, October and
January of each year, (each a "Dividend Payment Date"), to the holders of
record as of a date, not more than 15 days prior to the Dividend Payment
Date, as may be fixed by the Board of Directors. Dividends accrue from the
fist day of the year in which such dividend may be payable, except with
respect to the first annual dividend which shall accrue from the date of
issuance of the Convertible Preferred Stock.
Dividends on the Convertible Preferred Stock will accrue whether or not the
Company has earnings, whether or not there are funds legally available for
the payment of such dividends and whether or not such dividends are
declared. Dividends accumulate to the extent they are not paid on the
Dividend Payment Date to which they relate. Accumulated unpaid dividends
will not bear interest.
No Dividends may be paid on any shares of capital stock ranking junior to
the Convertible Preferred Stock (including the Common Stock) unless and
until all accumulated and unpaid dividends on the Convertible Preferred
Stock have been declared and paid in full.
(c) Conversion. At the election of the holder thereof, each share of
Convertible Preferred Stock will be convertible into Common Stock at any
time on or after four months from the date of issuance and prior to
redemption at a conversion rate for each share of Convertible Preferred
Stock determined by dividing the Purchase Price per share ($10.00) by 80%
of the Market Price per share of Common Stock as of the First Closing Date,
subject to a minimum Conversion Price of $4.00 per share and a maximum
Conversion Price of $6.00 per share. The conversion rate will be adjusted
on the same basis as of the effective date of the first registration
statement filed with the Commission relating to the sale of the shares of
Common Stock issued upon such conversion (the "Conversion Price"). The
Conversion Price is subject to adjustment from time to time in the event of
(i) the issuance of Common Stock as a dividend or distribution on any class
of capitol stock of the Company: (ii) the combination, subdivision or
reclassification of the Common Stock; (iii) the distribution to all holders
of Common Stock of evidences of the Company's indebtedness or assets
(including securities but excluding cash dividends or distributions paid
out of earned surplus); (iv) the failure of the Company to pay a dividend
on the Convertible Preferred Stock within 30 days of a Dividend Payment
Date, which will result in each instance in a reduction of $.25 per share
in the Conversion price but not below $3.oo per share; or (v) the sale of
Common Stock at a price, or the issuance of options, warrants or
convertible securities with an exercise or conversion price per share, less
than the lower of the then current Conversion Price or the then current
market price of the Common Stock (except upon exercise of options
outstanding on the date of this prospectus and options thereafter granted
to employees, officers, directors, stockholders or consultants pursuant to
2
<PAGE>
existing stock option plans). No adjustment in the Conversion Price will be
required until cumulative adjustments require an adjustment of at least 5%
in the Conversion Price. No fractional shares will be issued upon
conversion, but any fractions will be adjusted in cash on the basis of the
then current fair market value of the Common Stock. Payment of accumulated
and unpaid dividends will be made upon conversion to the extent of legally
available funds. The right to convert the Convertible Preferred Stock
terminates on the date fixed for redemption.
In case of any consolidation or merger to which the Company is a party
(other than consolidation or merger in which the Company is the surviving
party and the Common Stock is not changed or exchanged), or in case of any
sale or conveyance of all or substantially all the property and assets of
the Company, each share of Convertible Preferred Stock then outstanding
will be convertible from and after such merger, consolidation or sale or
conveyance of property and assets into the kind and amount of shares of
stock or other securities and property receivable as a result of such
consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock into which such share of Convertible Preferred Stock
could have been converted immediately prior to such merger, consolidation,
sale or conveyance.
(d) Optional Cash Redemption. The Company may, at its option, redeem the
Convertible Preferred Stock, in whole but not in part, upon 30 days prior
written notice at any time after twelve months from the date of issuance at
a redemption price of $12.00 per share, plus accumulated and unpaid
dividends, if the Market Price of the Common Stock (as defined below)
equals or exceeds $13.00 per share for at least 20 consecutive trading days
ending not more than 10 trading days prior to the date of the notice of
redemption. The term "Market Price" means the closing bid price as reported
by the principal securities exchange on which the Common Stock is listed or
admitted to trading or by Nasdaq, or, if not traded thereon, the high bid
price as reported by Nasdaq, or, if not quoted thereon, the high bid price
on eh OTC Bulletin Board or in the National Quotation Bureau sheet listing
for the Common Stock, or, if not listed therein, as determined in good
faith by the Board of Directors.
(e) Mandatory Redemption or Conversion. In addition, at the expiration of three
years from the date of issuance, the Convertible Preferred Stock will
either be redeemed in whole but not in part at $10.00 per share plus all
accumulated and unpaid dividends thereon, or automatically converted to
Common Stock at a mandatory conversion price which is the lesser of $5.00
per share of common stock or the then current Market Price of the Common
Stock.
(f) Optional Cash Redemption. Notice of redemption must be mailed to each
holder of Convertible Preferred Stock to be redeemed at his lst address as
it appears upon the company's registry books at least 30 days prior to the
date fixed for redemption (the "Redemption Date"). On and after the
Redemption Date, dividends will cease to accumulate on shares of
Convertible Preferred Stock called for redemption.
3
<PAGE>
On or after the Redemption Date, holders of Convertible Preferred Stock
which have been redeemed shall surrender their certificates representing
such shares to the Company at its principal place of business or as
otherwise specified in the notice of redemption or exchange and thereupon
either (i) the redemption price of such shares shall be payable to the
order of, or (ii) the shares of Common Stock shall be issued to, the person
whose name appears on such certificate or certificates as the owner
thereof; provided that a holder of Convertible Preferred Stock may elect to
cover such shares into Common Stock at any time prior to the Redemption
Date.
From and after the Redemption Date, all rights of the holders of redeemed
shares shall cease with respect to such shares and such shares shall not
thereafter be transferred on the books of the Company or be deemed to be
outstanding for any purpose whatsoever.
(g) Voting Rights. The holders of Convertible Preferred Stock are not entitled
to vote, except as set forth below and as provided by applicable law. On
matters subject to a vote by holders of Convertible Preferred Stock, the
holders are entitled to one vote per share.
The affirmative vote of at least a majority of the shares of Convertible
Preferred Stock, voting as a class, shall be required to authorize, effect
or validate the creation and issuance of any class or series of stock
ranking superior to or on parity with the Convertible Preferred Stock with
respect to the declaration and payment of dividends or distribution of
assets on liquidation, dissolution or winding-up. In the event that the
Company has the right to redeem the Convertible Preferred Stock, no such
vote is required if, prior to the time such class is issued, provision is
made for the redemption of all shares of Convertible Preferred Stock and
such Convertible Preferred Stock is redeemed on or prior to the issuance of
such class.
In the event that the Company fails to pay any dividends for four
consecutive quarterly dividend payment periods, the holders of the
Convertible Preferred Stock, voting separately as a class, shall be
entitled to elect one director. Such right will be terminated as of the
next annual meeting to stockholders of the Company following payment of all
accrued dividends.
(h) Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, before any payment or
distribution of the assets of the company (whether capital or surplus), or
the proceeds thereof, may be made or set apart for the holders of Common or
any stock ranking Junior to Convertible Preferred Stock, the holders of the
Convertible Preferred Stock will be entitled to receive out of the assets
of the Company available for distribution to stockholders, a liquidating
distribution equal to the redemption price per share, plus any accumulated
and unpaid dividends. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets of the Company are
insufficient to make the full payment per share, plus all accumulated and
4
<PAGE>
unpaid dividends on the Convertible Preferred Stock and similar payments on
any other class of stock ranking on a parity with the Convertible Preferred
Stock upon liquidation, then the holders of Convertible Preferred Stock
and such other shares will share ratably in any such distribution of the
Company's assets in proportion to the full respective distributive amounts
to which they are entitled.
A consolidation or merger of the Company with or into another corporation
or sale or conveyance of all or substantially all the property and assets
of the Company will not be deemed to be a liquidation, dissolution or
winding-up, voluntary or involuntary, of the Company for purposes of the
foregoing. See "Conversion."
For a period of three years from the First Closing Date (June 4, 1999) the
Company must notify the holders of Convertible Preferred Stock ("Holders")
of any subsequent financing needs and the terms on which the Company is
willing to enter into any such transaction. Such Holders have thirty days
to express their intent to participate and if so, to what extent or not to
participate in such transaction. In the event that a Holder declines to
participate in such transaction, the Company is free for a period of one
year after the date of its notice to the Holders to consummate such
transaction or transaction(s) with third parties under terms no more
favorable to such third parties as the Company had proposed to the Holders.
The undersigned corporation has caused these Articles of Amendment to the
Articles of Incorporation to be signed by a duly authorized officer this 27th
day of August, 1999.
STARTECH ENVIRONMENTAL CORPORATION
By: /S/ Joseph F. Longo
-----------------------
Joseph F. Longo, President
5
AMENDMENT TO BYLAWS OF STARTECH ENVIRONMENTAL CORP.
At a duly called meeting of the Board of Directors held on January 24,
1999, it was resolved that ARTICLE IV, Section 4.1 of the Bylaws of Startech
Environmental Corp. shall be changed to reflect that Directors shall be elected
at the annual meeting of shareholders and shall be required to be elected by a
plurality of the vote at such meeting.
The above amendment was formally approved and adopted in accordance with
the Bylaws of the Company.
/s/ Kevin M. Black
------------------------------------
Kevin M. Black, Secretary
STARTECH
ENVIRONMENTAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
NUMBER SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 855906 10 3
This Certifies That
Is The Owner Of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, NO PAR VALUE OF
Startech Environmental Corporation
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to the Articles of Incorporation, to all of which the holder by
acceptance hereby assents.
This Certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar.
In Witness Whereof, the Corporation has caused this Certificate to be
signed in facsimile by its duly authorized officers and the facsimile seal of
the Corporation to be duly affixed hereto.
Dated:
/s/ Kevin M. Black /s/ Joseph F. Longo
- ------------------ -------------------
Kevin M. Black, Secretary Joseph F. Longo, President
Startech Environmental Corporation
Corporate Seal
Colorado
Countersigned:
Corporate Stock Transfer, Inc.
370 - 17th Street, Suite 2350, Denver, Colorado 80202
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Corporate Stock Transfer, Inc.
Transfer Fee: As Required
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ....Custodian for....
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT Ten - as joint tenants with right of Act of.......................
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received.........................hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------
------------------------------
Please print or type name and address of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated...................19.................
SIGNATURE GUARANTEED: X______________________________
X______________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan
Association and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM.
STARTECH
ENVIRONMENTAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
NUMBER SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies That
is the holder of
fully paid and non-assessable shares of Series A Cumulative Convertible
Redeemable Preferred Stock, no par value of
Startech Environmental Corporation
(herein called the "Corporation"), transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to the Articles of Incorporation, to all
of which the holder by acceptance hereby assents.
The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, qualification, limitations or
restrictions of such preferences and/or right.
Witness the seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
/s/ Kevin M. Black /s/ Joseph F. Longo
- ------------------ -------------------
Kevin M. Black, Secretary Joseph F. Longo, President
Startech Environmental Corporation
Corporate Seal
Colorado
Countersigned:
Corporate Stock Transfer, Inc.
370 - 17th Street, Suite 2350, Denver, Colorado 80202
BY___________________________________
Transfer Agent Authorized Signature
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Corporate Stock Transfer, Inc.
Transfer Fee: As Required
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ....Custodian for....
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT Ten - as joint tenants with right of Act of.......................
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received.........................hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------
------------------------------
Please print or type name and address of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the Series A Cumulative Convertible Redeemable Preferred Stock represented by
the within Certificate and do hereby irrevocably constitute and appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated...................19.................
SIGNATURE GUARANTEED: X______________________________
X______________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan
Association and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM.
WARRANT AGREEMENT
-----------------
To Purchase Shares of the Common Stock of
STARTECH Environmental Corporation,
The Holder shall have the right to receive one warrant for every two shares of
Series A 8.00% Convertible Preferred shares purchased by the holder in
conjunction with Company's Private Placement Memorandum issued to shareholder.
THIS CERTIFIES THAT_________________________________________________ Or its
successors or assigns (the "Warrant holder" or "Holder"), is entitled, upon the
due exercise hereof, and subject to the terms and conditions hereof, at any time
after the date hereof, and subject to the provisions of paragraph 2 below,
before the close of business on August 31, 2001 ("Expiration Date"), to purchase
from STARTECH Environmental Corporation (the "Company") all or any part of fully
paid and nonassessable shares of Common Stock, no par value (the "Common Stock")
of the Company, upon surrender hereof, with the exercise form and warrant
certificate annexed hereto duly filled out, at the office of the Company or any
transfer agent for the Company's Common Stock, and upon simultaneous payment
therefore in cash or by certified or official bank check, payable to the order
of the Company in New York Clearing House funds, at the price of $15.00 per
share (the "Exercise Price"), if exercised on or before August 31, 2001.
Provided the average of the closing bid prices for the Common Stock for the
previous 30 trading days prior thereto is not at least $16.50 per share, then
the Warrants will not then expire: provided further, however, that any time
thereafter that the closing bid prices for the Common Stock for ten consecutive
trading days exceeds $16.50 per share, Startech will have the option, with
notice furnished by Startech on any such date, to cause, 30 days thereafter the
expiration of the Warrants. However, under no circumstances will the Warrants be
extended past August 31, 2004, at which time regardless of the stock price the
Warrants will expire.
1. No resale of the Warrants or of any Underlying Stock will be made unless
such resale is registered pursuant to a Registration Statement filled by the
Company with the Securities and Exchange Commission (the "Commission") or exempt
from registration under the Securities Act of 1933, as amended (the "Act"). By
acceptance of this Certificate, the Warrant Holder agrees, for himself and all
subsequent holders, that prior to making any disposition of any Warrants or of
any Common Stock purchasable upon the exercise thereof ("Underlying Stock"), the
Holder of the Warrants evidenced by this Certificate shall give written notice
to the Company describing briefly the proposed disposition; and no such
disposition shall be made unless and until ( i ) the Company has notified such
holder that, in the opinion of counsel satisfactory to it, no Registration
Statement and no other action under the Act is required with respect to such
disposition (which opinion may be conditioned upon the transferee's assuming the
Warrant holder's obligation hereunder); or (ii) a Registration Statement has
been filed by the Company and declared effective by the Commission or other such
action has been taken.
2. Unless this Warrant and payment are tendered as herein provided before
the close of business on the Expiration Date, this Warrant will become wholly
void and all rights evidenced hereby will terminate.
3. Subsequent to the provisions of paragraph 1 above, this Warrant may be
exchanged for a number of shares of Common Stock of the Company as are
purchasable upon the exercise of this Warrant, upon surrender hereof at the
office of the Company or any transfer agent of the Company's Common Stock and
written instructions as to the exchange.
If this Warrant is exercised for less than all the shares purchasable upon
the exercise hereof, the Holder shall be entitled to receive Warrants of the
same tenor as this Warrant for the purchase in the aggregate of the number of
shares in respect of which this Warrant shall not have been exercised.
<PAGE>
4. The Exercise price per Share and the number of shares of Common Stock of
the Company issuable pursuant to such exercise is subject to adjustment as
follows:
(a) In case the Company shall at any time declare a dividend on the
outstanding shares of Common Stock in shares of its Common Stock, then the
Exercise Price, and the number and kind of shares receivable upon exercise, in
effect at the time of such dividend shall be proportionately adjusted so that
the holder of any Warrant exercised after such time shall be entitled to receive
the aggregate number and kind of shares which if such Warrant had been exercised
immediately prior to such time, he or she would have owned upon such exercise
and been entitled to receive by virtue of such dividend.
(b) In any case the Company shall at any time subdivide or combine the
outstanding shares of the Common Stock, the share exercise price initial or
adjusted, in effect immediately prior to such subdivision or combination shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
(c) In case of any capital reorganization, sale of substantially all the
assets of the Company, or any reclassification of the shares of Common Stock of
the Company, or in case of any consolidation with or merger of the Company into
or with another corporation, then as a part of such reorganization sale
reclassification, consolidation or merger, as the case may be, provision shall
be made so that the registered owner of the Warrants evidenced hereby shall have
the right thereafter to receive upon the exercise thereof the kind and amount of
shares of stock or other securities or property which he would have been
entitled to receive. If immediately prior to such reorganization,
reclassification, consolidation or merger, he had held the number of shares of
Common stock which were then issuable upon the exercise of the Warrants
evidenced hereby, to the end that the provisions set forth (including provisions
with respect to adjustments of the Exercise Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of such Warrants.
(d) If the Company at any time makes any spin-off, split-up, split-off or
distribution of assets upon or with respect to its Common Stock, as a
liquidating or partial liquidating dividend, spin-off, or by way of return of
capital, or other than as dividend payable out of earnings or any surplus
legally available for dividends under the laws of the State of Colorado, the
holder of each Warrant then outstanding shall, upon the exercise of the Warrant,
receive, in addition to the shares of Common Stock then issuable on exercise of
the Warrant, the amount of such assets (or, at the option of the Company, a sum
equal to the value thereof at the time of the distributions) which would have
been payable to such holder had he or she exercised the Warrant immediately
prior to the record date for such distribution.
(e) No adjustment of the Exercise Price per Share shall be made if the
amount of such adjustment shall be less than $.05 per share. When any adjustment
is required to be made in the Exercise Price Per Share, the number of shares of
Common Stock issuable shall be determined as provided for in paragraph (f)
hereof. No fractional shares of Common Stock shall be issued upon the exercise
of Warrants evidenced hereby, but in lieu thereof the Company shall pay to the
order of the holder of such Warrants an amount in cash equal to the same
fraction of the Exercise Price of one share of Common Stock on the date of
exercise.
(f) Whenever the Exercise price Per Share is adjusted as provided above,
the number of shares of Common Stock Shares purchasable upon exercise of this
Warrant immediately prior to such adjustment shall be increased, effective
simultaneously with such adjustment, by a number of shares of Common Stock
computed by multiplying such number of shares of Common Stock by a fraction, the
numerator of which is the Exercise Price per Share in effect immediately prior
to such adjustment and the denominator of which is the Exercise Price per Share
in effect upon such adjustment, and the number of shares of Common Stock arrived
at by making said computation shall be added to the number of shares of Common
Stock issuable upon exercise of the Warrant immediately prior to such
<PAGE>
adjustment. The total number of shares arrived at by making the computation
provided for in the immediately preceding sentence shall thereupon be the number
of shares of Common Stock issuable upon exercise Price Per Share, initial or
adjusted, the Company shall forthwith determine the new Exercise Price Per
Share, and (a) prepare a statement describing in reasonable detail the method
used in arriving at the new Exercise price per Share; and (b) cause a copy of
such statement to be mailed to the registered owner of the Warrants evidenced
hereby as of a date within twenty (20) days after the date when the circumstance
giving rise to the adjustments occurred.
5. As soon as practicable after the exercise hereof, the company shall
deliver a certificate or certificates for the number of full shares of Common
Stock issuable upon such exercise, all of which shall be fully paid and
nonassessable, to the person or persons entitled to receive the same provided
No sale, offer to sell or transfer of these Shares or of this Certificate,
or of any shares or other securities issued in exchange for or in respect
of such shares, shall be made unless a Registration Statement under the
Securities Act of 1933, as amended, with respect to such shares, is in
effect or an exemption from the registration requirements of such Act is
applicable to such shares.
Dated: ________________1999/2000 STARTECH Environmental Corp.
By: ________________________________
ATTEST:_________________________
<PAGE>
EXERCISE FORM
The undersigned irrevocably exercises this Warrant to the extent of
____________shares of the Common Stock of STARTECH Environment Corp., called for
hereby, and hereby makes payment thereof, all at the price and on the terms and
conditions specified herein.
________________________________
Signature
________________________________
Name
________________________________
Street/Mailing Address
________________________________
City State Zip
________________________________
Date
STARTECH ENVIRONMENTAL CORPORATION
2000 STOCK OPTION PLAN
Section 1. Purpose.
- ------------------
The purpose of the Startech Environmental Corporation 2000 Stock Option
Plan (the "Plan") is to advance the interests of the Startech Environmental
Corporation (the "Company"), its Affiliated Companies (as defined in Section 2)
and all its shareholders by encouraging and enabling the acquisition of a
financial interest in the Company by officers, other key employees and
consultants of the Company or its Affiliated Companies. In addition, the Plan is
intended to aid the Company and its Affiliated Companies to compete with other
companies offering similar plans in attracting and retaining key employees, to
stimulate the efforts of such employees and to strengthen their desire to remain
in the employ of the Company and its Affiliated Companies.
Section 2. Definitions.
- -----------------------
"Common Stock" means Startech Environmental Corporation Common Stock, no
par value per share.
"Affiliated Company" or "Affiliated Companies" means corporation(s) or
other business organization(s) in which the Company owns, directly or
indirectly, 20% or more of the voting stock or capital at the relevant time.
"Business Day" means a day on which the NASDAQ National Market is open for
securities trading.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A under the Securities Exchange Act of 1934 (" 1934 Act") as in
effect on January 1, 2000, provided that such a change in control shall be
deemed to have occurred at such time as (i) any "person" (as that term is used
in Sections 13(d) and 14(d)(2) of the 1934 Act), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act as in effect on January 1,
2000) directly or indirectly, of securities representing 20% or more of the
combined voting power for election of directors of the then outstanding
securities of the Company or any successor of the Company; (ii) during any
period of two (2) consecutive years or less, individuals who at the beginning of
such period constituted the Board of Directors of the Company cease, for any
reason, to constitute at least a majority of the Board of Directors, unless the
election or nomination for election of each new director was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of the period; (iii) the shareholders of the Company approve
any merger or consolidation as a result of which the Startech Environmental
Corporation Common Stock (as defined below) shall be changed, converted or
exchanged (other than a merger with a wholly owned subsidiary of the Company) or
any liquidation of the Company or any sale or other disposition of 50% or more
of the assets or earning power of the Company; or (iv) the shareholders of the
Company approve any merger or consolidation to which the Company is a party as a
result of which the persons who were shareholders of the Company immediately
prior to the effective date of the merger or consolidation shall have beneficial
ownership of less than 50% of the combined voting power for election of
directors of the surviving corporation following the effective date of such
merger or consolidation; provided, however, that no Change in Control shall be
deemed to have occurred if, prior to such times as a Change in Control would
otherwise be deemed to have occurred, the Board of Directors determines
otherwise.
<PAGE>
"Committee" means a committee appointed by the Board of Directors in
accordance with the Company's By-Laws from among its members. Unless and until
its members are not qualified to serve on the Committee pursuant to the
provisions of the Plan, the Compensation Committee of the Board shall function
as the Committee. Eligibility requirements for members of the Committee shall
comply with Rule 16b-3 under the 1934 Act, or any successor rule or regulation.
"Disabled" or "Disability" means the optionee meets the definition of
"disabled" under Section 22(e) of the Internal Revenue Code of 1986, as,
amended.
"ISO means an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code of 1986, as
amended.
"Majority-Owned Affiliated Company" means a Affiliated Company in which the
Company owns, directly or indirectly, 50% or more of the of the voting stock or
capital on the date an Option is granted.
"NSO" means a non-statutory stock option that does not constitute an ISO.
"Options" means ISOs and NSOs granted under this Plan.
"Retire" means to enter Retirement.
"Retirement" means an employee's termination of employment by reason of
retirement.
Section 3. Options.
- -------------------
The Company may grant ISOs and NSOs to those persons meeting the
eligibility requirements in Section 6.
Section 4. Administration.
- --------------------------
The Plan shall be administered by the Committee. No person, other than
members of the Committee, shall have any discretion concerning decisions
regarding the Plan. The Committee shall determine the key employees and
consultants of the Company and its Affiliated Companies (including officers,
whether or not they are directors) to whom, and the time or times at which,
Options will be granted; the number of shares to be subject to each Option; the
duration of each Option; the time or times within which the Option may be
exercised; the cancellation of the Option (with the consent of the holder
thereof); and the other conditions of the grant of the Option, at grant or while
outstanding, pursuant to the terms of the Plan. The provisions and conditions of
the Options need not be the same with respect to each optionee or with respect
to each Option.
The Committee may, subject to the provisions of the Plan, establish such
rules and regulations as it deems necessary or advisable for the proper
administration of the Plan, and may make determinations and may take such other
action in connection with or in relation to the Plan as it deems necessary or
advisable. Each determination or other action made or taken pursuant to the
Plan, including interpretation of the Plan and the specific conditions and
provisions of the Options granted hereunder by the Committee, shall be final and
conclusive for all purposes and upon all persons including, but without
limitation, the Company, its Affiliated Companies, the Committee, the Board,
officers and the affected employees and consultants of the Company and/or its
Affiliated Companies, optionees and the respective successors in interest of any
of the foregoing.
2
<PAGE>
Section 5. Stock.
- ------------------
The Common Stock to be issued, transferred and/or sold under the Plan shall
be made available from authorized and unissued Common Stock or from the
Company's treasury shares. The total number of shares of Common Stock that may
be issued or transferred under the Plan pursuant to Options granted thereunder
may not exceed 1,000,000 shares (subject to adjustment as described below). Such
number of shares shall be subject to adjustment in accordance with Section 11.
Common Stock subject to any unexercised portion of an Option which expires or is
canceled, surrendered or terminated for any reason may again be subject to
Options granted under the Plan.
Section 6. Eligibility.
- -----------------------
Options may be granted to employees and consultants of the Company and its
Majority-Owned Affiliated Companies. The Committee may grant Options to
particular employee(s) or consultants of an Affiliated Company who within the
past eighteen (18) months were employee(s) or consultants of the Company or a
Majority-Owned Affiliated Company, and in instances to be determined by the
Committee in its sole discretion, employees or consultants of an Affiliated
Company who have not been employees or consultants of the Company or a
Majority-Owned Affiliated Company within the past eighteen (18) months.
Section 7. Awards of Options.
- -----------------------------
Except as otherwise specifically provided in this Plan, Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) Option Price. The option price shall be 100% of the fair market
value of the Common Stock on the date of grant. The fair market value of a share
of Common Stock shall be the closing market price at which a share of Common
Stock shall have been sold on the day preceding the date of grant, or on the
next preceding trading day if such date was not a trading date, as reported on
the NASDAQ National Market Consolidated Trading Listing or such other market as
the Company's Common Stock is regularly traded.
(b) Payment. The option price shall be paid in full at the time of
exercise, except as provided in the next sentence. If an exercise is executed by
using the cashless method, the exercise price shall be paid in full no later
than the close of business on the fourth Business Day following the exercise.
Payment may be in cash or, upon conditions established by the Committee, by
delivery of shares of Common Stock owned for at least six (6) months by the
optionee.
The optionee, if a U.S. taxpayer, may elect to satisfy Federal, state and
local income tax liabilities due by reason of the exercise by the withholding of
shares of Common Stock.
If shares are delivered to pay the option price or if shares are withheld
for U.S. taxpayers to satisfy such tax liabilities, the value of the shares
delivered or withheld shall be computed on the basis of the reported market
price at which a share of Common Stock most recently traded prior to the time
the exercise order was processed. Such price will be determined by reference to
the OTC Bulletin Board, the NASDAQ National Market Consolidated Trading or to
such other market on which the Company's Common Stock is regularly traded.
(c) Exercise May Be Delayed Until Withholding is Satisfied. The
Company may refuse to exercise an Option if the optionee has not made
arrangements satisfactory to the Company to satisfy the tax withholding which
the Company determines is necessary to comply with applicable requirements.
(d) Duration of Options. The duration of Options shall be determined
by the Committee, but in no event shall the duration of an ISO exceed ten (10)
years from the date of its grant or the duration of an NSO exceed fifteen (15)
years from the date of its grant.
(e) Other Terms and Conditions. Options may contain such other
provisions, not inconsistent with the provisions of the Plan, as the Committee
shall determine appropriate from time to time, including vesting provisions;
provided, however, that, except in the event of a Change in Control or the
Disability or death of the optionee, no ISO Option shall be exercisable in whole
or in part for a period of twelve (12) months from the date on which the Option
is granted. The grant of an Option to any employee shall not affect in any way
the right of the Company and any Affiliated Company to terminate the employment
of the holder thereof.
3
<PAGE>
(f) ISOs. The Committee, with respect to each grant of an Option to an
optionee, shall determine whether such Option shall be an ISO, and, upon
determining that an Option shall be an ISO, shall designate it as such in the
written instrument evidencing such Option. If the written instrument evidencing
an Option does not contain a designation that it is an ISO, it shall not be an
ISO.
The aggregate fair market value (determined in each instance on the date on
which an ISO is granted) of the Common Stock with respect to which ISOs are
first exercisable by any optionee in any calendar year shall not exceed $100,000
for such optionee. If any subsidiary or Majority-Owned Affiliated Company of the
Company shall adopt a stock option plan under which options constituting ISOs
may be granted, the fair market value of the stock on which any such incentive
stock options are granted and the times at which such incentive stock options
will first become exercisable shall be taken into account in determining the
maximum amount of ISOs which may be granted to the optionee under this Plan in
any calendar year.
(g) 10% Shareholder. If any employee to whom an ISO is to be granted
under the Plan is, at the time of the grant of such option, the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (after taking into account the attribution of stock
ownership rules of Section 425(d) of the Code), then the following special
provisions shall be applicable to the ISO granted to such individual:
(i) The purchase price per share of the Common Stock subject to
such ISO shall not be less than 110% of the fair market value of one share of
Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from
the date of grant.
Section 8. Nontransferability of Option.
- ----------------------------------------
No ISO granted pursuant to the Plan shall be transferable otherwise than by
will or by the laws of descent and distribution. During the lifetime of an
optionee, the ISO shall be exercisable only by the optionee personally or by the
Optionee's legal representative. Any NSO granted pursuant to the Plan shall be
transferrable to any member of such Optionee's "immediate family" (as such term
is defined in Rule 16a-1(c) promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, or any
successor rule or regulation) or to a trust or family partnership whose
beneficiaries are members of such optionee's "immediate family" or to a
qualified charitable organization to which contributions are deductible for tax
purpose pursuant to Section 170 of the Internal Revenue Code of 1986, as
amended.
4
<PAGE>
Section 9. Effect of Termination of Employment, Other Changes of Employment or
Employer Status, Death, Retirement or a Change in Control.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Event Impact on Vesting Impact on Exercise Period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employment terminates upon Disability. All options become immediately Option expiration date provided in
vested. grant continues to apply.
- --------------------------------------------------------------------------------------------------------------------
Employment terminates upon Retirement. Option held at least 12 full calendar Option expiration date provided in
months become immediately vested; grant continues to apply.
options held less than 12 full
calendar months are forfeited.
- --------------------------------------------------------------------------------------------------------------------
Employment terminates upon death. All options become immediately Right of executor, administrator of
vested. estate (or other transferee
permitted by Section 8) terminates on
earlier of (1) 12 months from the
date of death, or (2) the expiration
date provided in the Option.
- --------------------------------------------------------------------------------------------------------------------
Employment terminates upon Change in All options become immediately Option expiration date provided in
Control. vested. grant continues to apply.
- --------------------------------------------------------------------------------------------------------------------
Termination of employment for other Unvested options are forfeited. Expires upon earlier of 3 months
reasons (Optionees should be aware from termination date or option
that the receipt of severance does not expiration date provided in grant.
extend their termination date).
- --------------------------------------------------------------------------------------------------------------------
US military leave. Vesting continues during leave. Option expiration date provided in
grant continues to apply.
- --------------------------------------------------------------------------------------------------------------------
Eleemosynary service. Committee's discretion. Committee's discretion.
- --------------------------------------------------------------------------------------------------------------------
US FMLA leave of absence. Vesting continues during leave. Option expiration date provided in
grant continues to apply.
- --------------------------------------------------------------------------------------------------------------------
Company investment in optionee's Unvested options are forfeited. Expires upon earlier of 3 months
employer falls under 20% (this from termination date or option
constitutes a termination of expiration date provided in grant.
employment under the Plan, effective
the date the investment falls below
20%)
OR
employment is transferred to an entity
in which the Company's ownership
interest is less than 20%.
- --------------------------------------------------------------------------------------------------------------------
Employment transferred to Affiliated Vesting continues after transfer. Option expiration date provided in
Company. grant continues to apply.
- --------------------------------------------------------------------------------------------------------------------
Death after employment has terminated Not applicable. Right of Executor, administrator of
but before option has expired (note estate (or other transferee
that termination of employment may permitted by Section 8) terminates
have resulted in a change to the on earlier of (1) 12 months from
original option expiration date the date of death, or (2) the
provided in the grant). Option expiration that applied at
the date of death (Note that
termination of employment may have
resulted in a change to the original
option expiration date provided in
the grant).
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
In the case of other leaves of absence not specified above, optionees will
be deemed to have terminated employment (so that options unvested will expire
and the option exercise period will end on the earlier of 6 months from the date
the leave began or the option expiration date provided in the grant), unless the
Committee identifies a valid business interest in doing otherwise in which case
it may specify what provisions it deems appropriate in its sole discretion;
provided that the Committee shall have no obligation to consider any such
matters.
Notwithstanding the foregoing provisions, the Committee may, in its sole
discretion, establish different terms and conditions pertaining to the effect of
an optionee's termination on the expiration or exercisability of Options at the
time of grant or (with the consent of the affected optionee) outstanding
Options. However, no Option can have a term of more than fifteen years.
Section 10. No Rights as a Share Owner.
- ---------------------------------------
An optionee or a transferee of an optionee pursuant to Section 8 shall have
no right as a share owner with respect to any Common Stock covered by an Option
or receivable upon the exercise of an Option until the optionee or transferee
shall have become the holder of record of such Common Stock and no adjustments
shall be made for dividends in cash or other property or other distributions or
rights in respect to such Common Stock for which the record date is prior to the
date on which the optionee or transferee shall have in fact become the holder of
record of the share of Common Stock acquired pursuant to the Option.
Section 11. Adjustment in the Number of Shares and in Option Price.
- -------------------------------------------------------------------
In the event there is any change in the shares of Common Stock through the
declaration of stock dividends, or stock splits or through recapitalization or
merger or consolidation or combination of shares or spin-offs or otherwise, the
Committee or the Board shall make such adjustment, if any, as it may deem
appropriate in the number of shares of Common Stock available for Options as
well as the number of shares of Common Stock subject to any outstanding Option
and the option price thereof. Any such adjustment may provide for the
elimination of any fractional shares which might otherwise become subject to any
Option without payment therefor.
Section 12. Cancellation And New Grant of Options.
- --------------------------------------------------
The Board shall have the authority to effect, at any time and from time to
time, with the consent of the affected Optionees, the cancellation of any or all
outstanding options under the Plan and the grant in substitution therefor of new
options under the Plan covering the same or different numbers of shares of
Common Stock having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled options.
Section 13. Regulatory Compliance and Listing.
- ----------------------------------------------
The delivery of any shares issuable upon exercise of an Option granted
under the Plan may be postponed by the Company for such period as may be
required to comply with any applicable requirements under the Federal or State
securities laws, any applicable listing or other requirements of any national
securities exchange and requirements under any other law or regulation
applicable to the delivery of such shares, and the Company shall not be
obligated to deliver any such shares under the Plan if such delivery shall
constitute a violation of any provision of any law or of any regulation of any
governmental authority or any national securities exchange. In addition, the
shares when delivered may be subject to conditions, including transfer
restrictions, if required to comply with applicable securities law.
6
<PAGE>
Section 14. Amendments, Modifications and Termination of the Plan.
- -----------------------------------------------------------------
The Board or the Committee may terminate the Plan at any time. From time to
time, the Board or the Committee may suspend the Plan, in whole or in part. From
time to time, the Board or the Committee may amend the Plan, in whole or in
part, including the adoption of amendments deemed necessary or desirable to
qualify the Options under the laws of various countries (including tax laws) and
under rules and regulations promulgated by the Securities and Exchange
Commission with respect to employees who are subject to the provisions of
Section 16 of the 1934 Act, or to correct any defect or supply an omission or
reconcile any inconsistency in the Plan or in any Option granted thereunder, or
for any other purpose or to any effect permitted by applicable laws and
regulations, without the approval of the share owners of the Company. However,
in no event may additional shares of Common Stock be allocated to the Plan
without shareholder approval. Without limiting the foregoing, the Board of
Directors or the Committee may make amendments applicable or inapplicable only
to participants who are subject to Section 16 of the 1934 Act.
No amendment or termination or modification of the Plan shall in any manner
affect any Option theretofore granted without the consent of the optionee,
except that the Committee may amend or modify the Plan in a manner that does
affect Options theretofore granted upon a finding by the Committee that such
amendment or modification is in the best interest of holders of outstanding
Options affected thereby. Grants of ISOs may be made under this Plan until ten
years from the Effective Date or such earlier date as this Plan is terminated,
and grants of NSOs may be made until all of the shares of Common Stock
authorized for issuance hereunder (adjusted as provided in Section 11) have been
issued or until this Plan is terminated, whichever first occurs. The Plan shall
terminate when there are no longer Options outstanding under the Plan, unless
earlier terminated by the Board or by the Committee. Absent the occurrence of
any of the foregoing events, the Plan shall terminate upon the close of business
on the day next preceding the tenth anniversary of the date of its adoption by
the Board of Directors.
Section 15. Governing Law.
- --------------------------
The Plan and all determinations made and actions taken pursuant thereto
shall be governed by the laws of the State of Delaware and construed in
accordance therewith.
Section 16. Effective Date.
- ---------------------------
The Plan shall become effective when adopted by the Board of Directors, but
no ISO granted under the Plan shall become exercisable unless and until the Plan
shall have been approved by the Company's shareholders. If such shareholder
approval is not obtained within twelve months after the date of the Board's
adoption of the Plan, any ISO's previously granted under the Plan shall
terminate and no further ISO shall be granted. Amendments to the Plan not
requiring shareholder approval shall become effective when adopted by the Board
of Directors; amendments requiring shareholder approval (as provided in Section
12) shall become effective when adopted by the Board of Directors, but no ISO
issued after the date of such amendment shall become exercisable (to the extent
that such amendment to the Plan was required to enable the Company to grant such
ISO to a particular optionee) unless and until such amendment shall have been
approved by the Company's shareholders. If such shareholder approval is not
obtained within twelve months of the Board's adoption of such amendment, any
ISO's granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, Options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
Adopted by the Board of Directors
January 24, 2000
7
Consent of Independent Accountants
We consent to the incorporation by reference in this registration statement
(Form S-1) of Startech Environmental Corporation of our report dated December
22, 1999, included in the 1999 Annual Report to the Shareholders of Startech
Environmental Corporation.
/s/ Kostin, Ruffkess and Company, LLC
- -------------------------------------
Kostin, Ruffkess and Company, LLC
West Hartford, Connecticut
April 27, 2000
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