As filed with the Securities and Exchange Commission on
February 12, 1997
Registration No. ___________
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------
THERMOENERGY CORPORATION
(Name of Small Business Issuer as Specified in Its Charter)
Arkansas 9999 71-00659511
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification
Organization) Code Number)
----------------------
THERMOENERGY CORPORATION
323 Center Street, Suite 1300
Little Rock, Arkansas, 72201
(501) 376-6477
(Address and Telephone Number of Principal Executive
Offices and Address of Principal Place of Business
or Intended Principal Place of Business)
----------------------
P.L. MONTESI
President
ThermoEnergy Corporation
323 Center Street, Suite 1300
Little Rock, Arkansas, 72201
(501) 376-6477
(Name, Address, and Telephone Number of Agent for Service)
Copies to:
Jay H. Lindy, Esq. Gary Barket, Esq. Alan I. Annex, Esq.
Waring Cox, PLC Davidson Law Firm, Ltd. Camhy Karlinsky &
50 North Front St. 724 Garland St. Stein LLP
Memphis, TN 38103 Little Rock, AR 72201 1740 Broadway, 16th Fl.
(901) 543-8000 (501) 374-9977 (212) 977-6600
(901) 543-8030 (501) 374-5917 (212) 977-8389
----------------------
Approximate Date of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration
Statement.
If any of the Securities being registered in this form are to
be offered, on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, check the following box. /X/
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. /___/
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
/___/
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of to be Price per Offering Registration
Securities to be registered Registered Unit(1) Price(1) Fee
- --------------------------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Series A Common Stock,
$.001 par value(2) 1,840,000 $7.00(1) $12,880,000(1) $ 3,903.03
Redeemable Series A Common
Stock Purchase Warrants 1,840,000 $0.10 $ 184,000 $ 55.76
Series A Common Stock
issuable on exercise of
Redeemable Series A
Common Stock Purchase
Warrants (3) 1,840,000 $10.50 $19,320,000 $ 5,854.55
Representative's Warrants(4) 160,000 $ .0001 $ 16 $ (5)
Series A Common Stock
issuable upon exercise
of Representative's
Warrants (4) 160,000 $8.40 $ 1,344,000 $ 407.27
Redeemable Series A Common
Stock Purchase Warrants
issuable upon exercise of
Representative's Warrant (4) 160,000 $0.12 $ 19,200 $ 5.82
Series A Common Stock issuable
upon exercise of Warrants
issuable upon exercise of
Representative's Warrants (5) 160,000 $10.50 $ 1,680,000 $ 509.09
Total $35,427,216 $10,735.52
</TABLE>
(1) Estimated sales for purposes of computing the registration fee
pursuant to Rule 457(a).
(2) Includes 240,000 shares of Series A Common Stock which the
Underwriters have the option to purchase to cover over-
allotments, if any.
(3) Reserved for issuance upon exercise of Redeemable Series A
Common Stock Purchase Warrants.
(4) To be issued to the Representative of the Underwriters at the
Closing.
(5) No fee required.
(6) Reserved for issuance upon exercise of Representative's
Warrants.
(7) Pursuant to Rule 416, this Registration Statement also relates
to an indeterminate number of additional shares as may be
issued as a result of anti-dilution provisions of the
Representative's Warrants and the Redeemable Common Stock
Purchase Warrants.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
Index to Exhibits appears on page _____. Number of pages in
sequential numbering system _______.
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY __, 1997
THERMOENERGY CORPORATION
/ LOGO /
1,600,000 Shares of Series A Common Stock and
1,600,000 Redeemable Series A Common Stock Purchase Warrants
ThermoEnergy Corporation, an Arkansas corporation ("Company"),
hereby offers ("Offering") 1,600,000 shares of Series A Common
Stock, par value $.001 per share ("Common Stock"), and 1,600,000
Redeemable Series A Common Stock Purchase Warrants ("Warrants").
The Common Stock and the Warrants are sometimes hereinafter
together referred to as the "Securities". Until the completion of
this Offering, the Common Stock and the Warrants offered hereby may
only be purchased together on the basis of one share of Common
Stock and one Warrant, but will trade separately immediately after
this Offering. Each Warrant entitles the registered holder thereof
to purchase one share of Common Stock at an initial exercise price
of $____ per share [150% of the public offering price per share],
subject to adjustment, at any time commencing ________, 1997 until
________, 2001. Commencing ________, 1998, the Warrants are
subject to redemption by the Company, in whole but not in part, at
$.05 per Warrant on 30 days' prior written notice provided that the
average closing sale price of the Common Stock as reported on the
American Stock Exchange ("AMEX") equals or exceeds $____ per share
[300% of the public offering price per share] (subject to
adjustment under certain circumstances) for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. See
"Description of Securities".
Prior to this Offering, there has been no public market for
the Securities and there can be no assurance that such a market
will develop after the completion of this Offering or, if
developed, that it will be sustained. It is anticipated that the
initial public offering price of the Common Stock will be between
$6 and $7 per share, and the initial public offering price per
Warrant will be $0.10. The public offering price of the Common
Stock and the Warrants, and the exercise price and other terms of
the Warrants, have been determined by negotiation between the
Company and National Securities Corporation and does not
necessarily reflect the Company's assets, book value, performance
or other generally accepted criteria of value. See "Risk Factors"
and "Underwriting". The Common Stock and the Warrants have been
approved for listing on the American Stock Exchange ("AMEX") under
the symbols "THE" and "THEW", respectively.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE
"RISK FACTORS" BEGINNING ON PAGE 9 AND "DILUTION ON PAGE ___."
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Discount Proceeds to
Price to Public and Commission(1) the Company(2)
--------------- ----------------- --------------
<S> <C> <C> <C>
Per Share _______ _______ _______
Per Warrant _______ _______ _______
Total (3) _______ _______ _______
</TABLE>
(1) Excludes additional compensation to be received by National
Securities Corporation, the representative (the
"Representative") of the several underwriters
("Underwriters"), in the form of (i) a nonaccountable expense
allowance of 3% of the gross proceeds to the Company and (ii)
sale to the Representatives for nominal consideration of
warrants ("Representative's Warrants") to purchase up to
160,000 shares of Common Stock and/or 160,000 Warrants. In
addition, the Company has agreed to indemnify the Underwriters
against certain liabilities. See "Underwriting".
(2) Before deducting expenses of this Offering payable by the
Company, estimated at $_____, which includes the
nonaccountable expense allowance described in Note 1 above.
(3) The Company has granted to the Underwriters an option,
exercisable within 45 days after the date of this Prospectus,
to purchase up to 240,000 additional shares of Common Stock
and/or 240,000 Warrants on the same terms and conditions as
set forth above, solely to cover overallotments, if any
("Overallotment Option"). The Overallotment Option may be
exercised to purchase shares of Common Stock or Warrants or
any combination thereof. If the Overallotment Option is
exercised in full, the total Price to Public, Underwriting
Discount and the Proceeds to the Company will be $_____,
$_____, and $_____, respectively. See "Underwriting".
The Securities are being offered by the Underwriters on a firm
commitment basis, subject to prior sale, when, as and if delivered
to and accepted by the Underwriters and subject to approval of
certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel
or modify this Offering and to reject any order in whole or in
part. It is expected that delivery of the Securities will be made
against payment at the offices of National Securities Corporation,
1001 Fourth Avenue, Seattle, Washington, on or about ____________,
1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is _________, 1997
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE COMMON STOCK OR THE WARRANTS OFFERED HEREBY AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual
reports containing financial statements audited and reported upon
by its independent certified public accountants after the end of
each fiscal year, and make available such other periodic reports as
the Company may deem to be appropriate or as may be required by
law. Reports and other information filed by the Company may be
inspected and copied at the public reference facilities of the
Commission in Washington, D.C., and copies of such material can be
obtained from the Public Reference Section of the Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.,
20549 at prescribed rates.
[LEGEND]
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These securities
may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus
shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any
State in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of
any such state.
[GOES ON SIDE OF COVER PAGE]
PROSPECTUS SUMMARY
The following summary is qualified by, and must be read in
conjunction with, the more detailed information and financial
statements and notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share and per share
information in this Prospectus gives effect to the Company's two,
four-to-one reverse stock splits approved by shareholders on March
2, 1994 and December 12, 1996, and does not give effect to (i) any
exercise of the Overallotment Option, (ii) the issuance of up to
1,600,000 shares of Common Stock upon exercise of the Warrants,
(iii) the issuance of up to 160,000 shares of Common Stock and
160,000 Warrants upon exercise of the Representative's Warrants,
(iv) the issuance of up to 160,000 shares of Common Stock upon
exercise of Warrants underlying the Representative's Warrants, and
(v) the issuance of up to 1,574,595 shares of Common Stock upon
exercise of warrants outstanding as of the date of this Prospectus
("Series B Warrants"). See "Underwriting" and "Shares Eligible for
Future Sale".
The Company
ThermoEnergy Corporation (the "Company") is the exclusive
worldwide (except Japan) licensee for certain environmental
technologies developed by Battelle Memorial Institute ("Battelle"),
an independent research and development organization. These
technologies are primarily aimed at solving waste water problems.
The Company intends to sell equipment and services to government
and industrial users, sublicense its technologies to industrial
users, or build, own and operate municipal and/or industrial waste
water treatment facilities. The Company's business strategy is
based upon entering into collaborative working relationships with
established engineering and environmental companies, or formal
joint venture agreements relative to the application of the
technologies for specified industries or markets. The Company is
currently negotiating project-specific working arrangements with
Foster Wheeler Environmental Corporation, Roy F. Weston, Inc., Dan
Cowart, Inc., and Mitsui & Co. (U.S.A.), Inc. In addition, the
Company may sub-license the Technologies to third parties. See
"Business - Strategic Corporate Alliances".
The technologies include two chemical processes known as the
Sludge-To-Oil Reactor System (STORS[TM]) and Nitrogen Removal
(NitRem[TM]). The third technology, a dual-shell pressure balance
vessel, known as the Dual-Shell Reactor[TM] ("DSR"), is the unique
reactor equipment in which the STORS and NitRem chemistries are
conducted (STORS, NitRem and DSR are referred to collectively as
the "Technologies"). The Company's applications of the
Technologies eliminate damaging organic and nitrogenous
contaminants from municipal and industrial waste streams. See
"Business".
The Company currently has three demonstration projects:
In October 1994, the Company and Sam Houston State University,
doing business as the Texas Regional Institute for Environmental
Studies ("TRIES"), signed an agreement to undertake a demonstration
project to evaluate the nitrogen removal process and NitRem's
ability to economically and safely treat trinitrotoluene ("TNT")
redwater, TNT contaminated wastewater, and various RCRA waste
streams within the Department of Defense industrial base and the
Department of Defense Commercial Facilities. The NitRem DSR unit
is scheduled to be delivered to the project site, Radford Army
Ammunition Plant, Radford, Virginia, in March 1997, to begin
testing procedures of the unit. TRIES has the contract with the
Department of Defense, Department of Army, and the Company is the
lead subcontractor to TRIES for the project. See "Business -
NitRem Demonstration - United States Department of the Army
Program".
In July 1996, the Company signed a No Cost Test Agreement
("New York Agreement") with the City of New York, Bureau of Clean
Water - Department of Public Works. The purpose of the New York
Agreement is to allow the City of New York to evaluate NitRem and
its ability to satisfy the City of New York's nitrogen removal
requirement imposed by new federal/state wastewater discharge
standards. Successful laboratory and pilot plant results from
testing actual samples of New York City's centrate discharge led to
the design of a large scale NitRem DSR to be used on this
demonstration project. The New York Agreement provides that the
demonstration test will begin April 1, 1997, and that Foster
Wheeler Corporation will build and own the test equipment used in
this demonstration project. This will be the first collaborative
effort between the Company and Foster Wheeler Corporation to
demonstrate NitRem. See "Business - NitRem Demonstration - New
York City Project".
In September 1996, the San Bernardino Valley Water District
("SBVWD") was awarded a $3,000,000 federal matching grant for the
design, construction and operation of a large-scale STORS
wastewater treatment demonstration facility. In addition to the
grant, SBVWD is required to provide matching funds for this
demonstration project. The capacity for this demonstration facility
will have a through put capacity equal to or greater than 75% of
the wastewater treatment facilities currently operating within the
United States. The Company anticipates that it will be responsible
for the design, construction, installation and operation of the
SBVWD demonstration facility. See "Business - STORS
Demonstration".
The Company is not required to make capital contributions to
the projects listed below and the Company will not receive any
revenues or earnings from these test projects. The Company will be
reimbursed for administrative and operating costs but will not
receive any revenues or earnings from the test projects described
above.
Although the Company believes that it will be able to enter
into agreements with additional strategic partners and if the
demonstration projects are successful, be awarded sales and/or
service contracts for the technologies, there can be no assurance
that the Company's efforts will result in additional collaborative
agreements, demonstration project contracts, or commercial contract
awards. Even if such contracts are awarded, neither STORS nor
NitRem nor the DSR have ever been utilized on a large-scale basis,
and there is no assurance that either STORS, NitRem or the DSR will
perform successfully on a large-scale basis or that it will be
profitable to the Company. See "Risk Factors - No Assurance of
Additional Collaborative Agreements, Licenses or Project Contracts,
Commercialization of Technologies".
The principal executive offices of the Company are located at
323 Center Street, Suite 1300, Little Rock, Arkansas, 72201, and
its telephone number is (501) 376-6477.
The Offering
Securities Offered . . . . . . . 1,600,000 shares of Series A
Common Stock and 1,600,000
Redeemable Series A Common
Stock Purchase Warrants.
Terms of Warrants. . . . . . . . Each Warrant entitles the
holder thereof to purchase, at
any time commencing ________,
1997 until ________, 2001, one
share of Common Stock at a
price of $____ per share,
subject to adjustment.
Commencing ________, 1998, the
Warrants are subject to
redemption by the Company, in
whole but not in part, at $.05
per Warrant on 30 days' prior
written notice provided that
the average bid/ask price of
the Common Stock as reported on
the AMEX equals or exceeds
$____ per share, subject to
adjustment, for any 20 trading
days within a period of 30
consecutive trading days ending
on the fifth trading day prior
to the date of the notice of
redemption. See "Description
of Securities".
Securities outstanding prior
to the Offering (1). . . . . . . 3,156,965 shares of Series B
Common Stock and 1,574,595
Series B Warrants.
Securities to be outstanding
after the Offering (1)(2)(3) . . 1,600,000 shares of Series A
Common Stock and 1,600,000
Series A Warrants.
3,206,965 shares of Series B
Common Stock and 1,574,595
Series B Warrants.
Use of Proceeds. . . . . . . . . The Company intends to apply
the net proceeds of this
Offering to fund proposed
collaborative ventures; to fund
additional research and
development costs; to lease and
equip an additional facility;
to repay outstanding
intercompany indebtedness; to
collateralize a bank loan of
the Company; and to fund
working capital and general
corporate purposes. See "Use
of Proceeds".
Proposed AMEX Symbols:
Series A Common Stock. . . . . . THE
Warrants . . . . . . . . . . . . THEW
(1) Stockholders of the Company have approved two, four-to-one
reverse stock splits which have not been implemented as of the date
of this Prospectus. The amounts described in this Prospectus are
after implementation of the two reverse stock splits. The average
exercise price of the Series B Warrants is $2.84.
(2) Assumes the issuance of 50,000 shares of Series B Common Stock
upon completion of this Offering to certain persons who loaned the
Company money during the period December 1996 through _________,
1997, each shall receive 1000 shares of Series B Common Stock for
every $10,000 loaned to the Company, not to exceed, in the
aggregate, 50,000 shares.
(3) Does not include 505,000 options for Series B Common Stock
granted to certain officers and directors of the Company under the
Company's 1997 Stock Option Plan, subject to shareholder approval.
Summary Risk Factors
An investment in the Securities offered hereby involves a high
degree of risk and should be made only by investors who can afford
the loss of their entire investment. Such risk factors include,
among others, limited operating history, historical net losses and
continued expected future losses, going concern disclosure in
independent auditor's report, no assurance of collaborative
agreements, licenses or project contracts, no assurance that the
Technologies can be commercialized, potential need for additional
financing, broad discretion in application of proceeds and no
assurance of a public trading market. See "Risk Factors" beginning
on page 7.
Summary Financial Data
The summary financial data included in the following table as
of September 30, 1996, for the five year period ended September 30,
1996 and for the period cumulative during the development stage
through September 30, 1996, are derived from the Financial
Statements appearing elsewhere herein. The summary financial data
as of December 31, 1996, for the three months ended December 31,
1995 and 1996 and for the period cumulative during the development
stage through December 31, 1996 are unaudited and, in the opinion
of management, include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such
data. Financial data for the three months ended December 31, 1996
are not necessarily indicative of the results of operations to be
expected for the entire year. The summary financial data should be
read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial
Statements and notes thereto appearing elsewhere herein.
Statement of Operations (4):
<TABLE>
<CAPTION>
Cumulative Cumulative
during during
development Three Months development
stage through Ended stage through
Year Ended September 30
September 30 December 31 December 31
------------------------------------------------------- ---
- --------- ---------------- -------------
1992 1993 1994 1995 1996
1996 1995 1996 1996
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Operating
Revenues $ 0 $ 0 $ 0 $ 0 $ 0 $
0 $ 0 $ 0 $ 0
Operating
Expenses 0 0 0 0 0
0 0 0 0
General and
Administrative 533,284 1,195,722 721,496 756,341 520,364
4,834,502 150,320 211,010 5,045,512
Research and
Development 33,000 0 48,500 123,000 0
627,266 0 0 627,266
-------- ---------- -------- -------- -------- -
- --------- -------- -------- ----------
Loss from
Operations (566,284) (1,195,722) (769,996) (879,341) (520,364)
(5,461,768) (150,320) (211,010) (5,672,778)
Interest
Income 15,972 1,908 2,714 2,391 6,942
60,785 1,497 2,313 63,098
Interest
Expense (12,439) (14,107) (145) (20,048) (38,199)
(140,418) (8,705) (13,087) (153,505)
-------- ---------- -------- -------- -------- -
- --------- -------- -------- ----------
Net Loss $(562,751) $(1,207,921) $(767,427) $(896,998) $(551,621)
$(5,541,401) $(157,528) $(221,784) $(5,763,185)
======== ========== ======== ======== ========
========== ======== ======== ==========
Net loss per
share(1)(2) $ (.01) $ (.02) $ (.01) $ (.01) $ (.01) $
(.09) $ (.00) $ (.00) $ (.10)
Pro forma
net loss
per share(2) (.15) $ (.32) $ (.20) $ (.24) $ (.15) $
(1.50) $ (.04) $ (.06) $ (1.56)
Cash
Dividends
paid $ 0 $ 0 $ 0 $ 0 $ 0 $
0 $ 0 $ 0 $ 0
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1996
------------------ -------------------------
Actual As Adjusted(3)
------ --------------
<S> <C> <C> <C>
Working capital
(deficit) $(1,699,904) $(1,921,282) $6,124,000
Total assets 173,333 183,579 6,677,579
Total liabilities 1,867,575 2,099,605 414,605
Stockholders'
equity (deficit) (1,694,242) (1,916,026) 6,783,974
</TABLE>
- --------------------
(1) Net loss per share is calculated on the basis of the weighted
average shares of Common Stock outstanding for each period
presented. Stock options and warrants issued within twelve months
of the initial public offering filing date (February 27, 1992) have
been treated as outstanding for all periods presented.
(2) Reflects the net loss per share after giving effect to the
implementation of the two, four-to-one reverse stock splits
approved by the stockholders on March 2, 1994 and December 12,
1996.
(3) Gives effect to the initial application of the estimated net
proceeds from this Offering. See "Use of Proceeds".
RISK FACTORS
An investment in the Securities offered hereby involves a high
degree of risk and should be made only by investors who can afford
the loss of their entire investment. Prospective investors should
carefully review and consider the following risk factors described
below, in addition to the information included elsewhere in this
Prospectus.
Limited Operating History; Net Losses; Future Losses; Initial
Commercialization Stage; Going Concern Disclosure in Independent
Auditors' Report
The Company's limited operating history has consisted
primarily of development of the Technologies, conducting laboratory
tests, and planning on-site tests and demonstrations. The Company
is subject to all of the business risks associated with a new
enterprise, including, but not limited to, risks of unforeseen
capital requirements, failure to achieve market acceptance, failure
to establish business relationships, and competitive disadvantages
as against larger and more established companies. At September
30,1996 and December 31, 1996, the Company had an accumulated
stockholders' deficit of $(1,694,242) and $(1,916,026),
respectively, and a working capital deficit of $(1,699,904) and
$(1,921,282), respectively. The Company also made advances to
management and related accrued period interest payments of $122,200
and $11,451, respectively, as of December 31, 1996. Additionally,
as of January 31, 1997, the Company had outstanding indebtedness in
an aggregate principal amount of $500,000 at an interest rate of
10% per annum and $735,000 at an interest rate of 6.63% per annum,
all of which is owed to shareholders. Such loans shall be repaid
with interest from the proceeds of this Offering. See "Use of
Proceeds".
The Company anticipates that it will continue to incur
significant operating losses through 1997 and may incur additional
losses thereafter, depending upon (i) its ability to consummate
collaborative working arrangements or sub-licenses with third
parties which provide revenue and (ii) the operation and financial
success of any projects which the Company and its potential working
partners may be awarded. The Company has had no significant
revenues to date, and there can be no assurance as to when or
whether it will be able to commercialize the Technologies. The
Technologies have never been utilized on a large-scale basis, and
there can be no assurance that either STORS or NitRem will (i)
perform successfully on a large-scale commercial basis or (ii) will
be profitable to the Company. The Company's ability to operate its
business successfully will depend on a variety of factors, many of
which are outside the Company's control, including: competition,
contract awards, cost and availability of raw material supplies,
changes in governmental initiatives and requirements, changes in
EPA and other regulatory requirements, and the costs associated
with equipment repair and maintenance. The report of the
independent auditors with respect to the Company's financial
statements included in this Prospectus includes a "going concern"
paragraph indicating that the Company's significant operating
losses and the need for substantial capital to commercialize the
Technologies raise substantial doubt about the Company's ability to
continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business" and Financial Statements.
No Assurance of Additional Collaborative Agreements, Licenses or
Project Contracts, Commercialization of Technology
The Company's business strategy is based upon entering into
collaborative working relationships with established engineering
and environmental companies, or formal joint venture agreements
relative to the application of STORS and NitRem as enabling
technologies for specified industries or markets. The Company
currently is collaborating with Foster Wheeler Environmental
Corporation ("Foster Wheeler") to conduct a demonstration NitRem
program for the City of New York at no cost to the City of New
York. The Company is also currently negotiating the terms of an
agreement with TRIES to be the lead sub-contractor on a NitRem
demonstration project. However, neither the Company nor any of its
prospective joint venture partners have been awarded any other
project contracts. There is no assurance that the Company will
enter into definitive project arrangements or joint venture
agreements with its prospective working partners or others, or that
such agreements, if entered into, will be on terms and conditions
that are sufficiently attractive to the Company to enable it to
generate profits. See "Business - Strategic Corporate Alliances".
In the event the Company is unable to enter into commercially
attractive collaborative working arrangements for one or more
commercial or industrial projects, the Company may sub-license the
Technologies to third parties. There is no assurance that the
Company will be able to enter into such license third-party
arrangements or that such licenses activity will produce any income
to the Company. In addition, any project contract which may be
awarded to the Company and/or any of its joint working partners may
be curtailed, delayed, redirected or eliminated at any time.
Problems experienced on any specific project, or delays in the
implementation and funding of projects, could materially adversely
affect the Company's business and financial condition. See
"Business - Competition and Proprietary Information".
Uncertainty of Market Acceptance
Many prospective users of the Technologies have already
committed substantial resources to more conventional forms of
environmental technologies, including incineration, plasma arc,
molten metal, molten salt, chemical neutralization, catalytic
electro chemical oxidation, supercritical water oxidation, land
filling, land application, and composting. The Company's growth
and future financial performance will depend on demonstrating to
prospective collaborative partners and users the advantages of
STORS and NitRem, coupled with the DSR, over alternative
technologies. There can be no assurance that the Company and its
prospective collaborative partners will be successful in this
effort. It is anticipated that the environmental remediation and
decontamination market will decline over an extended period, as
past environmental degradation is corrected, and as the private and
public sectors limit further pollution through the prohibition on
the production and use of a broad range of hazardous materials and
through the modification and improved efficiency of varied
manufacturing processes. See "Business - Competition and
Proprietary Information".
Dependence on Strategic Corporate Alliances and Uncertainty of
Technologies to Achieve Results
The Company believes that its joint working arrangements will
limit the Company's participation in projects to (i) providing the
Technologies and (ii) providing technical support relevant to the
design of STORS, NitRem and/or the DSR portion of the project(s)
and the manufacturing and delivery of the DSR system. The Company
anticipates no revenues for its demonstration projects. The Company
may be required to bear a portion of the operational costs of such
collaborative efforts. Accordingly, the profitability of each
project and the Company's financial success may be largely
dependent upon the abilities and financial resources of the parties
collaborating with the Company. Although the Company has entered
into certain agreements with certain strategic partners, there can
be no assurance that any of these strategic alliances will result
in the Company being awarded sales and/or service contracts,
demonstration project contracts, or commercial contracts. See
"Business - Strategic Corporate Alliances".
Part of the proceeds of this Offering will be employed to
promote the Technologies as provided for under the Company's
license agreement with Battelle ("License Agreement"). Failure of
the STORS and/or NitRem technologies to achieve results will
adversely affect the Company's results of operations. Once a
demonstration project has been successfully completed, there can be
no assurance that the Company will be awarded commercial contracts
for such a project. Even if such contracts are awarded, neither
STORS nor NitRem or the DSR have ever been utilized on a large-
scale commercial basis, and there is no assurance that the
Technologies will perform successfully on a large-scale commercial
basis or that they will be profitable to the Company. There can
also be no assurance that either STORS, NitRem or the DSR will be
superseded by other competing technologies. See "Risk Factors -
Commercialization of Technologies beyond Test Stage". See
"Business" and "Interest in Management and Others in Certain
Transactions - Relationship with Battelle".
Potential Need for Additional Financing
The Company's future capital requirements could vary
significantly and will depend on certain factors, many of which are
not within the Company's control. These include the existence and
terms of any collaborative arrangements; the success of the ongoing
development and testing of the Technologies; the large scale
demonstration of the Technologies as a viable alternative for both
waste water minimization and remedial services; the nature and
timing of obtaining project contracts and required permits; and the
availability of financing.
The Company may not be able to enter into favorable business
collaborations and might therefore be required to bid upon projects
itself. If such bids were successful, the Company would be
required to make significant expenditures on personnel and capital
equipment which would require significant financing in amounts
substantially in excess of the net proceeds of this Offering. In
addition, the Company's lack of operational experience, the lack of
completed, successful demonstration projects, and limited capital
resources could make it difficult, if not highly unlikely, to
successfully bid on major commercial projects. In such event, the
Company's business development could be limited to process removal
of waste water from smaller commercial and industrial sites with
significantly lower potential for profit. See "Risk Factors -
Engineering Risks".
In addition, the expansion of the Company's business will
require the commitment of significant capital resources toward the
hiring of technical and operational support personnel and the
building of equipment to be used for on-site test demonstrations.
The possibility exists that the Company may be required to provide
matching funds for the project(s) (e.g., the EPA sometimes requires
a five percent (5%) matching funds contribution to the project from
the grant recipient). If this is the case then the Company may
need a substantial influx of new capital to meet the required
obligation. The capital needed to construct and operate a
demonstration facility is projected to be between $2,000,000 and
$4,000,000 for a NitRem demonstration facility, and between
$5,000,000 and $7,000,000 for a STORS/NitRem demonstration
facility.
In the event the Company is presented with one or more
significant projects, individually or in conjunction with
collaborative working partners, it may require additional capital
to take advantage of such opportunities. There can be no assurance
that such financing will be available or, if available, that the
terms of such financing will acceptable favorable to the Company.
Such financing, if available, may require the Company to issue
additional equity which may cause substantial dilution to
shareholders. If adequate financing is not available, the Company
may be required to delay, scale back or eliminate certain of its
research and development programs, to relinquish rights to certain
of its Technologies, or to license third parties to commercialize
Technologies that the Company would otherwise seek to develop
itself. To the extent the Company raises additional capital by
issuing equity securities, the holdings of shareholders will be
diluted. See "Use of Proceeds" and "Management's Discussion and
Analysis of Results of Operations - Liquidity and Capital
Resources."
Disposition of By-Products
There are three end-products resulting from the STORS process;
water, comprising approximately 70% of the total; light oil,
approximately 20%; and a char, comprising 10%. The water is
subsequently processed through the NitRem portion of the system,
removing the nitrogen/ammonia fraction, then discharged, meeting or
exceeding existing or proposed regulatory requirements. The oil is
siphoned off, collected and shipped off-site to a potential end
user. The char is dewatered, grouted into a cement mixture and
landfilled with the daily grit and screenings (materials screened
out prior to the treatment process, such as sticks, stones, etc.).
The only other end-product is a small amount of air emissions that
vents heat generated by the STORS process, containing CO2, and
other trace elements that are below existing or proposed regulatory
emission limits. Since the Company cannot predict whether there
will be any changes to the regulatory requirements, if any,
affecting the disposal of these end-products, there can be no
assurance that any such regulatory changes will not affect the
economics of the process by imposing stricter regulatory standards,
therefore adversely affecting the Company's ability to
commercialize STORS. See "- Regulatory Compliance".
Engineering Risks
Even if the Technologies' processes are determined to be
applicable for commercial use, the DSR, designed by Battelle, may
have to be technically altered in size to accommodate larger
throughput in order to handle the increased flow of a commercial
client. In order to determine the necessity of such technical
alterations the kinetic data from the demonstration facility(ies)
must be analyzed to determine reaction times (i.e., the length of
time a waste material must remain in the reactor before the
necessary chemical reaction occurs) and through-put capacity. If
technical alterations are deemed necessary it is currently
anticipated that certain engineering innovations which will not
have been incorporated into the STORS or NitRem demonstration units
will be utilized. There can be no assurance that these innovations
will prove successful.
The engineering alternative to incorporating this technical
adjustment of the size of the reactor is to build a number of
smaller capacity units that are equivalent to one or two large
capacity units. (For example, if a commercial client has a waste
flow of 300 dry tons per day (dtd), the Company could build ten 30
dtd units instead of two 150 dtd units, since the smaller units
would be more closely sized to the demonstration reactor size
utilized in a demonstration project, thereby decreasing the
engineering risk(s) associated with a large scale-up). However,
there can be no assurance that this alternative will prove
economically feasible or operationally sound.
The Company intends to engage the services of an engineering
firm with sufficient experience and skill to design, engineer and
fabricate both the demonstration and commercial size STORS or
NitRem facilities should the Company secure the capital to fund a
demonstration facility. Such engineering expertise is readily
available (at a cost) from third-party engineering firms familiar
to the Company. There can be no assurance that the Company will
have sufficient funds to engage third-party firms for demonstration
and commercialization of the Technologies. See "Business".
Battelle Licenses
The Company has entered into a license agreement with Battelle
which grants to the Company certain rights to make, use and sell
the STORS and NitRem processes ("License Agreement"). When new
applications for NitRem were developed by Battelle, the Company
entered into additional agreements with Battelle to expand the
applicable license fields for NitRem. Under the terms of the
License Agreement, Battelle may terminate the Company's license at
any time on or after January 31, 1998, if commercialization of
either the STORS DSR or NitRem DSR has not been achieved by that
date. "Commercialization" as defined in the License Agreement is
the construction and continuous operation of at least one facility
with the capacity of ten dry ton equivalent or 1,000 gallons of
liquid per day. In addition, subsequent agreements expanding the
license fields for NitRem may be terminated by Battelle during
April 1999, and during any subsequent April thereafter, if the
Company has not generated royalties to Battelle for the specific
license fields in the amount of $5,000 for the preceding calendar
year. While the Company currently has three demonstration projects
planned, there can be no assurance (i) that any one of the
demonstration projects will be successful or (ii) that a successful
demonstration project will lead to commercialization of the
Technologies sufficient to meet the requirements of the License
Agreement or the minimum royalty requirements for the expanded
field licenses for NitRem. Termination by Battelle of either the
License Agreement and/or subsequent expanded field licenses will
have an adverse effect on the Company's ability to continue
operations. See "Certain Relationships and Related Transactions -
Relationship with Battelle".
Competition and Technological Alternatives
The Company has an exclusive license with Battelle for the
development and practice of the STORS and NitRem technologies
worldwide, except in Japan, as developed by Battelle ("License
Agreement"). Even though the DSR is patented, unless and until
some aspect of the aqueous phase destruction of nitrates, ammonia
and amines is patented, neither Battelle nor the Company can
exclude others who independently obtain information concerning
similar processes or technologies from using the same processes in
the commercial disposal of sewage sludge and nitrogen removal.
Battelle may terminate the License Agreement on or after January
31, 1998, if commercialization of the licensed process has not been
achieved by that date. In addition, there is competition from
numerous large, well-established and well-capitalized waste
disposal firms, currently competing in markets which the Company
hopes to penetrate successfully. As described herein, Battelle and
the Company are aware that a Japanese company was engaged in STORS
research with Battelle prior to the Company's relationship with
Battelle exclusive to Japan. See "Business - the STORS Process"
and "Interest of Management and Others in Certain Transactions -
Relationship with Battelle". The Company has had limited
experience in marketing STORS and NitRem and has a small sales and
marketing organization, whereas other participants in both the
private and public sectors include several large domestic and
international companies and numerous small companies, many of whom
have substantially greater financial and other resources and more
manufacturing, marketing and sales experience than the Company.
Any one or more of the Company's competitors or other enterprises
not presently known to the Company may develop technologies which
are superior to STORS and NitRem or other technologies utilized by
the Company. To the extent that the Company's competitors are able
to offer more cost-effective process removal alternatives, the
Company's ability to compete could be materially and adversely
affected. See "Business - Competition and Proprietary
Information".
Unpredictability of Patent Protection and Proprietary Technology
The Company's success depends, in part, on its ability to
obtain additional patents, protect the patents which it owns,
maintain trade secrecy protection and operate without infringing on
the proprietary rights of third parties. The Company does not
currently own the patents, but uses them under a series of License
Agreements between the Company and Battelle dated as of July 31,
1991, and subsequent amendments ("License Agreement"). There can
be no assurance that the Company will develop additional
proprietary technology that is patentable, that any patents issued
and used by the Company will provide the Company with competitive
advantages or will not be challenged by third parties or that
patents of others will not have an adverse effect on the Company's
ability to conduct its business. Furthermore, there can be no
assurance that others will not independently develop similar or
superior technologies, duplicate any of the Company's STORS or
NitRem processes, or design around the patented STORS or NitRem
process. It is possible that the Company may need to acquire
licenses to, or to contest the validity of, issued or pending
patents of third parties relating to STORS or NitRem. There can be
no assurance that any license acquired under such patents would be
made available to the Company on acceptable terms, if at all, or
that the Company would prevail in any such contest. In addition,
the Company could incur substantial costs in defending itself in
suits brought against the Company on its patents or in bringing
patent suits against other parties.
In addition to patent protection, the Company also relies on
trade secrets, proprietary know-how and technology which it seeks
to protect, in part, by confidentiality agreements with its
prospective working partners and collaborators, employees and
consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for
any breach, or that the Company's trade secrets and proprietary
know-how will not otherwise become known or be independently
discovered by others. See "Business - Competition and Proprietary
Information".
Regulatory Compliance
The sewage sludge disposal and municipal waste water
industries have experienced severe regulatory pressures which has
had a direct effect upon the ability of sewage disposal and
municipal waste water and nitrogen removal clients (e.g., cities,
counties, and disposal districts) to forecast costs. Within the
last five years, the EPA has published regulations designed to
enforce certain federal laws (Clean Air Act, Clean Water Act, Ocean
Dumping Act, etc.) to protect the environment. The Company
believes, based on limited tests, that the STORS and NitRem
technologies meet or exceed current regulatory and statutory
emission, disposal and water discharge standards. There can be no
assurance that compliance with laws and regulations will continue
in light of current regulatory efforts. There may be further
efforts to impose more stringent environmental impact limitations
relating to disposition of sewer sludge, nitrogen removal and other
wastes. Laws and regulations may be changed and therefore there
can be no assurance of compliance with future laws and regulations.
See "- Disposition of By-Products".
Operational Risks
The Company does not have, nor does it anticipate having for
some indeterminable period of time, persons employed by it who are
capable of operating installations of either the STORS or NitRem
process on a day-to-day basis. If and when the commercial
operation is built, then the Company will engage the services of
operational employees. Therefore, operational risks include the
requirement that the Company engage the services of a reputable
operating firm with adequate financial resources, technical skills
and a demonstrated history of success in environmental waste
management to operate the STORS/NitRem facilities in domestic and
foreign markets if and when commercialization is achieved. While
the Company has conducted preliminary talks with operating entities
it deems qualified to provide such operating skills, there can be
no assurance that such entities will be willing to enter into
satisfactory operating agreements with the Company. See "Business
- - Strategic Corporate Alliances".
Dependence on Key Management and Other Personnel
The Company is dependent on the efforts of its senior
management and engineering staff including Dennis Cossey, Chairman
of the Board and Chief Executive Officer, P.L. Montesi, President,
and upon completion of the Offering, Alex Fassbender, PE, Executive
Vice President/Engineering and Technology, and Gary Barket, Senior
Vice President and General Counsel. The proceeds of key man life
insurance policies on the lives of such individuals may not be
adequate to compensate the Company for the loss of any such
individuals. The Company intends to hire additional executive
personnel and believes that its success will depend upon its
ability to hire and retain such additional employees. The Company
is totally dependent upon the engineering, laboratory, research and
development skills and expertise of Battelle to supervise the
design and implementation of a STORS or NitRem demonstration
facility, for the conducting of laboratory analysis and
characterization of various waste streams to be processed through
a STORS or NitRem unit, to collect and analyze process equipment
and performance data generated during a STORS and/or NitRem
demonstration test, and for on-going research and development of
the STORS and NitRem processes. The loss of the services of
Battelle or of any one or more of such persons may have a material
adverse effect on the Company. See "Management - Employee
Agreements" and "Interest of Management and Others in Certain
Transactions - Relationship with Battelle".
The Company's future success will depend in large part upon
its ability to attract and retain skilled scientific, management,
operational and marketing personnel. The Company faces competition
for hiring such personnel from other companies, government entities
and other organizations. There can be no assurance that the
Company will continue to be successful in attracting and retaining
such personnel. See "Management".
Broad Discretion in Application of Proceeds
Approximately 60 % of the net proceeds of this Offering has
been allocated for working capital and general corporate purposes.
In addition, approximately 15% of the net proceeds of this Offering
has been allocated for proposed collaborative ventures, research
and development for which the Company has no binding agreements as
of the date of this Prospectus. Accordingly, the Company will have
broad discretion as to the application of a significant portion of
the net proceeds of this Offering. See "Use of Proceeds".
No Dividends
The Company has never paid any dividends on its Common Stock,
and has no plans to pay dividends on its Common Stock in the
foreseeable future. See "Dividend Policy".
Potential Adverse Effect on Market Price of Securities from Future
Sales of Common Stock
In addition to the restrictions on transferability placed upon
holders of Series B Common Stock, all shares of Series B Common
Stock currently outstanding are "restricted securities" under Rule
144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Under Rule 144, subject to certain
restrictions, 3,156,965 shares of Series B Common Stock would be
eligible for sale 90 days after the date of this Prospectus,
however, all 3,156,965 shares are subject to the Series B
restrictive terms of the class. Additionally, an aggregate of
1,574,595 shares of Series B Common Stock issuable upon the
exercise of the Series B Warrants and 50,000 shares of Series B
Common Stock to be issued to certain noteholders of the Company
also will be restricted securities upon purchase and will be
eligible for sale under Rule 144 two years after purchase. The
Company and the officers, directors and certain stockholders of the
Company have agreed with the Underwriters that they will not,
without the prior written consent of the Representatives, offer,
sell, contract to sell or otherwise dispose of any shares of Series
B Common Stock or any securities convertible into, or exchangeable
or exercisable for shares of Series B Common Stock, with limited
exceptions, for a period of at least 12 months from the date of
this Prospectus. Officers, directors, owners of 5% or more of
Series B Common Stock and their affiliates own ___ shares of Series
B Common Stock (includes all Series B Warrants). Sales of
substantial amounts of Series B Common Stock in the public market
could adversely affect the market price of the Common Stock. See
"Principal Stockholders"; "Shares Eligible for Future Sale".
Future sales of Common Stock by stockholders (including option
and warrant holders) under Rule 144 of the Securities Act, or
through the exercise of the Warrants or outstanding registration
rights granted to the holders of the Representative's Warrants,
could have an adverse effect on the market prices of the
Securities. The Company has agreed not to, directly or indirectly,
issue, agree or offer to sell, transfer, assign, distribute, grant
an option for purchase or sale of, pledge, hypothecate or otherwise
encumber or dispose of any beneficial interest in such securities
for a period of 12 months following the date of this Prospectus
without the prior written consent of the Representative. In
addition, as described above, holders of Series B Common Stock are
restricted from selling or otherwise disposing of their shares for
12 months following the date of this Prospectus without the consent
of the Representative. Also, all officers and directors of the
Company have entered into a 12 month lock-up agreement with the
Underwriter, prohibiting sales of Company securities for 12 months
following the date of this Prospectus without the consent of the
Representative. However, when the Series B Common Stock
restrictions on transferability are eliminated after the Company
meets the Lock-Up Period (as defined in "Description of Securities
- - Common Stock") has been met, the Series A and Series B
classification of Common Stock shall be removed. Sales of
substantial amounts of Common Stock or the perception that such
sales could occur could adversely affect prevailing market prices
for the Securities. See "Description of Securities" and "Shares
Eligible for Future Sale".
No Assurance of Public Trading Market; Arbitrary Determination of
Public Offering Price; Possible Volatility of Common Stock and
Warrant Prices
Prior to this Offering, there has been no public market for
the Common Stock or the Warrants, and there can be no assurance
that an active trading market for any of the Securities will
develop or, if developed, be sustained after the Offering. The
public offering prices of the Securities offered hereby and the
terms of the Warrants have been arbitrarily determined by
negotiations between the Company and the Representative, and do not
necessarily bear any relationship to the Company's assets, book
value, results of operations or any other generally accepted
criteria of value. See "Underwriting".
The stock market has from time to time experienced significant
price and volume fluctuations that may be unrelated to the
operating performances of specific companies. Announcements of new
technologies and changing policies and regulations of the federal
government and state governments and other external factors, as
well as potential fluctuations in the Company's financial results,
may have a significant impact on the prices of the Securities.
Dilution
Purchasers of shares of Common Stock in this Offering will
experience an immediate and substantial dilution of $4.84 per
share, or approximately 77.1%, in the net tangible book value of
the shares of Common Stock purchased by them in this Offering.
Additional dilution to future net tangible book value per share may
occur upon exercise of outstanding stock options and warrants
(including the Warrants and the Representative's Warrants) and may
occur, in addition, if the Company issues additional equity
securities in the future. As a result, new investors will bear
substantially all of the risks inherent in an investment in the
Company. See "Dilution" and "Certain Relationships and Related
Transactions".
Potential Adverse Effect on Market Price of Securities from
Issuance of Preferred Stock
The Company is authorized by its amended and restated Articles
of Incorporation to issue a maximum of 10,000,000 shares of
Preferred Stock, in one or more series and containing such rights,
privileges and limitations, including voting rights, conversion
privileges and/or redemption rights, as may, from time to time, be
determined by the Board of Directors of the Company. Such
preferred stock could have voting and conversion rights that
adversely affect the voting power of the holders of Common Stock,
or could result in one or more classes of outstanding securities
that would have dividend, liquidation or other rights superior to
those of Common Stock. Issuance of such preferred stock may have
an adverse effect on the then prevailing market price of the Common
Stock and Warrants. See "Description of Securities".
Speculative Nature of the Warrants; Possible Redemption of Warrants
The Warrants do not confer any rights of Common Stock
ownership on their holders, such as voting rights or the right to
receive dividends, but rather merely represent the right to acquire
shares of Common Stock at a fixed price for a limited period of
time. Specifically, commencing ________, 1997, holders of the
Warrants may exercise their right to acquire Common Stock and pay
an exercise price of $_____ per share, subject to adjustment upon
the occurrence of certain dilutive events, until ________, 2001,
after which date any unexercised Warrants will expire and have no
further value. Moreover, following the completion of this
Offering, the market value of the Warrants is uncertain and there
can be no assurance that the market value of the Warrants will
equal or exceed their initial public offering price. There can be
no assurance that the market price of the Common Stock will ever
equal or exceed the exercise price of the Warrants, and
consequently, whether it will ever be profitable for holders of the
Warrants to exercise the Warrants.
Commencing ________, 1998, the Warrants are subject to
redemption at $.05 per Warrant on 30 days' prior written notice
provided that the average closing bid/ask price of the Common Stock
as reported on the AMEX equals or exceeds $_____ per share for any
20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice of
redemption. If the Warrants are called for redemption, holders of
the Warrants will lose their rights to exercise the Warrants after
the expiration of the 30-day notice period. Upon receipt of a
notice of redemption, holders would be required to: (i) exercise
the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the
then-prevailing market price, if any, when they might otherwise
wish to hold the Warrants, or (iii) accept the redemption price
which is likely to be substantially less than the market value of
the Warrants at the time of redemption. In the event that holders
of the Warrants elect not to exercise their Warrants upon notice of
Redemption, the unexercised Warrants will be redeemed prior to
exercise, and the holders thereof will lose the benefit of the
appreciated market price of the Warrants, if any, and/or the
difference between the market price of the underlying Common Stock
as of such date and the exercise price of such Warrants, as well as
any possible future price appreciation in the Common Stock. See
"Description of Securities - Warrants".
Current Prospectus and State Blue Sky Registration Required to
Exercise Warrants
The Warrants are not exercisable unless, at the time of
exercise, the Company has a current prospectus covering the shares
of Common Stock issuable upon exercise of the Warrants and such
shares have been registered, qualified, or deemed to be exempt
under the securities or "blue sky" laws of the state of residence
of the exercising holder of the Warrants. There can be no
assurance that the Company will be able to have all of the shares
of Common Stock issuable upon exercise of the Warrants registered
or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the
Warrants. The value of the Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the
exercise of the Warrants is not kept effective or if such Common
Stock is not qualified or exempt from qualification in the states
in which the holders of the Warrants reside. Until completion of
this Offering, the Common Stock and the Warrants may only be
purchased together on the basis of one share of Common Stock and
one Warrant, but the Warrants will be separately tradeable
immediately after this Offering. In the event investors purchase
the Warrants in the secondary market or move to a jurisdiction in
which the shares underlying the Warrants are not registered or
qualified during the period that the Warrants are exercisable, the
Company will be unable to issue shares to those persons desiring to
exercise their Warrants unless and until the shares are qualified
for sale in jurisdictions in which such purchasers reside, or an
exemption from such qualification exists in such jurisdictions, and
holders of the Warrants would have no choice but to attempt to sell
the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised. See "Description of Securities -
Warrants".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
Securities offered hereby, after deduction of underwriting
discounts and other estimated offering expenses are estimated to be
approximately $8,700,000 (approximately $________ if the
Underwriters' Overallotment Option is exercised in full). The
Company intends to utilize such net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Percentage
Approximate of Net
Dollar Amount Proceeds
------------- -----------
<S> <C> <C>
Working Capital and General
Corporate Purposes $5,194,000 60%
Repayment of Bridge Financing(1) 1,314,000 15
Strategic Alliances and Technology(2) 1,000,000 12
Other Current Liabilities(3) 492,000 6
Fees and Expenses Associated with
Public Offering(4) 400,000 4
Research and Development(5) 300,000 3
--------- ---
$8,700,000 100%
</TABLE>
- -----------------------
(1) Represents repayment of $1,235,000 plus interest as of January
31, 1997 for bridge financing, including $500,000 to repay 11
noteholders who advanced loans to the Company in December 1996 and
January 1997 and $735,000 to repay loans from certain shareholders.
The notes for $500,000 have a term of the earlier of six months or
three days after the closing of a public offering. The notes for
$235,000 have 48 month terms.
(2) Includes expenditures regarding formation of strategic
alliances and/or joint ventures, including additional personnel,
professional fees and administrative overhead, as well as costs
associated with technology demonstrations for new applications
and/or fields of use.
(3) Represents payment of current liabilities of the Company as of
January 31, 1997 for consulting, legal, professional and accounting
fees and other general obligations of the Company, including
$100,000 to the officers for deferred compensation and back pay
accumulated since 1994 (after offsetting $142,000 of advances to
officers and related accrued interest pursuant to the 1991 Board of
Directors resolution which provided for the right of offset).
(4) Includes legal and audit expenses, expenses associated with
the December 1996 special shareholders meeting and proxy
statements, and travel expenses for "road show" and other necessary
and required expenditures of the Company associated with the
Offering.
(5) Costs associated with the acquisition, testing and patenting
of new technologies or testing of current technologies for
different uses and/or applications, including ammonia reduction
process, and clean coal process.
The Company believes that the net proceeds of this Offering
will be sufficient to meet its cash, operational and liquidity
requirements for a minimum of 18 months after the date of this
Prospectus. While the initial allocation of the net proceeds of
this Offering represents the Company's best estimates of their use,
the amounts actually expended for these purposes may vary
significantly from the specific allocation of the net proceeds set
forth above, depending on numerous factors, including changes in
the general economic and/or regulatory climate, and the progress
and development of potential collaborative working arrangements.
However, there can be no assurance that the net proceeds of the
Offering will satisfy the Company's requirements for any particular
period of time. The Company anticipates that, after 18 months from
the receipt of the net proceeds of this Offering, additional
funding may be needed. No assurance can be given that such
additional financing will be available on terms acceptable to the
Company, if at all. See "Risk Factors - Potential Need for
Additional Financing." Pending specific allocation of the net
proceeds of this Offering, the net proceeds will be invested in
short-term, investment grade, interest-bearing securities of the
United States Government.
DIVIDEND POLICY
The Company has never declared or paid cash dividends, and
does not intend to pay any dividends in the foreseeable future on
its shares of Common Stock. Earnings of the Company, if any, are
expected to be retained for use in expanding the Company's
business. The payment of dividends is within the discretion of the
Board of Directors of the Company and will depend upon the
Company's earnings, if any, capital requirements, financial
condition and such other factors as are considered to be relevant
by the Board of Directors from time to time.
CAPITALIZATION
The following table sets forth (a) the actual capitalization
of the Company as of December 31, 1996, and (b) the capitalization
as adjusted giving effect to the sale by the Company of the
Securities offered hereby, the implementation of the two, four-to-
one reverse stock splits approved by stockholders on March 2, 1994
and December 12, 1996, and the initial application of the estimated
net proceeds therefrom. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Description of
Securities." This table should be read in conjunction with the
Company's Financial Statements and the notes thereto which are
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
----------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Short Term Debt:
Notes payable to stockholders
(See Note 2 of Notes to
Financial Statements Unaudited) $ 920,000 $
========== =========
Shareholder's Equity:
Preferred stock, $.001 par value;
authorized 10,000,000 shares;
no shares outstanding $ 0 $ 0
Common stock, $.001 par value;
Series A, authorized 10,000,000
shares; no shares issued or
outstanding; 1,600,000 shares
issued and outstanding, as
adjusted 0 1,600
Series B Common stock(1);
authorized 65,000,000 shares;
3,240,793 shares issued and
3,156,965 shares outstanding;
3,290,793 (2) shares issued
and 3,206,965 shares(2)
outstanding, as adjusted 3,241 3,291(1)
Additional paid-in capital 3,843,918 12,543,868
Accumulated deficit (5,763,185) (5,763,185)
Total stockholders' equity
(deficit) (1,916,026) 6,783,974
Total capitalization $(1,916,026) $6,783,974
========== =========
</TABLE>
- -----------------------
(1) Reflects the Company's two, four-to-one reverse stock splits.
(2) Includes 50,000 shares of Series B Common Stock issuable to
note holders of bridge loans made during the period from December
1996 through the date of this Prospectus, upon completion of this
Offering.
DILUTION
At December 31, 1996, the Company's negative net tangible book
value was $(1,916,026). The net tangible book value of the Company
is the tangible assets less total liabilities. After giving effect
to the implementation of the two, four-to-one reverse stock splits
approved by stockholders on March 2, 1994 and December 12, 1996,
and to the sale by the Company of the Securities offered hereby and
the initial application of the estimated net proceeds therefrom,
the pro forma net tangible book value of the Company as of December
31, 1996 would have been approximately $6,783,974, or $2.12 per
share. This represents an increase in net tangible book value per
share of $2.73 to the Company's existing stockholders and an
immediate dilution of $4.13 per share to new stockholders
purchasing shares of Common Stock in this Offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Public offering price per share $6.25
Negative net tangible book
value per share before the
Offering(1) $(0.61)
Increase per share attributable
to payments by new stockholders 2.02
Pro forma net tangible book value
per share after the Offering $1.41
----
Dilution per share to new
stockholders $4.84
====
</TABLE>
- ----------------------
(1) Reflects the effect of the two, four-to-one reverse stock
splits approved by stockholders March 2, 1994 and December 12,
1996.
In the event the Underwriter's Overallotment Option is
exercised in full, the pro forma net tangible book value per share
at December 31, 1996 would have been approximately $1.72 and the
dilution of net tangible book value per share to new stockholders
would have been approximately $4.53. See "Underwriting."
The following table sets forth the number of shares of Series
B Common Stock purchased from the Company by its existing
stockholders, after giving effect to the two, four-to-one reverse
stock splits approved by stockholders on March 2, 1994 and December
12, 1996 and to the issuance of 50,000 shares of Series B Common
Stock to noteholders of bridge loans made during the period from
December 1996 through the date of this Prospectus, the number of
shares of Series A Common Stock to be purchased by investors in
this Offering at an assumed initial public offering price of $6.25
per share, the total consideration paid and to be paid to the
Company, and the average price paid per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ --------------------- Average Price
Number Percent Amount Percent per Share
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
New investors 1,600,000 33.29% $10,000,000(1) 80.82% $6.25
Existing
stockholders 3,206,965 66.71 2,373,129(2) 19.18 $ .74
--------- ------ ---------- ------
Total 4,804,965 100.00% $12,373,129 100.00%
========= ====== ========== ======
</TABLE>
- ---------------------
(1) Attributes no value to Warrants.
(2) See "Certain Relationships and Related Transactions".
SELECTED FINANCIAL DATA
The selected financial data included in the following table as
of September 30, 1996, for the five year period ended September 30,
1996 and for the period cumulative during the development stage
through September 30, 1996, are derived from the Financial
Statements appearing elsewhere herein. The selected financial data
as of December 31, 1996, for the three months ended December 31,
1995 and 1996 and for the period cumulative during the development
stage through December 31, 1996 are unaudited and, in the opinion
of management, include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such
data. Financial data for the three months ended December 31, 1996
are not necessarily indicative of the results of operations to be
expected for the entire year. The selected financial data should
be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial
Statements and notes thereto appearing elsewhere herein.
Statement of Operations:
<TABLE>
<CAPTION>
Cumulative Cumulative
during during
development Three Months development
stage through Ended stage through
Year Ended September 30
September 30 December 31 December 31
------------------------------------------------------- ---
- --------- ---------------- -------------
1992 1993 1994 1995 1996
1996 1995 1996 1996
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Operating
Revenues $ 0 $ 0 $ 0 $ 0 $ 0 $
0 $ 0 $ 0 $ 0
Operating
Expenses 0 0 0 0 0
0 0 0 0
General and
Administrative 533,284 1,195,722 721,496 756,341 520,364
4,834,502 150,320 211,010 5,045,512
Research and
Development 33,000 0 48,500 123,000 0
627,266 0 0 627,266
-------- ---------- -------- -------- -------- -
- --------- -------- -------- ----------
Loss from
Operations (566,284) (1,195,722) (769,996) (879,341) (520,364)
(5,461,768) (150,320) (211,010) (5,672,778)
Interest
Income 15,972 1,908 2,714 2,391 6,942
60,785 1,497 2,313 63,098
Interest
Expense (12,439) (14,107) (145) (20,048) (38,199)
(140,418) (8,705) (13,087) (153,505)
-------- ---------- -------- -------- -------- -
- --------- -------- -------- ----------
Net Loss $(562,751) $(1,207,921) $(767,427) $(896,998) $(551,621)
$(5,541,401) $(157,528) $(221,784) $(5,763,185)
======== ========== ======== ======== ========
========== ======== ======== ==========
Net loss per
share(1)(2) $ (.01) $ (.02) $ (.01) $ (.01) $ (.01) $
(.09) $ (.00) $ (.00) $ (.10)
Pro forma
net loss
per share(2) (.15) $ (.32) $ (.20) $ (.24) $ (.15) $
(1.50) $ (.04) $ (.06) $ (1.56)
Cash
Dividends
paid $ 0 $ 0 $ 0 $ 0 $ 0 $
0 $ 0 $ 0 $ 0
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1996
------------------ -------------------------
Actual As Adjusted(3)
------ --------------
<S> <C> <C> <C>
Working capital
(deficit) $(1,699,904) $(1,921,282) $6,124,000
Total assets 173,333 183,579 6,677,579
Total liabilities 1,867,575 2,099,605 414,605
Stockholders'
equity (deficit) (1,694,242) (1,916,026) 6,783,974
</TABLE>
- --------------------
(1) Net loss per share is calculated on the basis of the weighted
average shares of Common Stock outstanding for each period
presented. Stock options and warrants issued within twelve months
of the initial public offering filing date (February 27, 1992) have
been treated as outstanding for all periods presented.
(2) Reflects the net loss per share after giving effect to the
implementation of the two, four-to-one reverse stock splits
approved by the stockholders on March 2, 1994 and December 12,
1996.
(3) Gives effect to the initial application of the estimated net
proceeds from this Offering. See "Use of Proceeds".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
ThermoEnergy Corporation (the "Company") is the exclusive
worldwide (except STORS in Japan) licensee for certain
environmental technologies developed by Battelle Memorial Institute
("Battelle"). These technologies are primarily aimed at solving
waste water problems for broad-based markets. These technologies
include two chemical process technologies known as the Sludge-To-
Oil Reactor System (STORS[TM]) and Nitrogen Removal (NitRem[TM]).
The third technology, a dual-shell pressure balance vessel, known
as the Dual-Shell Reactor[TM] ("DSR"), is the unique reactor
equipment in which the STORS and NitRem chemistries are conducted
(STORS, NitRem and DSR are referred to collectively as the
"Technologies"). The Company's applications of the Technologies
eliminate damaging organic and nitrogenous contaminants from
municipal and industrial waste streams.
The Company is a development stage company that has not
generated material revenues or any profits, and is involved in
marketing and developmental activities directed towards the
commercialization of the Technologies. The Company is currently
employing the Technologies in three demonstration projects, a
NitRem test facility in New York City, a demonstration project to
evaluate nitrogen removal at the TRIES project for the Radford Army
Ammunition Plant, Radford, Virginia, and a STORS demonstration
facility for the San Bernardino Valley Water District.
Since its formation in 1988, the Company has devoted
substantially all of its resources to funding the payments due
under license agreements, searching for opportunities to employ its
technologies in demonstration facilities and seeking capital
necessary to sustain the Company's efforts. After a demonstration
unit has been successfully operated and the Technologies have been
proven commercially viable, the Company may still require
additional investment capital and/or debt financing to continue its
operations.
Results of Operations
Three months ended December 31, 1996 compared to three months
ended December 31, 1995
For the three months ended December 31, 1996, the Company
incurred a net loss of $221,784 as compared to $157,528 for the
three months ended December 31, 1995.
General and administrative expenses and travel expenses
increased during the period ended December 31, 1996 compared to
December 31, 1995 due to the Company's efforts in pursuing equity
capital and selected projects. Interest expense also increased
between the same two periods due to the $387,835 increase in notes
payable to stockholders.
Year ended September 30, 1996 compared to year ended September
30, 1995 and year ended September 30, 1995 compared to year ended
September 30, 1994
The net losses for the periods presented resulted primarily
from salaries and other administrative expenses, contractual
obligations to Battelle Memorial Institute Pacific Northwest
Laboratories, travel expenses and professional fees. The decrease
in general and administrative expenses during the year ended
September 30, 1996 compared to the same period of the prior year
was due primarily to the concentration of the Company's efforts in
pursuing selected projects and conserving cash. The increase in
general and administrative expenses during the year ended September
30, 1995 compared to the same period of the prior year was due
primarily to fees for the Company's outside financial advisory
firm. General and administrative expenses were reduced in 1995 and
1994 by approximately $20,000 in each year as a result of a cost
reimbursement Letter Subcontract with the United States Department
of Defense.
Research and development expenses increased during the year
ended September 30, 1995 due primarily to the $75,000 license fee
more fully described in Note 7 of Notes to Financial Statements.
Travel and entertainment expenses decreased during the years
ended September 30, 1996 and 1995 compared to the prior year due to
the concentration of the Company's efforts in pursuing selected
projects and conserving cash. Interest expense for the years ended
September 30, 1996 and 1995 was attributable to the Company's notes
payable to stockholders, which are more fully described in Note 4
of Notes to Financial Statements.
Liquidity and Capital Resources
During the year ended September 30, 1996, the Company used
$257,166 of cash in operations compared to $506,809 in 1995 and
$628,233 in 1994. During 1992, the Company initiated a public
offering of 2,000,000 shares of common stock at a price of $1.00
per share. The offering was conducted on a "best efforts" basis,
primarily by directors and officers of the Company. Effective
January 5, 1994, the offering was terminated. A total of 1,490,050
shares were sold at a price of $1.00 per share and an additional
103,000 shares were issued at $1.00 per share in satisfaction of
notes payable and related accrued interest.
During 1996 and 1995, the Company met its liquidity needs
primarily from borrowings from stockholders (see Note 4 of Notes to
Financial Statements). During 1994, the Company met its liquidity
needs from sales of warrants for common stock to stockholders and
from available cash.
Management plans to meet the Company's liquidity needs during
the year ending September 30, 1997 with proceeds from the sale of
additional stock through this Offering.
Management plans to meet long-term liquidity needs primarily
from revenues derived from commercial contracts the Company hopes
to obtain subsequent to successful demonstrations of its
Technologies, such as the Radford NitRem, New York City NitRem and
San Bernardino STORS demonstration projects.
The Company believes that the net proceeds from this Offering
will be sufficient to meet its cash, operation and liquidity
requirements for a minimum of 18 months after the date of this
Prospectus. The Company has allocated $1,000,000 of the net
proceeds of this Offering for the funding of proposed collaborative
ventures. These costs include, but are not limited to, salaries
and benefits of personnel, equipment design and procurement costs,
costs of leasing or otherwise obtaining additional operating
facilities, analytical and other testing costs, professional fees,
insurance, marketing and other administrative expenses. As of the
date of this Prospectus, the Company has not determined the amount
of net proceeds of the Offering to be applied to any of the
proposed collaborative ventures because the Company is currently in
negotiations with such proposed venture partners, involving, among
other issues, the level of its proposed funding commitment. See
"Use of Proceeds" and "Business/Strategic Corporate Alliances".
Recent Pronouncements of the Financial Accounting Standards Board
The Financial Accounting Standards Board has issued Statements
of Financial Accounting Standard Statements No. 121, "Accounting
for Long Lived Assets" and No. 123, "Accounting and Disclosure of
Stock-Based Compensation." Statement No. 121 is effective for
years beginning after December 15, 1995. The effect of adoption of
Statement No. 121 will not have a material effect on the Company's
financial statements. Statement No. 123 is effective for years
beginning after December 15, 1995. Since the adoption of the
Company's Stock Option Plan, which was approved by the Board of
Directors on January 3, 1997, is subject to stockholder approval,
management has not made a determination of the impact of Statement
No. 123 on the Company's financial statements.
Net Operating Losses
The Company has net operating loss carry forwards as of
September 30, 1996, of approximately $4,400,000 which expire in the
years 2003 through 2011. The amount of net operating loss carried
forward that can be used in any one year will be limited by the
applicable tax laws which are in effect at the time such carry
forward can be utilized. A valuation allowance of approximately
$1,685,000 has been established to offset any benefit from the net
operating loss carry forward as it cannot be determined when or if
the Company will be able to utilize the net operating losses. See
Note 5 of Notes to Financial Statements.
Impact of Inflation
Although inflation has slowed in recent years, it is still a
factor in the economy. Since the Company has no significant
revenues, inflation primarily affects the Company's travel costs
and cost of outside services. It could also affect the cost of
constructing demonstration and full-scale facilities in the future.
The Company will consider the impact of inflation in its financing
plans.
BUSINESS
The Company was incorporated in Arkansas on January 19, 1988,
under the name Innotek Corporation, at the direction of the Board
of Directors and majority shareholders of American Fuel and Power
Corporation ("AFP"). In 1986, AFP executed an agreement with
Battelle concerning development of the STORS and NitRem
technologies. However, since AFP's primary business was motor fuel
additives and industrial lubricants, AFP sublicensed the
technologies to the Company, under an agreement requiring that 70%
(approximately 24,700,000 shares) of the Company's initial
outstanding common stock be issued and subsequently distributed to
AFP shareholders. The Company subsequently entered a license
agreement with Battelle Memorial Institute which supersedes the
previous agreement between Battelle and AFP. On December 12, 1996
the Company changed its name from Innotek Corporation to
ThermoEnergy Corporation. (See Certain Relationships and Related
Transactions).
The Company is the exclusive worldwide (except STORS in Japan)
licensee for certain environmental technologies developed by
Battelle. These technologies are primarily aimed at solving waste
water problems for broad-based markets. These technologies include
two chemical process technologies known as the Sludge-To-Oil
Reactor System (STORS[TM]) and Nitrogen Removal (NitRem[TM]). The
third technology, a dual-shell pressure balance vessel, known as
the Dual-Shell Reactor[TM] ("DSR"), is the unique reactor equipment
in which the STORS and NitRem chemistries are conducted
(collectively, STORS, NitRem and DSR are referred to as the
"Technologies"). The Company's applications of the Technologies
eliminate damaging organic and nitrogenous contaminants from
municipal and industrial waste streams.
STORS is a thermochemical process that converts raw undigested
municipal sewage sludge (biosolids) into a useable fuel oil similar
to diesel fuel. Management believes that integrating the
Technologies into the design of municipal sewage sludge treatment
and processing facilities results in (i) an environmentally
responsible treatment of sewage sludge and (ii) cost efficiencies
as a result of lower capital and operating costs for these
treatment and processing facilities. The introduction of STORS
into the municipal waste water processing industry will not only
allow municipal operators to meet or exceed regulatory standards,
but should also drastically reduce ordinary or conventional capital
and operating costs for treatment facilities.
NitRem is a hydrothermal process, similar in operation to
STORS, applied to processing solely aqueous waste streams. When
operating in conjunction with STORS, NitRem can process waste water
to near drinking water standards, allowing for the recovery and
reuse of this valuable resource. In addition, NitRem, operating as
a stand alone technology, can convert virtually any hazardous or
non-hazardous aqueous waste stream containing nitrogenous compounds
(nitrates, nitrites, amines and ammonia) into an environmentally
safe and acceptable form. NitRem's compact design is ideal for
small mobile processing units, opening up an additional markets.
Since the waste is processed and treated on-site, the waste
generator is not susceptible to long-term liabilities associated
with off-site waste processing or storage (e.g. landfilling).
Both the STORS and NitRem process chemistries are conducted in
the Company's patented reactor-within-a-reactor equipment, the DSR.
Management believes that the unique design of the DSR provides
STORS and NitRem with an advantage over competing technologies.
See "Competition and Proprietary Information".
Environmental reform efforts have influenced a series of state
and federal legislation establishing strict but realistic,
environmental standards designed to protect both water and air
quality. The impact of this legislation on waste water discharged
by municipal and industrial sources has been significant. Plagued
by under- capacity and obsolete facilities, publicly owned waste
water treatment facilities ("Publicly Owned Treatment Works" or
"POTW's") are in need of significant improvements to meet federal
and state discharge requirements from legislation such as the Ocean
Dumping Ban Act of 1988, the Land Ban Acts, the amended Clean Air
Act and rules promulgated thereunder. This legislation, coupled
with improvements in chemical detection instrumentation and
expanded reporting requirements, have placed rigorous demands on
"conventional" waste water treatment and sludge disposal methods
currently utilized by municipalities and industry. In addition,
interstate compacts, such as the Long Island Sound Agreement and
the Chesapeake Bay Agreement, targeted specific waste streams that
cause severe ecological damage, ultimately destroying aquatic life
("eutrophication"). The most significant among these pollutants
are "nutrients", i.e., nitrogen and phosphate. Known as nutrient
loading, the discharge of these compounds into our rivers, lakes or
estuaries is a leading cause of eutrophication. Section 320 of the
Clean Water Act lists 16 estuaries of national significance that
require priority attention, with provisions for additional
estuaries to be added in the near future. The economics involved
in meeting these new mandates are forcing POTW operators to seek
new, alternative treatment and recycling technologies in order to
achieve compliance at an affordable cost.
Future Technology Surveys, Inc., in a comprehensive market
study conducted in 1994, estimated that $4 billion a year for the
next twenty years will be needed in capital equipment costs in the
United States alone just to bring existing facilities into
compliance with current standards. In addition, the $3 billion in
annual operating and maintenance cost is growing at three percent
(3%) per year, putting the annual operation and management costs at
approximately $4 billion by the year 2000. The study also
estimated that the percentage of municipal waste water treatment
plants owned and operated by private firms will top 15% by 1999.
The EPA, in its Needs Survey Report to Congress, 1992,
estimated the capital required to meet minimum waste water
treatment standards in the United States through the year 2012
would be between $31.3 and $37.4 billion.
A recent market survey of the nation's public works directors
conducted by Water World Digest showed that capital expenditures
for improvements to water/waste facilities are estimated at $24
billion for 42 of the top 60 U.S. markets through the year 2000.
This estimate represents projects already planned and funded over
the next five years.
From a competitive standpoint, the lower capital requirements
alone for a STORS/NitRem waste water treatment facility make it an
attractive option for municipalities, especially for the top sixty
municipal markets such as New York City and San Bernardino. The
top 60 municipal waste water treatment markets account for
approximately 80% of all the sewage sludge generated annually in
the United States. The Company believes these markets are
excellent privatization candidates where the Company could build,
own and operate the waste water facilities for the municipality
over a contracted period (usually 20 years). These contracts,
known as "take or pay" agreements, call for the local municipal
government to pay the Company on a per dry ton per day through-put
basis. These markets produce roughly 8 million dry tons of sludge
per year at a current average internal cost rate in excess of $550
per dry ton or an equivalent of $4.4 billion annually.
The Company's business strategy is to establish joint ventures
with larger, more established companies currently operating in the
Company's targeted markets. The Company intends to enter into
these relationships to (i) effect direct sales of equipment and
services to government or industrial users, (ii) sublicense the
technologies to industrial users, or (iii) to build, own and
operate municipal and/or industrial waste water treatment
facilities. The Company is currently negotiating both additional
and project-specific, and other, working arrangements with Foster
Wheeler Environmental Corporation, Roy F. Weston, Inc., Dan Cowart,
Inc., and Mitsui & Co. (U.S.A.), Inc. See "Business - Strategic
Corporate Alliances".
In October 1994, the Company and Sam Houston State University,
doing business as the Texas Regional Institute for Environmental
Studies ("TRIES"), signed an agreement to undertake a demonstration
project to evaluate the nitrogen removal process and NitRem's
ability to economically and safely treat trinitrotoluene ("TNT")
redwater, TNT contaminated wastewater, and various RCRA waste
streams within the Department of Defense industrial base and the
Department of Defense Commercial Facilities. The NitRem DSR unit
is scheduled to be delivered to the project site, Radford Army
Ammunition Plant, Radford, Virginia, in March 1997, to begin
testing procedures of the unit. TRIES has the contract with the
DoD, Department of Army, and the Company is subcontracted to TRIES
for the project. See "Business - NitRem Demonstration - United
States Department of the Army Program".
In July 1996, the Company signed a No Cost Test Agreement
("New York Agreement") with the City of New York, Bureau of Clean
Water - Department of Public Works. The purpose of the New York
Agreement is to allow the City of New York to evaluate NitRem and
its ability to satisfy the City of New York's nitrogen removal
requirement imposed by new wastewater discharge federal/state
standards. Successful laboratory and pilot plant results from
testing actual samples of New York City's centrate discharge led to
the design of a large scale NitRem DSR to be used on this
demonstration project. The New York Agreement provides that the
demonstration test will begin April 1, 1997, and that Foster
Wheeler Corporation will build and own the test equipment used in
this demonstration project. This will be the first collaborative
effort between the Company and Foster Wheeler Corporation to
demonstrate STORS. See "Business - NitRem Demonstration - New York
City Project".
In September 1996, the San Bernardino Valley Water District
("SBVWD") was awarded a $3,000,000 federal matching grant for the
design, construction and operation of a large-scale STORS
wastewater treatment demonstration facility. In addition to the
grant, SBVWD is required to provide matching funds for this
demonstration project. The capacity for this demonstration facility
will have a through put capacity equal to or greater than 75% of
the wastewater treatment facilities currently operating within the
United States. The Company anticipates that it will be responsible
for the design, construction, installation and operation of the
SBVWD demonstration facility. See "Business - STORS
Demonstration".
Although the Company believes that it will be able to enter
into additional definitive agreements with strategic partners such
as Foster Wheeler and Mitsui and be awarded sales and/or service
contracts based on the technologies, there can be no assurance that
any of these discussions will result in collaborative agreements,
demonstration project contracts, or contract awards or that such
agreements or contracts will result in revenue for the Company.
Once a demonstration project has been successfully completed, there
can be no assurance that the Company will be awarded commercial
contracts for such a project. Even if such contracts are awarded,
neither STORS nor NitRem nor the DSR have ever been utilized on a
large-scale commercial basis, and there is no assurance that either
STORS, NitRem or the DSR will perform successfully on a large-scale
commercial basis or that it will be profitable to the Company.
There can also be no assurance that either STORS, NitRem or the DSR
will not be superseded by other competing technologies. See "Risk
Factors - Commercialization of Technologies beyond Test Stage".
The Company registered 2,000,000 shares of common stock with
the Securities and Exchange Commission on June 24, 1992. The
Company subsequently sold 1,490,050 shares of stock, issued 103,000
shares in satisfaction of notes payable with related accrued
interest, and terminated the offering effective January 5, 1994.
On October 23, 1996, the Company entered into a nonbinding Letter
of Intent with the Underwriters, an NASD member, broker-dealer,
with respect to the Offering. The corporate offices of the Company
are located at 323 Center Street, Suite 1300, Little Rock,
Arkansas, 72201. The Company's telephone number is (501) 376-6647.
GENERAL OPERATIONS
The Company is engaged in the development of STORS, a
thermochemical process for converting sewer sludge to fuel, NitRem,
the process of aqueous phase destruction of nitrates, nitrites,
ammonia in amines, and the DSR. Although the STORS technology is
generally focused at the municipal waste water treatment market,
and the NitRem technology is generally focused at the hazardous
waste disposal market, the two technologies work together. NitRem
is used to eliminate the ammonia stream and biological oxygen
demand for the waste water that is discharged by the STORS process.
The Company has pursued its development and commercialization
of the Technologies through direct marketing to potential end-users
as well as through strategic relationships with Battelle, the
developer of the Technologies, and Foster Wheeler Corporation
("Foster Wheeler"), an international engineering and construction
company. The Company has License Agreements with Battelle, and
relies on Battelle to perform all research for the Company.
The License Agreements with Battelle grant ThermoEnergy an
exclusive license to make, use and/or sell the Technologies
worldwide, except in Japan. ThermoEnergy is required to pay
royalties to Battelle based on the volume of waste processed
through commercialized technologies and the direct sales of DSR
equipment. Pursuant to the terms of the License Agreements, the
Company has until January 31, 1998 to commercialize either STORS or
NitRem or the DSR. "Commercialization" as defined in the License
Agreement is the construction and continuous operation of at least
one facility with the capacity of ten dry ton equivalent or 1,000
gallons of liquid per day. If the Company cannot complete a full
scale demonstration facility, the License Agreement will terminate
unless the Company is able to renegotiate an extension, if
necessary. Pursuant to the License Agreements, Battelle continues
to reserve rights in the Technologies for research and development
purposes. See "Recent Developments".
The Company does not currently possess the technical,
operational or financial resources necessary to construct or
operate STORS or NitRem facilities at either a demonstration or
commercial facility level. Consequently, the Company's future
operations will depend upon its ability to attract adequate
capital, so that it may in turn acquire the technical and
operational expertise and services required for commercial and/or
demonstration facilities of either the STORS or NitRem
technologies. No facilities have yet been built, outside Japan,
that employ either STORS or NitRem on a commercial basis. (See
"Recent Developments".) Until large-scale demonstration facilities
have been constructed and operated for a period of time sufficient
to produce reliable operating data, it is not possible to
accurately estimate capital needs for a STORS or NitRem facility
and such capital needs can only be approximated at plus or minus
20% by an engineering firm with experience and expertise in the
chemical processing industry. Therefore, the Company believes that
in order to prove the commercial feasibility of the STORS and
NitRem technologies, a large-scale demonstration facility must be
sited, constructed and operated successfully. For this reason, the
Company has actively promoted the STORS technology since 1988 and
the NitRem technology since 1991 with the dual goal of convincing
either a United States governmental agency or private industry to
fund a full scale demonstration facility of either one or both
technologies. See "STORS Demonstration" and "NitRem
Demonstration".
The Company will employ conventional separation techniques
standard in similar industries. The oil fraction will be siphoned
off and sent to a holding tank. The water fraction will be
returned via a dedicated pipeline to the front-end of the
wastewater treatment plant to be processed utilizing standard
industry practices. The char by-product will be handled in one of
two ways. If the incoming sewage sludge feedstock contains
relatively small percentages of toxic materials (e.g. cadmium,
mercury, PCB's, etc.) then the char can potentially be used as a
stand-alone fuel source (for example in a cement kiln) or mixed
with the oil fraction and used as a fuel source for industrial
furnaces or incinerators. However, if the percentage of toxic
materials in the influent exceeds regulatory limits then the char
can be grouted in cement blocks utilizing conventional methods and
landfilled. Both methods of char disposal will be tested on the
SBVWD demonstration projects scheduled for the fourth quarter 1997.
RECENT DEVELOPMENTS
The Company plans to continue its commercialization efforts
during the next fiscal year for both the STORS and NitRem
technologies within their target markets, i.e., municipal waste
water treatment and hazardous waste disposal markets respectively.
The Company is not required to make capital contributions to the
projects listed below and the Company will not receive any revenues
or earnings from these test projects. The Company will be
reimbursed for administrative and operating costs but will not
receive any revenues or earnings from the test projects described
below.
STORS DEMONSTRATION
To sell a full scale commercial STORS waste water treatment
system to a municipality, a demonstration plant must be built at
and integrated with a working waste water treatment facility and
operated for a long enough period of time to generate engineering
data sufficient for the initiation of construction of a full scale
commercial system. This requires a "host" city willing to join
with ThermoEnergy and Battelle in such a project and participate by
contracting to have a STORS system located at one of its waste
water treatment facilities. San Bernardino, California has been
identified by the Company as a "host" city.
ThermoEnergy has met with various local, state and federal
officials in California in an effort to locate funding for a full-
scale STORS demonstration facility. In May of 1996, ThermoEnergy
and Battelle representatives met with city officials at San
Bernardino Valley Water District ("SBVWD") to discuss siting of a
$6,000,000 full-scale STORS demonstration project in the San
Bernardino area. The SBVWD agreed to host the project and is aware
that matching funds for the federal government grant is required.
Subsequently, the United States House and Senate approved, in PL
104-204, September 26, 1996, a $3,000,000.00 federal matching grant
to the SBVWD for the design, construction and operation of a large-
scale STORS Waste Water Treatment Demonstration Facility. The
General Accounting Office has authorized the EPA's San Francisco
office, to disburse the funds accordingly and to administer this
grant for the SBVWD project. The capacity for the demonstration
plant will have a throughput capacity equal to or larger than 75%
of currently operating waste water treatment facilities within the
United States. The Company met in December of 1996 with officials
from the City of San Bernardino and the SBVWD to plan
implementation of the project and discuss ThermoEnergy's
participation in the design, construction, installation and
operation of the demonstration facility.
NITREM DEMONSTRATION
To sell a full-scale commercial NitRem system to a
municipality, industrial or military client, the Company must first
demonstrate the viability of the process at full scale. The
Company has initiated two such demonstration facilities which are
scheduled to begin operation in the first quarter of 1997.
United States Department of the Army Program
ThermoEnergy and Sam Houston State University, doing business
as the Texas Regional Institute for Environmental Studies ("TRIES")
signed an agreement in October 1994 allowing ThermoEnergy to
demonstrate its NitRem technology to evaluate the nitrogen removal
process and its ability to economically and safely treat TNT
redwater, DNT contaminated wastewater and various other RCRA waste
streams within the Department of Defense ("DoD") industrial base
and DoD commercial facilities. ThermoEnergy is the lead
subcontractor on this project.
The first NitRem commercial scale demonstration unit is
planned for the Radford Army Ammunition Plant, in Radford,
Virginia. The project plans for this $5,000,000 NitRem
demonstration project have been completed and been approved by the
Army Armament Research Development Command. The Army Command has
issued a purchase order for the new unit. Foster Wheeler and
Glitsch Process System (a wholly-owned subsidiary of Foster
Wheeler) are currently fabricating the NitRem unit. Under the
Company's supervision, this demonstration facility will be used to
process a number of different hazardous waste streams resulting
from the manufacture of explosives, including TNT, DNT, HMX and
RDX. The demonstration unit is scheduled to be delivered to
Radford in February, 1997, with operations to begin in March, 1997.
This NitRem system has been designed as a mobile system in order to
process additional waste streams from other Department of Defense
sites.
New York City Project
The second NitRem commercial scale demonstration project is a
team effort between ThermoEnergy, Foster Wheeler and the City of
New York to test NitRem's capability to cost-effectively eliminate
the concentrated ammonia discharge, or centrate, from eight of New
York City's fourteen waste water treatment facilities. The City of
New York currently produces over three million gallons of centrate
daily, which the City projects will reach five million gallons
daily by 2001. This concentrated ammonia waste stream is a leading
cause of eutrophication in the Long Island Sound. Laboratory tests
conducted on actual samples of New York City centrate in May of
1996 by Battelle successfully resulted in NitRem eliminating the
ammonia present in the centrate. The City of New York and the
Company signed a No Cost Test Agreement in July 1996 which allows
the Company to demonstrate, on site, the services and capabilities
of NitRem. The demonstration facility, costing approximately
$930,000, will be paid for by Foster Wheeler. The unit will be
designed as a mobile unit and is currently being built by Foster
Wheeler. The project is scheduled to begin operation on April 1,
1997 and conclude not less than 150 consecutive calendar days, nor
more than 200 consecutive calendar days from the start date.
STRATEGIC CORPORATE ALLIANCES
In September 1994, the Company and Foster Wheeler Corporation
executed a non-exclusive Worldwide Marketing Agreement whereby both
companies have agreed to jointly market, develop and commercialize
the Technologies on a worldwide basis. The companies have agreed
to work together to develop marketing strategies, identify
potential projects and develop joint proposals. When a potential
project is identified, the Company has agreed to provide Foster
Wheeler with the necessary process and design information, and
Foster Wheeler has agreed to design, procure and construct the
required processing facilities based on this information. Each
company will absorb their own costs associated with these
responsibilities. Under the agreement, each party is subject to
confidentiality obligations. The initial term of the agreement is
ten years and the agreement will be automatically extended in
three-year periods thereafter. The Company and Foster Wheeler are
working on a marketing strategy for private sector business,
initially targeting the pharmaceutical, pulp and paper and
petrochemical industries in the U.S. and Europe. In addition, the
Company and Foster Wheeler have begun a joint marketing effort
within the Department of Navy Surface Systems Command.
In March 1996, the Company entered into a Marketing Agreement
with the Atlanta based Dan Cowart, Inc. ("DCI") to market, develop
and commercialize the Technologies in Georgia and Florida. DCI is
a multi-discipline construction and development firm for large
scale real estate projects. Under the agreement, the Company has
granted DCI the exclusive right to exploit any and all applications
of the Technologies for municipal, local governmental and real
estate development markets in Georgia and Florida, and the
nonexclusive right to exploit any and all applications of NitRem
for industrial markets in Georgia and Florida. The Company will
provide technical and administrative support to assist DCI in its
efforts. From its relationship with DCI, the Company will derive
revenue from the sale of a STORS DSR or NitRem DSR unit to an end-
user, and from fees associated with the operation of a specific
project. The agreement also contemplates the formation of a joint
venture between the companies to construct and operate future
projects. DCI is to be paid a one time success fee of 62,500
warrants convertible into 62,500 shares of ThermoEnergy Series B
Common Stock, exercisable within ten years from the date of
granting the warrants at a price of $2.00 per share, within 90 days
upon the signing of an agreement with a target customer to purchase
or utilize any of one of the Technologies. The agreement is for a
term of ten years. During the first twelve months, all conditions
of exclusivity under the agreement are for the exclusive benefit of
DCI. If the Company does not cancel DCI's exclusivity before the
end of the first twelve months, it shall be automatically renewed
for a second twelve months. However, after the first two years of
the agreement, if no contracts are signed, the exclusive condition
of the joint venture can be terminated by either party upon one
month's written notice and, thereafter, DCI's rights to the
Technologies in Georgia and Florida would become nonexclusive. The
Company in conjunction with Battelle, is developing a comprehensive
audio-visual presentation to be used by DCI in its marketing
efforts. In addition, DCI has engaged the services of a regional
engineering firm to work directly with the Company and Battelle to
work on scheduling meetings with municipal and state waste water
authorities in Georgia and Florida.
In April 1996, the Company entered into a Memorandum of
Understanding with Roy F. Weston, Inc. ("Weston") of West Chester,
Pennsylvania. Weston is an engineering firm which participates in
the development of large scale civil engineering projects. The
purpose of the memorandum is to provide a framework by which both
companies will jointly pursue business opportunities for the
application of the Technologies. Pursuant to the memorandum, both
companies will work together to develop projects. Weston has
agreed to provide engineering, construction management,
installation, operations and maintenance services in connection
with such projects, while the Company agreed to provide the
Technologies at a reasonable fee no greater than the Company's most
favored licensees. The memorandum incorporates by reference a
Proprietary Information Agreement dated August 22, 1995, previously
signed by the parties pursuant to which each company has agreed to
maintain in confidence all proprietary information furnished by the
other. The memorandum may be terminated by either company upon the
provision of written notice.
In October 1996, the Company entered into a Memorandum of
Understanding ("MOU") with Foster Wheeler and Mitsui & Co.
(U.S.A.), Inc. ("Mitsui") to pursue various water and waste water
projects in Brazil, Mexico and Peru. Mitsui is a multi-
diversified, international company with diplomatic relationships
with various foreign governments. The purpose of the MOU is to set
forth the likely roles of the companies in connection with any
business involving the Technologies. As contemplated by the MOU,
ThermoEnergy Corporation would provide the rights to use the
Technologies for projects jointly developed in Brazil, Mexico and
Peru, Foster Wheeler would design, construct and, possibly, operate
the Technologies at the identified projects, and Mitsui would
gather information regarding opportunities, identify projects, and,
possibly, seek to arrange financing for various projects. The
participants have held several meetings pursuant to the MOU and the
next step is joint presentation to the government officials of
Brazil and Mexico to discuss these projects.
PLAN OF OPERATIONS
The Company plans to use the net proceeds from the Offering to
satisfy the cash requirements for its operations for the next
eighteen months. Additional funds may be necessary in the event
the Company takes on other projects or makes an acquisition of
another company to facilitate the Company's commercial
demonstration of its technologies.
Over the next twelve months, the Company expects to add the
following personnel: (i) two executives to senior management; (ii)
seven engineering, technical and sales positions; and (iii) three
clerical positions.
The overall goal of the Company is to successfully complete a
demonstration project for STORS and/or NitRem through all of the
projects and strategic corporate alliances discussed herein.
Management plans to utilize these demonstration facilities to
expand the visibility of the Company in the municipal, industrial,
Department of Defense and Department of Energy markets. A
successful demonstration project is the single most important
business factor in the implementation of the Company's plan of
operations.
COMPETITION AND PROPRIETARY INFORMATION
In seeking to introduce STORS as an alternative sewage sludge
disposal technology to incineration, land filling, composting or
land application, the Company will compete with major waste
disposal companies, environmental technology companies and foreign
waste disposal interests. Land filling, the most common disposal
practice in the United States, while permissible, has been affected
by enactment of EPA Regulations on land disposal restrictions
promulgated under of the Solid Waste Disposal Act and the Resource
Conservation and Recovery Act of 1976, as amended (40CFR268).
Composting is the process whereby sewage sludge is cured over a
lengthy period and mixed with wood chips or a similar substance for
use as a fertilizer. This process requires vast amounts of space.
Land application is the process of spraying wet sludge over an area
after the sludge has been processed by a waste water plant. This
process is not a disposal method that will gain wide use or
acceptance. Incineration is the second most common disposal
practice in the United States and is, on average, the most
expensive disposal practice in the United States because of its
initial capital requirements and operating expense. The future of
sludge incineration in the United States has been adversely
affected by the Clean Air Act. The conventional disposal
manufacturers and operators with whom the Company must compete have
in many cases long-established ties to the sewage sludge disposal
industry and have proven disposal methodologies. Many such
companies also have research and development budgets, marketing
staffs and financial and other resources which far surpass the
resources of the Company. There can be no assurance that such
competitors will not attempt to develop and introduce similar
disposal technologies. None of the Company's identified
competitors have, to the Company's knowledge, achieved significant
commercial acceptance with similar technologies.
Management believes it can offer competitive alternatives to
POTWs using STORS. The STORS thermochemical process is conducted
in a closed reactor (DSR) thereby alleviating the necessity of
transporting the sludge and exposing the sludge to the ambient air.
In addition to the actual disposal technologies, there are
other competitive factors to be considered by POTWs in savings
comparing sludge disposal processes, such as present and future
compliance probability, maturity of process technology, political
and public acceptance, capital cost, required space and expected
lifetime. Management believes POTWs' major considerations in
selecting disposal technologies is not just of the operating cost
of the process itself, but the total operating costs of the entire
waste water treatment processing facility. As a result, the
Company believes its processes are unique among sludge treatment
technologies because the Technologies eliminate the need for
biological sludge treatment, both digestion and
nitrification/denitrification, allowing facilities to be designed
and built meeting standards regulator at a dramatically lower cost.
In addition, management believes by using smaller size STORS
and NitRem plants POTWs will be able to handle the same flow
capacity with lower capital and operating costs.
Management believes the STORS/NitRem combination facility goes
further than other technologies to solving the total waste problems
faced by a waste water facility. For example, the Company believes
that STORS and NitRem offer POTWs a more cost-effective basis for
tertiary water treatment, allowing the recovery and reuse of water
processed through the waste water treatment plant with a minimal
amount of processing. STORS removes nitrogen, heavy metals,
phosphorus, many toxic compounds and produces a high energy fuel.
Industrial wastewater often poses the same issues as does municipal
wastewater. In addition, there is a large volume of toxic slurries
and solutions which pose an even greater problem for their
generators than exists for municipalities. A review of the
regulatory and technical situation for industrial discharges was
presented in the industry journal "Chemical Engineering" in June of
1992: Part 1 - New Environmental Regulations Pose Challenges for
Industry, and Part 2 - A Guide to Industrial Pretreatment. The
review demonstrates the diversity of wastewater issues faced by
industrial facilities, and it is clear that the best solution will
vary by industry and even by facility. However, management
believes that there are many situations where either a robust
technology, insensitive to pollutant concentrations and solids
content, or a high destruction efficiency will be required. These
situations will often become sales opportunities for the Company.
Although the Company has an exclusive License Agreement with
Battelle for the STORS technology, STORS is not a patentable
technology. The Japanese company which originally sponsored the
Battelle STORS research has continued its own research in STORS
technology for the Japanese market.
The Company has the rights to two process patents for the
NitRem process, one patent for a combined STORS/NitRem process, one
patent for the Dual-Shell Reactor System, and one patent for a
pumping system to feed sludge into the STORS reactor.
In addition, companies already engaged in the sewage sludge
disposal business, some of which have significantly greater
financial capability than the Company, could independently develop
similar technological processes and reactors and reach viable
commercialization prior to the Company doing so. Certain of the
Company's potential competitors have contacted the Company or have
been contacted by the Company and have expressed interest in acting
as operators of STORS and NitRem facilities which the Company hopes
to install.
The Company anticipates that its primary markets fall into two
basic categories: remediation, or environmental clean-up of prior
contamination, and waste minimization, or pollution prevention.
Both market segments will include the disposal of a wide variety of
waste streams, many of which contain toxic and/or hazardous
constituents. These two primary markets will consist of three
categories: municipal, federal agencies, and industry. The
municipal markets will involve the STORS and NitRem technologies
for the process and treatment of municipal waste water. Work for
federal agencies will almost exclusively utilize the NitRem
technology to process a wide variety of waste streams for the
Departments of Defense (DoD) and Energy (DoE). DoD and DoE work
will involve both remedial and waste minimization efforts. The
Company has conducted several tests on DoD wastes utilizing the
NitRem pilot plant located at Battelle Pacific Northwest
Laboratory, in Richland, Washington. As a result of these tests,
Company management is currently collaborating with Foster Wheeler
to pursue contracts with DoD to dispose of (i) munition residuals
resulting from the manufacture of explosives, (ii) rocket
propellants, torpedo propellants, chemical/biological weapons, and
excess toxic and hazardous ship wastes. Projects where the
Company's NitRem technology could benefit DoE are remedial in
nature, e.g. the clean-up of aqueous radionuclides resulting from
the production of radioactive materials for nuclear weapons over
the past sixty years. Management has identified sites where it
believes that NitRem could prove useful, include Hanford,
Washington, Savannah River site, South Carolina, and Mound, Ohio.
PRIVATIZATION
A key part of the Company's long-term strategy is to
capitalize on the trend toward privatization of municipal services
traditionally provided by city government. A trend that began in
Europe over thirty years ago spread to the United States in the
mid-1970's, when cities began to contract out such services as
garbage collection, snow clearing, parking meter patrol, etc. This
trend has continued to grow over the years and today the operation
of many municipal services are being transferred to the private
sector, including waste water processing and treatment.
Historically, tax-exempt governmental purpose bond financings and
state and federal matching grant programs, that funded these
infrastructure projects, were unavailable to private entities,
which was perceived to be a key factor limiting the growth of
municipal privatization. However, with the proliferation of
alternative funding sources, such as equity participation, private
activity tax-exempt bonds and taxable bonds, the trend toward
privatization is projected to increase over the next twenty years.
Future Technology Surveys, Inc., a municipal consulting firm,
predicts that 15% of the 15,000 publicly owned municipal waste
water treatment plants will be operated under some form of
public/private partnership by the end of 1996, with continued
growth trend over the next twenty years.
The Company intends to form one or more joint venture
arrangements to pursue the growing number of privatization
opportunities in the municipal water/waste water industry. The
Company has already joined with Foster Wheeler and Dan Cowart, Inc.
in responding to a preproposal solicitation by the City of Atlanta
for privatization concepts and technologies. In addition, the
Company has signed a memorandum of understanding with Foster
Wheeler and Mitsui & Co. (U.S.A.), Inc. to pursue targeted
water/waste water privatization projects in Mexico and Brazil. The
Company intends to work with both Mitsui and Foster Wheeler to
pursue other similar projects, as well as look for other strategic
partners to pursue privatization projects worldwide.
In March of 1995, the U.S. House of Representatives,
Government Oversight and Operations Committee sponsored a new bill,
H.R. 1907, which will remove many statutory roadblocks for cities
and municipalities who wish to privatize traditional municipal
services such as waste water treatment. H.R. 1907 removes major
restrictions for the transfer of heretofore municipal assets to
private sector companies. The existence of H.R. 1907 is reflective
of the trend toward privatization of municipal services in the
United States and meshes with the Company's long-term business
strategy.
RESEARCH AND DEVELOPMENT
Research and development activities with respect to STORS and
NitRem are ongoing and are generally conducted by Battelle. The
Company conducted no research and development activities for the
Company for the three months ended December 31, 1996. Research and
development expenditures for the Company were $0, $123,000, and
$48,500 for the years ended September 30, 1996, 1995, and 1994,
respectively.
ENVIRONMENTAL MATTERS
Congress recently passed the Clean Drinking Water Act, in
addition to H.R. 1907, which requires municipal authorities to
publish, on a regular basis, the contents and quality of the
municipalities drinking water. The Company believes this Act will
bring to the attention of the public sector the amount of certain
undesirable elements existing in the drinking water provided by the
municipal water works, including ammonia and nitrogen. Such
attention could result in public pressure on municipal officials to
provide drinking water free of contaminants.
Employees
As of December 31, 1996, the Company had 2 full-time
employees. The Company believes that it has been successful in
attracting experienced and capable process development, operations
and management personnel. All of the Company's employees have
entered into agreements with the Company requiring them not to
disclose the Company's proprietary information, assigning to the
Company all rights to inventions made during their employment, and
prohibiting them from competing with the Company. The Company's
employees are not represented by any labor union. The Company
believes that relations with its employees are satisfactory.
Properties
The Company leases approximately 1200 square feet of space in
Little Rock, Arkansas from an unaffiliated third party under a
month to month lease, which the Company uses as its principal
executive offices. In the event such lease is not extended or
renewed, the Company believes that it would be able to find
comparable facilities in the same geographic area at lease rates
comparable to those it currently pays.
Legal Proceedings
There are no pending material legal proceedings to which the
Company or its properties is subject.
MANAGEMENT
Executive Officers, Key Employees and Directors
The names and ages of the executive officers, key employees
and directors of the Company, and their positions with the Company,
are as follows:
<TABLE>
<CAPTION>
NAME AGE(1) POSITION
---- ------ --------
<S> <C> <C>
Dennis C. Cossey 50 Chairman of the Board,
Chief Executive Officer,
Secretary and Director
Primo L. Montesi 62 President and Director
Alexander G. Fassbender 42 Executive Vice President/
Engineering and Technology(2)
Gary P. Barket 50 Senior Vice President and
General Counsel(2)
Gerald J. Franz 54 Director
Thomas Randall Kemp 43 Director
Louis J. Ortmann, DDS 60 Director
J. Donald Phillips 63 Director
</TABLE>
- -----------------------
(1) As of September 30, 1996.
(2) Positions will be assumed upon completion of the Offering.
Dennis Cossey has served as Chief Executive Officer and
Director of the Company since 1988 and Chairman of the Board since
1990.
Primo L. Montesi has served as President, Chief Operating
Officer and Director of the Company since 1988.
Alexander G. Fassbender will serve as Executive Vice
President/Engineering and Technologies. Prior to joining the
Company, Mr. Fassbender was Manager of Technology Commercialization
at Battelle Pacific Northwest Laboratories. He has held various
positions with Battelle since 1976. Mr. Fassbender received his
B.S. (Chemical Engineering) in 1976 from the University of
California, Berkely, his MBA in 1980 and his M.S. (Chemical
Engineering) in 1988.
Gary P. Barket will serve as Senior Vice President and General
Counsel to the Company. Mr. Barket received his J.D. degree from
the University of Arkansas in 1971 and has been both a partner with
the Davidson Law Firm, Ltd. in Little Rock, Arkansas, and outside
counsel to the Company since 1990. Mr. Barket also serves on the
Board of Directors of the Little Rock Port Authority.
Gerald J. Franz is the President of McKeown & Franz, Inc.
("MFI"), a New York City based environmental consulting firm. Mr.
Franz holds a Masters Degree in Ecology from the University of
Connecticut and a Masters Degree in Environmental Health from
University of New York. He is currently a member of the Board of
Directors of Management Technologies, Inc. Mr. Franz has served as
a Director of the Company since March 1994.
Thomas Randall Kemp is a certified public accountant and has
been in private practice since 1976. Mr. Kemp holds both
securities and real estate licenses. He is an Honorary Member of
Beta Alpha Psi and member in good standing of the American
Institute of CPAs, Arkansas Society of CPAs and past president of
Central Arkansas Chapter of the National Association of
Accountants. Mr. Kemp has served as a Director of the Company
since 1992.
Louis J. Ortmann, DDS, currently is a Director of Louis J.
Ortmann Dental Clinic, Inc. Dr. Ortmann has been practicing
dentistry for 25 years. Dr. Ortmann has served as a Director of
the Company since September 1991.
J. Donald Phillips is an insurance executive in Little Rock,
Arkansas, and currently National Sales Manager for Citizen's
Fidelity Insurance Corporation, an Arkansas-based insurance
company. Mr. Phillips has served as Director of the Company since
November 1990.
Election of Board of Directors
The Board of Directors of the Company consists of six
Directors. Up to seven people may serve on the Board of Directors.
Directors are elected at the Company's Annual Meeting of
Shareholders. Six Directors serve staggered three year terms, with
two Directors elected each year, and one Director serves a five
year term. Gerald J. Franz was elected on March 2, 1994 and will
serv a three year term until March 1997 or until his successor is
duly elected. Louis J. Ortmann and J. Donald Phillips were elected
on May 3, 1995 and will serve three year terms until May 1998 or
until their successors are duly elected. Primo L. Montesi and
Thomas Randall Kemp were elected May 1, 1996 and will serve three
year terms until May 1999 or until their successors are duly
elected. Dennis Cossey was elected to a five year term on May 1,
1996 and will serve until May 2001 or until his successor is duly
elected. Prior to December 28, 1996, the Company had seven
directors. Rodman Grimm, President of Centerpoint Power
Corporation, resigned as a director of the Company on December 28,
1996 for personal and professional reasons. The Company has not
filled this vacancy.
The Company has agreed for a period of five years after the
date of this Prospectus, if requested by the Representative, to use
its best efforts to nominate for election to the Company's Board of
Directors one person designated by the Representative. In
addition, the Representative may designate a person to receive all
notices of meetings of the Company's Board of Directors and all
other correspondence and communications sent by the Company to its
Board of Directors and to attend all such meetings of the Company's
Board of Directors. The Company has agreed to reimburse designees
of the Representative for their out-of-pocket expenses incurred in
connection with their attendance of meetings of the Company's Board
of Directors. No person has yet been designated by the
Representative to be nominated for election to the Company's Board
of Directors. See "Underwriting."
The Board of Directors has established three standing
committees. Thomas Randall Kemp and P.L. Montesi serve on the
Executive Compensation Committee, the chairman of which is Randall
Kemp. The function of the Executive Compensation Committee
includes reviewing the Company's executive salary structure and
approving salary and bonus awards to certain key employees. The
Compensation Committee will review and administer the 1997 Stock
Option Plan when funded and any Incentive Stock Option plans, if
any, when proposed and adopted. Donald Phillips, Louis Ortmann and
Gerald Franz serve on the Audit Committee. Donald Phillips is
chairman of the Audit Committee. The Audit Committee reviews the
scope and results of the audit by the Company's independent
auditors, makes recommendations to the Board as to the selection of
independent auditors, and has approval authority with respect to
services provided by the independent auditors. In addition, it
reviews systems of internal control, reviews accounting policies
and procedures, and directs and supervises investigation into
matters within the scope of its duties. Dennis Cossey, Randall
Kemp, Donald Phillips and P.L. Montesi serve on the Executive
Committee, the chairman of which is Dennis Cossey. The Executive
Committee meets on a monthly basis or as deemed necessary to
oversee the operations of the Company.
Directors' Compensation
Except for the options granted in 1991 to J. Donald Phillips
to purchase 100,000 shares of Common Stock, Directors do not
receive any compensation for their service on the Board.
Executive Compensation
The following table sets forth the cash and non-cash
compensation paid by the Company for the years ended September 30,
1996, 1995 and 1994 to the Chief Executive Officer and to the four
most highly compensated executive officers of the Company. Except
as set forth below, no executive officer of the Company had a
salary and bonus during the years indicated that exceeded $100,000
for services rendered in all capacities to the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Name and ------------------------------
Principal Position Year Salary Bonus
- -------------------------------------------------------------
<S> <C> <C> <C>
Dennis Cossey
Chief Executive Officer 1996 $110,777(1) --
and Secretary 1995 $ 95,120(1) --
1994 $ 85,140
Primo L. Montesi, President 1996 $110,777(1) --
1995 $ 95,120(1) --
1994 $ 85,140
</TABLE>
(1) At September 30, 1995, of the $95,120 reported as
salaries to officers, $79,860 was accrued and not
paid. All of the reported amount at September 30,
1996 was accrued and not paid.
Employment Agreements
Upon completion of this Offering, Company will enter into a
five-year employment agreement with Dennis Cossey under which he
shall devote substantially all of his business and professional
time to the Company and its business development. Under such
agreement, Mr. Cossey shall receive an annual salary of $145,000
per annum.
Upon completion of this Offering, the Company will enter into
a five-year employment agreement with P.L. Montesi under which he
shall devote substantially all of his business and professional
time to the Company and its business development. Under such
agreement, Mr. Montesi shall receive an annual salary of $145,000
per annum.
Prior to completion of this Offering, Messrs. Cossey and
Montesi entered into employment agreements with the Company
providing a base salary of $72,000 with 10 percent annual increases
(which have been effective as of January 1 of each year precedent,
until the salary of each individual reaches $175,000). Messrs.
Cossey and Montesi also were subject to discretionary incentive
compensation of up to 50 percent of the base salary of each
individual determined by the Compensation Committee. Deferred
compensation aggregating $16,678, $16,000 and $11,677 was accrued
during the years ended September 30, 1996, 1995 and 1994,
respectively, pursuant to the interest provisions of the
compensation agreements.
Upon completion of this Offering, the Company will enter into
a five-year employment agreement with Alex Fassbender under which
he shall devote substantially all of his business and professional
time to the Company and its business development. Under such
agreement, Mr. Fassbender shall receive an annual salary of
$130,000 per annum. Mr. Fassbender's duties and employment with
Battelle will terminate as of the date of this Prospectus.
Upon completion of this Offering, the Company will enter into
a five-year employment agreement with Gary Barket under which he
shall devote substantially all of his business and professional
time to the Company and its business development. Under such
agreement, Mr. Barket shall receive an annual salary of $120,000
per annum. Mr. Barket's duties and employment as a partner of the
Davidson Law Firm will terminate as of the date of this Prospectus.
Each of the employment agreements with Messrs. Barket and
Fassbender require the full-time services of such employees,
subject to permitted service with professional-related service
organizations and other outside activities that do not materially
interfere with the individuals' duties to the Company. The
agreements also contain covenants (a) restricting the employee from
engaging in any activities competitive with the business of the
Company during the term of such employment agreements, (b)
prohibiting the employee from disclosure of confidential
information regarding the Company, and (c) confirming that all
intellectual property developed by the employee and relating to the
business of the Company constitutes the sole property of the
Company. In addition, each of Messrs. Cossey and Montesi has
entered into a similar non-competition, non-disclosure and
intellectual property agreement with the Company.
The Company is the sole beneficiary of a $500,000 and a
$200,000 key man life insurance policy on the lives of Messrs.
Cossey and Montesi, respectively, and plans to apply for a $500,000
key man life insurance policy on the life of Mr. Fassbender and a
$250,000 policy on the life of Mr. Barket upon engagement of their
employment.
Limitation of Directors' and Officers' Liability and
Indemnification
The Company has included in its Amended and Restated By-laws
provisions to (i) eliminate the personal liability of its directors
and officers for monetary damages resulting from breaches of their
fiduciary duty (provided that such provisions do not eliminate
liability for breaches of the duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or a
knowing violation of law, violations under Section 4-27-801 et seq
of the Arkansas Business Corporation Act of 1987 (the "Arkansas
Law"), or for any transaction from which the director and/or
officer derived an improper personal benefit), and (ii) indemnify
its directors and officers to the fullest extent permitted by the
Arkansas Law, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as
its directors and officers.
Stock Options
On January 3, 1997, the Board of Directors approved the
Company's 1997 Stock Option Plan, subject to the approval by
holders of a majority of the Common Shares present in person or by
proxy and entitled to vote at the next Annual Meeting of
Shareholders (scheduled May 7, 1997). The Plan provides that
Officers and/or key employees and non-employee Directors of the
Company may receive incentive Stock Options and Non-Qualified Stock
Options to purchase up to an aggregate of 750,000 shares of Company
Series B Common Stock. The Board of Directors awarded, effective
upon completion of this Offering, stock options under the Plan to
certain key executive officers the right to purchase an aggregate
of 505,000 shares of Series B Common Stock, all of which provide
for an exercise price at the initial offering price per share.
Stock Options for 150,000 shares of Series B Common Stock were
granted to each Messrs. Cossey and Montesi, respectively, and are
exercisable at the rate of 33-1/3% of the number of options granted
in each of calendar years 1998 through 2000, inclusive, and unless
unexercised, expire ten (10) years from the date of the grant,
subject to prior termination in accordance with any applicable
stock agreements. Stock options for 100,000 shares of Series B
Common Stock were granted contingent upon completion of this
Offering to each Messrs. Fassbender and Barket, respectively, whose
employment will be effective upon completion of this Offering are
exercisable at the rate of 20% of the number of options granted in
each calendar year 1998 through 2002, inclusive, and unless
unexercised, expire ten (10) years from date of grant, subject to
prior termination in accordance with any applicable stock
agreements. In addition, the Plan provides for non-qualified
options of 1,000 shares of Series B Common Stock to be awarded,
automatically, without further action by the Board or the Stock
Option Committee on the third business day following the day of
each annual meeting of the stockholders of the Corporation for each
person who is then a member of the Board of Directors and who is
not an employee of the Corporation or any of its subsidiaries.
Each 1,000 share option granted to a non-employee Director will
become exercisable beginning one (1) year from the date of the
annual meeting of shareholders on which the date of the options
were granted. If a non-employee Director is elected by the Board
of Directors to begin serving as Director on a date not coincident
with the annual meeting date, the Director will be granted the
initial 1,000 share option as of the date of the first meeting at
which he or she serves as Director; however, his or her options
will become first exercisable beginning one (1) year from the date
of the annual meeting at which he or she is first elected by the
stockholders and he or she will not receive an additional grant of
options upon his first election to the Board.
With respect to the qualified or "incentive stock options", as
defined in Section 422 of the Internal Revenue Code of 1986, as
amended. The Plan provides that the exercise price of each option
must be at least equal to 100% of the fair market value of the
common stock as of the date such option is granted and requires
that all such options have an expiration date not later than the
date which is one (1) day before the tenth anniversary of the date
of the grant of such options. However, with certain limited
exceptions and in event that the option holder ceases to be
associated with the Company, or engages in or is involved with any
business similar to that of the Company, such option holder's
incentive options immediately terminate.
The following table lists information on stock options granted
to each of the Company's Executive Officers and Directors and to
all Executive Officers and Directors as a group. All of such stock
options were granted on January 3, 1997 effective upon completion
of the Offering, subject to approval by the holders of a majority
of the common shares present in person or by proxy and entitled to
vote at the Annual Meeting of Shareholders on May 7, 1997. In the
event that such approval is not obtained, the Plan and all options
granted under the Plan shall be null and void and of no force and
effect. As of the date of this Prospectus, none of such options
have been exercises.
<TABLE>
<CAPTION>
Number of
Shares Percentage of
Underlying Type of Total Options Exercise
Name of Officer Options Option Granted Price
and Director Granted Granted Under Plan per Share
--------------- ---------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Dennis C. Cossey 150,000 Qualified 29.7% (1)
P.L. Montesi 150,000 Qualified 29.7% (1)
Alexander Fassbender 100,000 Qualified 19.8% (1)
Gary P. Barket 100,000 Qualified 19.8% (1)
Four Non-Employee
Directors 5,000 Non-Qualified 1% (1)
All Executive
Officers and
Directors as a
Group (which would
be 9 persons 505,000 100% (1)
</TABLE>
(1) Exercise price per share equals price of Common Stock in
Offering.
Executive Bonus Plan
On January 3, 1997, the Company's Board of Directors
established a five-year Executive Bonus Plan (the "Bonus Plan") to
reward executive officers and other key employees based upon the
Company achieving certain performance levels. Under the Bonus
Plan, commencing with the Company's 1997 fiscal year and for each
of the four fiscal years thereafter, the Company will have
discretion to award bonuses in an aggregate amount in each fiscal
year equal to 1% of the Company's net sales revenues for each
fiscal year, provided and on condition that the Company achieves a
net profit before taxes of not less than 5% of net sales in each
year, and provided that the aggregate bonuses in each year (out of
the maximum amount of 1% of annual net sales) shall not be in
excess of the proportion by which the Company's net profit before
taxes is greater than 5% of net sales but less than 15% of net
sales. The Compensation Committee of the Board of Directors of the
Company will determine the allocable amounts or percentages of the
bonus pool which may be paid annually to participants; provided,
that for fiscal 1997, the following persons shall (subject to their
continued full-time employment with the Company) be entitled to
receive the following percentages of the bonus payments, if any,
payable in respect of fiscal 1997:
<TABLE>
<CAPTION>
Name of Participant Percentage of Available Bonus Pool
------------------- ----------------------------------
<S> <C>
Dennis C. Cossey 20%
P.L. Montesi 20%
Alexander Fassbender 15%
Gary P. Barket 15%
Other Employees 30%
</TABLE>
Bonuses under the Bonus Plan are not exclusive of other
bonuses that may be awarded by the Board of Directors of the
Compensation Committee from time to time.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the
date of this Prospectus with respect to (i) the beneficial
ownership of the Common Stock of the Company by each beneficial
owner of more than 5% of the outstanding shares of Common stock of
the Company, each director, each executive officer and all
executive officers and directors of the Company as a group, and
(ii) the number of shares of Common Stock owned by each such person
and group. Unless otherwise indicated, the owners have sole voting
and investment power with respect to their respective shares.
<TABLE>
<CAPTION>
Percentage of
Number of Shares Outstanding
Shares --------------------
Name and Address Beneficially Before After
of Beneficial Owner Owned(1)(2) Offering Offering
- ------------------- ----------- -------- --------
<S> <C> <C> <C>
P.L. Montesi
22 Greenway Drive
Little Rock, AR 72212 317,103(3) 8.25 6.53
Dennis Cossey
11706 Pleasant Ridge Drive
Little Rock, AR 72212 309,040(4) 8.20 6.36
J. Donald Phillips
218 Belmont
No. Little Rock, AR 72216 6,250 * *
Louis J. Ortmann
3832 Victoria Road
Festus, MO 63028 21,437(5) * *
Gerald J. Franz
232 Center Street
Little Rock, AR 72201 9,375(6) * *
Thomas Randall Kemp
232 Center Street
Little Rock, AR 72201 63 * *
All Officers and Directors
as a Group (6 Persons) 663,268 20.98 13.51
Centerpoint Power
Corporation of VA
8228 Smithfield Road
Springfield, VA 22152 701,875(7) 18.19 12.74
Frank T. Rayner
P.O. Box 16532
Panama City, FL 32406 233,302(8) 7.23 4.85
Robert Trump
167 E. 61st Street
New York, NY 10021 492,413(9) 13.79 9.31
</TABLE>
- -----------------------
* Less than 1%
(1) The number of shares of Series B Common Stock referred to
below reflects the number of shares beneficially owned
after the 1994 Reverse Split and the 1996 Reverse Split
were effected by the Company. See "Description of
Securities -- Common Stock."
(2) Computed based on the number of shares of Common Stock
outstanding as of ___________. Except as indicated in
the footnotes set forth below, the persons named in the
table, to the Company's knowledge, have sole voting and
investment power with respect to all shares of Common
Stock shown as beneficially owned by them. All
information assumes no exercise of the overallotment
option. See "Underwriting". The numbers shown include
shares that are not currently outstanding but which
certain stockholders are entitled to acquire or will be
entitled to acquire within sixty (60) days. Such shares
are deemed to be outstanding for the purpose of computing
the percentage of outstanding Common Stock owned by the
particular stockholder and by the group, but are not
deemed to be outstanding for the purpose of computing the
percentage of ownership of any other person.
(3) Does not include 2,188 shares of Common Stock owned by
Mr. Montesi's wife distributed to her on February 9,
1993, pursuant to her status as a shareholder of common
stock of American Fuel and Power Company ("AFP") in like
amount. Pursuant to shareholder action of the Company
May 21, 1988, the Company agreed to issue to AFP
stockholders one share of the Company's common stock for
each share of AFP common stock outstanding as of April
15, 1988. Mr. Montesi's wife was one of such
shareholders of AFP entitling her to stock of the
Company. Mr. Montesi disclaims beneficial ownership of
the shares of Common Stock owned by his wife. Includes
1,875 Warrants purchased February 20, 1996 for $150
exercisable at $2.40 per share for restricted stock
within forty-eight months from date of purchase and
assumes the exercise of all Warrants. Includes 6,500
shares of Series B Common Stock received upon repayment
of December 1996 loan to the Company. See "Certain
Relationships and Related Transactions". Also includes
50,000 shares vesting, subject to stockholder approval,
under the Company's 1997 Stock Option Plan.
(4) Includes 1,875 Warrants purchased February 20, 1996 for
$150 exercisable at $2.40 per share for restricted stock
within forty-eight months from date of purchase and
assumes the exercise of all Warrants. Also includes
50,000 shares vesting, subject to stockholder approval,
under the Company's 1997 Stock Option Plan.
(5) Includes 1,250 shares of Series B Common Stock Dr.
Ortmann beneficially owns through Dr. Louis J. Ortmann
Dental Clinic, Inc., Profit Sharing Plan. Does not
include 26,563 shares of common stock owned by Dr.
Ortmann's wife or 4,244 Warrants purchased September 17,
1996 for $339.40 exercisable at $2.40 per share for
restricted Common Stock within forty-eight months from
date of purchase. Dr. Ortmann disclaims beneficial
ownership of the shares of Common Stock owned by his
wife.
(6) Represents shares owned by McKeown & Franz, Inc.
(7) Assumes the exercise of warrants by Centerpoint for
701,875 shares of Series B Common Stock.
(8) Includes 5,000 shares of Series B Common Stock received
upon repayment of December 1996 loan to the Company.
(9) Includes 395,937 warrants purchased at par value
exercisable at $13.60 per share within ten years of
(62,500 December 22, 1992; 125,000 April 1, 1993; 208,344
July 15, 1993) and assumes the exercise of warrants by
Mr. Trump, 58,825 of which were exercised in August 1994.
Includes an additional 62,500 warrants purchased October
14, 1994 for $.02 exercisable at $2.40 per share for
restricted stock within 48 months and assumes the
exercise of all warrants by Mr. Trump. Includes an
additional 25,000 shares of restricted common stock
purchased May 10, 1995 at $0.50 per share and an
additional 25,000 warrants purchased May 10, 1995 at par
value exercisable at $2.40 per share for restricted stock
which were exercised in June, 1995. Includes an
additional 6,250, 5,000 and 12,500 Warrants purchased
March 20, 1996, May 17, 1996 and August 28, 1996,
respectively, for $500, $400, and $1,000 exercisable at
$2.40 per share for restricted stock within forty-eight
months from date of each purchase and assumes the
exercise of all warrants.
Escrow Agreement
All the directors and officers of the Company, and a 5% or
more shareholder who were considered a promoter of the Company, on
the effective date of the initial public offering that was
subsequently terminated January 5, 1994, placed their shares in an
escrow account with Worthen Trust Company. According to the terms
of the Escrow Agreement, these shareholders could not sell their
respective shares of Common Stock for a minimum period of twenty-
four months commencing on the effective date of the public
offering. That term was completed June 24, 1994. Additionally,
the shares are being held in escrow for a maximum period of five
years from the effective date or until the Company has met certain
financial requirements as provided for in the Escrow Agreement.
Shareholders owning shares of common stock held under the Escrow
Agreement continue to have all voting rights to which the shares
are entitled.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Organization and Capitalization of the Company
During and subsequent to fiscal year 1993 the Company
distributed 22,659,773 shares of the Company's common stock to
individual shareholders of AFP in satisfaction of the Company's
obligation pursuant to a Sublicense Agreement between the Company
and AFP effective March 30, 1988. As of the date of this
Prospectus, 2,040,227 shares remain in a voting trust for the
benefit of additional AFP shareholders. The Company acquired the
right to some shares of such stock from several former AFP
shareholders, and 1,341,250 shares of stock were issued to the
Company from the voting trust.
The Company issued Common Stock Warrants at price equal to par
value to Robert Trump of New York for 62,500 shares as of December
23, 1992, 125,000 shares as of April 1, 1993 and 208,344 shares as
of July 15, 1993. The related Warrant Agreements provide for an
exercise period of ten years from the date of issuance at a price
of $8.00 per share. The exercise price is subject to an adjustment
in the event that the Company issues shares of Common Stock at a
price per share which is less than the Warrant price or the current
market value of such shares. On October 14, 1994, the Company sold
62,500 Restricted Common Stock Warrants to Mr. Trump at a price of
$0.08 per warrant exercisable within a period of 48 months at a
price of $2.00 per share. The Warrant Agreement is related to
$245,000 in Bridge Financing provided to the Company by Mr. Trump
by a term note at market rates prepayable at any time within 48
months without penalty, from the proceeds of a public offering. On
April 25, 1995, the Board of Directors accepted a proposal from Mr.
Trump to purchase 25,000 shares of restricted common stock at $2.00
per share and purchase 25,000 warrants at par value per warrant
exercisable at $2.00 per share. The effect of the Company selling
restricted shares of common stock at $2.00 per share (adjusted for
the December 12, 1996 four-to-one reverse stock split) activated
the terms in prior warrant agreements adjusting the price of
525,000 unexercised warrants to $2.00 per share. The amount
discussed above includes an additional 25,000, 20,000 and 50,000
warrants purchased March 20, 1996, May 17, 1996 and August 28,
1996, respectively, at $0.08 exercisable at $2.00 per share for
Series B Common Stock within forty-eight months from date of each
purchase and assures the exercise of all warrants.
Relationship with Battelle
In August 1991, Battelle entered into a license agreement with
the Company, pursuant to which the Company was granted certain
rights to make, use and sell the STORS and NitRem processes
("License Agreement"). All prior agreements licensing the STORS
and NitRem technologies to the Company, including payments
thereunder, were superseded by this Agreement.
Under the License Agreement, Battelle granted the Company the
following:
(1) An exclusive world-wide license, except in Japan, to
practice the STORS thermochemical process for converting municipal
sludges and combinations of municipal sludges and municipal solid
waste to liquid fuels and the NitRem process, as developed by
Battelle including improvements designed by Battelle, in addition
to the right of first opportunity for any other applications (e.g.
non-municipal) of the STORS and NitRem processes, as they may have
been identified, upon payment of an additional fee and royalty at
a rate to be negotiated.
(2) A license to utilize technical information including any
unpublished research and development information, unpatented
invention, know-how, trade secrets, and technical data in the
possession of Battelle prior to the effective date of the License
Agreement and which comes into the possession of Battelle during
the terms of the License Agreement which relates to the STORS and
NitRem processes. Battelle reserved the right to practice the
technology for research purposes.
The Company agreed to the following terms under the License
Agreement:
(1) The Company paid Battelle a license fee of $129,000.
(2) The Company shall pay Battelle a royalty fee not greater
than 4% of the invoiced cost of processing sludge material or $6
for each ton of dry equivalent weight material input to the STORS
process, whichever is greater.
(3) The Company shall pay Battelle a royalty fee not greater
than 5% of the invoiced cost of processing each thousand gallons or
$1 for each thousand gallons of input to the NitRem process,
whichever is greater.
(4) If both STORS and the NitRem technologies are used on a
single waste stream, then the combined royalty of (2) and (3) above
shall not exceed the greater of 5% of the invoiced cost of
processing each dry ton equivalent weight material input to the
STORS process, or $7.50 for each dry ton equivalent weight material
processed.
(5) If the Company enters into an agreement with a municipal
government, wherein the Company sublicenses the STORS and/or NitRem
technologies for a sum of money which does not contemplate royalty
payments, then the Company shall pay Battelle a lump sum of 10% of
the consideration received from the municipality.
(6) Battelle may, by written notice to the Company, terminate
the License Agreement at any time on or after January 31, 1998, if
construction and continuous operation of at least one facility with
a capacity of ten dry tons equivalent or 1,000 gallons of liquid
per day has not been achieved by that date.
(7) The License Agreement makes explicit the right of any
STORS and NitRem facility owner to continue using the Technologies
at that facility even after the expiration of the License
Agreement.
As new applications for the Technologies were developed by
Battelle, the Company entered into additional agreements with
Battelle to expand the applicable license fields for the
Technologies. In October 1993, the Company and Battelle entered
into an option agreement for the Company to apply NitRem to
nitrogen bearing waste from explosives and propellent
manufacturers. The Company paid $25,000 for the option. This
option was extended in 1994, and in July 1995, the Company and
Battelle entered into a license agreement for this license field.
This extension of the license field allows the Company to market
NitRem to the Department of Defense, and defense manufacturers
("defense license field"). The Company paid Battelle a license fee
of $25,000 cash and shares of Series B Common Stock having a value
of $80,000. Battelle may terminate this license during April 1999,
and during any subsequent April thereafter, if the Company has not
generated royalties to Battelle for the defense license field in
the amount of $5,000 for the preceding calendar year.
On July 7, 1995, the Company and Battelle entered into another
license agreement to apply NitRem to waste from industrial
processes, excluding nitrogen bearing waste from explosives and
propellent manufacturers. This includes waste from agriculture and
food processing operations, petroleum refining, metal working,
chemical, pharmaceutical and materials manufacture, textile
processing, and similar waste from government operations
("industrial license field"). The Company paid Battelle a license
fee of Series B Common Stock having a value of $70,000 to Battelle.
This license also may be terminated by Battelle during April 1999,
and during any subsequent April thereafter, if the Company has not
generated royalties to Battelle for the industrial license field in
the amount of $5,000 for the preceding calendar year.
On February 15, 1995, the final payment from the Company of
$75,000 was due and payable to Battelle under the License
Agreement, as amended. Due to the financial condition of the
Company at that time, the Company was unable to pay the fee. In
addition, the Company also owed Battelle reimbursement of expenses
advanced by Battelle to cover travel, research, development and
associated costs for Alex Fassbender and other technical staff at
Battelle engaged in the marketing of the Technologies for the
Company. Due to the financial condition of the Company, Battelle
agreed, in lieu of cash payment, to accept 300,000 shares of
restricted common stock of the Company representing a value of
$150,000 based on the Company's last net restricted stock sale at
that point in time as full and total payment of all license fees
and expenses due from the Company. The License Agreement, when
combined with the additional two licenses for defense and
industrial license fields, grants the Company the exclusive
worldwide rights to STORS and NitRem for all fields of use (except
STORS in Japan).
Centerpoint Power Corporation
In October 1988, the Company engaged the services of
Centerpoint Power Corporation, a Virginia corporation,
("Centerpoint"), through a General Compensation and Stock Warrant
Agreement, to provide assistance in locating capital financing
and/or public funding of a STORS and/or NitRem demonstration
facility. The Company executed an amended agreement with
Centerpoint in April 1991 which had an expiration date of October
1994. In January 1992, the agreement was amended regarding stock
warrant rights. In 1993, the Board of Directors extended the
Compensation Agreement with Centerpoint for an additional three
years to April 22, 1996 and extended the time for exercising
warrant rights for an additional five years to April, 2001, in
consideration of the funding to be provided by the U.S. Army,
Department of Defense for the Sam Houston State University, doing
business as, the Texas Regional Institute for Environmental Studies
("TRIES")/Army Redwater Project.
Rodman Grimm, President of Centerpoint, served on the Board of
Directors of the Company from March 2, 1994 until his resignation
December 28, 1996.
McKeown & Franz, Inc.
The Company entered into an agreement with McKeown & Franz,
Inc. ("MFI"), in March, 1992, a New York based environmental
services firm to assist in the promotion of its NitRem technology
to the City of New York. MFI agreed to forego its retainer in
return for a success fee and an equity position in the Company
should an agreement to develop NitRem be executed with the City of
New York. According to the agreement, MFI would be entitled to
receive 150,000 shares of Common Stock, plus an option to buy
additional stock upon the Company's signing an agreement with the
City of New York for a city sponsored pilot scale demonstration
project. In May 1993, the Board of Directors authorized the
issuance of 150,000 shares of restricted Common Stock to McKeown &
Franz, Inc. pursuant to the terms of the March, 1992 contract in
connection with MFI procuring the agreement with New York City to
host a full scale NitRem demonstration facility at the City's
largest waste water facility. Due to the lack of capital and the
inability of the Company to form a strategic alliance to move
forward with the New York City project, the Company has not acted
on the original demonstration agreement with the City of New York.
However, in July of 1996, the Company executed a no-cost test
agreement with the City of New York allowing the Company to
demonstrate, on-site, the services and capabilities of NitRem.
This demonstration project will be the first joint project between
the Company and Foster Wheeler. Additional efforts by MFI
contributed to the Company obtaining such no-cost test agreement.
MFI is also in a position to receive additional compensation based
on a percentage of the overall capital cost of the NitRem
demonstration facility and the procurement of one or more full
scale facilities as part or all of New York City's nitrogen
disposal processes if MFI secures funding for such projects.
Gerald Franz, President of MFI, was elected to the Board of
Directors of the Company on March 2, 1994, to a three year term
until March 1997 or until his successor is duly elected.
Other Transactions
Mr. Montesi loaned the Company $65,000 in December of 1996, as
part of the Company's $500,000 bridge financing prior to this
Offering. Upon completion of the Offering, Mr. Montesi, in
addition to repayment of the loan with interest, will receive 6,500
shares of Series B Common Stock. Mr. Frank Rayner loaned the
Company $50,000 in December of 1996, as part of the Company's
$500,000 bridge financing prior to this Offering. Upon completion
of the Offering, Mr. Montesi, in addition to repayment of the loan
with interest, will receive 5,000 shares of Series B Common Stock.
Future Transactions
In connection with the Offering, the Company's Board of
Directors has adopted a policy whereby any future transactions
between the Company and any of its subsidiaries, affiliates,
officers, directors, principal stockholders and any affiliates of
the foregoing will be on terms no less favorable to the Company
than could reasonably be obtained in "arm's length" transactions
with independent third parties, and providing that any such
transactions also be approved by a majority of the Company's
disinterested outside directors, including one of the
Representative's designees so long as they are then serving on the
Company's Board of Directors. In addition, the Underwriting
Agreement contains certain restrictions on the Company involving
transactions with affiliates.
DESCRIPTION OF SECURITIES
The Amended and Restated Articles of Incorporation of the
Company authorize capital stock consisting of 75,000,000 shares of
Common Stock, $0.001 par value, of which 10,000,000 shares are
designated as Series A Common Stock and of which 65,000,000 shares
are designated Series B Common Stock. In addition, the Company's
authorized capital stock consists of 10,000,000 shares of Series
Preferred Stock, $1.00 par value ("Preferred Stock"). As of
December 31, 1996, there were no shares of Series A Common Stock
issued and outstanding, 51,852,693 shares of Series B Common Stock
issued, 50,511,443 shares of Series B Common Stock outstanding and
no shares of Preferred stock issued and outstanding.
Common Stock
Reverse Stock Splits. In March 1994, the Board of Directors
of the Company recommended, and Shareholders approved, a reverse
split of the outstanding common stock on a four to one ratio ("1994
Reverse Split"). Under the terms, for every four shares owned by
a Shareholder on the record date, that Shareholder would own one
replacement share of common stock (rounded to the next highest
number in the event of fractional shares). The 1994 Reverse Split
was not implemented upon approval because of the financial
condition of the Company at that time.
On December 12, 1996, the Shareholders approved another
reverse split of the outstanding common stock on a four to one
ratio ("1996 Reverse Split") in anticipation of the Offering,
provided that for every four shares owned by a Shareholder on the
record date, that Shareholder would own one replacement share of
Common Stock (rounded to the next highest number in the event of
fractional shares).
As of February 1997, the Company had implemented both the 1994
Reverse Split and the 1996 Reverse Split.
Series A Common Stock. Holders of Series A Common Stock shall
be entitled to all rights and privileges entitled to holders of
common shares under the Arkansas Business Corporation Act, except
as otherwise provided in the Amended and Restated Articles of
Incorporation. Holders of Series A Common Stock have the right to
cast one vote for each share held of record on any matter coming
before shareholders for vote. Holders of Series A Common Stock
have no preemptive rights or other right to subscribe for shares or
to convert shares of Series A Common Stock into other securities.
Holders of Series A Common Stock are entitled to receive such
dividends as may be declared by the Board from time to time from
funds legally available therefor and to share pro rata in any
distribution upon the liquidation of the Company. The designation
of Series A Common Stock shall be removed after the Lock-Up Period
(as described below), when shares of Common Stock shall no longer
be designated Series A or Series B, and the Company shall have only
one series of Common Stock. See "Description of Securities-Common
Stock--Series B Common Stock."
Series B Common Stock. Holders of Series B Common Stock shall
be entitled to all rights and privileges as holders of Series A
Common subject to the following restrictions on transfer ("Lock-Up
Period"): Series B Common Stock shall be converted to Series A
Common Stock commencing twelve (12) months (the "first year") after
the effective date of the registration statement filed with the
United States Securities and Exchange Commission resulting in gross
proceeds to the Company of $5,000,000 or more, and the average
closing bid price of the Series A Common Stock, as reported on the
AMEX or such other exchange as the Company's stock may be traded,
equals or exceeds 120% of its initial public offering price for
twenty (20) consecutive trading days within a thirty-day (30)
period (the "trading test"). In the event the bid price of the
Company's Series A Common Stock twelve (12) months from the
effective date does not meet the trading test, then no more than
20% of the Series B Common Stock may be converted to Series A
Common Stock, on a pro rata basis, in any one quarterly calendar
period during twelve (12) month period following the first year, or
100% of the Series B Common Stock shall be converted to Series A
Common Stock when the trading test is met, whichever first occurs
and all shares will be transferable. At such time as all Series B
Common Stock has been converted to Series A Common Stock, the
separate class designations shall be removed as a matter of law.
Preferred Stock
The Company is authorized by its amended and restated Articles
of Incorporation to issue a maximum of 10,000,000 shares of
Preferred Stock, in one or more series and containing such rights,
privileges and limitations, including voting rights, conversion
privileges and/or redemption rights, as may, from time to time, be
determined by the Board of Directors of the Company. Preferred
Stock may be issued in the future in connection with acquisitions,
financings or such other matters as the Board of Directors deems to
be appropriate. In the event that any such shares of Preferred
Stock shall be issued, a Certificate of Designation, setting forth
the series of such Preferred Stock and the relative rights,
privileges and limitations with respect thereto, shall be filed
with the Secretary of State of the State of Delaware. The effect
of such Preferred Stock is that the Company's Board of Directors
alone, within the bounds and subject to the federal securities laws
and the Delaware Law, may be able to authorize the issuance of
Preferred Stock which could have the effect of delaying, deferring
or preventing a change in control of the Company without further
action by the stockholders and may adversely effect the voting and
other rights of holders of Common Stock. The issuance of Preferred
Stock with voting and conversion rights may also adversely affect
the voting power of the holders of Common Stock, including the loss
of voting control to others.
Warrants
Series A Purchase Warrants. The following is a brief summary
of certain provisions of the Redeemable Series A Purchase Warrants
issued in connection with the Offering ("Warrants"). Reference is
made to the actual text of the Warrant Agreement between the
Company and ___________________ (the "Warrant Agent"), a copy of
which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, for a more complete description of
the Warrants. See "Additional Information."
Exercise Price and Terms. Each Warrant entitled the
registered holder thereof to purchase, at any time during the four
year period commencing one year after the date of this Prospectus,
one share of Common Stock at a price of $__________ per share,
subject to adjustment in accordance with the anti-dilution and
other provisions referred to below. The holder of any Warrant may
exercise such Warrant by surrendering the certificate representing
the Warrant to the Warrant Agent, with the subscription form
thereon properly completed and executed, together with payment of
the exercise price. Commencing one year after the date of this
Prospectus, the Warrants may be exercised at any time in whole or
in part at the applicable exercise price until expiration of the
Warrants. No fractional shares will be issued upon the exercise of
the Warrants.
Adjustments. The exercise price and the number of shares of
Common Stock purchasable upon the exercise of the Warrants are
subject to adjustment upon the occurrence of certain events,
including stock dividends, stock splits, combinations or
reclassifications of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into
Common Stock (exclusive of options and shares under the Plan, and
other limited exceptions) at a price below the then-applicable
exercise price of the Warrants. Additionally, an adjustment would
be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the
Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable
warrant holders to acquire the kind and number of shares of stock
or other securities or property receivable in such event by a
holder of the number of shares of Common Stock that might have been
purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing ___________, 1998, the
Warrants are subject to redemption at $.05 per Warrant on 30 days'
prior written notice provided that the average closing sale price
of the Common Stock as reported on the AMEX equals or exceeds
$__________ per share [150% of the price per share] (subject to
adjustment for stock dividends, stock splits, combinations or
reclassifications of the Common Stock), for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. In the
event the Company exercises the right to redeem the Warrants, such
Warrants will be exercisable until the close of business on the
business day immediately preceding the date for redemption fixed in
such notice. If any Warrant called for redemption is not exercised
by such time, it will cease to be exercisable and the holder will
be entitled only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in
registered form and may be presented to the Warrant Agent for
transfer, or exercise at any time on or prior to their expiration
date five years from the date of this Prospectus, at which time the
Warrants become wholly void and of no value. If a market for the
Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market
for the Warrants will develop or continue.
Modification of Warrants. The Company and the Warrant Agent
may make such modifications to the Warrants as they deem necessary
and desirable that do not adversely affect the interests of the
warrantholders. The Company may, in its sole discretion, lower the
exercise price of the Warrants for a period of not less than 30
days on not less than thirty (30) days' prior written notice to the
warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the
exercise price and the expiration date with respect to any Warrant
requires the consent of two-thirds of the warrantholders. No other
modifications may be made to the Warrants, without the consent of
two-thirds of the warrantholders.
The Warrants are not exercisable unless, at the time of the
exercise, the Company has a current prospectus covering the shares
of Common Stock issuable upon exercise of the Warrants, and such
shares have been registered, qualified or deemed to be exempt under
the securities laws of the state of residence of the exercising
holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon
exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto
until the expiration of the Warrants, there can be no assurance
that it will be able to do so.
The Warrants are separately transferable immediately upon
issuance. Although the Securities will not knowingly be sole to
purchasers in jurisdictions in which the Securities are not
registered or otherwise qualified for sale, purchasers may buy
Warrants in the aftermarket or may move to jurisdictions in which
the shares underlying the Warrants are not so registered or
qualified during the period that the Warrants are exercisable. In
this event, the Company would be unable to issue shares to those
persons desiring to exercise their Warrants, and holders of
Warrants would have no choice but to attempt to sell the Warrants
in a jurisdiction where such sale is permissible or allow them to
expire unexercised.
Series B Warrants. Company warrants outstanding prior to the
Offering are designated as Series B Warrants ("Series B Warrants").
Series B Warrants for 701,875 shares of Common Stock were issued in
March 1988 and April 1991 to Centerpoint Power Corporation of
Virginia pursuant to the terms of a substitute general compensation
and stock warrant agreement and amendments thereto, between the
Company and Centerpoint. Centerpoint may exercise the warrant
rights at any time, in whole, or in part until April 22, 2001. The
Purchase Price for the shares of stock is $0.01 per share. In
addition, these warrant rights contain a "fairness" protection
which prevents the warrants from being diminished or diluted as a
result of stock dividends, stock splits or stock options which
price and amount are both subject to adjustment for stock splits or
reverse stock splits.
Series B Warrants for 435,219 shares of Common Stock were
issued prior to March 1994 to three individuals. Series B Warrants
for 461,965 shares of Common Stock were issued subsequent to 24
individuals in connection with the Company's efforts to maintain
operating capital. These Series B Warrants may be exercised at any
time, in whole or in part, within a five year period form the date
of issuance. The Purchase Price for the shares of stock ranges
from $0.60 per share to $0.90 per share, which prices and amounts
are each subject to adjustment for stock splits and reverse stock
splits.
Transfer Agent and Registrar and Warrant Agent
The Transfer Agent and Registrar for the Common Stock and the
Warrant Agent for the Warrant is ChaseMellon Shareholder Services,
2323 Bryan Street, Suite 2300, Dallas, Texas, 75201.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have
4,806,965 shares of Series A and Series B Common Stock outstanding,
of which only the 1,600,000 shares offered hereby (and the
1,600,000 Warrants) (1,840,000 shares and 1,840,000 Warrants if the
overallotment option is exercised) will be transferable without
restriction under the Securities Act. The other 3,206,965
outstanding shares of Series B Common Stock, all of which are owned
by existing shareholders, are "restricted securities" (as that term
is defined in Rule 144 promulgated under the Securities Act) which
may be publicly sold only if registered under the Securities Act or
if sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144 as
currently in effect, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who
has beneficially owned restricted securities for at least two
years, is entitled to sell (together with any person with whom such
individual is required to aggregate sales), 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 the AMEX or another national
securities exchange, the average weekly trading volume during the
four calendar weeks preceding the sale. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice
requirements, and the availability of current public information
regarding the Company. A person who has not been an affiliate of
the Company for at least three months, and who has beneficially
owned restricted securities for at least three years, its entitled
to sell such restricted shares under Rule 144 without regard to any
of the limitations described above.
No prediction can be made as to the effect that future sales
of Common Stock, or the availability of shares of Common Stock for
future sale, will have on the market prices of the Common Stock and
the Warrants prevailing from time to time. The Company, as well as
all holders of outstanding securities exercisable for or
convertible into Series B Common Stock (other than the
Representative's Warrants), by the terms of the Series B Common
Stock, are prohibited from, directly or indirectly, issue, agree or
offer to sell, sell, transfer, assign, distribute, grant an option
for purchase or sale of, pledge, hypothecate or otherwise encumber
or dispose of any beneficial interest in such securities for a
period of at least 12 months following the date of this Prospectus
without the prior written consent of the Representative. The sale
or issuance, or the potential for sale or issuance, of Common Stock
after such 12-month period could have an adverse impact on the
market prices of the Common Stock and/or the Warrants. Sales of
substantial amounts of Common Stock or the perception that such
sales could occur could adversely affect prevailing market prices
for the Securities. See "Underwriting."
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom
National Securities Corporation is acting as the representative
(among the Company and the Representative, the "Representative"),
have severally agreed, subject to the terms and conditions of the
Underwriting Agreement (the "Underwriting Agreement"), to purchase
from the Company, and the Company has agreed to sell to the
Underwriters on a firm commitment basis, the respective number of
Units set forth opposite their names:
<TABLE>
<CAPTION>
Number of
Underwriters Units
------------ ---------
<S> <C>
National Securities Corporation
Total 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of
the several Underwriters are subject to the approval of certain
legal matters by their counsel and various other conditions. The
Underwriters are committed to purchase all the Units offered
hereby, if any are purchased.
The Representative has advised the Company that the
Underwriters propose initially to offer the Securities to the
public at the initial public offering prices set forth on the cover
page of this Prospectus and to certain dealers at such prices less
concessions not in excess of $_____ per share and $_____ per
Warrant. Such dealers may reallow a concession not in excess of
$_____ per Warrant to other dealers. After the commencement of
this Offering, the public offering price, concession and
reallowance may be changed by the Representative.
The Representative has informed the Company that it does not
expect sales to discretionary accounts by the Underwriters to
exceed five percent of the Securities offered hereby.
The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities
Act. The Company has also agreed to pay to the Representative a
non-accountable expense allowance equal to 3% of the gross proceeds
derived from the sale of the Securities underwritten, of which
$50,000 has been paid to date.
The Company has granted to the Underwriters an Overallotment
Option exercisable within 45 days of the date hereof, to purchase
up to an additional 240,000 shares of Series A Common Stock and/or
an additional 240,000 Warrants at the initial public offering
prices per share and per Warrant, respectively, offered hereby,
less underwriting discounts and the non-accountable expense
allowance. Such option may be exercised only for the purpose of
covering overallotments, if any, incurred in the sale of the
Securities offered hereby. The Overallotment Option may be
exercised to purchase Units (each consisting of one share of Common
Stock and one Warrant) or shares of Common Stock or Warrants or any
combination thereof. To the extent such option is exercised in
whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of the
additional Securities proportionate to its initial commitment.
The Company and all officers, directors and stockholders of
the Company and all holders of any options, warrants or other
securities convertible, exercisable or exchangeable for Common
Stock have agreed not to directly or indirectly, offer, agree or
offer to sell, transfer, assign, encumber, grant an option for the
purchase or sale of, pledge or otherwise dispose of any beneficial
interest in such securities for a period of 12 months following the
date of this Prospectus without the prior written consent of the
Representative. An appropriate legend shall be marked on the face
of the certificates representing all such securities.
In connection with this Offering, the Company has agreed to
sell to the Representative, for nominal consideration, warrants to
purchase from the Company up to 160,000 shares of Common Stock
and/or up to 160,000 Warrants (the "Representative's Warrants").
The Representative's Warrants are initially exercisable at a price
of $_______ per share and $_______ per Warrant for a period of four
years, commencing ________, 1997 and are restricted from sale,
transfer, assignment or hypothecation for a period until _________,
1997, except to officers of the Representative. The
Representative's Warrants provide for adjustment in the number of
securities issuable upon the exercise thereof as a result of
certain subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain
rights of registration for the securities issuable upon exercise
thereof.
The Underwriting Agreement provides that the Representative
has a right of first refusal for a period of three years after the
date of this Prospectus with respect to any sale of securities by
the Company or any of its present or future subsidiaries; provided,
however, that the Company may terminate such right of first refusal
upon the payment of $150,000 to the Representative in the event the
Company elects to proceed with a firm commitment public offering
through another investment banking firm.
The Company has agreed for a period of five years after the
date of this Prospectus, if requested by the Representative, to use
its best efforts to nominate for election to the Company's Board of
Directors one person designated by the Representative. In the
event that the Representative elects not to exercise such right,
the Representative may designate a person to receive all notices of
meetings by the Company's Board of Directors and all other
correspondence and communications sent by the Company to its Board
of Directors and to attend all such meetings of the Company's Board
of Directors. The Company has agreed to reimburse designees of the
Representative for their out-of-pocket expenses incurred in
connection with their attendance of meetings of the Company's Board
of Directors. No person has yet been designated by the
Representative to be nominated for election to the Company's Board
of Directors. See "Management."
Prior to this Offering, there has been no public market for
the Securities. Consequently, the initial public offering prices
of the Securities and the terms of the Warrants have been
determined by negotiation between the Company and the
Representative and do not necessarily bear any relationship to the
Company's asset value, net worth, or other established criteria of
value. Among the factors considered in such negotiations were
prevailing market conditions, the history of and prospects for the
industry in which the Company competes, an assessment of the
Company's technology and management, the prospects of the Company,
its capital structure, the market for initial public offerings and
market prices of similar securities of comparable publicly-traded
companies.
Upon the exercise of any Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the
Representative, and to the extent not consistent with the
guidelines of the National Association of Securities Dealers, Inc.
and the Rules and Regulations of the Commission, the Company has
agreed to pay the Representative a commission of 5% of the
aggregate exercise price of such Warrants if (a) the market price
of the Common Stock is lower than the exercise price, (b) the
Warrants are held in a discretionary account, or (c) the Warrants
are exercised in an unsolicited transaction where the holder of the
Warrant has not stated in writing that the transaction was
solicited and has not designated in writing the Representative as
soliciting agent. Unless granted an exemption by the Commission
from Rule 10b-6 under the Exchange Act, the Representative and any
soliciting broker-dealers will be prohibited from engaging in any
market-making activities or solicited brokerage activities with
regard to the Company's securities for the periods prescribed by
exemption (xi) to Rule 10b-6 before the solicitation activity or
the termination (by waiver or otherwise) of any right that the
Representative and any soliciting broker-dealers may have to
receive a fee for the exercise of the Warrants following such
solicitation. As a result, the Representative and any soliciting
broker-dealers may be unable to continue to provide a market for
the Common Stock or Warrants during certain periods while the
Warrants are exercisable. If the Representative has engaged in any
of the activities prohibited by Rule 10b-6 during the periods
described above, the Representative has undertaken to waive
unconditionally its rights to receive a commission on the exercise
of such Warrants.
The foregoing is a summary of the principal terms of the
agreements described above and do not purport to be complete.
Reference is made to a copy of each such agreement which are filed
as exhibits to the Registration Statement of which this Prospectus
is a part for a more complete description thereof. See "Additional
Information."
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby
will be passed upon for the Company by the Davidson Law Firm,
Little Rock, Arkansas, as corporate counsel to the Company in
connection with this Offering. In addition, the Company has relied
on Waring Cox, PLC, Memphis, Tennessee, as special counsel to the
Company in connection with certain legal matters in connection with
this Offering. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Camhy
Karlinsky & Stein LLP, New York, New York. Waring Cox, PLC owns
62,500 shares of Series B Common Stock, representing less than 2%
of the Company's outstanding common stock. Upon completion of this
Offering, Gary Barket, a partner of the Davidson Law Firm, will
become Senior Vice President and General Counsel of the Company.
EXPERTS
The financial statements of the Company included in this
Prospectus and in the Registration Statement of which this
Prospectus is a part have been audited by Kemp & Company,
independent auditors, and Baird, Kurtz & Dobson, independent
auditors, to the extent and for the periods set forth in the
reports of such firms contained herein and in the Registration
Statement of which this Prospectus is a part. All such financial
statements have been included in reliance upon such reports given
upon the authority of such firms as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") in Washington, D.C., a Registration
Statement under the Securities Act with respect to the Securities
offered hereby. This Prospectus, filed as a part of the
Registration Statement, does not contain certain information set
forth in or annexed as exhibits to the Registration Statement. For
further information regarding the Company and the Securities
offered hereby, reference is made to the Registration Statement and
to the exhibits filed as a part thereof, which may be inspected at
the office of the Commission without charge or copies of which may
be obtained there from upon request to the Commission and payment
of the prescribed fee. With respect to each contract, agreement or
other document referred to in this Prospectus and filed as an
exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved.
The Registration Statement and such exhibits and schedules may
be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Office of the Commission:
New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048, and Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
<PAGE> F-1
THERMOENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page Number
Report of Kemp & Company F-2
Report of Baird, Kurtz & Dobson F-3
Balance Sheets as of September 30, 1996 and 1995 F-4
Statements of Operations for the years ended
September 30, 1996, 1995 and 1994 and cumulative
during development stage through September 30, 1996 F-5
Statements of Changes in Stockholders' Equity
(Deficit) for the periods ended September 30, 1988
through September 30, 1996 and for the three months
ended December 31, 1996 (unaudited) F-6
Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994 and cumulative
during development stage through September 30, 1996 F-10
Notes to Financial Statements - September 30, 1996 F-11
Balance Sheets as of December 31, 1996 (unaudited)
and September 30, 1996 F-21
Statements of Operations cumulative during
development stage through December 31, 1996
(unaudited) and for the three months ended
December 31, 1996 and December 31, 1995 (unaudited) F-22
Statements of Changes in Stockholders' Equity
(Deficit) for the periods ended September 30, 1988
through September 30, 1996 and the three months
ended December 31, 1996 (unaudited) F-23
Statements of Cash Flows cumulative during
development stage through December 31, 1996
(unaudited) and for the three months ended
December 31, 1996 and December 31, 1995 (unaudited) F-27
Notes to Financial Statements - December 31, 1996
(unaudited) F-28
<PAGE> F-2
Report of Independent Auditors
Board of Directors
ThermoEnergy Corporation
Little Rock, Arkansas
We have audited the accompanying balance sheets of
ThermoEnergy Corporation, formerly Innotek Corporation, (A
Development Stage Company) as of September 30, 1996 and 1995, the
related statements of operations and cash flows for each of the
three years in the period ended September 30, 1996, and the related
statements of changes in stockholders' equity (deficit) for each of
the five years in the period ended September 30, 1996. 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 financial statements referred to above
present fairly, in all material respects, the financial position of
ThermoEnergy Corporation (A Development Stage Company) as of
September 30, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As
discussed in Note 9, the Company is in the development stage with
no significant revenues from operations, has incurred net losses
since inception, and will likely require substantial capital to
commercialize the Company's technologies. These conditions raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 9. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
We have also audited, as to combination only, the accompanying
statements of operations and cash flows of ThermoEnergy Corporation
(A Development Stage Company) cumulative during development stage
through September 30, 1996. These statements have been combined
from the statements of operations and cash flows for the years
ended September 30, 1992 through September 30, 1996, which we have
audited (the 1992 and 1993 statements are not presented separately
herein), and the statements of operations and cash flows cumulative
during development stage through September 30, 1991 (which
statements are not presented separately herein). The report of the
other auditors who have audited the statements of operations,
changes in stockholders' equity (deficit) and cash flows cumulative
during developing stage through September 30, 1991 appears
elsewhere herein. In our opinion, the accompanying statements of
operations and cash flows cumulative during development stage
through September 30, 1996 have been properly combined.
/s/ Kemp & Company
Little Rock, Arkansas
December 4, 1996
<PAGE> F-3
Independent Accountants' Report
Board of Directors
Innotek Corporation
Little Rock, Arkansas
We have audited the accompanying statements of operations,
changes in stockholders' equity (deficit), and cash flows of
INNOTEK CORPORATION (A Development Stage Company) for the year
ended September 30, 1991 and cumulative since inception through
September 30, 1991 (cumulative information not presented herein).
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of operations
and cash flows of INNOTEK CORPORATION (A Development Stage Company)
for the year ended September 30, 1991 and cumulative since
inception through September 30, 1991, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. The Company
is in the development stage with no significant revenues from
operations, and will likely require substantial capital to
construct and operate a demonstration facility to commercialize the
technologies. These conditions raise substantial doubt about its
ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Baird, Kurtz & Dobson
Little Rock, Arkansas
December 11, 1991
<PAGE> F-4
THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-----------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
Cash $ 62,333 $ 52,524
Advances to officers (Note 6) 96,200 62,200
Accrued interest receivable -
officers (Note 6) 9,138 2,196
---------- ----------
Total Current Assets 167,671 116,920
Property and equipment, at cost:
Equipment 14,818 14,818
Furniture and fixtures 4,991 4,991
Less accumulated depreciation (14,147) (11,514)
---------- ----------
5,662 8,295
---------- ----------
$ 173,333 $ 125,215
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable (Note 6) $ 360,288 $ 270,622
Accrued expenses:
Salaries 364,314 159,720
Consulting fee (Note 7) 100,000 100,000
Other (Note 4) 92,513 70,563
---------- ----------
556,827 330,283
Deferred compensation (Note 6) 215,460 198,906
Notes payable to stockholders (Note 4) 735,000 473,365
---------- ----------
Total Current Liabilities 1,867,575 1,273,176
---------- ----------
Commitments and contingencies
(Notes 3, 7, 10 and 11):
Stockholders' equity (deficit)
(Notes 7 and 11):
Preferred stock, non-voting,
$1 par value:
Authorized - 10,000,000 shares;
none issued
Common Stock, $.001 par value:
Authorized - 75,000,000 shares;
issued - 51,852,693 shares;
outstanding - 50,511,443 51,853 51,853
Additional paid-in capital 3,795,306 3,789,966
Deficit accumulated during the
development stage (5,541,401) (4,989,780)
---------- ----------
(1,694,242) (1,147,961)
---------- ----------
$ 173,333 $ 125,215
========== ==========
</TABLE>
See notes to financial statements.
<PAGE> F-5
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Year Ended September 30,
September 30, ----------------------------
1996 1996 1995 1994
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative
(Note 2) $ 4,083,832 $ 423,959 $ 641,765 $ 548,387
Research and development
(Note 3) 627,266 123,000 48,500
Travel and entertainment 750,670 96,405 114,576 173,109
---------- -------- -------- --------
5,461,768 520,364 879,341 769,996
---------- -------- -------- --------
Loss From Operations (5,461,768) (520,364) (879,341) (769,996)
---------- -------- -------- --------
Other income (expense):
Interest income (Note 6) 60,785 6,942 2,391 2,714
Interest expense (Note 4) (140,418) (38,199) (20,048) (145)
---------- -------- -------- --------
(79,633) (31,257) (17,657) 2,569
---------- -------- -------- --------
Net Loss $(5,541,401) $(551,621) $(896,998) $(767,427)
========== ======== ======== ========
Per Common Share:
Loss From Operations $ (.09) $ (.01) $ (.01) $ (.01)
Net Loss $ (.09) $ (.01) $ (.01) $ (.01)
</TABLE>
See notes to financial statements.
<PAGE> F-6
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Periods Ended September 30, 1988 Through September 30, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Issuance of stock, January
1988, (35,285,714 shares
at $.005 per share) $35,285 $ 145,015 $ $ 180,300
Net loss (290,483) (290,483)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1988 35,285 145,015 (290,483) (110,183)
Conversion of $412,000 of
debentures and accrued
interest, September 1989
(4,901,350 shares) 4,902 452,099 457,001
Net loss (338,985) (338,985)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1989 40,187 597,114 (629,468) 7,833
Net loss (255,036) (255,036)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1990 40,187 597,114 (884,504) (247,203)
Conversion of $63,000 of
unsecured debentures
and accrued interest at
10%, March 1991, (708,566
shares) 709 70,148 70,857
Issuance of stock, May -
June 1991, (6,206,078
shares: 5,866,078 at $.10
per share; 340,000 shares
at $.05 per share) 6,206 597,401 603,607
Issuance of stock for
interest, June 1991,
(22,000 shares at $.10
per share) 22 2,178 2,200
<PAGE> F-7
Issuance of stock for
expenses incurred by
stockholders, July 1991
(81,295 shares at $.10
per share) 81 8,048 8,129
Net loss (670,179) (670,179)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1991 47,205 1,274,889 (1,554,683) (232,589)
Issuance of stock, October -
December 1991 (2,414,800
shares at $.10 per share) 2,415 239,065 241,480
Shares purchased in
rescission offer
(168,985 shares) (169) (16,730) (16,899)
Issuance of stock, public
offering, August -
September 1992 (5,500
shares at $1.00 per share) 5 5,495 5,500
Net loss (562,751) (562,751)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1992 49,456 1,502,719 (2,117,434) (565,259)
Issuance of stock, public
offering October 1992 -
September 1993 (1,484,550
shares at $1.00 per
share) 1,485 1,483,065 1,484,550
Issuance of stock for
exercise of stock options,
May 1993 (40,000 shares
at $.10 per share) 40 3,960 4,000
<PAGE> F-8
Issuance of warrants to
stockholder 6,333 6,333
Conversion of $103,000 of
notes payable to stock-
holders and accrued
interest, December 1992
(103,000 shares) 103 102,897 103,000
Issuance of stock for
consulting services, June
1993 (150,000 shares at
$1.00 per share) 150 149,850 150,000
Net loss (1,207,921) (1,207,921)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1993 51,234 3,248,824 (3,325,355) 25,297)
Issuance of warrants to
stockholders 226,000 226,000
Issuance of stock for
exercise of stock options,
March 1994 (60,000 shares
at $.10 per share) 60 5,940 6,000
Issuance of stock for
exercise of warrants by
stockholder, August 1994
(58,825 shares at $.85
per share) 59 49,942 50,001
Net loss (767,427) (767,427)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1994 51,353 3,530,706 (4,092,782) (510,723)
<PAGE> F-9
Issuance of warrants to
stockholders 9,760 9,760
Issuance of stock, May 1995
(100,000 shares at $.50
per share) 100 49,900 50,000
Issuance of stock for
exercise of warrants by
stockholder, June 1995
(100,000 shares at $.50
per share) 100 49,900 50,000
Issuance of stock for
expenses, July 1995
(300,000 shares at $.50
per share) (Note 7) 300 149,700 150,000
Net loss (896,998) (896,998)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1995 51,853 3,789,966 (4,989,780) (1,147,961)
Issuance of warrants to
stockholders 5,340 5,340
Net loss (551,621) (551,621)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1996 $51,853 $3,795,306 $(5,541,401) $(1,694,242)
====== ========= ========== ==========
</TABLE>
See notes to financial statements
<PAGE> F-10
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Year Ended September 30,
September 30, ----------------------------
1996 1996 1995 1994
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(5,541,401) $(551,621) $(896,998) $(767,427)
Items not requiring
(providing) cash:
Depreciation 14,147 2,633 3,038 4,364
Expenses funded by
Common Stock issuance 543,187 150,000
Other 3,341 3,341
Changes in:
Advances to officers (295,183) (34,000) (50,200) (12,000)
Other receivables (9,138) (6,942) (2,196) 44,880
Accounts payable 360,288 89,666 116,000 85,356
Accrued expenses 556,827 226,544 157,547 13,722
Deferred compensation 414,442 16,554 16,000 (469)
---------- -------- -------- --------
Net cash used in
operating activities (3,953,490) (257,166) (506,809) (628,233)
---------- -------- -------- --------
Investing activities:
Purchases of fixed assets (19,808) (679)
Other (3,341)
---------- --------
Net cash used in
investing activities (23,149) (679)
---------- --------
Financing activities:
Proceeds from issuance of
Common Stock and warrants 2,620,562 5,340 109,760 282,001
Proceeds from notes payable
and convertible debentures 1,464,609 261,635 473,365
Payments on notes payable (154,609)
Other 108,410 (50,000) 50,000
---------- -------- -------- --------
Net cash provided by
financing activities 4,038,972 266,975 533,125 332,001
---------- -------- -------- --------
Increase (decrease) in cash 62,333 9,809 26,316 (296,911)
Cash, beginning of period 0 52,524 26,208 323,119
---------- -------- -------- --------
Cash, end of period $ 62,333 $ 62,333 $ 52,524 $ 26,208
========== ======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE> F-11
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
Note 1: Organization and summary of significant accounting
policies
Nature of business
ThermoEnergy Corporation (the "Company"), formerly Innotek
Corporation, as incorporated in January 1988, for the purpose of
marketing and developing certain environmental technologies. The
Company is currently working toward commercialization of a sewage
sludge recycling technology called Sludge-to-Oil Reactor System, or
STORS, and the commercialization of a nitrogen removal technology
called NitRem, both of which were developed through a research
project at Battelle Memorial Institute Pacific Northwest
Laboratories (Battelle) in Richland, Washington. The Company owns
the worldwide licensing rights to both STORS and NitRem, except for
STORS in Japan, pursuant to exclusive license agreements with
Battelle.
The Company was formed for the transfer of technology from
American Fuel and Power Corporation ("AFP") in 1988 to continue
development of the STORS technology under assignment of the license
from AFP, the original licensee. Management of the AFP division
developing the STORS technology become management of the Company
concurrent with the terms of the transfer. The license was
assigned to the Company under an agreement requiring that 70
percent of the Company's initial outstanding Common Stock,
approximately 24,700,000 shares, be issued to AFP for distribution
to AFP stockholders (see Note 7).
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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Property and equipment
Property and equipment are depreciated over the estimated
useful life of each asset. Depreciation is computed primarily
using accelerated methods.
Loss per common share
Loss per common share is computed by dividing the net loss for
the period by the weighted average number of shares outstanding
during the period. Stock options and warrants issued within twelve
months of the initial public offering filing date (February 27,
1992, see Note
<PAGE> F-12
7) have been treated as outstanding for all periods presented.
The weighted average number of common shares used in the loss
per share computations were 60,792,870, 60,417,801, 60,213,488, and
59,178,718 shares for the years ended September 30, 1996, 1995 and
1994 and cumulative since inception through September 30, 1996,
respectively.
Future application of accounting standards
During 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". The adoption
of Statement No. 121 (required during the year ending September 30,
1997), which establishes accounting standards for the impairment of
long-lived assets and goodwill related to assets to be held and
used and long-lived assets to be disposed of, is not expected to
have a significant impact on the Company's financial statements.
Note 2: Government contract
A cost reimbursement Letter Subcontract was awarded to the
Company in connection with a red water waste project with the
Department of Defense. The terms of the contract provided for the
reimbursement of certain direct costs, including labor, associated
with the Company's participation in the project. During the years
ended September 30, 1996, 1995 and 1994, the Company was reimbursed
for approximately $4,000, $20,000 and $20,000, respectively, of
general and administrative expenses incurred in each year in
connection with the project. The reimbursements are accounted for
as reductions of the related expenses in the Statements of
Operations.
Note 3: License and marketing agreements
The license agreements with Battelle permit the Company to
commercialize the STORS and NitRem technologies (the
"Technologies") with respect to municipal and hazardous waste
disposal. Payments under the terms of the license agreements have
been charged to operations as research and development expenses.
The license agreements, which requires payment of royalties to
Battelle from revenues generated using the Technologies, are
cancelable by Battelle on or after January 31, 1998, if
ThermoEnergy has not demonstrated the Technologies by that date.
<PAGE> F-13
The Company entered into a memorandum of understanding with
Foster Wheeler and Mitsui & Co. (U.S.A.) Inc. in September 1996 to
pursue various water and waste water projects in Brazil, Mexico and
Peru. In April 1996, the Company entered into a teaming agreement
with Roy F. Weston, Inc. to jointly pursue both municipal and
governmental projects using the Technologies. In March 1996, the
Company executed a marketing agreement with a Georgia corporation
for the purpose of marketing the Technologies in Georgia and
Florida (see Note 7). The Company entered into a ten-year
worldwide marketing agreement with Foster Wheeler USA Corporation
in September 1994, for the purpose of marketing, developing and
commercializing the Technologies. The agreement provides for
three-year extensions after the initial period and conditions for
changing or terminating the arrangement.
Note 4: Notes payable
The Company executed notes payable to stockholders at various
dates during the years ended September 30, 1996 and 1995. The
unsecured notes mature four years from the date of issuance with
interest at a rate of 6.63%. The notes provide that the principal
balances and accrued interest will become immediately due and
payable at the closing of the next public offering of securities of
the Company should that event occur prior to the stated maturity
dates. In addition, if the Company obtains financing from a third
party on terms more favorable to the third party than the terms of
the notes to the stockholders, the Company and the stockholders may
agree to modify the notes to the stockholders to reflect the more
favorable terms. The notes payable have been classified as current
liabilities since management anticipates that they will be paid off
within one year (see Note 11). These transactions were executed in
connection with the authorization of the Board of Directors on
September 29, 1994 for the Company to borrow up to $735,000 by term
note for up to 48 months and to sell up to 750,000 warrants, at
$.02 per warrant for 750,000 shares of Common Stock, exercisable up
to 48 months from date of issuance (see Note 7).
Interest expense on notes payable to stockholders amounted to
$38,199 and $19,704 for the years ended September 30, 1996 and
1995, respectively. Accrued interest payable on notes payable to
stockholders (included in other accrued expenses in the
accompanying Balance Sheets, amounted to $57,903 and $19,704 at
September 30, 1996 and 1995, respectively. Interest paid during
the years ended September 30, 1995 and 1994 amounted to $344 and
$145, respectively. No interest was paid during the year ended
September 30, 1996.
Based on the borrowing rates currently available to the
Company for loans with similar terms, the fair value of notes
payable approximated the book value of such borrowings at September
30, 1996.
<PAGE> F-14
Note 5: Income taxes
Effective October 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method as required by Statement of Financial Accounting
Standards No. 109. The Statement provides that the net tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes are reflected in deferred taxes. The
change had no effect on the financial statements since the Company
had incurred net operating losses since inception. A valuation
allowance equal to the total of the Company's deferred tax assets
has been recognized for financial reporting purposes. The net
changes in the valuation allowance during the years ended September
30, 1996 and 1995 were increases of approximately $206,000 and
$356,000, respectively. The Company's deferred tax liabilities are
not significant.
Significant components of the Company's deferred tax assets as
of September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 1,685,000 $ 1,485,000
Deferred compensation 115,000 109,000
Capitalized costs for income
tax purposes 78,000 78,000
Other 35,000 35,000
---------- ----------
1,913,000 1,707,000
Valuation allowance for deferred
tax assets (1,913,000) (1,707,000)
---------- ----------
$ -0- $ -0-
========== ==========
</TABLE>
A reconciliation of income tax expense (credit) at the
statutory rate to income tax expense at the Company's effective
rate is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed at the statutory
rate (34%) $(187,551) $(304,979) $(260,925)
Increase in taxes resulting
from net operating loss
benefit not recognized 187,551 304,979 260,925
-------- -------- --------
Provision for income taxes $ -0- $ -0- $ -0-
======== ======== ========
</TABLE>
The Company has net operating loss carryforwards at September
30, 1996 of approximately $4,400,000 which expire in 2003 through
2011.
<PAGE> F-15
Note 6: Related party transactions
During the years ended September 30, 1996 and 1995 the Company
advanced an aggregate of $34,000 and $62,200 (net of $10,000 of
repayments), respectively, to its officers. The $96,200 of
advances outstanding at September 30, 1996 are due on demand with
interest at the average prime rate of a local bank. Interest
income on the advances amounted to $6,942 and $2,196 for the years
ended September 30, 1996 and 1995, respectively.
During the year ended September 30, 1995, an officer advanced
an aggregate of $20,000 to the Company. The advances, which did
not bear interest, were repaid, prior to September 30, 1995. See
Note 7 for information concerning notes payable and other
transactions with stockholders.
During the years ended September 30, 1995 and 1994, the
Company paid approximately $15,000 and $45,000, respectively, in
consulting fees to a company associated with a member of the Board
of Directors. Fees payable to this company amounted to
approximately $96,000 and $65,000 at September 1996 and 1995,
respectively, and are included in accounts payable in the
accompanying Balance Sheets. See Note 7 for information concerning
additional transactions with this consulting firm. During the
years ended September 30, 1996 and 1995, the Company paid Battelle
approximately $5,000 and $59,000, respectively, for licenses,
patents and related expenses. See Note 7 for information
concerning the issuance of the Company's Common Stock to Battelle
during 1995.
During 1991, the Board of Directors adopted a resolution
specifying amounts of deferred compensation for the two officers of
the Company for services rendered prior to September 30, 1991. The
Board of Directors also approved employment agreements with the
officers effective January 1, 1992 specifying minimum levels of
compensation and terms of employment. The agreements provide a
minimum annual salary of $72,000 to each of the individuals with
10% annual increases until the salary for each individual reaches
$175,000. The agreements provide for incentive compensation in
addition to the above described salary, not to exceed 50% of such
salary determined in accordance with a formula to be established
annually in good faith by a committee of the Board of Directors.
Any amounts earned as salary and incentive compensation but not
paid by the Company will accrue interest until payment. Deferred
incentive compensation aggregating $50,000 was approved by the
Board of Directors for the year ended September 30, 1993. No
incentive compensation was earned during the years ended September
30, 1996, 1995 and 1994. Compensation expense aggregating $16,678,
$16,000 and $11,677 was accrued during the years ended September
30, 1996, 1995 and 1994, respectively, pursuant to the interest
provisions of the compensation arrangements.
<PAGE> F-16
In addition to the compensation described above, the
agreements specify that the Company will provide $250,000 of life
insurance, financial planning and tax preparation, annual medical
examinations and membership dues in a social or business club.
Also, should the individuals' employment terminate within one year
of a change in control, the agreements require a payment of 2.99
times annual salary.
Note 7: Common Stock
During 1992, the Company filed a registration statement with
the and Exchange Commission for the sale of 2,000,000 shares of
Common Stock. The offering was conducted on a "best efforts" basis
primarily by directors, officers and employees of the Company. The
offering was terminated effective January 5, 1994. A total of
1,490,050 shares were sold at a price of $1 per share and 103,000
shares were issued at $1 per share in satisfaction of notes payable
and related accrued interest.
In 1993, the Company issued 150,000 shares of Common Stock to
a consulting firm pursuant to a Service Agreement (the "Agreement")
dated March 1992. The Agreement provided for the payment of a fee
to the firm equal to 2.5% of the total capital cost of the New York
demonstration facility after completion of project funding from a
source produced by the firm. An accrual for this fee of $100,000
is included in the 1996 and 1995 Balance Sheets. The Agreement
also provided for payment to the consulting firm of a fee equal to
1.25% of the overall capital cost of a full-scale facility after
funding of such a project and for granting of options to buy up to
1,000,000 shares of the Company's Common Stock at $.25 per share
during a two-year period upon signing of an agreement for such a
project. Success fees for producing a source of debt or equity
financing are also provided for in the Agreement.
During May 1995, a stockholder purchased 100,000 shares of
Common Stock at $.50 per shares and warrants for 100,000 shares of
Common Stock (exercise price of $.50 per share) at a price equal to
the par value of the Company's Common Stock. The stockholder
exercised these warrants during June 1995.
During the year ended September 30, 1995, the Board of
Directors approved the issuance of 300,000 shares of the Company's
Common Stock, at $.50 per share (based on the price for the May
1995 sale of the Company's Common Stock), to Battelle in lieu of a
cash payment for $75,000 of license fees and $75,000 of expenses.
During the year ended September 30, 1994, the Company issued
Common Stock warrants, at prices ranging from $.10 to $.20 per
warrant, to stockholders for 1,630,000 shares of the Company's
Common Stock. The Company issued Common Stock warrants, at a price
equal
<PAGE> F-17
to par value of the Company's Common Stock, to a stockholder for
6,333,500 shares during the year ended September 30, 1993. The
related Warrant Agreements provide for an exercise period of 10
years from the date of issuance at prices ranging from $.80 to $.90
per share, subject to adjustment in the event that the Company
issues shares of Common Stock at a price per share which is less
than the warrant price or the current market value of such shares.
The exercise prices for the warrants were adjusted to $.50 during
the year ended September 30, 1995 due to the sale of Common Stock
in May 1995 for $.50 per share. During the year ended September
30, 1995, a stockholder exercised warrants for 58,825 shares at
$.85 per share.
In connection with the issuance of notes payable to
stockholders during the years ended September 30, 1996 and 1995
described in Note 4, the Company sold warrants to stockholders for
266,975 and 483,025 shares, respectively, of the Company's Common
Stock. The related Warrant Agreements provide for an exercise
period of 4 years from the date of issuance at a price of $.60 per
share, subject to adjustment in the event that the Company issues
shares of Common Stock at a price per share which is less than the
warrant price or the current market value of such shares. The
exercise price for the warrants was adjusted to $.50 due to the
sale of Common Stock in May 1995 for $.50 per share.
An agreement with Centerpoint Power Corporation (CPC)
specifies compensation at an hourly rate plus expenses for services
rendered and grants CPC stock warrants for 11,230,000 shares of
Common Stock (which were registered in connection with the
Company's public offering), exercisable at one cent per share, if
CPC obtains public funding for a demonstration facility or obtains
capital financing from an investor entity. The agreement expires
in April 2001. No payments have been made to CPC under the terms
of the agreement and CPC has not obtained funding which obligates
the Company to compensate CPC under the agreement.
The marketing agreement with a Georgia corporation discussed
in Note 3 provides for the issuance to the corporation of 250,000
warrants for 250,000 shares of the Company's Common Stock
exercisable within 10 years from the date of granting the warrants
at a price of $.50 per share within 90 days upon the signing of an
agreement with a customer to purchase or utilize the Technologies.
In connection with the assignment of the license for the STORS
technology from AFP, 24,700,000 shares of the Company's Common
Stock were issued to AFP. The shares were placed in a Voting Trust
and during 1993 began to be distributed to the AFP stockholders.
The Company owns 1,341,250 shares of its Common Stock previously
included in the Voting Trust pursuant to a 1990 settlement
agreement with a former AFP stockholder. These treasury shares
have a zero cost basis.
<PAGE> F-18
The Company issued Common Stock options during 1991 to a
member of the Board of Directors to acquire 100,000 shares at ten
cents per share. These options were exercised during 1993 and
1994.
On January 5, 1994, the Board of Directors adopted a
resolution for a four-to-one reverse stock split of the Company's
Common Stock. Stockholder approval for the reverse stock split was
obtained at the March 2, 1994 annual meeting of stockholders.
However, the reverse stock split has not been implemented as of
September 30, 1996 (see Note 11).
At September 30, 1996, approximately 20,135,000 shares of
Common Stock were reserved for future issuance under warrant
agreements.
Note 8: Employee stock ownership plan
The Company has adopted an Employee Stock Ownership Plan.
However, as of September 30, 1996, the Plan had not been funded nor
submitted to the Internal Revenue Service for approval.
Note 9: Management's consideration of going concern matters
The Company has incurred net losses since inception.
Additionally, substantial capital will likely be required to
commercialize the Technologies. The financial statements have been
prepared assuming the Company will continue as a going concern,
realizing assets and liquidating liabilities in the ordinary course
of business and do not reflect any adjustments that might result
from the outcome of the aforementioned uncertainties. Management
is considering several alternatives for mitigating these conditions
during the next year, including, the sale of stock pursuant to a
public offering (see Note 11) and fees from projects involving the
Technologies.
Note 10: Commitments
On July 26, 1996, the Company signed an agreement with the
City of New York which allows the Company to demonstrate certain
services and equipment. The Company agreed to provide the test
equipment at no cost to the City of New York for a period of not
less than 150 consecutive calendar days nor more than 200
consecutive calendar days from the start-up of the demonstration.
The Company anticipates that Foster Wheeler will build and own the
test equipment.
<PAGE> F-19
Note 11: Subsequent events
On October 23, 1996, the Board of Directors of the Company
approved the execution of a nonbinding letter of intent with a NASD
member broker-dealer to act as managing underwriter in connection
with a proposed public offering. The letter of intent provides for
the underwriting on a firm commitment basis of approximately
1,600,000 shares of Series A Common Stock (as described more fully
below) and 1,600,000 warrants redeemable for Series A Common Stock,
based upon no more than 3,500,000 shares of Common Stock and
1,600,000 warrants convertible to Common Stock outstanding
immediately prior to closing. The redeemable warrants entitle the
holder to acquire one share of Common Stock at a price per share
equal to 150% of the initial public offering price per share,
subject to adjustment. Commencing 12 months after the effective
date of a registration statement for the proposed offering, the
Company may redeem all, but not less than all, of the redeemable
warrants if specified conditions are met.
The letter of intent provides for a 10% underwriter's
discount, an over-allotment option, an expense allowance equal to
3% of the gross proceeds of the offering, a financial advisory fee
of $48,000 and five year warrants, exercisable at the beginning of
the second year after issuance, to purchase 10% of the aggregate
principal amount of Common Stock and warrants offered at $.0001 per
warrant. It also provides for restrictions on the disposition by
stockholders of Common Stock outstanding prior to the proposed
offering and for the underwriter to have the right to designate one
person for election to the Company's Board of Directors for a
period of five years.
In order to comply with the pre-conditions set forth in the
letter of intent, the Board of Directors approved a resolution for
a four-to-one reverse stock split of the Company's Common Stock in
addition to the four-to-one reverse stock split approved in 1994
(see Note 7). The Board of Directors also approved amendments to
the Company's Articles of Incorporation as follows: (1) To
authorize the designation of 10,000,000 shares as Series A Common
Stock and 65,000,000 shares as Series B Common Stock, which are
convertible to Series A Common Stock commencing 12 months after the
effective date of a registration statement for the proposed
offering subject to certain conditions, from the 75,000,000 shares
of $0.001 par value Common Stock authorized originally under the
Company's Articles of Incorporation; (2) To authorize the
designation of and reclassification of all shares of Common Stock
issued prior to the adoption of the proposed amendments to the
Articles of Incorporation to Series B Common Stock; and (3) To
change the name of the Company from Innotek Corporation to
ThermoEnergy Corporation. A special stockholders' meeting has been
scheduled during December 1996 in order to obtain stockholders'
approval of these matters.
<PAGE> F-20
Management anticipates that the Company will obtain bridge
financing of approximately $300,000 to fund the operations of the
Company until the completion of the proposed offering.
<PAGE> F-21
THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 44,672 $ 62,333
Advances to officers 122,200 96,200
Accrued interest receivable -
officers 11,451 9,138
---------- ----------
Total Current Assets 178,323 167,671
Property and equipment, at cost:
Equipment 14,818 14,818
Furniture and fixtures 4,991 4,991
Less accumulated depreciation (14,553) (14,147)
---------- ----------
5,256 5,662
---------- ----------
$ 183,579 $ 173,333
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 329,651 $ 360,288
Accrued expenses:
Salaries 417,024 364,314
Consulting fee 100,000 100,000
Other 112,990 92,513
---------- ----------
630,014 556,827
Deferred compensation 219,940 215,460
Notes payable to stockholders
(Note 2) 920,000 735,000
---------- ----------
Total Current Liabilities 2,099,605 1,867,575
---------- ----------
Stockholders' equity (deficit)
(Note 3):
Preferred stock, non-voting, $1
par value:
Authorized - 10,000,000 shares;
none issued
Common Stock, $.001 par value:
Series A Common Stock; Authorized
- 10,000,000 shares; no shares
issued and outstanding
Series B Common Stock; Authorized
- 65,000,000 shares; issued -
51,852,693 shares; outstanding -
50,511,443 shares 51,853 51,853
Additional paid-in capital 3,795,306 3,795,306
Deficit accumulated during the
development stage (5,763,185) (5,541,401)
---------- ----------
(1,916,026) (1,694,242)
---------- ----------
$ 183,579 $ 173,333
========== ==========
</TABLE>
See notes to financial statements.
<PAGE> F-22
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During
Development Three Months Ended December 31,
Stage Through -------------------------------
December 31, 1996 1996 1995
----------------- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating expenses:
General and
administrative $ 4,260,040 $ 176,208 $ 131,543
Research and development 627,266
Travel and entertainment 785,472 34,802 18,777
---------- -------- --------
5,672,778 211,010 150,320
---------- -------- --------
Loss From Operations (5,672,778) (211,010) (150,320)
---------- -------- --------
Other Income (Expense)
Interest income 63,098 2,313 1,497
Interest expense (153,505) (13,087) (8,705)
---------- -------- --------
(90,407) (10,774) (7,208)
---------- -------- --------
Net Loss $(5,763,185) $(221,784) $(157,528)
========== ======== ========
Per Common Share (Note 4)
Loss from operations $ (.10) $ (.00) $ (.00)
Net loss $ (.10) $ (.00) $ (.00)
</TABLE>
See notes to financial statements.
<PAGE> F-23
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Periods Ended September 30, 1988 Through September 30, 1996
and the Three Months Ended December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Issuance of stock, January
1988, (35,285,714 shares
at $.005 per share) $35,285 $ 145,015 $ $ 180,300
Net loss (290,483) (290,483)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1988 35,285 145,015 (290,483) (110,183)
Conversion of $412,000 of
debentures and accrued
interest, September 1989
(4,901,350 shares) 4,902 452,099 457,001
Net loss (338,985) (338,985)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1989 40,187 597,114 (629,468) 7,833
Net loss (255,036) (255,036)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1990 40,187 597,114 (884,504) (247,203)
Conversion of $63,000 of
unsecured debentures
and accrued interest at
10%, March 1991,
(708,566 shares) 709 70,148 70,857
Issuance of stock, May -
June 1991, (6,206,078
shares: 5,866,078 at
$.10 per share; 340,000
shares at $.05 per share) 6,206 597,401 603,607
Issuance of stock for
interest, June 1991,
(22,000 shares at $.10
per share) 22 2,178 2,200
<PAGE> F-24
Issuance of stock for
expenses incurred by
stockholders, July 1991
(81,295 shares at $.10
per share) 81 8,048 8,129
Net loss (670,179) (670,179)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1991 47,205 1,274,889 (1,554,683) (232,589)
Issuance of stock, October -
December 1991 (2,414,800
shares at $.10 per share) 2,415 239,065 241,480
Shares purchased in
rescission offer (168,985
shares) (169) (16,730) (16,899)
Issuance of stock, public
offering, August -
September 1992 (5,500
shares at $1.00 per share) 5 5,495 5,500
Net loss (562,751) (562,751)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1992 49,456 1,502,719 (2,117,434) (565,259)
Issuance of stock, public
offering October 1992 -
September 1993 (1,484,550
shares at $1.00 per share) 1,485 1,483,065 1,484,550
Issuance of stock for
exercise of stock options,
May 1993 (40,000 shares at
$.10 per share) 40 3,960 4,000
<PAGE> F-25
Issuance of warrants to
stockholder 6,333 6,333
Conversion of $103,000 of
notes payable to stock-
holders and accrued
interest, December 1992
(103,000 shares) 103 102,897 103,000
Issuance of stock for
consulting services, June
1993 (150,000 shares at
$1.00 per share) 150 149,850 150,000
Net loss (1,207,921) (1,207,921)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1993 51,234 3,248,824 (3,325,355) (25,297)
Issuance of warrants to
stockholders 226,000 226,000
Issuance of stock for
exercise of stock
options, March 1994
(60,000 shares at $.10
per share) 60 5,940 6,000
Issuance of stock for
exercise of warrants by
stockholder, August 1994
(58,825 shares at $.85
per share) 59 49,942 50,001
Net loss (767,427) (767,427)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1994 51,353 3,530,706 (4,092,782) (510,723)
<PAGE> F-26
Issuance of warrants to
stockholders 9,760 9,760
Issuance of stock, May
1995 (100,000 shares at
$.50 per share) 100 49,900 50,000
Issuance of stock for
exercise of warrants by
stockholder, June 1995
(100,000 shares at $.50
per share) 100 49,900 50,000
Issuance of stock for
expenses, July 1995
(300,000 shares at $.50
per share) (Note 7) 300 149,700 150,000
Net loss (896,998) (896,998)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1995 51,853 3,789,966 (4,989,780) (1,147,961)
Issuance of warrants to
stockholders 5,340 5,340
Net loss (551,621) (551,621)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1996 51,853 3,795,306 (5,541,401) (1,694,242)
Net loss (221,784) (221,784)
------ --------- ---------- ----------
Balance (deficit),
December 31, 1996
(Unaudited) $51,853 $3,795,306 $(5,763,185) $(1,916,026)
====== ========= ========== ==========
</TABLE>
See notes to financial statements
<PAGE> F-27
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
Development Three Months Ended December 31,
Stage Through -------------------------------
December 31, 1996 1996 1995
----------------- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities:
Net loss $(5,763,185) $(221,784) $(157,528)
Items not requiring
(providing) cash:
Depreciation 14,553 406 700
Expenses funded by
Common Stock issuance 543,187
Other 3,341
Changes in:
Advances to officers (321,183) (26,000) (14,000)
Other receivables (11,451) (2,313) (1,497)
Accounts payable 329,651 (30,637) 29,964
Accrued expenses 630,014 73,187 46,507
Deferred compensation 418,922 4,480 4,261
---------- -------- --------
Net cash used in
operating activities (4,156,151) (202,661) (91,593)
---------- -------- --------
Investing activities:
Purchase of fixed assets (19,808)
Other (3,341)
---------- -------- --------
Net cash used in
investing activities (23,149)
---------- -------- --------
Financing activities:
Proceeds from issuance
of Common Stock and
warrants 2,620,562 1,200
Proceeds from notes
payable and convertible
debentures 1,649,609 185,000 58,800
Payments on notes payable (154,609)
Other 108,410
---------- -------- --------
Net cash provided by
financing activities 4,223,972 185,000 60,000
---------- -------- --------
Increase (decrease) in
cash 44,672 (17,661) (31,593)
Cash, beginning of period 0 62,333 52,524
---------- -------- --------
Cash, end of period $ 44,672 $ 44,672 $ 20,931
========== ======== ========
</TABLE>
See notes to financial statements.
<PAGE> F-28
THERMOENERGY CORPORATION
(A DEVELOPMENT STATE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
UNAUDITED
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of December 31, 1996, the statements of
operations and cash flows cumulative during development stage
through December 31, 1996 and for the three months ended December
31, 1996 and 1995 and the statement of changes in stockholders'
equity (deficit) for the three months ended December 31, 1996, have
been prepared by ThermoEnergy Corporation (the "Company"), formerly
Innotek Corporation, without audit. In the opinion of management,
all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position, results of
operations and cash flows at December 31, 1996 and for all periods
presented have been made. Operating results for the three months
ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending September
30, 1997.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with
Article 10 of Regulation S-X. These financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's September 30, 1996 Form 10-K.
NOTE 2: NOTES PAYABLE TO STOCKHOLDERS
As of September 30, 1996 notes payable to stockholders
aggregating $735,000 were outstanding. The unsecured notes mature
four years from the date of issuance with interest at a rate of
6.63%. The notes provide that the principal balances and accrued
interest will become immediately due and payable at the closing of
the next public offering of securities of the Company should that
event occur prior to the stated maturity date. In addition, if the
Company obtains financing from a third party on terms more
favorable to the third party than the terms of the notes to the
stockholders, the Company and the stockholders may agree to modify
the notes to the stockholders to reflect such more favorable terms.
The notes payable have been classified as current liabilities since
management anticipates that they will be paid off within one year.
On December 9, 1996, the Board of Directors authorized the
Company to borrow from stockholders up to $500,000 to fund
operations through the completion of a proposed public offering
(see Note 3). The terms of the unsecured notes provide for
maturities six months from the date of execution or the closing of
the proposed public offering, whichever is sooner, with interest at
a rate of 10%. The notes also provide for the issuance of shares
of Series B Common Stock (see Note 3), to the holders of the notes,
in the ratio of one share for each $10
<PAGE> F-29
loaned to the Company, within six months from the date of execution
of the notes or the closing of the proposed public offering,
whichever is sooner.
At December 31, 1996, the Company had executed notes payable
to stockholders under this arrangement for an aggregate amount of
$185,000. During January 1997, an additional $315,000 of the notes
payable to stockholders were executed. The Company is committed to
issue 50,000 shares of Series B Common Stock, which are not subject
to the reverse stock splits more fully described in Note 3, to the
holders of the notes.
NOTE 3: COMMON STOCK
On October 23, 1996, the Board of Directors of the Company
approved the execution of a nonbinding letter of intent with a NASD
member broker-dealer to act as managing underwriter in connection
with a proposed public offering. The letter of intent provides for
the underwriting on a firm commitment basis of approximately
1,600,000 shares of Series A Common Stock (as described more fully
below) and 1,600,000 warrants redeemable for Series A Common Stock,
based upon no more than 3,500,000 shares of Common Stock and
1,600,000 warrants convertible to Common Stock outstanding
immediately prior to closing. The redeemable warrants will entitle
the holder to acquire one share of Common Stock at a price per
share equal to 150% of the initial public offering price per share,
subject to adjustment. Commencing 12 months after the effective
date of a registration statement for the proposed offering, the
Company may redeem all, but not less than all, of the redeemable
warrants if specified conditions are met.
The letter of intent provides for a 10% underwriter's
discount, an over-allotment option, an expense allowance equal to
3% of the gross proceeds of the offering, a financial advisory fee
of $48,000 and five year warrants, exercisable at the beginning of
the second year after issuance, to purchase 10% of the aggregate
principal amount of Common Stock and warrants offered at $.0001 per
warrant. It also provides for restrictions on the disposition by
stockholders of Common Stock outstanding prior to the proposed
offering and for the underwriter to have the right to designate one
person for election to the Company's Board of Directors for a
period of five years.
<PAGE> F-30
In order to comply with the pre-conditions set forth in the
letter of intent, the Board of Directors approved a resolution for
a four-to-one reverse stock split of the Company's Common Stock in
addition to the four-to-one reverse stock split approved by
stockholders in 1994. The Board of Directors also approved
amendments to the Company's Articles of Incorporation as follows:
(1) To authorize the designation of 10,000,000 shares as Series A
Common Stock and 65,000,000 shares as Series B Common Stock, which
are convertible to Series A Common Stock commencing 12 months after
the effective date of a registration statement for the proposed
offering subject to certain conditions, from the 75,000,000 shares
of $0.001 par value Common Stock authorized originally under the
Company's Articles of Incorporation; (2) To authorize the
designation of and reclassification of all shares of Common Stock
issued prior to the adoption of the proposed amendments to the
Articles of Incorporation to Series B Common Stock; and (3) To
change the name of the Company from Innotek Corporation to
ThermoEnergy Corporation. Stockholders' approval of these matters
was obtained on December 12, 1996 during a special stockholders'
meeting.
During 1997, the Board of Directors approved a Stock Option
Plan which provides for incentive and non-incentive stock options
for an aggregate of 750,000 shares of Series B Common Stock , which
are not subject to the reverse stock splits discussed in this Note,
for key employees and non-employee Directors of the Company.
Implementation of the Plan is subject to approval by stockholders.
On January 5, 1994, the Board of Directors adopted a
resolution for a four-to-one reverse stock split of the Company's
Common Stock. Stockholder approval for the reverse stock split was
obtained at the March 2, 1994 annual meeting of stockholders.
The reverse stock splits have not been implemented.
NOTE 4: LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss for
the period by the weighted average number of shares outstanding
during the period. Stock options and warrants issued within twelve
months of the initial public offering filing date (February 27,
1992) have been treated as outstanding for all periods presented.
<PAGE> F-31
The weighted average number of common shares used in the loss
per share computations were 59,224,384, 60,792,870 and 60,792,870
shares for the period cumulative since inception through December
31, 1996, and for the three months ended December 31, 1996 and
1995, respectively.
NOTE 5: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
The Company has incurred net losses since inception.
Additionally, substantial capital will likely be required to
commercialize the Company's technologies. The financial statements
have been prepared assuming the Company will continue as a going
concern, realizing assets and liquidating liabilities in the
ordinary course of business and do not reflect any adjustments that
might result from the outcome of the aforementioned uncertainties.
Management is considering several alternatives for mitigating these
conditions, including the sale of stock pursuant to a public
offering (see Note 3) and fees from projects involving the
Company's technologies.
NOTE 6: EXECUTIVE BONUS PLAN
On January 3, 1997, the Company's Board of Directors
established a five-year Executive Bonus Plan (the "Bonus Plan") to
reward executive officers and other key employees based upon the
Company achieving certain performance levels. Under the Bonus
Plan, commencing with the Company's 1997 fiscal year and for each
of the four fiscal years thereafter, the Company will have
discretion to award bonuses in an aggregate amount in each fiscal
year equal to 1% of the Company's net sales revenues for each
fiscal year, provided and on condition that the Company achieves a
net profit before taxes of not less that 5% of net sales but less
that 15% of net sales. The Board of Directors approved bonus
payment percentages for certain individuals for fiscal 1997. In
the future, the Compensation Committee of the Board of Directors of
the Company will determine the allocable amounts or percentages of
the bonus pool which may be paid annually to participants.
<PAGE>
=================================================================
No dealer, salesperson or any other person that has been authorized
to give any information or to make any representation other than
those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having
been authorized by the Company or any Underwriter. Neither the
delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been
no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any date
subsequent to the date hereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which
such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to
any person to whom it is unlawful to make such offer or
solicitation.
-----------------------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . 8
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 14
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . 16
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . 16
DILUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 20
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 30
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . 32
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . 38
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . 41
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . 43
UNDERWRITING. . . . . . . . . . . . . . . . . . . . . . . . . 44
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 46
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . 46
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-1
Until __________, 1997 all dealers effecting transactions in
the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This
delivery requirement is in addition to the obligations of dealers
to deliver a Prospectus when acting as Underwriters and with
respect to their unsold allotments or subscriptions.
=================================================================
<PAGE>
=================================================================
THERMOENERGY CORPORATION
1,600,000 Shares of
Series A Common Stock
and
1,600,000 Redeemable
Series A Common Stock Purchase Warrants
(as Units, each consisting of one share
of Series A Common Stock and one Redeemable Series A Common Stock
Purchase Warrant)
------------------
PROSPECTUS
------------------
NATIONAL SECURITIES
CORPORATION
__________________, 1997
=================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 4-27-850(A) of the Business Corporation Act of 1987 of
the State of Arkansas provides that an Arkansas corporation may
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise, against expense,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Section 4-27-850(B) provides that a Arkansas corporation may
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit
by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses actually and
reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought
shall determine that despite the adjudication of liability, such
person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 4-27-850(C) further provides that to the extent a
director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to in
subsections (A) and (B) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses actually
and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 4-27-850(A) shall not be
deemed exclusive of any other rights to which the indemnified party
may be entitled; and that the corporation may purchase and maintain
insurance on behalf of a director or officer of the corporation
against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or
not the corporation would have the power to indemnify him against
such liabilities under such Section 4-27-850(B).
Section 4-27-202(B)(3) of the Business Corporation Act of 1987
provides that a corporation in its original certificate of
incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members
of its board of directors or governing body for breach of a
director's fiduciary duty. However, no such provision may
eliminate or limit the liability of a director for breaching his
duty of loyalty, failing to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was illegal, or
obtaining an improper personal benefit. A provision of this type
has no effect on the availability of equitable remedies, such as
injunction or rescission, for breach of fiduciary duty. The
Company's Amended Certificate of Incorporation contains such a
provision.
The Company's Bylaws provide that the Company shall indemnify
officers and directors, and to the extent authorized by the Board
of Directors, employees and agents of the Company, to the full
extent permitted by and in the manner permissible under the laws of
the State of Arkansas. The Amended Certificate of Incorporation
and Bylaws also permit the Board of Directors to authorize the
Company to purchase and maintain insurance against any liability
asserted against any director, officer, employee or agent of the
Company arising out of his capacity as such.
The Company has entered into and intends to execute indemnity
agreements with present and future directors for indemnification of
and advance of expenses to such persons to the full extent
permitted by law.
Item 25. Other Expenses of Issuance and Distribution.*
a. SEC filing fee $ 10,735.52
b. NASD filing fee 4,042.72
c. Blue Sky fees and expenses,
including legal fees
d. Printing and engraving
e. Legal fees and expenses
f. Accounting fees and expenses
g. Transfer agent and registrar
fees and expenses
h. Miscellaneous
=========
- ----------------------
* All fees and expenses other than the SEC and NASD Filing Fees
are estimated. All of such fees and expenses shall be borne
by the Company.
Item 26. Recent Sales of Unregistered Securities.
All warrants and shares of Common Stock described below are
for Series B Common Stock if exercised by the respective holders
before the lock up period expires as discussed in the Prospectus.
See "Underwriting".
On January 20, 1994, the Company sold to two shareholders
warrants to purchase 31,250 and 8,125 shares of the Company's
common stock, respectively. The warrants were sold for $100,000
and $26,000 respectively. The holders of the warrants represented
to the Company that the warrants were acquired for investment and
not with a view to the distribution thereof. The warrants contain
restrictive legends providing that such securities may not be sold,
except in compliance with the Securities Act of 1933, as amended
(the "Securities Act"). This issuance was made in reliance upon
the exemption from registration provided by Section 4(2) of the
Securities Act.
On May 25, 1994, the Company sold to one shareholder warrants
to purchase 250,000 shares of the Company's common stock. The
warrants were sold for $100,000. The holder of the warrants
represented to the Company that the warrants were acquired for
investment and not with a view to the distribution thereof. The
warrants contain restrictive legends providing that such securities
may not be sold, except in compliance with the Securities Act of
1933, as amended (the "Securities Act"). This issuance was made in
reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.
From October 1994 to September 1996, the Company sold to 23
shareholders warrants to purchase 178,126 shares of the Company's
common stock. The warrants were sold for a total of $13,800. The
holder of the warrants represented to the Company that the warrants
were acquired for investment and not with a view to the
distribution thereof. The warrants contain restrictive legends
providing that such securities may not be sold, except in
compliance with the Securities Act of 1933, as amended (the
"Securities Act"). This issuance was made in reliance upon the
exemption from registration provided by Section 4(2) of the
Securities Act.
On May 10, 1995, the Company sold to one shareholder 6,250
shares of Common Stock and warrants to purchase 6,250 shares of the
Company's common stock. The shares were sold for $100,000 and the
warrants were sold for par value. The holder of the shares and
warrants represented to the Company that the shares and warrants
were acquired for investment and not with a view to the
distribution thereof. The shares and warrants contain restrictive
legends providing that such securities may not be sold, except in
compliance with the Securities Act of 1933, as amended (the
"Securities Act"). This issuance was made in reliance upon the
exemption from registration provided by Section 4(2) of the
Securities Act.
Item 27. Exhibits.
(a) Exhibits.
Number assigned
in regulation
S-B, Item 601 Description of Exhibit
- --------------- ----------------------
1.1 Underwriting Agreement, to be filed by Amendment.
3.1 Amended and Restated Articles of Incorporation.
3.2 Amended and Restated Bylaws of the Company.
4.1 Form of Stock Certificate - Series A Common Stock, to be
filed by Amendment.
4.2 Form of Stock Certificate - Series B Common Stock, to be
filed by Amendment.
5.1 Opinion of The Davidson Law Firm, to be filed by
Amendment.
9.1* Voting Trust Agreement between American Fuel and Power
Corporation and P.L. Montesi, Trustee, dated November 1,
1991.
10.1* License Agreement between Battelle Memorial Institute and
ThermoEnergy Corporation dated as of August 5, 1991.
10.2(4) License Agreement between the Company and Battelle
Memorial Institute for Battelle's dated July 7, 1995
(defense purposes for NitRem).
10.3(5) License Agreement between Battelle Memorial Institute and
ThermoEnergy Corporation dated July 7, 1995 (industrial
purposes for NitRem).
10.4* Substitute General Compensation and Stock Warrant
Agreement between ThermoEnergy Corporation and
Centerpoint Power Corporation of Virginia for
STORS/Denitrification and NitRem Technologies between
ThermoEnergy Corporation and Centerpoint Power
Corporation, dated April 22, 1991.
10.5* First Amendment to Substitute General Compensation and
Stock Warrant Agreement between ThermoEnergy Corporation
and Centerpoint Power Corporation for
STORS/Denitrification and NitRem Technologies by and
between ThermoEnergy Corporation and Centerpoint Power
Corporation, dated January 30, 1992.
10.6*(1) Employment Agreement dated January 1, 1992 by and between
ThermoEnergy and P. L. Montesi.
10.7*(1) Employment Agreement dated January 1, 1992 by and between
ThermoEnergy and Dennis Cossey.
10.8* STORS/NitRem Option Agreement between the Company and a
Corporation in Formation dated March, 1992.
10.9* Agreement between the Company and McKeown and Franz, Inc.
dated March, 1992.
10.10(2) Warrant Agreement with Robert Trump dated December 23,
1992.
10.11(2) Warrant Agreement with Robert Trump dated April 1, 1993.
10.12(3) Warrant Agreement with Robert Trump dated July 15, 1993.
10.13(6) Form Warrant Agreement and Term Note with Robert Trump
dated October 14, 1994, October 17, 1994, March 20, 1996,
May 17, 1996, and May 28, 1996, respectively.
10.14(7) Form of Promissory Note, Subscription Agreement and
Warrant Agreement Concerning Financing Activities of the
Company.
10.15(8) Warrant Agreement dated May 10, 1995 with Robert Trump.
10.16 Joint Marketing Agreement between Dan Cowart, Inc. and
Registrant dated April 1, 1996.
10.17 Worldwide Marketing Agreement between the Company and
Foster Wheeler dated September, 1994.
10.18 Memorandum of Understanding between the Company and Roy
F. Weston, Inc. dated April 10, 1996.
10.19 No Cost Test Agreement Between City of New York -
Department of Clean Water and Registrant dated July 26,
1996.
10.20 Memorandum of Understanding Between Foster Wheeler
Corporation and Mitsui Company (U.S.A.) Inc. dated
October 1996.
10.21 Subcontract between Sam Houston State University and the
Company dated October 31, 1994.
10.22 Modification Number 001 Subcontract SHSU - 5000 - 002
between Sam Houston State University and the Company
dated August, 1996.
23.1 Consent of Kemp & Company
23.2 Consent of Baird, Kurtz & Dobson
23.3 Consent of The Davidson Law Firm, see Exhibit 5.1
23.4 Consent of Waring Cox, PLC, to be filed by Amendment.
25.1 Powers of Attorney (included on signature page of
Registration Statement)
28.1* Form of Security Escrow Agreement.
* Incorporated by reference from the Company's Registration
Statement on Form S-18, File No. 33-46104-FW, effective
June 24, 1992.
(1) Management Contract or Compensatory Plan or Arrangement.
(2) Incorporated by reference from the Company's Form 10-Q of
March 31, 1993.
(3) Incorporated by reference from the Company's Form 10-Q of
June 30, 1993.
(4) Incorporated by reference from the Company's Form 10-K of
September 30, 1993.
(5) Incorporated by reference from the Company's Form 10KA of
September 30, 1993.
(6) Incorporated by reference from the Company's Form 10-Q of
March 31, 1995.
(7) Incorporated by reference from the Company's Form 10-Q of
June 30, 1995.
(8) Incorporated by reference from the Company's Form 10-Q of
March 31, 1996.
Item 28. Undertakings.
(a) The undersigned small business issuer 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)(3) of the Securities Act of 1933 (the "Act");
(ii) To reflect in the prospectus any facts or
events which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) That, for the purpose of determining any liability
under the Act, each such post-effective amendment shall be
deemed to be a new registration relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the Securities and 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 of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the small business issuer 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.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on its
behalf by the undersigned, in the City of Little Rock, State of
Arkansas, on February 11, 1997.
THERMOENERGY CORPORATION
By: /s/ Dennis C. Cossey
----------------------------
Dennis C. Cossey
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dennis C. Cossey Chairman, Chief Executive February 11, 1997
- ---------------------------- Officer, Secretary and
Dennis C. Cossey Director (Principal
Executive Officer)
/s Primo L. Montesi President and Director February 11, 1997
- ---------------------------- (Principal Financial
Primo L. Montesi Officer)
/s/ J. Donald Phillips Director February 11, 1997
- ----------------------------
J. Donald Phillips
/s/ Dr. Louis J. Ortmann Director February 11, 1997
- ----------------------------
Dr. Louis J. Ortmann
/s/ Thomas Randall Kemp Director February 11, 1997
- ----------------------------
Thomas Randall Kemp
Director February ___, 1997
- ----------------------------
Gerald J. Franz
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
directors and officers of ThermoEnergy Corporation, an Arkansas
corporation, hereby constitutes and appoints Dennis Cossey, his
true and said attorney-in-fact, for him and in his name, place and
stead in any and all capacities to sign each Amendment to this
Registration Statement, and to file this Registration Statement and
each Amendment so signed with all exhibits thereto and any and all
documents in connection therewith with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact full power
and authority to do and perform any and all acts and things
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might do in person, hereby
ratifying and confirming all that said attorneys-in-fact may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons on February 11, 1997.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dennis C. Cossey Chairman, Chief Executive February 11, 1997
- ---------------------------- Officer, Secretary and
Dennis C. Cossey Director
/s Primo L. Montesi President and Director February 11, 1997
- ----------------------------
Primo L. Montesi
/s/ J. Donald Phillips Director February 11, 1997
- ----------------------------
J. Donald Phillips
/s/ Dr. Louis J. Ortmann Director February 11, 1997
- ----------------------------
Dr. Louis J. Ortmann
/s/ Thomas Randall Kemp Director February 11, 1997
- ----------------------------
Thomas Randall Kemp
Director February ___, 1997
- ----------------------------
Gerald J. Franz
</TABLE>
AMENDED AND RESTATED ARTICLES
OF INCORPORATION
OF
INNOTEK CORPORATION
Pursuant to the authority contained in Section 4-29-101 of the
Arkansas Code Annotated, Subchapter 10, The Arkansas Business Act
of 1987, the undersigned, being the incorporator of Innotek
Corporation, an Arkansas corporation, do hereby take and adopt the
following Amended and Restated Articles of Innotek Corporation.
1. The name of the Corporation is hereby changed from
"Innotek Corporation" to "ThermoEnergy Corporation". The
Corporation is for profit.
2. The street address and the zip code of the principal
office of the Corporation is Suite 1300 Tower Building, 323 Center
Street, Little Rock, Arkansas 72201.
3. The street address and zip code of the Corporation's
initial registered office is Suite 1300 Tower Building, 323 Center
Street, Little Rock, Arkansas 72201, in the County of Pulaski, and
the name of its initial registered agent in that office is P. L.
Montesi.
4. The name and address of the incorporator is P. L.
Montesi, Suite 1300 Tower Building, 323 Center Street, Little Rock,
Arkansas 72201.
5. The purpose of the Corporation is to engage in lawful
acts or activity for which a corporation may be organized under the
Arkansas Business Corporation Act of 1987.
6. (a) The Corporation is authorized to issue 75,000,000
shares of $0.001 par value per share Common Stock. From the Common
Stock, the Corporation is authorized to designate 10,000,000 shares
as Series A Shares and 65,000,000 shares as Series B Shares. The
relative rights, privileges and limitations of Series A Shares and
Series B Shares are as follows:
(i) Series A Shares shall have the following rights: (1)
Each share shall have one vote in all matters permitted
or required by the Arkansas Business Corporation Act of
1987, as amended; (2) Each share shall be entitled to
receive its pro rata share of the net assets of the
Corporation upon dissolution; (3) Each share shall have
all other rights and privileges as allowed by the
Arkansas Business Corporation Act of 1987, as amended.
(ii) Series B Shares shall have the following rights:
(1) Each share shall have one vote in all matters
permitted or required by the Arkansas Business
Corporation Act of 1987, as amended; (2) Each share shall
be entitled to receive its pro rata share of the net
assets of the Corporation upon dissolution; (3) Each
share shall have all other rights and privileges as
allowed by the Arkansas Business Corporation Act of 1987,
as amended, subject to the following restrictions on
transfer: Series B Shares shall be converted to Series A
Shares commencing twelve (12) months (the "first year")
after the effective date of a registration statement
filed with the United States Securities and Exchange
Commission resulting in gross proceeds to the Corporation
of $5,000,000 or more, and the average closing bid price
of the Series A Shares, as reported on the NASDAQ Small
Cap Market or such other exchange as the Company's stock
may be traded, equals or exceeds 120% of its initial
public offering price for twenty (20) consecutive trading
days within a thirty-day (30) period (the "trading
test"). In the event the bid price of the Company's
Series A Shares twelve (12) months from the effective
date does not meet the trading test, then no more than
20% of the Series B Shares may be converted to Series A
Shares, on a pro rata basis, in any one quarterly
calendar period during the twelve (12) month period
following the first year, or 100% of the Series B Shares
shall be converted to Series A Shares when the trading
test is met, whichever first occurs and all shares will
be transferrable. At such time as all Series B Shares
have been converted to Series A Shares, the separate
class designations shall be removed as a matter of law.
(iii) At such time as all Series B Shares have been
converted to Series A Shares, the separate class
designations shall be removed as a matter of law.
(b) The Corporation is authorized to issue 10,000,000
shares of $1.00 par value per share Series Preferred Stock.
7. All shares of common stock issued and outstanding prior
to the adoption of these Amended and Restated Articles of
Incorporation of Innotek Corporation are reclassified and
designated Series B Shares and shall bear the following restrictive
legend:
Series B Shares are convertible to Series A Shares
commencing twelve (12) months after the effective date of
a registration statement filed with the United States
Securities and Exchange Commission resulting in gross
proceeds to the Corporation of $5,000,000 or more and the
average closing bid price of the Series A Shares equals
or exceeds 120% of its initial public offering price for
twenty (20) consecutive trading days within a thirty-day
(30) period (the "trading test"). In the event the bid
price of the Corporation's Series A Shares twelve (12)
months from the effective date does not meet the "trading
test", then no more than 20% of the Series B Shares may
be converted to Series A Shares, on a pro rata basis, in
any one quarterly calendar period, or 100% of the Series
B Shares shall be converted to Series A Shares when the
"trading test" is met, whichever first occurs and all
shares will be transferrable. At such time as all Series
B Shares have been converted to Series A Shares, the
separate class designations shall be removed as a matter
of law. [End of Legend]
The Transfer Agent is authorized to replace all certificates
of outstanding shares of stock as of the effective date of these
Amended and Restated Articles of Incorporation with Series B Share
certificates bearing the restrictive legend stated above and shall
mark "canceled" all certificates of common stock received for
replacement.
8. Pursuant to Section 4-27-602 of the Arkansas Code
Annotated, the Board of Directors may determine, in whole or part,
the preferences, limitations and relative rights of: (1) Any class
of shares before the issuance of any shares of that class; or (2)
one or more series in a class before the issuance of any shares of
that series.
9. The Corporation reserves the right to amend, alter,
change, or repeal any provisions contained in these Amended and
Restated Articles of Incorporation of Innotek Corporation in the
manner now or hereafter prescribed by law, and all rights and
powers conferred herein on shareholders, directors, or officers are
subject to this reserved power.
10. Any member of the Board of Directors may be removed for
cause by a vote of the majority of the entire Board of Directors.
11. The Amended and Restated Articles of Incorporation of
Innotek Corporation was approved by the Shareholders of the
Corporation at a Special Meeting held for that and other purposes
on December 12, 1996. At said meeting, 40,483,294 of the
50,631,443 shares of common stock were represented. Of said
40,483,294 shares represented, at least 39,273,662 shares were
voted in favor of the adoption of the Amended and Restated Articles
of Incorporation of Innotek Corporation.
IN WITNESS WHEREOF, the Corporation has caused its corporate
name to be subscribed by its President and hereby verifies that the
statements contained in the foregoing Articles of Amendment are
true and correct to the best of his knowledge and belief, and duly
attested by its Secretary on the 12th day of December, 1996.
INNOTEK CORPORATION
By: /s/ P. L. Montesi
---------------------------
P. L. Montesi, President
Attested By:
/s/ Dennis Cossey
- ------------------------------
Dennis Cossey, Secretary
CORPORATE SEAL:
AMENDED AND RESTATED
BYLAWS
OF
INNOTEK CORPORATION
(March 25, 1996)
TABLE OF CONTENTS
OF
BYLAWS
OF
INNOTEK CORPORATION
Page
I. OFFICES
Section 1. Registered Office 1
Section 2. Other Offices 1
II. MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings 1
Section 2. Annual Meetings 1
Section 3. Notice 1
Section 4. List of Shareholders 1
III. SPECIAL MEETINGS OF SHAREHOLDERS
Section 1. Time and Place 2
Section 2. Who May Call 2
Section 3. Notice 2
Section 4. Purposes 2
IV. QUORUM AND VOTING OF STOCK
Section 1. Quorum 2
Section 2. Vote Required 2
Section 3. Proxy 2
Section 4. Action Without a Meeting 3
V. DIRECTORS
Section 1. Number 3
Section 2. Vacancies 3
Section 3. Resignation 3
Section 4. Removal 3
Section 5. Powers 3
Section 6. Compensation 3
VI. MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Place of Meetings 4
Section 2. First Meeting 4
Section 3. Regular Meetings 4
Section 4. Special Meetings 4
Section 5. Quorum 4
Section 6. Action Without Meeting 4
Section 7. Telephone Conference 4
VII. COMMITTEE OF DIRECTORS
Section 1. Committees 5
Section 2. Minutes 5
VIII. NOTICES
Section 1. Notice 5
Section 2. Waiver of Notice 5
IX. OFFICERS
Section 1. Officers 6
Section 2. Election 6
Section 3. Other Officers 6
Section 4. Compensation 6
Section 5. Term of Office 6
Section 6. The Chairman of the Board of Directors 6
Section 7. The President 6
Section 8. The Vice President 6
Section 9. The Secretary 7
Section 10. Assistant Secretaries 7
Section 11. The Treasurer 7
Section 12. Assistant Treasurers 7
X. CERTIFICATES OF STOCK
Section 1. Certificates 8
Section 2. Facsimile Signatures 8
Section 3. Lost Certificates 8
Section 4. Transfers of Stock 8
Section 5. Fixing Record Date 8
Section 6. Registered Shareholders 9
XI. GENERAL PROVISIONS
Section 1. Dividends 9
Section 2. Reserves 9
Section 3. Checks 9
Section 4. Fiscal Year 9
Section 5. Seal 9
Section 6. Miscellaneous 9
XII. INDEMNIFICATION
Section 1. Actions, Suits or Proceedings Other
Than by or in the Right of the
Corporation 10
Section 2. Actions or Suits by or in the Right
of the Corporation 10
Section 3. Indemnification for Costs, Charges,
and Expenses of Successful Party 10
Section 4. Determination of Right to
Indemnification 11
Section 5. Advanced Costs, Charges and Expenses 11
Section 6. Other Rights; Continuation of Right
to Indemnification 12
Section 7. Insurance 12
Section 8. Savings Clause 12
XIII. AMENDMENTS
Section 1. Amendments, Repeal, etc. 12
BYLAWS
OF
INNOTEK CORPORATION
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of
Innotek, Inc. (the "Corporation") shall be in the City of Little
Rock, State of Arkansas.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of
Arkansas (amended November 3, 1989) as the Board of Directors or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of the
shareholders for the election of directors shall be held in Little
Rock, Arkansas, at such place as may be fixed from time to time by
the Board of Directors, or at such other place either within or
without the State of Arkansas (amended November 3, 1989) as shall
be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of shareholders for
any other purpose may be held at such time and place, within and
without the State of Arkansas (amended November 3, 1989), as shall
be stated in the notice of the meeting or in a duly-executed waiver
of notice thereof.
Section 2. Annual Meetings. Annual meetings of shareholders,
commencing with the year 1995, shall be held on the first Wednesday
in May, with the time and place to be designated in the notice to
shareholders (amended November 30, 1994), or at such other date and
time as shall be designated from time to time by the Board of
Directors and stated in the notice of meeting, at which they shall
elect by a majority vote directors in accordance with the
Certificate of Incorporation, and transact such other business as
may properly be brought before the meeting.
Section 3. Notice. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given each
shareholder entitled to vote at such meeting not less than ten (10)
or more than sixty (60) days before the date of the meeting.
Section 4. List of Shareholders. The officer who has charge
of the stock ledger of the Corporation shall prepare and make, at
least ten (10) days before every meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each
shareholder. Such list shall be open to the examination of any
shareholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof,
and may be inspected by any shareholder who is present.
ARTICLE III
SPECIAL MEETINGS OF SHAREHOLDERS
--------------------------------
Section 1. Time and Place. Special meetings of shareholders
for any purpose may be held at such time and place within or
without the State of Arkansas as shall be stated in the notice of
the meeting or in the duly executed waiver of notice thereof.
Section 2. Who may Call. Special meetings of the share-
holders, for any purpose or purposes, unless otherwise prescribed
by statute or by the Certificate of Incorporation, may be called by
the Chairman of the Board or the President and shall be called by
the President or Secretary at the request in writing of a majority
of the Board of Directors. Such request shall state the purpose or
purposes of the proposed meeting.
Section 3. Notice. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be delivered given
not less than ten (10) nor more than sixty (60) days before the
date of the meeting, to each shareholder entitled to vote at such
meeting.
Section 4. Purposes. The business transacted at any special
meeting of shareholders shall be limited to the purposes stated in
the notice.
ARTICLE IV
QUORUM AND VOTING OF STOCK
--------------------------
Section 1. Quorum. The holders of record of a majority of
the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a
quorum at all meetings of the shareholders for the transaction of
ARTICLE V
DIRECTORS
---------
Section 1. Number. The number of directors which shall
constitute the Board shall be seven. Six of the Board members
shall serve staggered three (3) year terms with two Directors
elected at each annual meeting of the shareholders. One Director
shall elected to a five (5) year term. Except as provided in
Section 2 of this Article, each director elected shall hold office
until his successor is elected and qualified. Directors need not
be shareholders. (Amended January 5, 1994.)
Section 2. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in
office, though less than a quorum, and the directors so chosen
shall hold office until their successors are duly elected and
qualified, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner
provided by statute.
Section 3. Resignation. Any director or member of a commit-
tee may resign at any time by giving written notice to the
President or the Secretary. Such resignation shall take effect at
any time specified therein after written notice thereof has been
received by the President or the Secretary, or if the time be not
specified, upon receipt thereof by the President or the Secretary
and, unless otherwise specified therein, an acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Removal. Any director or directors may be
removed, with or without cause, by the holders of a majority of the
shares entitled to vote at an election of directors.
Section 5. Powers. The business of the Corporation shall be
managed by its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as
are not by statute or by the Certificate of Incorporation or by
these Bylaws directed or required to be exercised or done by the
shareholders.
Section 6. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of
directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special
or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 1. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either
within or without the State of Arkansas.
Section 2. First Meeting. The first meeting of the Board of
Directors following a meeting of shareholders at which directors
were elected shall be held immediately following and at the same
place as such shareholders' meeting and no notice of such meeting
shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In
the event such meeting is not held at said time and place, the
meeting may be held at such time and place as shall be specified in
a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver
signed by all of the directors.
Section 3. Regular Meetings. Regular meetings of the Board
of Directors may be held without notice at such time and at such
place as shall from time to time be determined by the board.
Section 4. Special Meetings. Special meetings of the Board
may be called by the Chairman of the Board, the President or the
Secretary on one day's notice to each director, either personally
or by mail or by telegram; special meetings shall be called by any
such officer in like manner and on like notice on the written
request of three (3) directors.
Section 5. Quorum. At all meetings of the Board a majority
of the directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically required by
statute or by the Certificate of Incorporation. If a quorum shall
not be present at any meeting of the Board of Directors the
directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 6. Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any
action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without
a meeting, if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
Section 7. Telephone Conference. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at
the meeting.
ARTICLE VII
COMMITTEE OF DIRECTORS
----------------------
Section 1. Committees. The Board of Directors may, by reso-
lution passed by a majority of the whole Board, designate one or
more committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in
the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all
papers which may require it: but no such committee shall have the
power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation,
recommending to the shareholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation
or a revocation of a dissolution, amending or repealing any
resolution of the Board which by its terms shall not be so
amendable or repealable, or amending the Bylaws of the Corporation:
and, unless the resolution or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the
Board of Directors.
Section 2. Minutes. Each committee shall keep regular
minutes of its meetings and report the same to the Board of
Directors when required.
ARTICLE VIII
NOTICES
-------
Section 1. Notice. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws,
notice is required to be given to any director or shareholder, it
shall not be construed to mean personal notice, but such notice may
be given in writing, by mail, addressed to such director or
shareholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in
the United States mail. Notice to directors may also be given by
telegram or electronic facsimile, in which event it shall be deemed
to have been given when deposited with a telegraph or electronic
facsimile office for transmission.
Section 2. Waiver of Notice. Whenever any notice is required
to be given under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, a waiver thereof
in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE IX
OFFICERS
--------
Section 1. Officers. The officers of the corporation shall
be chosen by the Board of Directors and shall be a Chief Executive
Officer, Chief Operating Officer, President, Chief Financial
Officer, General Counsel, Senior Vice President, Executive Vice
President, Vice President and Secretary (amended March 25, 1996).
The Board of Directors may also choose a Chairman of the Board, a
Vice-President or a Treasurer, who shall have the powers enumerated
in the Bylaws, and additional vice-presidents (who may have
additional designations as to seniority or function), and one or
more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 2. Election. The Board of Directors at its first
meeting after each annual meeting of shareholders shall choose a
Chairman of the Board of Directors, a Chief Executive Officer,
Chief Operating Officer, President, Chief Financial Officer,
General Counsel, one or more Senior Vice Presidents, Executive Vice
Presidents, Vice Presidents and a Secretary.
Section 3. Other Officers. The Board of Directors may
appoint such other officers and agents as it shall deem necessary
who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to
time by the board.
Section 4. Compensation. The salaries of all officers and
agents of the Corporation shall be fixed by the Board of Directors.
Section 5. Term of Office. The officers of the Corporation
shall hold office until their successors are chosen and qualify.
Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the
Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
Section 6. The Chairman of the Board of Directors. The
Chairman of the Board of Directors shall preside, when present, at
meetings of the Board of Directors, and have such other duties as
may be assigned to him by the Board of Directors.
Section 7. The Chief Executive Officer. The Chief Executive
Officer of the corporation, shall preside at all meetings of the
shareholders, shall in absence of the Chairman of the Board of
Directors, preside at all meetings of the Board of Directors, shall
have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall be empowered
to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent
of the Corporation.
Section 8. The President. The President shall preside at all
meetings of the shareholders, shall in absence of the Chairman of
the Board of Directors and Chief Executive Officer, preside at all
meetings of the Board of Directors, shall have general and active
management of the business of the corporation. He shall be
empowered to execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent
of the corporation.
Section 9. Chief-Operating Officer. The duties and
responsibilities of the Chief-Operating Officer will be designated
under the position as appointed by the Board of Directors.
Section 10. General Counsel. The duties and responsibilities
of the General Counsel will be designated under the position as
appointed by the Board of Directors.
Section 11. Senior Vice President, Executive Vice President,
Vice President. In the absence of the President or in the event of
his inability or refusal to act, the Vice-President (or in the
event there be more than one vice-president, the vice-presidents in
the order designated by the directors, or in the absence of any
designation, then in the order of their election) shall perform the
duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the
President. The Vice-Presidents shall perform such other duties and
have such other powers as the Board of Directors may from time to
time prescribe.
Section 12. The Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the share-
holders and record all the proceedings of the meetings of the
Corporation and of the Board of Directors in a book to be kept for
that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of
the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or President or any
Vice-President, under whose supervision he shall be. He shall have
custody of the corporate seal (if any) of the Corporation and he,
or an Assistant Secretary, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to
any other officer to affix the seal (if any) of the Corporation and
to attest the affixing by his signature.
Section 13. Assistant Secretaries. The Assistant Secretary,
or if there be more than one, the assistant secretaries in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the
absence of the Secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 14. The Chief-Financial Officer. The Chief-Financial
Officer shall have the custody of the Corporate funds and
securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds
of the Corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to
the Chief-Financial Officer or President and the Board of
Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his transactions as Chief-Financial
Officer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation
a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind
in his possession or under his control belonging to the
Corporation.
Section 15. Assistant To Chief-Financial Officer. The
Assistant To Chief-Financial Officer, or if there shall be more
than one, the assistants to the Chief-Financial Officer in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the
absence of the Chief-Financial Officer or in the event of his
inability or refusal to act, perform the duties and exercise the
powers of the Chief-Financial Officer and shall perform such other
duties and have such other powers as the Board of Directors may
from time to time prescribe.
ARTICLE X
CERTIFICATES OF STOCK
---------------------
Section 1. Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or
in the name of the Corporation by, the President or Vice-President
and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of
share~ owned by him in the Corporation. If the Corporation is
authorized to issue shares of more than one class there shall be
set forth upon the face or back of the certificate, or the
certificate shall have a statement that the Corporation will
furnish to any stockholder upon request and without charge, a
summary statement of the designations, preferences, limitations,
and relative rights of the shares of each class authorized to be
issued and, if the Corporation is authorized to issue any preferred
or special class in series, the variations in relative rights and
preferences between the shares of each such series so far as the
same have been fixed and determined, or the authority of the Board
of Directors to fix and determine the relative rights and
preferences of subsequent series.
Section 2. Facsimile Signatures. Any of or all the signa-
tures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to
be such officer, transfer agent or registrar before such cer-
tificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar
at the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition pre-
cedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall
require and/or give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a cer-
tificate for shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Fixing Record Date. In order that the Corporation
may determine the shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or to
express consent to Corporation action in writing without a meeting,
or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any other
action requiring such determination of shareholders. A
determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders made in accordance with this
section shall apply to any adjournment of the meeting.
Section 6. Registered Shareholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on
its books as the owner of shares to receive dividends, and to vote
as such owner, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Arkansas.
ARTICLE XI
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at
any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Reserves. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
Section 3. Checks. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from
time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation
shall be the 12-month period ending December 31, or any other date
fixed by resolution of the Board of Directors.
Section 5. Seal. The corporation may, but is not required
to, have a corporate seal which shall have inscribed thereon the
name of the Corporation, the year of its organization and the words
"Corporate Seal, Arkansas". The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or reproduced or
otherwise. However, the Corporation shall not have a seal unless
a decision to do so is made by the Board of Directors.
Section 6. Miscellaneous. Unless otherwise ordered by the
Board of Directors, Chairman of the Board, the President or any
Vice-President or the Secretary or the Treasurer in person or by
proxy or proxies appointed by any of them shall have full power and
authority on behalf of the Corporation to vote, act and consent
with respect to any shares of stock issued by other corporations
which the Corporation may own or as to which the Corporation
otherwise has the right to vote, act or consent.
ARTICLE XII
INDEMNIFICATION
---------------
Section 1. Actions, Suits or Proceedings Other Than by or in
the Right of the Corporation. The Corporation may indemnify any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the fight of the Corporation) by reason of
the fact that he is or was or has agreed to become a director,
officer, employee or agent of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such
capacity, against costs, charges, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in of not
opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 2. Actions or Suits by or in the Right of the
Corporation. The Corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was or has agreed to become a director, officer,
employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity,
against costs, charges and expenses (including attorneys' fees)
actually and reasonably incurred by him or on his behalf in
connection with the defense or settlement of such action or suit
and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best
interests of the Corporation except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of
Arkansas or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such
costs, charges and expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this
Article, to the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise,
including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this Article, or in defense of any claim,
issue or matter therein, he may be indemnified against all costs,
charges and expenses (including attorneys' fees) actually and
reasonably incurred by him or on his behalf in connection
therewith;.
Section 4. Determination of Right to Indemnification. Any
indemnification under Sections 1 and 2 of this Article (unless
ordered by a court) may be paid by the Corporation unless a
determination is made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders, that indemnification of the
director, officer, employee or agent is not proper in the cir-
cumstances because he has not met the applicable standard of con-
duct set forth in Sections 1 and 2 of this Article.
Section 5. Advance of Costs, Charges and Expenses. Costs,
charges and expenses (including attorneys' fees) incurred by a
person referred to in Sections 1 and 2 of this Article in defending
a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action,
suit or proceeding; provided, however, that the payment of such
costs, charges and expenses incurred by a director or officer in
his capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while
a director or officer) in advance of the final disposition of such
action, suit or proceeding shall be made only upon receipt of an
undertaking by of on behalf of the director or officer to repay all
amounts so advanced in the event that it shall ultimately be
determined that such director or officer is not entitled to be
indemnified by the Corporation as authorized in this Article. Such
costs, charges and expenses incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate. The Board of Directors may, in the
manner set forth above, and upon approval of such director,
officer, employee or agent of the Corporation, authorize the
Corporation's counsel to represent such person, in any action, suit
or proceeding, whether or not the Corporation is a party to such
action, suit or proceeding.
Section 6. Other Rights; Continuation of Right to
Indemnification. The indemnification and advance of expenses
provided by this Article shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of
expenses may be entitled under any law (common or statutory),
agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to
action in another capacity while holding office or while employed
by or acting as agent for the Corporation, and shall continue as to
a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. Any repeal or
modification of this Article or any repeal or modification of
relevant provisions of the Arkansas General Corporation Law or any
other applicable laws shall not in any way diminish any rights to
indemnification of such director, officer, employee or agent or the
obligations of the Corporation arising hereunder.
Section 7. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was or has
agreed to become a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him or on his behalf
in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article,
provided that such insurance is available on acceptable terms,
which determination shall be made by a vote of a majority of the
entire Board of Directors.
Section 8. Savings Clause. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation may nevertheless indemnify each
director, officer, employee and agent of the Corporation as to
costs, charges and expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action,
suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the fight of the
Corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and to the
full extent permitted by applicable law.
ARTICLE XIII
AMENDMENTS
----------
Section 1. Amendments, Repeal, etc. These Bylaws may be
altered, amended or repealed or new Bylaws may be adopted by the
shareholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular meeting of the shareholders or of the
Board of Directors or at any special meeting of the shareholders or
of the Board of Directors if notice of such alteration, amendment,
repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If any Bylaw regulating an impending election of
Directors is adopted or amended or repealed by the Board of
Directors, there shall be set forth in the notice of the next
meeting of the stockholders of the Corporation for the election of
directors by Bylaw so adopted or amended or repealed, together with
a concise statement of the changes.
INNOTEK - DAN COWART, INC.
MARKETING AGREEMENT
This Agreement is made and entered into March 28, 1996, by and
between Innotek Corporation ("Innotek"), an Arkansas corporation,
whose principal place of business is Suite 1300, Tower Building,
323 Center Street, Little Rock, Arkansas 72201, and Dan Cowart,
Inc. ("DCI"), a Georgia corporation, whose principal place of
business is 3295 River Exchange Drive, Suite 170, Norcross, Georgia
30092.
RECITALS
WHEREAS, Innotek owns the exclusive licensing right, worldwide
(except for STORS in Japan), pursuant to an agreement with Battelle
Memorial Institute ("Battelle"), to market, develop and
commercialize a sewage-to-oil recovery system ("STORS"), a nitrogen
removal technology ("NitRem") and their associated processes
involving the dual shell pressure balance vessel ("DSPBV"), all of
which are collectively referred to as the "Technologies;" and
WHEREAS, DCI is a real estate development firm engaged in the
business of (1) developing comprehensive real estate communities
including, but not limited to, private sewage and waste water
treatment facilities, and (2) providing advice and assistance to
municipal, local governmental and real estate development entities
with respect to sewage and/or waster water treatment facilities;
and
WHEREAS, the parties have entered into a Proprietary
Information and Exclusivity Agreement on March 13, 1996; and
WHEREAS, DCI desires to assist Innotek in the exploitation of
its Technologies, and Innotek, while desiring to retain ownership
of its license rights in and to the Technologies, is willing to
allow DCI an interest to participate in the commercial exploitation
of the Technologies.
It is agreed as follows:
1. Marketing Agreement. The single purpose of the Marketing
Agreement ("the Agreement") is to market, develop and otherwise
exploit Innotek's proprietary Technologies for any and all
applications for municipal, local governmental, real estate
development, and industrial markets in Georgia and Florida.
2. Contributions.
(a) The contribution of Innotek to the Agreement shall
consist of an exclusive grant of authority to DCI
to exploit any and all applications of the
technologies for municipal, local governmental and
real estate development markets for Georgia and
Florida, and for the exploitation of any and all
applications of NitRem, nonexclusively, for
industrial markets for Georgia and Florida.
Innotek shall also provide DCI with assistance,
consultation, materials, etc. and otherwise provide
reasonable technical and administrative support for
DCI's efforts hereunder.
(b) DCI's contribution to the Agreement shall consist
of providing financial planning, project financing
activities, project development services and
marketing services including, but not limited to,
the following:
(i) marketing the Technologies and other services
of Innotek; and
(ii) identifying municipal, local governmental,
real estate development and industrial
customers in Georgia and Florida; and
(iii) securing contracts and raising debt or equity
financing for said projects undertaken in
Georgia and Florida with municipal, local
governmental, real estate development and
industrial customers.
3. Management and Operation of Future Joint Venture. This
Agreement anticipates that a comprehensive joint venture document
will be executed between Innotek and DCI for the construction and
operation of a specific project. That document shall address an
equitable division of responsibilities, expenses, capital, cash
flow, profits and tax consequences for the specific project. The
parties agree to undertake in good faith to negotiate and execute
a joint venture document based upon the following guidelines:
(a) Innotek shall have full authority to manage the
joint venture using its own facilities and staff to
continue its research development of the
Technologies. Innotek and DCI shall share equally
in the profits of each project.
(b) Innotek shall maintain all books and records
pertaining to the joint venture, which shall be
kept separate and apart from its regular business
and shall be subject to the inspection of DCI at
all times.
(c) Innotek will be responsible for the manufacture,
sale and sublicense of the Technologies and will
make available sufficient personnel to help
accomplish the purpose of the joint venture.
(d) Innotek shall retain title to the licenses covering
the Technologies and to any improvements and new
discoveries pertaining to it, whether or not
patented by it. Innotek shall continue to have
title to all machinery, equipment and supplies used
in the manufacture of the Technologies as well as
to the completed Technologies.
(e) DCI shall forward a summary to Innotek, as contacts
are made by DCI on behalf of the joint venture,
identifying municipal, local governmental, real
estate development, industrial or other end user
customers, as well as a summary of subsequent
contacts with said customers in an effort to market
Innotek Technologies or services. These reports
will serve to document DCI's value added services
should a contract with a municipal, local
governmental, real estate development, or
industrial customer be secured. DCI's marketing
efforts shall include only municipal, local
governmental, real estate development, or
industrial clients independently approached by DCI,
unless Innotek refers leads to DCI in writing for
follow-up activities.
4. Consideration. DCI shall be paid a one time success fee
of two hundred fifty thousand (250,000) warrants convertible to
250,000 shares of restricted Innotek common stock, exercisable
within ten years from date of granting the warrants at a price of
fifty cents ($0.50) per share (as more fully set forth in the
standard Warrant Agreement and Warrant Form), within 90 days upon
the signing of an agreement with a municipal, local governmental,
real estate development or industrial customer to purchase or
utilize any one of the Technologies. The success fee will
applicable where DCI has been instrumental in securing the sale or
construction of a STORS/NitRem/DSPBV. DCI's entitlement to receive
an equity position in Innotek as set forth in this Agreement is
subject to applicable state and federal securities laws.
5. Expenses. Innotek and DCI each shall be responsible for
their own expenses and any other exploitation costs incurred during
the period of this Agreement. DCI may apply to Innotek for
reasonable reimbursement of DCI's out of pocket expenses in advance
of incurring these expenses.
6. Term and Termination. The Agreement shall commence on
April 1, 1996 and continue for a period of ten (10) years. All
conditions of exclusivity for the benefit of DCI shall continue for
only the first twelve (12) months. If Innotek does not cancel
DCI's exclusivity before the end of the first twelve months, it
shall be automatically renewed for a second twelve (12) month
period. However, after this Agreement has been in existence for
two years, if no contracts are signed, the exclusive condition of
the joint venture may be terminated by either party upon one
month's written notice to the other party and DCI's rights to the
Technologies in Georgia and Florida shall thereafter become
nonexclusive.
7. This Agreement contains the entire understanding between
Innotek and DCI with respect to the subject matter hereof and will
be construed in all respects in accordance with the laws of the
State of Arkansas. Notices, demands and communications hereunder
to Innotek or DCI must be given and sent and shall be deemed to
have been given when sent by U.S. certified mail to the following
addresses:
Innotek Corporation Dan Cowart, Inc.
Suite 1300, Tower Building 3295 River Exchange Drive
323 Center Street Suite 170
Little Rock, Arkansas 72201 Norcross, Georgia 30092
IN WITNESS WHEREOF, the parties have signed this Agreement in
duplicate March 28, 1996.
INNOTEK CORPORATION
By: /s/ Dennis Cossey
---------------------------
Dennis Cossey
Chairman and CEO
DAN COWART, INC.
By: /s/ Daniel B. Cowart
---------------------------
Daniel B. Cowart
President
WORLDWIDE MARKETING AGREEMENT
THIS AGREEMENT made this ____ day of _____________, 1994, at Little
Rock, Arkansas, between Innotek Corporation ("Innotek"), 1300 Tower
Building, Little Rock, Arkansas 72201 and Foster Wheeler USA
Corporation ("Foster Wheeler"), Perryville Corporate Park, Clinton,
New Jersey 08809-4000.
Witnesseth:
WHEREAS, Innotek owns the exclusive licensing right worldwide
(except in Japan in the case of STORS) pursuant to an agreement
with Battelle Memorial Institute ("Battelle") to market, develop
and commercialize the sewage to oil recovery system (STORS)/NitRem
(nitrogen removal) and associated processes involving the dual
shell pressure balanced vessel (DSPBV) all of which is collectively
referred to as the "Technology"; and
WHEREAS, Innotek and Foster Wheeler is desirous of entering into a
joint marketing agreement for the purposes of marketing, developing
and commercializing the Technology, including, but not limited to,
the Department of Defense, the Department of Energy and other
existing or potential clients of Foster Wheeler on a worldwide
basis.
WHEREAS, Innotek will have to disclose to Foster Wheeler
confidential and technical information regarding the Technology,
which Innotek considers to be a proprietary and valuable commercial
asset of the corporation;
WHEREAS, Foster Wheeler has certain expertise in the design,
engineering, procurement, construction and operation of a wide
range of processing facilities as well as extensive contact with
the industries likely to use the Technology.
NOW, THEREFORE, in consideration of the below-listed covenants, and
for other good and valuable consideration, the parties agree as
follows:
IT IS AGREED between the parties, for themselves, their successors,
legal representatives and assigns, that the parties' joint
marketing venture shall be upon the following terms and conditions:
1. Foster Wheeler will work with Innotek to identify and
develop marketing strategies for the commercialization of
the Technology. Based on this understanding, Foster
Wheeler will submit joint proposals with Innotek to the
Department of Energy, the Department of Defense and other
agency, utility, municipal and industrial clients as
appropriate after having mutually identified commercially
attractive opportunities for the Technology.
2. Foster Wheeler shall use its best efforts to introduce
the Technology into the market to make this venture
successful and profitable. When potential projects are
identified, Innotek and Foster Wheeler will agree on
those for which a proposal will be submitted. Innotek
will supply the basis of the process design and Foster
Wheeler will design, procure and construct the required
processing facilities necessary to fulfill the
requirements.
3. Where proposals are submitted, Foster Wheeler shall carry
out all necessary work based on process and design
information supplied by Innotek, with each party
absorbing their own costs associated with this task. The
entity submitting each proposal will be agreed on an
case-by-case basis.
4. Commercial terms, guarantees and warranties, project
costs and fees associated with any and all proposals with
respect to the supply of the Technology to prospective
clients shall be agreed to between the parties prior to
the submission of proposals.
5. Each party agrees to hold in confidence any and all
technical information, data, knowhow, drawings,
specifications, operating manuals, process design and
calculations disclosed to it by the other party and/or
its affiliates either directly or indirectly in
connection with the marketing, construction, financing or
operation of facilities using the Technology and agrees
not to use such information for purposes other than those
specified in this Agreement provided, however, that these
obligations shall not apply to:
a. Information which at the time of disclosure is in
the public domain
b. Information which, after disclosure, becomes part
of the public domain
c. Information which the receiving party hereto can
show was in its possession at the time of the
disclosure and was not acquired directly or
indirectly from the other party hereto, and
d. Information which has been or is now or later
acquired by or made known to a party hereto by a
third party as a matter of right and who did not
receive such information from the other party
hereto.
6. Foster Wheeler understands in receiving confidential
information that it receives no right to a license,
implied or otherwise, under any patents, know-how, trade
secrets, or other intellectual property now or
hereinafter owned or controlled by Innotek.
7. Both Innotek and Foster Wheeler shall conduct coordinated
marketing activities, jointly and separately, keeping the
other party fully informed of possible business
opportunities with each partner bearing the
responsibility of paying their own expenses including
travel, lodging and incidental costs. Continuing at
mutually agreed times and locations, Innotek will conduct
product training seminars for Foster Wheeler marketing
representatives. Innotek and Foster Wheeler will jointly
approve all product literature, sales and advertising
materials on the Technology where the other company's
name appears or is used in the material. The cost of
marketing and advertising material shall be shared on an
appropriate cost basis.
8. Innotek's designated marketing engineer will interface
directly with Foster Wheeler sales/marketing staff to
provide technical training, assistance, relate any
technical update on the technologies and otherwise assist
in all marketing activities. Foster Wheeler will
designate staff specifically to coordinate its activities
with respect to the Technology, including gathering
relevant technical data, etc., and interface with Innotek
designated marketing representatives.
9. Designated marketing persons will work together on such
aspects as to establish program continuity, target
markets, advise each other on a regular basis as to
specific business opportunities, mutually agreeing on the
timing and type of response appropriate in each specific
case, as well as appropriate follow-up. They will also
assess market feedback which will be used to focus future
marketing efforts, design and type of marketing/sales
tools, etc. The aim is to establish a core team
specializing in the Technology.
10. Foster Wheeler shall have the option to include one or
more other companies in its international organization in
the marketing, tendering and/or project execution phases
where it is appropriate.
11. The parties agree that the term of the Agreement shall be
for an initial ten (10) year period from the date of this
document, and shall be automatically extended in three-
year periods thereafter. The confidentiality obligations
contained in this Agreement shall survive such
termination of this Agreement. Notwithstanding the
above, should events demonstrate that there is no
potential market to support this collaboration the
parties may mutually agree to change this Agreement.
Furthermore, should the situation of one of the parties
change with respect to the Technology, the parties will
jointly review the matter and may mutually agree to
terminate this Agreement on six months' notice (in
writing) by either party. Such termination shall not
apply to any projects in progress which shall be carried
to completion.
12. This Agreement is nonexclusive. However, Foster Wheeler
and Innotek agree to begin discussions regarding an
exclusive business arrangement by the end of 1994 based
on the concepts contained in this Agreement. This
Agreement contains the entire agreement of the parties
with respect to the subject matter hereof and will be
construed in all respects in accordance with the laws of
the State of Arkansas. Notices, demands and
communications hereunder to Innotek or Foster Wheeler
must be given and sent, and shall be deemed to have been
given or sent, by mailing to the following addresses:
Innotek Corporation
1300 Tower Building
Little Rock, Arkansas 72201
Foster Wheeler USA Corporation
Perryville Corporate Park
Clinton, New Jersey 08809-4000
INNOTEK CORPORATION
By: /s/ Dennis C. Cossey
--------------------------------
Dennis C. Cossey, Chairman
FOSTER WHEELER USA CORPORATION
By: /s/ C. Bartoli
--------------------------------
C. Bartoli, President
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM, effective this 10th day of April, 1996, is
entered into by and between Roy F. Weston, Inc. (WESTON[R]) having
its principal place of business at 1 Weston Way, West Chester,
Pennsylvania 19380 (hereinafter called "WESTON"), and Innotek
Corporation, having its principal place of business at 1300 Tower
Building, 323 Center Street, Little Rock, Arkansas 72201
(hereinafter called "Innotek").
WHEREAS, WESTON has experience in environmental analysis and
consultation; and
WHEREAS, Innotek has experience in the development of
STORS/Not Rem DSR (dual shell reactory) technology (the
"Technologies"); and
WHEREAS, Innotek and WESTON are interested in teaming with
each other in pursuing business opportunities for the application
of the Technologies; and
WHEREAS, the Parties desire to set forth the groundrules which
shall govern their teaming relationship;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, it is agreed as follows:
ARTICLE I DEFINITIONS
(A) "Customer" shall mean any potential customer.
(B) "Parties" or "Team" shall mean Innotek and WESTON,
collectively.
(C) "Party" shall mean either of Innotek or WESTON.
(D) "Program" shall mean an opportunity the parties have jointly
decided in writing to pursue involving the application of the
Technologies, on behalf of a Customer.
ARTICLE II SCOPE OF MEMORANDUM
The purpose of this Memorandum is to provide a framework for
both Parties to cooperate and pursue opportunities which would
involve the Technologies. Each Party agrees to inform the
other about opportunities in which it believes it would be
beneficial to involve the other Party.
With respect to any such Program that the Parties agree in
writing to jointly pursue, (i) the Parties shall co-operate in
the marketing, sale and support of such Programs in accordance
with the provisions of this Memorandum, except as may be
otherwise mutually agreed upon by the Parties and (ii) neither
Party shall act in any manner, either directly or indirectly,
which would in any way be inconsistent or competitive with the
scope of cooperation set forth above. Until and unless the
Parties have agreed in writing to pursue an opportunity, they
are free to pursue opportunities individually or with other
companies.
The Parties recognize that a successful teaming will benefit
both Parties, and will particularly help to establish Innotek
and the Technologies. Therefore, the Parties will negotiate
in good faith an arrangement whereby WESTON can share in the
success of Innotek, provided the Parties successfully obtain
Projects for the Technologies, through one or a combination of
the following: (i) stock purchase warrants, (ii) a degree of
exclusivity in the use of the Technologies, (iii) a right of
first refusal on certain types of Projects or for certain
customers or (iv) some other equitable arrangement.
ARTICLE III WORKSCOPE
With respect to any contract awarded to a Party under a
Program, the general allocation of the Program workscope shall
be as follows:
(1) WESTON shall have responsibility for that portion of the
Program workscope which is allocated to WESTON in Exhibit
"A" attached hereto; and
(2) Innotek shall have responsibility for that portion of the
Program workscope which is allocated to Innotek in
Exhibit "A" attached hereto.
The Parties shall determine on a case-by-case basis, which
Party shall be the Prime Contractor and which Party shall be
the Subcontractor, based, inter alia, on marketing
considerations and the requirements of the particular Customer
for each Program.
ARTICLE IV ADMINISTRATION
As soon as practicable after the effective date of this
Memorandum, the Parties will each designate a point of contact
to be responsible for coordination of their cooperation
hereunder. The Points of Contact will maintain open
communications to coordinate the overall cooperation of the
Parties hereunder and to resolve any differences that may
arise during the course of the implementation of this
Memorandum or the performance of a Program.
ARTICLE V EXPENSES
Each party shall bear all of its own expenses incurred in
connection with its obligations and activities under this
Memorandum.
ARTICLE VI INDEPENDENT CONTRACTORS
Each Party, in undertaking its responsibilities hereunder
shall be deemed an independent contractor and nothing in this
Memorandum shall constitute, create, or in any way be
interpreted as a joint venture, partnership, or formal
business organization of any kind. Accordingly, neither party
hereto shall assume or be liable for the respective
liabilities and obligations of the other Party, including
warranty obligations expressed, implied or statutory, nor is
either Party authorized by this Memorandum to act on behalf of
the other, except as specifically authorized herein.
ARTICLE VII ASSIGNMENT
Neither Party may assign or transfer its interest herein
without the prior written consent of the other Party and any
attempted assignment shall be null and void and without force
and effect.
ARTICLE VIII TERMINATION
This Memorandum and all rights and duties hereunder, except as
provided in Article IX, shall automatically expire and be
deemed terminated upon the date of either Party giving written
notice of termination to the other Party.
ARTICLE IX PROPRIETARY INFORMATION
Each Party shall maintain all proprietary information
furnished by the other Party of the hereunder in confidence in
accordance with the terms of the Proprietary Information
Agreement effective 8/22/95, a copy of which is attached.
ARTICLE X PUBLICITY
Any news release, public announcement, advertisement or
publicity released by either Party concerning this Memorandum
or any proposal or any resulting Prime Contract or
Subcontract, to be carried out hereunder, will be subject to
prior approval of the other Party except as may be reasonably
required by law.
ARTICLE XI GOVERNMENT REGULATIONS
This Memorandum shall be subject to all the laws, regulations
(including end-use restrictions), import export regulations,
the Foreign Corrupt Practices Act and all other administrative
acts now or hereafter in effect in the United States of
America and its respective departments and agencies.
ARTICLE XII SOLE MEMORANDUM MODIFICATIONS AND WAIVERS
This is the sole Memorandum between the Parties as to the
subject matter covered herein. It supersedes all prior
agreements and representations between the Parties. No
modification, alteration, amendment, or waiver shall be
effective unless evidenced by a written amendment signed by
duly authorized representatives of both Parties. No failure
or delay by either Party in exercising any power or right
hereunder shall operate as a waiver, nor shall any single or
partial exercise of any such power or right. Such powers and
rights are cumulative and in addition to any and all powers
and rights now or hereafter existing at law or in equity.
IN WITNESS WHEREOF, the Parties, have caused this Memorandum to be
duly executed effective the day and year first written.
ROY F. WESTON, INC. INNOTEK CORPORATION
By: /s/ Manmohan N. Bhatla By: /s/ Dennis Cossey
--------------------------- ---------------------------
Name: Manmohan N. Bhatla Name: Dennis Cossey
Title: VP Title: CEO
EXHIBIT "A"
ALLOCATION OF TASKS BETWEEN INNOTEK AND WESTON
WESTON shall: 1. develop projects
2. consultation and process engineering
3. provide engineering, construction/
construction management, installation,
operations and maintenance
INNOTEK shall: 1. develop projects
2. provide the technology ("Process Package"
for the proprietary technology) at a
reasonable license fee no greater than
their most favored licensees
EXHIBIT "B"
NON-DISCLOSURE AGREEMENT
CITY OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL
PROTECTION BUREAU OF WASTEWATER POLLUTION CONTROL
NO COST AGREEMENT TO PROVIDE SERVICES
AND TEST EQUIPMENT (Innotek Corporation)
AGREEMENT by and between Innotek Corporation, its officers, agents,
employees, affiliates and joint venture partners ("hereinafter
collectively referred to as "the Company"), having an office at
1300 Tower Building 323 Center Street, Little Rock, Arkansas 722201
and the New York City Department of Environmental Protection ("DEP"
or "the Department") having an office at 59-17 Junction Blvd,
Corona, New York 11368.
BACKGROUND
WHEREAS, the parties hereto wish to explore the benefits of using
the Company's equipment (hereinafter referred to as the "Test
Equipment") for a demonstration at a City-owned Wastewater
Treatment Plant ("WWTP"):
WHEREAS, both parties hereto have carefully assessed the
capabilities and interests of the other, and have concluded that a
no cost agreement to provide DEP with certain equipment will be
beneficial in assessing the potential advantages of the Test
Equipment in DEP's operations;
NOW, THEREFORE, in consideration of the promises, mutual covenants
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1. EQUIPMENT AND SERVICES
1. The Company agrees to demonstrate certain services and
equipment at the site listed in the Scope of work. The
services and equipment to be used by the Company at the
test site are set forth in Scope of Work.
ARTICLE 2. DEPARTMENT'S RESPONSIBILITIES
In consideration of the equipment and services to be provided,
DEP agrees to:
2.1 Permit the Company, its officers, agents, employees,
affiliates and joint venture partners, upon reasonable
notification to DEP at the address designated in
paragraph "8", reasonable access to enter upon DEP's
premises for the purpose of delivering, assembling,
installing, and demonstrating the Test Equipment at the
Site. The services to be performed are set forth in the
Scope of Work.
2.2 Notify the Company of any Test Equipment which is
defective.
2.3 Notify the Company upon the expiration or termination of
this Agreement.
2.4 Provide the Company with a written evaluation of the Test
at the conclusion of the demonstration.
ARTICLE 3. RESPONSIBILITIES OF THE COMPANY
3.1 Company warrants and agrees that it has clear title to
the Equipment and shall deliver and install same at the
Site at no cost to DEP pursuant to this Agreement, and in
accordance with all applicable Industry Codes and
Standards.
3.2 Company shall make repairs, replacements, modifications
or adjustments to the Test Equipment promptly on notice
from DEP and keep DEP apprised of the status of such test
support services and coordinate with DEP on the
performance of such test services.
3.3 At the expiration or termination of this Agreement, after
written notice to the Company, the Company shall
disconnect the Test Equipment and as hereinafter
provided, hold it at the Site until the Company can
arrange for its removal from the Site. In the event the
Test Equipment is not removed after six months from the
date of written notification, the Test Equipment shall be
deemed abandoned and all right, title and interest to the
Test Equipment shall pass to DEP.
3.4 While this Agreement is in effect, the Company shall be
under an absolute obligation to take all reasonable
precautions to protect the persons and property of the
City and of others from damage, loss or injury from the
Company's, its agents, employees, subcontractors,
affiliates and joint venture partners' operations or
activities under this agreement, except such property as
the City itself is under a duty to protect. The
Company's obligation to protect shall include, but not be
limited to the duty to provide, place, and adequately
maintain at or about the site sufficient and suitable
equipment, lights, barricades, enclosures and personnel
to safely and efficiently operate the equipment to be
installed.
Within three days after notice of any such loss, damage,
or injury, the Company shall make a full and complete
report thereof to the City. The Company shall notify the
City, in writing, of any loss, damage, injury, or
accidents to property, or persons within twenty-four
hours of the occurrence.
3.5 The Company shall not commit or permit any act which will
interfere with the work of any other contractor and
shall, at the City's direction, coordinate its work with
the work of other contractors at the site.
3.6 Upon the expiration or termination of this Agreement, the
Company shall, to DEP's sole satisfaction, restore the
Site to the same condition that it was in prior to the
commencement of this Agreement.
ARTICLE 4. FEES
4.1 Company agrees to provide the Test Equipment at the site
pursuant to the terms of this Agreement and without any
cost whatsoever to the City of New York or DEP.
ARTICLE 5. CONFIDENTIALITY
5.1 The prior written approval of the Commissioner shall be
required before the Company or any of its employees,
servants, agents or independent contractors may, at any
time prior to the completion of this Agreement, make any
statement to the press or release any information or
material to the public or for publication through any
media or communication, having a bearing on or referring
to this Agreement or any work performed hereunder, except
that which the Company is required to disclose pursuant
to reporting requirements of the Security and Exchange
Commission Act of 1934, as Amended.
5.2 Without disclosing its source, DEP may use information
obtained from this Agreement for the purpose of writing
specifications to be used in any bid document or in any
Requests for Proposals ("RFPs") or any Requests for
Expressions of Interest ("RFEI") which may be issued at
any time during or subsequent to this Agreement.
ARTICLE 6. PERIOD OF PERFORMANCE
6.1 The period of performance of this Agreement shall be not
less than 150 days consecutive calendar days, nor more
than 200 consecutive calendar days from the start-up of
the Test Equipment.
ARTICLE 7. TERMINATION
7.1 This Agreement shall expire at (i) the end of the period
of performance or (ii) by giving notice of termination to
the Company at the address set forth in Article 8 or
(iii) by mutual agreement of the parties, whichever is
earlier.
ARTICLE 8. CONTACT PERSON
8.1 Any notice to be given under this Agreement shall be
given in writing and delivered by hand or sent by
certified mail, postage prepaid return receipt requested,
addressed as follows:
If to the Company:
Innotek Corporation
1300 Tower Building
323 Center Street
Little Rock, Arkansas 72201
Att: Dennis C. Cossey, CEO
If to DEP:
N.Y.C. Department of Environmental Protection
Bureau of Wastewater Pollution Control
96-05 Horace Harding Expressway
Elmhurst, New York 11373
Attn: Joseph Rutkowski, P.E.
ARTICLE 9. SEVERABILITY
9.1 Should any provision of this Agreement be deemed to be
invalid or unenforceable by any Court of competent
jurisdiction, such provision shall be severed from this
Agreement and the remainder of this Agreement shall
continue in full force and effect.
ARTICLE 10. CLAIMS AND ACTIONS THEREON
10.1 No action shall lie or be maintained against the City
upon claims arising from this Agreement unless such
action shall be commenced within six (6) months of the
termination of or conclusion of this Agreement or within
six (6) months after the accrual of the Cause of Action,
whichever occurs first.
10.2 In the event any claim is made or any action brought in
any way relating to the Agreement herein, the Company
shall diligently render to DEP and/or the City, without
additional compensation, any and all assistance which DEP
and/or the City may require of the Company.
10.3 The Company shall report to DEP in writing within three
(3) working days of the initiation by or against the
Company of any legal action or proceeding in connection
with or relating to this Agreement.
ARTICLE 11. GENERAL
11.1 Failure to act upon any right or remedy contained in this
Agreement shall not constitute a waiver of such right or
remedy nor shall it preclude a subsequent enforcement of
such right or remedy.
11.2 Waiver by DEP of a breach of any provision of this
Agreement shall not be deemed to be a waiver of any other
or subsequent breach and shall not be construed to be a
modification of the terms of the Agreement unless and
until the same shall be agreed to in writing by DEP or
the City as required and attached to the original
Agreement.
11.3 DEP and Company may waive their respective rights, powers
or privileges under this Agreement; provided that any
such waiver shall be in writing and provided further,
that no failure or delay on the part of any party to
exercise any right, power or privilege under this
Agreement will operate as waiver thereof, nor will any
single or partial excise of any right, power or privilege
under this Agreement preclude any other or further
exercise thereof or the exercise of any such waiver
operate or be construed as a future waiver of such right,
power or privilege thereunder.
11.4 All Exhibits to this Agreement shall be deemed part of
this Agreement. All captions and headings contained in
this Agreement are for ease of identification only and do
not constitute part of this Agreement.
11.5 DEP represents and Company understands that there is no
guarantee of any City business after the termination or
expiration of this Agreement. DEP will not be
responsible to repair or replace the "Test Equipment"
provided by the Company pursuant to this Agreement.
11.6 If DEP issues a Request for Proposal ("RFP") for the type
of "Test Equipment" to be provided hereunder at any other
in New York City, Company will be treated the same as any
other proposer in evaluating its proposal.
ARTICLE 12. FORUM PROVISION
12.1 This Agreement shall be construed pursuant to the laws of
the State of New York. Any Dispute arising from this
Agreement shall be adjudicated in the courts of the State
of New York.
ARTICLE 13. CONFLICT OF INTEREST
13.1 No officer, agent, employee, or representative of the
City of New York or DEP received any payment or other
consideration for the making of this Agreement nor has
any legal interest, directly or indirectly, in this
Agreement.
ARTICLE 14. INVESTIGATION CLAUSE
14.1 The parties to this agreement agree to cooperate fully
and faithfully with any investigation, audit or inquiry
conducted by a State of New York (State) or City of New
York (City) governmental agency or authority that is
empowered directly or by designation to compel the
attendance of witnesses and to examine witnesses or oath,
or conducted by the Inspector General of a governmental
agency that is a party in interest to the Demonstration
Agreement that is the subject of the investigation, audit
or inquiry.
14.2 If any person who has been advised that his or her
statement, and any information from such statement, will
not be used against him or her in any subsequent criminal
proceeding refuses to testify before a grand jury or
other governmental agency or authority empowered directly
or by designation to compel the attendance of witnesses
and to examine witnesses under oath concerning the
Demonstration Agreement entered into with the City, the
State, or any political subdivision or public authority
thereof, or the Port Authority of New York and New
Jersey, or any local development corporation within the
City, or any public benefit corporation organized under
the laws of the State of New York, or;
14.3 If any person refuses to testify for any reason other
than the assertion of his or her privilege against self-
incrimination in an investigation, audit or inquiry
conducted by a City or State governmental agency or
authority empowered directly or by designation to compel
the attendance of witnesses and to take testimony under
oath, or by the Inspector General of the governmental
agency that is a party in interest in, and is seeking
testimony concerning the Demonstration Agreement entered
into within the City, the State, of any political
subdivision thereof or any local development corporation
within the City, then the Commissioner or Agency head
whose agency is a party in interest to the Demonstration
Agreement shall convene a hearing upon not less than five
(5) days written notice to the parties involved to
determine if any penalties should attach for the failure
of a person to testify.
14.4 If any non governmental party to the hearing requests an
adjournment the Commissioner or Agency head who convened
the hearing may, upon granting the adjournment, suspend
the test pending the final determination pursuant to
paragraph 14.6 below without the City incurring any
penalty or damages for delay or otherwise.
14.5 The Commissioner or Agency head shall consider and
address in reaching his or her determination and in
assessing the factors in paragraphs (a) and (b) below.
(a) The party's good faith endeavors or lack thereof to
cooperate fully and faithfully with any governmental
investigation or audit, including but not limited to the
discipline, discharge, or disassociation of any person
failing to testify, the production of accurate and
complete books and records, and the forthcoming testimony
of all other members, agents, assignees or fiduciaries
whose testimony is sought.
(b) The relationship of the person who refuses to
testify to any entity that is a party to the hearing,
including, but not limited to, whether the person whose
testimony is sought has as ownership interest in the
entity and/or the degree of authority and responsibility
the person has within the entity.
14.6 (a) The term "person" as used herein shall be defined as
any natural person doing business alone or associated
with another person, or entity as a partner, director,
officer, principal or employee.
14.7 (b) The term "entity" as used herein shall be defined as
any firm, partnership, corporation, association, or
person that receives monies, benefits, licenses, leases,
or permits from or through the City or otherwise
transacts business with the City.
14.8 (c) The term "member" as used herein shall be defined as
any person associated with another person or entity as a
partner, director, officer, principal or employee.
14.9 In addition to and notwithstanding any other provision of
this Agreement the Commissioner or agency head may in his
or her sole discretion terminate this agreement upon not
less than three (3) days written notice in the event the
Company fails to promptly report in writing to the
Commissioner of Investigation of the City of New York any
solicitation of money, goods, requests for future benefit
or thing of value, by or on behalf of any employee of the
City or other person, firm, corporation or entity for any
purpose which may be related to the procurement or
obtaining of this Agreement by the Company, or affecting
the performance of this Test.
ARTICLE 15. MERGER
15.1 This Agreement may only be amended by a writing executed
by the party or parties to be affected by such amendment.
15.2 This written Agreement contains all the terms and
conditions agreed upon by the parties hereto, and no
other agreement, oral or otherwise, regarding the subject
matter of this Agreement shall be deemed to exist or to
bind any of the parties hereto or to vary any of the
terms contained herein.
ARTICLE 16. LIMITATION OF LIABILITY
16.1 (a) Company hereby assumes any and all risk of loss or
damage to property or injury (including death) of persons
directly or indirectly arising out of, as a result of, or
in connection with the services, equipment, and/or use or
occupancy of DEP's property permitted hereunder including
products supplied to the City for demonstrations or tests
(i.e. Test Equipment) and any and all obligations assumed
by the Company hereunder except that the Company shall
not be responsible for that part or portion of the risk
of loss, damage to property, or injury to (including
death of persons) which was caused by or results from the
negligence or wilful tort of the DEP, its agents,
servants, employees or force majeure. Without limiting
the generality of the foregoing, the Company assumes risk
of loss to the City's physical plant, equipment or other
injury to persons from defective products supplied
hereunder or from products which when installed and used
at the Site in accordance with the manufacturer's
specifications, guidelines and directions cause damage to
other products, equipment, or injury or death to persons.
16.2 (b) Company further agrees to indemnify and hold
harmless DEP, its Commissioners, officers, agents and
employees from and against any and all claims, suits,
demands, litigations, proceedings, based upon any of the
risks or obligations so assumed, whether the claim is
just or unjust, fraudulent or not, and for all costs and
expenses incurred by the DEP in defense, settlement or
satisfaction of such claims, including but not limited to
reasonable attorney's fees and costs of suit.
ARTICLE 17. INSURANCE:
17.1 Commercial General Liability: Before the test equipment
is transmitted to DEP, the Company or its joint venture
partners or affiliates shall procure evidence of
commercial general liability insurance in the amounts as
set forth in 16.2 below issued by a New York admitted
carrier via the New York admitted market in the Company's
name and naming the City of New York Department of
Environmental as additional insured [CG20 26] and
indorsed to cover liability assumed by the Company under
the indemnity provisions of this Agreement. This
insurance policy must be maintained during the life of
the demonstration agreement and shall protect the City,
from claims for property damage and/or bodily injury
which may arise from operations under the demonstration,
whether such operations are performed by DEP or anyone
directly or indirectly employed by DEP. Two (2)
certificates shall be furnished in a manner acceptable to
the Department of Environmental Protection, together with
copies of all endorsements as pertain to the requirements
of this Agreement.
The policy shall contain no exclusions or endorsement
which are not acceptable to the City and shall be of a
form and by an insurance company acceptable to the City.
The following endorsements are required to be made on the
policy:
a. Notice shall be addressed to the Commissioner of
the Department of Environmental Protection, c/o the
Contract Management Office, 17th Floor, Lefrak
Plaza, 59-17 Junction Boulevard., Corona, New York
11368
b. Notice of Cancellation of Policy: The policy shall
not be canceled, terminated, modified or changed by
the Company unless thirty (30) days prior written
notice is sent to the Commissioner of the
Department of Environmental Protection.
17.2 Commercial General Liability: (CG 00 01 ed. 10/93) or
equivalent providing Combined Single Limit-Bodily Injury
and Property Damage as follows:
$1,000,000 per occurrence.
$3,000,000 products/completed operations
aggregate.
$6,000,000 general aggregate.
$25,000 per claim maximum deductible except
as approved by DEP's Risk Manager
(Self-insured retentions are not
permitted).
17.3 Worker's Compensation Insurance: Before execution of this
contract the contractor shall procure Worker's
Compensation Insurance in accordance with the Laws of the
State of New York on behalf of all employees who are to
provide labor or services under this contract. Two
certificates of such insurance or authority for self-
insurance shall be furnished by the Commissioner.
17.4 Employers Liability Insurance: Before performing any work
the Contractor shall procure Employer's Liability
Insurance affording compensation for all employees
providing labor and service for whom workers'
compensation coverage is not a statutory requirement.
Two certificates of such insurance shall be furnished by
the Commissioner.
Certificates confirming renewals of insurance shall be
presented not less than 30 days prior to the expiration
date of coverage until all operations under this contract
are deemed completed.
17.5 Automobile Liability: Contractor will provide the city
with evidence of insurance covering all owned, non-owned
and hired vehicles to be used in connection with this
contract. The contractor shall present the City a
schedule of insured autos, including the vehicles to be
used for operations under this contract.
17.6 Automobile Liability. CA 00 01 (ed 01/80) or equivalent
Combined Single Limit - Bodily Injury and Property Damage
as follows:
$500,000 Each Occurrence
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate on this 30th day of July, 1996.
INNOTEK CORPORATION
By: /s/ Dennis C. Cossey
-----------------------------
Dennis C. Cossey
Chief Executive Officer
NEW YORK CITY DEPARTMENT OF ENVIRONMENTAL PROTECTION
By: /s/ Stuart M. Erdfarb
-----------------------------
Stuart M. Erdfarb, P.E.
Agency Chief Contracting Officer
ACKNOWLEDGMENT BY COMPANY
STATE OF ARKANSAS )
ss:.
COUNTY OF PULASKI )
On this 26th day of July, 1996 before me personally came Dennis C.
Cossey, who being by me duly sworn, acknowledged to me that he is
the Chief Executive Officer of the Innotek Corporation, the person
described as such in and who executed the foregoing document on
behalf of and as authorized by Innotek Corporation.
/s/ Claibourne C. Crews
Claibourne C. Crews
Notary Public
My commission expires: 12/1/2005
ACKNOWLEDGMENT BY AGENCY CHIEF CONTRACTING OFFICER
STATE OF NEW YORK)
ss:.
COUNTY OF QUEENS)
On this 30th day of July, 1996 before me personally came
Stuart M. Erdfarb to me known and known to me to be the Agency
Chief Contracting Officer of the Department of Environmental
Protection of the City of New York, located at 59-17 Junction
Boulevard, Corona, New York, 11368 and the person named in and who
executed the foregoing agreement as authorized by the Commissioner
of the Department of Environmental Protection of the City of New
York.
/s/ Jacqueline Ajax
JACQUELINE AJAX
Notary Public
Jacqueline Ajax
Notary Public, State of New York
No. 01AJ 4961176
Qualified in Queens County
Commission Expires January 22, 1998
SCOPE OF WORK
"NitRem" Nitrogen Removal
Demonstration Unit
I) Justification:
New York City has been mandated by the NYSDEC to reduce nitrogen
discharges into the Upper East River and Jamaica Bay, along with
developing a nitrogen removal feasibility plan. This plan will
address different technologies available to remove nitrogen from
both the centrate stream and/or the wastewater stream. One such
technology is the NitRem Process, an extremely cost effective
process for removing nitrogen from the centrate stream. A pilot
unit is needed to determine O&M requirements associated with the
process and to determine the overall efficiency of the process.
II) Location of Project:
The demonstration project shall be located at a location selected
by a NYCDEP field engineer.
III) Description of Process:
A small amount of zinc hydroxide is added to the centrate stream
and reacts with the ammonia stream forming a ammoniated zinc
hydroxide precipitate. The precipitate settles to the bottom of
the settling tank and the ammonia free centrate stream is returned
to the head of the plant. The settled ammoniated zinc hydroxide is
then sent to a dewatering process to further concentrate the
ammoniated zinc hydroxide stream. Sodium hydroxide is then added
to the concentrated ammoniated zinc hydroxide stream to cause
complete desorption of the ammonia. The stream is then fed to the
flash vessel and ammonia is removed as a vapor. The liquid stream
containing zinc hydroxide is then sent back to the beginning of the
NitRem process. The vapor stream is fed to an absorbing vessel
containing nitric acid thus forming ammonium nitrate. The ammonium
nitrate is then fed to a NitRem reactor and the waste stream is
broken down to nitrogen gas and water.
IV) Work Included:
Innotek will supply NYCDEP a complete packaged NitRem demonstration
unit. Innotek will be responsible for the installation of all
structural, mechanical, and instrumentation work associated with
the demonstration unit. The following is a list of work items,
along with a description of each item associated with the NitRem
demonstration unit:
1. Centrate Transfer Pump: will be placed in the existing centrate
wet well and will pump 7 gpm of centrate to the NitRem
demonstration unit.
2. Centrate Settling Tank: The centrate will be sent to a 1,050
gallon settling tank to remove suspended solids from the centrate
stream.
3. Sludge Pump: A sludge pump will be used to remove the solids
from the centrate settling tank at a flow rate of about 0.6 gpm and
send the solids to the plant drain, which goes to the head of the
plant.
4. Zinc Oxide Feed System: A small portion of ZnO will be fed to
the centrate stream and mixed in a 17.5 gallon mixing tank. The
ammonia present in the centrate stream will react with the
ZnO, forming a ammoniated zinc oxide precipitate.
5. Gravity Thickener/Separator: The centrate stream will then be
sent to a 1,155 gallon gravity thickener/separator where the
ammoniated zinc hydroxide will be settled out and the deammoniated
centrate stream will be sent to the plant drain and returned to the
head of the plant.
6. Slurry Pump: The ammoniated zinc hydroxide slurry will be
pumped to the decant centrifuge using at a flow rate of about 2.2
gpm.
7. Decant Centrifuge: The slurry will be fed to a decant
centrifuge where the solids and liquid streams will be separated.
The liquid stream will be returned to the Gravity
Thickener/Separator.
8. Progressive Cavity Pump: The progressive cavity pump will send
approximately 0.5 gpm of the thickened slurry to the sodium
hydroxide feed system.
9. Sodium Hydroxide Feed System: will consist of 195 gallon
storage tank, tank containment structure, and feed pumps. The
sodium hydroxide is mixed with the ammoniated zinc hydroxide slurry
to free the ammonia from the stream.
10. Flash Vessel: The ammonia stream is then fed to a flash vessel
which consists of a steam injection system (T = 300 degrees F and
P = 8 psig). In the flash vessel the free ammonia is removed from
the centrate stream as a vapor.
11. Slurry Pump: The remaining liquid stream containing ZnO and
NA/OH is then returned to the zinc oxide feed system.
12. Heat Exchanger/Cooler: The ammonia vapor is then feed to a
heat exchanger/cooler where the ammonia vapor is concentrated into
a liquid stream.
13. Nitric Acid Feed System: will consist of 364 gallon storage
tank, tank containment structure, and feed pumps. The nitric acid
is fed to the absorber vessel and mixed with the ammonia stream.
14. Ammonia Absorber Vessel: The nitric acid and ammonia stream
react in the 1.01 gallon ammonia absorber vessel thus forming an
ammonium nitrate solution. This is an exothermic reaction, which
generates heat to be used in subsequent processes.
15. Solution Pump The ammonium nitrate solution is pumped to a
solution surge tank at a flow rate of 0.06 gpm.
16. Solution Surge Tank: The 73 gallon solution surge tank acts as
an equalization basin for the ammonium nitrate strewn.
17. NitRem Reactor: The NitRem reactor will treat a flow of 0.06
gpm of the ammonium nitrate stream. The reactor consists of a high
pressure feed pump (3,500 psig) and operates at a temperature of
838 degrees F (no external heat source needed). The purpose of the
NitRem reactor is to break the ammonium nitrate stream down to
nitrogen gas and water vapor, which is discharged to the
atmosphere.
18. Pressure Let-Down System: The pressure is brought down to
about 100 psi and then injected into the flash vessel as an
external heat source.
19. Engineer's Trailer and Laboratory: Innotek will install a
temporary trailer and laboratory, which will be removed when the
demonstration project is completed.
20. Chemicals: Innotek will provide all chemicals for the
demonstration unit and remove any remaining chemicals at the
termination of the demonstration unit.
21. Field Personnel: Innotek will provide the necessary field
personnel for operations, safety training, and performance testing.
V) Coordination with NYCDEP:
Innotek shall work with the NYCDEP field engineer as to locating a
satisfactory sight for the demonstration unit, before making a
connection to existing facilities, to act as a liaison between
NYCDEP and Innotek, and to ensure the demonstration project is ran
in a manner acceptable to the NYCDEP.
Innotek will require the following from NYCDEP:
1. Project Dimensions: 40' x 40' flat space for demonstration unit
(preferably a concrete or asphalt pad)
2. Energy Estimate: 25 kilowatts of three phase and 460/480 volts.
NYCDEP will be responsible for the electrical hookup to the
demonstration unit.
3. Truck Access: For delivery of skids and chemicals
4. Potable Water and Sewer Hookup: For Engineers trailer and
laboratory.
5. Access to Plant Drain: Need access to plant drain to dispose of
treated centrate stream and settled solids.
VI) Maintenance of Operations During Construction
This demonstration has no major construction items associated with
it and in no way will interfere with plant operations.
VII) Safety and Training Program:
In prosecuting the work of this contract, the Company shall provide
working conditions on each operation that shall be as safe and
healthful as the nature of that operation permits. The various
operations connected with the work shall be so conducted that they
will not be unsafe or injurious to health or safety; and the
Company shall comply with all regulations and published
recommendations of the New York State Department of Labor and all
provisions, regulations and recommendations issued pursuant to the
Federal Occupational Safety and Health Act of 1970 and the
Construction Safety Act of 1969, as amended, and with laws, rules,
and regulations of other authorities having jurisdiction, with
regard to all matters relating to safe and healthful working
conditions. Compliance with governmental requirements is mandated
by law and considered only a minim= level of safety performance.
All work shall also be performed in accordance with safe work
practices.
The Company shall be responsible for the safety of the Company's
employees, the public and all other persons at or about the site of
the work. The Company shall be solely responsible for the adequacy
and safety of all construction methods, materials, equipment and
the safe prosecution of the work.
The Company shall have a written health and safety plan prepared by
a person competent in that field, shall have a safety person active
on the job at all times while work is in progress, shall have a
documented safety training program, and shall have a safety work
method check list system. The Company shall stop work whenever a
work procedure or a condition at a work site is deemed unsafe by
the safety person.
The Company shall at all times employ a properly qualified safety
person familiar with all work under this contract whose duties
shall be to initiate, review and cause implementation of measures
for the protection of health and prevention of accidents. Within
30 days of receiving a Notice to Proceed, the Company shall submit
the name of the safety person, employed by the Company, responsible
for project safety management. A resume of the qualifications of
the safety person must be submitted to the Engineer for review.
This resume shall include such items as: experience, education,
special safety courses completed, safety conferences attended and
certification and registrations. Qualifications of the safety
person must include a minimum of ten years of construction
experience, two of which are related to safety management.
Documentation and/or personal references confirming the
qualifications may also be required. The person proposed for this
position may be rejected by the Engineer for failure to have
adequate qualifications or other cause.
The safety person shall be completely experienced with and
knowledgeable of all applicable health and safety requirements of
all governing laws, rules and regulations as well as of good safety
practice and shall have the authority to ensure compliance with the
same. The safety person must be on the job at all times while work
is in progress. He shall be provided with an appropriate office on
the job site to maintain and keep available safety records, up-to-
date copies of all pertinent safety rules, regulations and
governing legislation, materials safety data sheets, and the site
safety plan including information concerning foreseeable emergency
conditions, location of emergency and telephone contacts for
supportive actions and all required notifications.
The Company shall commit to writing a specific site safety plan
before the start of any construction. This shall be available to
workers on site and be submitted to the Engineer at least two weeks
before the beginning of any field work. Copies of the plan shall
be provided to the Company's and/or the City's insurer and their
risk managers, if any, by the Company. The safety plan shall, as
a minimum, identify and describe the hazards anticipated, delineate
control measures required, establish a safety training program and
develop the necessary safety check list forms specific to the work
methods and crews performing work at the various job locations.
The plan shall consider, but not be limited to, safety plans which
identify: 1) specific work areas and procedures and their
anticipated hazards, 2) control measures to protect workers from
those hazards, 3) surveillance methods, and schedules of both walk-
through surveys and in-deep safety audits to be performed on site,
4) areas requiring personal protection equipment, types of personal
protection equipment, and availability of personal protection
equipment on site, 5) medical monitoring and screening methods, 6)
fire prevention and protection plans, 7) emergency response
procedures, 8) copies of safety inspection check-off sheets to be
used on a regular basis in evaluating the site and work methods.
The safety person shall as a minimum:
1. Schedule and conduct safety meeting and safety training
programs as required by law, the safety plan, and good safety
practice. A specific schedule of dates of these meetings and an
outline of subjects to be covered shall be provided with the safety
plan. The Engineer shall be advised in advance of the time and
place of such meetings. DEP personnel shall be invited to attend
the meetings. All employees shall be instructed on the recognition
of hazards, observance of precautions, of the contents of the
safety plan and the use of protective and emergency equipment.
2. Determine that operators of specific equipment are qualified by
training and/or experience before they are allowed to operate such
equipment.
3. Develop and implement emergency response procedures. Make
prior arrangements with and post the name, address and hours of a
nearby medical doctor; name and address of nearby clinics and
hospitals, and the telephone numbers of the appropriate ambulance
service, fire, police department and other emergency response
entities.
4. Post all appropriate notices regarding safety and health
regulations at locations which afford maximum exposure to all
personnel at the job site.
5. Post appropriate instructions and warning signs in regard to
all hazardous areas or conditions which cannot be eliminated.
Identification of these areas shall be based on experience, on site
surveillance, and severity of hazard. Such signs shall not be used
in place of appropriate workplace controls.
6. Ascertain by personal inspection that all safety related laws,
rules and regulations are enforced. Make inspections of all
workplace at least once a shift to ensure that all machines, tools
and equipment are in a safe operating condition, and that all work
areas are free of hazards. Take necessary and timely conditions,
and submit to the Engineer each day a copy of his findings on the
inspection check list report forms established in the safety plan.
7. Submit to the Engineer, copies of all safety inspection reports
and citations from regulating agencies and insurance companies
within one work day of receipt of such reports.
8. Perform all related tasks necessary to achieve the highest
degree of safety that the nature of the work permits.
The Company shall have proper emergency and rescue equipment
adequately maintained and readily available for such foreseeable
contingency. This equipment shall include such applicable items
as: proper fire extinguishers, first aid supplies, safety ropes and
harnesses, stretchers, water safety devices, oxygen breathing
apparatus, resuscitators, gas detectors, oxygen deficiency
indicators, combustible gas detectors, etc. This equipment should
be kept in protected areas and checked at scheduled intervals. A
log shall be maintained indicating who checked the equipment, when
it was checked, and that it was acceptable. This equipment log
shall be updated monthly and be submitted with the monthly report.
Equipment that requires calibration shall have copies of dated
calibration certificates on site. Substitute safety and rescue
equipment must be provided while primary equipment is being
serviced or calibrated.
The Company shall promptly report to the Engineer all accidents
involving injury to personnel or damage to equipment and structures
as specified in Article 7 of the Contract Agreement, investigate
these accidents and prepare required reports and submit a monthly
summary of these accidents. The summary report due by the 10th day
of the following month, shall include descriptions of corrective
actions to reduce the probability of similar accidents. in
addition, the Company shall furnish to the Engineer a copy of all
accident and health or safety hazard reports received from OSHA or
any other government agency within one day of receipt.
In addition to the reports which the Company is required to file
under the provisions of the Workmen's Compensation Law, he shall
submit to the Engineer on or before the tenth day of each month a
report giving the total force employed on this contract in man-days
during the previous calendar month, the number and character of all
accidents resulting in loss of time or considered recordable by
OSHA, and any other information on classification of employees,
injuries received on the work, and disabilities arising therefrom
that may be required by the Engineer. The submittal shall also
contain an audit report for the prior month, including the safety
training conducted, the above equipment logs, records of the
condition of the work areas, safety and health records, OSHA and
ANSI Z16.1 incidence rates for frequency and severity of recordable
accidents, and an evaluation of the effectiveness of the safety
plan with any changes necessary. The safety professional and the
Company shall sign this audit report. The Engineer shall review
these reports for Company's compliance with the safety provisions
of the Contract.
All personnel employed by the Company or his subcontractors or any
visitors whenever entering the job site, any shaft, or tunnel
headings shall be required to wear appropriate personal protection
equipment required to wear appropriate personal protection
equipment required for that area. The Company shall continuously
provide all necessary personal protective equipment as requested by
the Engineer for his designated representatives.
VIII) Cleanup of Spills:
All chemical storage facilities will have a containment area in
case of an accidental spill. In the event of an accidental spill
during the test, it will be Innotek's responsibility to take all
the necessary steps to properly contain and clean such spills to
the satisfaction of a DEP Engineer. Innotek Corporation shall also
be responsible for the proper disposal of all spills and refuse
resulting from the clean-up. If necessary, the contaminated waste
shall be stored in a secured area and be removed as promptly as
practical by Innotek Corp.
IX) On-site Chemical Storage Facilities:
All chemicals shall be stored in a chemical storage facility. The
chemical storage facility should be located in a separate area and
be secured in a manner that will only allow access to Innotek Corp.
personnel and or DEP personnel involved in the pilot test. The
chemical storage facility should be approved by the DEP Engineer.
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM, effective this 1st day of October, 1996 is
entered into by and among Mitsui & Co. (U.S.A.), Inc., having its
principal place of business at 200 Park Avenue, New York, NY 10166
("MITSUI"), Foster Wheeler Environmental Corporation, having its
principal place of business at 1290 Wall Street West, Lyndhurst, NJ
07071 ("FOSTER WHEELER"), and Innotek Corporation, having its
principal place of business at 323 Center Street, Little Rock, AR
72201 ("INNOTEK").
WHEREAS, INNOTEK owns the exclusive licensing rights worldwide
pursuant to an agreement with Battelle Memorial Institute (BMI) to
develop, market and commercialize the sludge-to-oil reactor system
(STORS: Combined Patent No. 5,433,868)), nitrogen removal process
(NitRem: Combined Patent No.'s 5,221,486, 5,118,447, 5,433,868),
both process technologies, and the dual-shell pressure balanced
vessel (DSR: Patent No. 5,167,930), a hardware technology, for
industrial and municipal water/waste water treatment and other
applications, all of which are collectively referred to as "the
Technologies"; and
WHEREAS, FOSTER WHEELER has the experience and engineering
capability to design, construct and operate municipal waste water
facilities and other similar such facilities worldwide; and
WHEREAS, MITSUI a multi-diversified, international company
with diplomatic relationships with certain foreign governments,
including but not limited to the countries of Brazil, Mexico and
Peru; and
WHEREAS, INNOTEK, FOSTER WHEELER and MITSUI are interested in
entering into this Memorandum Of Understanding for the purpose of
setting forth guidelines for discussion of business opportunities
for the application of STORS, NitRem and the Dual-Shell Reactor for
municipal waste water projects within the countries of Brazil,
Mexico and Peru; and
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, it is agreed between the Parties
as follows:
1. The terms set forth in this Memorandum Of Understanding
are for discussion purposes only, and are intended only to set
forth the likely roles of the Parties in connection with any
business ("Business") Involving the Technologies. Except as
provided for under paragraph 6, none of the Parties hereto shall
actually have any obligations with respect to the Technologies or
otherwise by virtue of entering into this Memorandum Of
Understanding, and no Party hereto shall have any such obligations
unless and until it enters into a written agreement setting forth
such obligations.
2. In connection with any Business it is contemplated that
INNOTEK would provide the rights to use the Technologies for
projects jointly in the countries of Brazil, Mexico and Peru. In
addition, INNOTEK would assist in the design of the projects in
those areas relating specifically to the Technologies.
3. In connection with any Business it is contemplated that
FOSTER WHEELER would have the responsibility for the design,
construction, and where agreed upon, operation of the Technologies
at the identified projects, for which FOSTER WHEELER would be
designated the project prime contractor.
4. In connection with any Business it is contemplated that
MITSUI would have the responsibility to gather information related
to identifying specific water/waste water treatment projects or
opportunities within the countries of Brazil, Mexico and Peru for
application of the Technologies. Further MITSUI might seek to
arrange financing and funding for such projects identified.
5. Each Party shall be responsible for its own expenses
incurred in connection with discussions or activities taken in
connection with this Memorandum Of Understanding.
6. Each Party shall maintain all proprietary information
furnished by the other Parties in conjunction with this Memorandum
Of Understanding in confidence and in accordance with the terms of
any and all other Proprietary Information and/or Secrecy Agreements
that may have been previously entered into by or between the
Parties.
In Witness Whereof, the Parties, have caused the agreement to
be duly executed effective the day and year first written.
MITSUI & CO. (U.S.A.) INC. INNOTEK CORPORATION
Signature: /s/ Shobazo Maurayama Signature: /s/ Dennis Cossey
----------------------- --------------------
Name/Title: Vice President & Name/Title: Dennis Cossey, CEO
General Manager
Date: October 8,1996 Date: September 23, 1996
FOSTER WHEELER ENVIRONMENTAL CORPORATION
Signature: /s/ Michael Fitzgerald
-------------------------
Name/Title: Senior Vice President,
Michael Fitzgerald
Date: September 30, 1996
SUBCONTRACT
BETWEEN
Sam Houston State University
P. 0. Box 2027
Huntsville, TX 77341
AND
Innotek Corporation
1300 Tower Building
Fourth & Center Streets
Little Rock, AR 72201
SUBCONTRACT NUMBER: SHSU-5000-002
PRIME CONTRACT NUMBER: DAAA21-93-C-0046
EFFECTIVE DATE: Date Executed by Both Parties
SUBCONTRACT TYPE: Cost Reimbursement
SUBCONTRACT AMOUNT: $ 165,000
TERMS: Invoices payable within 30
days of receipt
SUBCONTRACT FOR: NDCEE Technology Development
SUBCONTRACT THROUGH: Concurrent Technologies
Corporation
Subcontract # 930500075
PRIORITY RATING: DOC9
SUBCONTRACT TECHNICAL CONTACT: Dr. Paul A. Loeffler
SUBCONTRACT ADMINISTRATOR: Barry W. Tate, CPA
TABLE OF CONTENTS
SECTION DESCRIPTION
------- -----------
B Supplies/Services and Prices
C Description/Specification
D Packaging and Marking
E Inspection and Acceptance
F Deliveries or Performance
G Subcontract Administration Data
H Special Provisions
I General Provisions
J List of Documents and Other Attachments
Subcontract#: SHSU-5000-002
This Subcontract is entered into by and between Sam Houston State
University, having an office at Box 2027, Huntsville, TX 77341,
(hereinafter also called "Sam Houston State University,"or the
"Contractor'), and Innotek Corporation (hereinafter also called
"Innotek" or the "Subcontractor").
WITNESSETH THAT:
Pursuant to Letter Subcontract awarded on June 25, 1993 and in
consideration of mutual promises, covenants, and agreements
herein set forth, the Parties agree that the Subcontractor shall
make every reasonable effort to perform all of the services set
forth in Attachment A, Statement of Work, for the consideration
stated in Section B below. The rights and obligations of the
Parties to this Subcontract shall be subject to and governed by
the Subcontract Schedule, the General Provisions (Attachment B)
and other documents or specifications attached hereto or
referenced herein.
This Subcontract supersedes any and all prior agreements of the
parties, whether written or oral, concerning the subject matter
hereof.
This Subcontract shall not be varied in its terms or conditions
by any oral agreement or representation, or otherwise than by an
instrument in writing of even or subsequent date thereto,
properly executed by both Subcontractor and SHSU.
The section titles used herein are for convenience only and shall
in no way be construed as part of this Subcontract as an
indication of the meaning of the particular section.
SECTION B - SUPPLIES/SERVICES AND PRICES
B-1 Scope
The Concurrent Technologies Corporation/SHSU Cost Proposal
Number, CHM-9326, and as modified during Prime Contract
negotiations, are incorporated by reference into this
Subcontract. The parties estimate that the costs to be incurred
by Subcontractor in performance of the project will be $165,000.
SHSU will not be required to reimburse, and Innotek shall not be
required to incur, any charges for performance in excess of the
above price, unless mutually agreed to in writing.
B-2 Level of Effort
The Subcontractor's obligation under this Subcontract is to
diligently pursue all required work within the scope of the
Statement of Work (Attachment A) and to provide all reports
required by the Article entitled "Reports" within the parameters
of the level of effort described herein.
B-3 Allotment of Funds and Payment
A. The amount presently available and allotted to this
Subcontract for payment of cost, subject to the "Limitation
of Funds" clause, reference (FAR 52.232-22) in the General
Provisions, the terms covered, and the period of performance
for which it is estimated that such allotted amount will
cover, are as follows:
Allotted to Cost Period of Performance
---------------- ---------------------
$ 165,000 May 24, 1993 through April 30, 1997
B. The Subcontractor shall notify the SHSU Subcontracts
Administrator (Section G-3) when allocated funds expenditure
equal 85% of total allocated funds.
B-4 Travel Costs
SHSU will reimburse the Subcontractor for the actual direct route
cost of airline jet coach, rail Pullman accommodations or ship's
passage. First class or business class accommodations are not
reimbursable. In no case will SHSU reimburse Subcontractor for
the use of a private airplane as a mode of travel.
Local mileage, per diem, lodging and miscellaneous expenses shall
be paid in accordance with FAR 31.205-46.
SECTION C - DESCRIPTION/SPECIFICATION
C-1 Statement of Work
The Subcontractor shall make its best effort to perform services
set forth in Attachment A: Statement of Work dated October 22,
1994. The Concurrent Technologies Corporation/SHSU Cost Proposal
and Technical Proposal Number CHM-9326, as modified during
subcontract negotiations, is hereby incorporated by reference
into this Subcontract.
C-2 Reports
A. The Subcontractor shall deliver the reports identified
below. The distribution is set forth in paragraph 8 below.
1. A Monthly Progress, Status, and Management Report shall
be provided by the first of each month covering the
prior month. The format and content shall be as
specified in the Statement of Work incorporated herein.
2. Monthly Financial Report is due with the invoice each
month and covering the preceding month. In general,
this report will provide a breakdown, by cost element,
of costs incurred for the reporting period, cumulative
costs, and estimated cost to complete. The specific
requirements for this financial report are identified
in Section G-5.
B. The Subcontractor shall distribute the reports set forth
above, to the individuals and in the quantities identified
below at the address set forth in Section D.
Deliver To Quantity
Dr. Paul A. Loeffler One (1) copy
Barry W. Tate One (1) copy
SECTION D - PACKAGING/MARKING
Unless otherwise specified in the applicable Specifications)
and/or Statement of Work, packaging and packing of all items for
delivery shall be in accordance with good commercial practice and
adequate to reasonably assure safe arrival at destination.
The delivery point for all items to be delivered by Subcontractor
hereunder shall be F.O.B. destination and, unless the
Subcontractor is notified to the contrary, shall be marked for
delivery to SHSU addressed as follows:
Sam Houston State University
P. 0. Box 2027
Contract and Grant Administration
Huntsville, TX 77341
Atn: Barry W. Tate, Director
SECTION E - INSPECTION AND ACCEPTANCE
Notwithstanding any prior preliminary inspection and/or
acceptance, final inspection and acceptance of all supplies and
services shall be made at Sam Houston State University. Final
acceptance of any supplies or services shall not be deemed a
waiver of any guarantee contained herein.
SECTION F - DELIVERIES OR PERFORMANCE
F-1 Period of Performance and Place
The period of performance for this Subcontract is May 24, 1993
through April 30, 1997. The place of performance, except as
specified in Attachment A (Statement of Work), is the
Subcontractor's facility located at 1300 Tower Building, Fourth &
Center Streets, Little Rock, AR 72201.
F-2 Delivery Date
The Subcontractor shall deliver the supplies and services
required to be delivered to SHSU in accordance with the following
delivery schedule:
Item Delivery Date
---- -------------
Monthly Progress, Status Due by the 1st of the
and Management Report following month
Monthly Financial Report As Specified in Section C-2
F-3 Notice of Delay
In addition to its obligations herein with respect to notice of
labor disputes, whenever any other actual or potential event is
delaying or threatening to delay delivery of the goods or
performance of the services under this Subcontract, Subcontractor
shall, as soon as possible, give notice thereof to SHSU's
Subcontracts Administrator set forth in G-3.
SECTION G - SUBCONTRACT ADMINISTRATION
G-1 SHSU Program Manager
The SHSU Program Manager for this Subcontract is Dr. Paul A.
Loeffler, Project Manager,(409)294-1525, who is the point of
contact for all technical matters under this Subcontract.
The Program Manager is authorized to issue technical directions
under the Subcontract on behalf of SHSU. This direction may
include instruction to the Subcontractor which provides details
or otherwise completes the general scope of the work set forth in
Section C. This direction may not constitute new assignments of
work or changes, modifications, or amendments of such a nature as
to justify an adjustment in the Subcontract, terms, conditions or
price.
G-2 Subcontractor Program Manager
The Subcontractor Program Manager for this Subcontract is Mr.
Dennis C. Cossey, who is the Subcontractor point of contact for
all technical matters under this Subcontract.
G-3 Contractual Notifications
All correspondence or notifications involving contractual or
financial matters under this Subcontract shall be addressed as
follows:
Sam Houston State University Innotek Corporation
Contract and Grant Admin. 1300 Tower Building
P. 0. Box 2027 Fourth & Center Streets
Huntsville, TX 77341 Little Rock, AR 72201
Attn: Barry W. Tate, CPA, Director Attn: Primo L. Montesi
(409) 294-1092 FAX (409) 294-3703 President
G-4 Contracting Officers
Any change or modification to the statement of work, terms,
conditions, delivery dates, or price shall not be binding on
either party unless the appropriate contractual document has been
signed by a duly authorized representative of both parties. For
the purpose of this Subcontract, those duly authorized
representatives are:
Innotek Corporation
Mr. Dennis C. Cossey
Chairman and Chief Executive Officer
Sam Houston State University
Dr. Martin J. Anisman
President
G-5 Submission of Invoices
A. Invoices hereunder shall be certified by a responsible
official of the Subcontractor's organization and shall be
submitted to the following address:
B. Invoices may be submitted on a monthly basis.
C. Each invoice submitted by the Subcontractor shall contain
the following information:
1. Subcontract number.
2. Period of performance for which the invoice is
submitted.
3. A breakdown of direct costs invoiced in a format
compatible with Subcontractor's standard invoicing procedures for
a subcontract of this type.
4. Cumulative amounts for costs invoiced through the
period for which the current invoice is rendered.
5. The following data are required to be attached to the
invoice.
a. Labor expenses (period, cumulative, remaining)
Hours
Dollars
b. Fringe Benefits
c. Indirect Cost
d. Travel (current, cumulative, remaining)
e. Other Direct Costs (ODCS)
f. Material/Supplies
g. Subcontracts
h. Equipment
D. The final invoice or voucher shall be clearly designated as
the "Completion Invoice" or "Completion Voucher" and shall
be supported by a Schedule of Cumulative amounts incurred
and billed to completion date.
E. All invoices shall contain the following Certification
signed by the Subcontract Administrator and Program Manager.
"I certify, to the best of my knowledge and belief, that the
billed costs are in accordance with the terms and conditions
of the referenced Subcontract, and that payment is due and
has not previously been received. All costs contained
herein are current, complete and accurate."
Signature: Title:
-------------------- ------------------------
Date:
--------------------
SECTION H - SPECIAL PROVISIONS
H-1 Facilities Capital Cost of Money
Facilities capital cost of money will be an allowable cost under
this subcontract, if the criteria for allowability in
subparagraph 31.205-1 0(a)(2) of the Federal Acquisition
Regulation are met. One of the allowability criteria requires
the prospective Subcontractor to propose facilities capital cost
of money in its offer.
H-2 Cost Accounting Standards
This Subcontract is not subject to the Cost Accounting Standards.
H-3 Pension Plan Funding (Reserved)
H-4 Termination
SHSU shall have the right to terminate this Subcontract or the
performance of any work authorized hereunder. If the termination
results from a Government action, SHSU will provide the
corresponding prior notice that SHSU receives from the
Government. Upon receipt of the notice to terminate, the
Subcontractor shall there upon immediately cease work to the
extent required. The Subcontractor shall take all reasonable
steps to minimize termination costs. Said termination will be
governed by FAR clause 52.249-5, incorporated by reference in the
general provisions.
H-5 Disputes
In the event of any controversy or claim arising out of or
relating to any provisions of this Subcontract or the breach
thereof, the parties shall try to settle those conflicts amicably
between themselves. Should they fail to agree, the matter in
dispute shall be settled through arbitrations conducted by a
party to which both the Contractor and Subcontractor mutually
agree. Such arbitration shall be held at a place and time
mutually agreeable to the Contractor and Subcontractor. The
decision through arbitration shall be final and binding. Either
party may enter any such award granted in arbitration in a court
having jurisdiction or may make application to such court for
jurisdictional acceptance of the award and on order of
enforcement as the case may be.
H-6 Indemnification
Subcontractor and its employees engaged in performance of work
under this Subcontract shall at all times be deemed to be
performing as independent contractors and not as agents or
employees of SHSU and the acts and omissions of such employees
shall be deemed to be those of Subcontractor.
To the extent authorized, Subcontractor shall indemnify and hold
harmless SHSU and its employees from and against any and all
losses, claims, demands, judgments, costs and expenses (excluding
consequential, incidental or special damages) resulting from the
acts or omission of Subcontractor or Subcontractor's employees
while acting within the scope of their employment.
To the extent authorized under State law, SHSU shall indemnify
and hold harmless Subcontractor and its employees from any and
against all losses, claims, demands, judgments, costs and
expenses (excluding consequential, incidental or special damages)
resulting from the acts or omission of SHSU or Innotek's
employees while acting within the scope of their employment.
H-7 Insurance Schedule
The Subcontractor shall maintain the types of insurance and
coverage listed below if work is to be performed at SHSU's
facility or the Government's property:
<TABLE>
<CAPTION>
TYPE OF INSURANCE MINIMUM AMOUNT
----------------- --------------
<S> <C>
(i) Workmen's Compensation and all As required by
occupational disease State law
(ii) Reserved
(iii) Reserved
(iv) Automobile Liability
(Comprehensive)
Bodily Injury per Person $100,000
Bodily Injury per Occurrence $300,000
</TABLE>
H-8 Key Personnel
The Subcontractor agrees to obtain the approval of SHSU prior to
the assignment, reassignment, removal or relocation of key
personnel as proposed by the Subcontractor or as approved or
directed by the Government. The Program Manager shall be
considered one of the key personnel.
Both SHSU and the Subcontractor recognize that the services to be
performed are highly technical in nature and that the
reassignment or transfer of aforementioned personnel may result
in a significant deterioration in Subcontractor's level of
performance. Subcontractor agrees, therefore, to maintain the
designated personnel on a permanent basis as defined by
Subcontractor policy for the duration of the period of this
Subcontract.
Should substitution or replacement of key personnel be necessary,
the Subcontractor shall notify SHSU at least ten (10) working
days in advance and shall submit justification for the proposed
substitution in sufficient detail to permit evaluation of the
impact on the program and to evaluate the qualifications of the
proposed replacement. SHSU shall approve all substitutions of
key personnel.
H-9 Assignment
Neither the interest of either party to this Subcontract nor any
other right or obligation hereunder, may be assigned or
transferred to any third party, nor may any security interest
therein be created without the prior written consent of the other
party.
H-10 Order of Precedence
In the event of an inconsistency between the terms and conditions
of this Subcontract, the inconsistency shall be resolved by
giving precedence in the following order:
1. The Subcontract Schedule. (Section A through H including
Section C, Statement of Work and Attachment A thereto.)
2. The General Provisions. (Attachment 8)
3. All other terms and conditions of this Subcontract whether
incorporated by reference or otherwise.
H-11 Applicable Laws and Regulations
This Subcontract shall be governed by, interpreted, construed and
enforced in accordance with the law of U.S. Government contracts
as set forth by statute and applicable regulations and decisions
by the appropriate courts and the Board of Contract Appeals.
Suit under this Subcontract shall only be brought in a court of
competent jurisdiction.
H-12 Government Property
Government Property (GP) shall be acquired by and/or furnished to
the Subcontractor in performance of this Subcontract. The time
and place of delivery for any GP to be provided to the
Subcontractor shall be provided via separate correspondence. All
GP, whether acquired or furnished, shall be identified in
Attachment D entitled "Government Property" which is attached
hereto and incorporated herein.
The terms and conditions applicable to the GP acquired under this
Subcontract are contained in FAR 52.245-5 Alternate 1. The
Subcontractor accepts accountability for the GP under this
Subcontract. Any transfer of accountability will be performed by
a written Modification to this Subcontract.
The property shall be managed via the disclosure contained in the
Representations and Certifications (H-21) which are incorporated
into this Subcontract. The Subcontractor shall notify SHSU as
soon as practicable when any change to the executed
certifications occurs. All property will be kept in a protected
storage area to adequately prevent damage, destruction or loss.
AJI storage provisions shall be furnished at the expense of the
Subcontractor.
The Subcontractor shall perform physical inventories of all GP as
required by the applicable agency regulations. Such inventories
shall be forwarded to the SHSU Subcontracts Administrator seven
(7) calendar days prior to the date established by the agency or
department regulations.
Disposition of such property will be accomplished via a
Certificate of Destruction or Shipment on a DD 1149 form.
Shipping instructions must be formally requested with a lead time
of two (2) weeks.
H-13 Guarantee - Reserved
H-14 Resident Representatives and Visits by Government Personnel
Subcontractor agrees, upon request of SHSU, to allow authorized
representatives of SHSU and the Government, or their duly
authorized representatives, to visit Subcontractor's facility,
provided that a minimum of 5 working days notice is given to
Subcontractor. Subcontractor agrees that SHSU during such visits
shall be allowed to review progress and witness testing
pertaining to the requirements of this subcontract. SHSU agrees
to accept limited access as dictated by the security procedures
in place at Subcontractor's facility at the time of the visit.
Subcontractor agrees to make available to SHSU's representatives
technical and management reporting information, relating to work
being conducted under this Subcontract, as may be necessary for
the representatives to carry out their responsibilities.
Subcontractor further agrees to insert the substance of this
article, including this paragraph, in each lower lower tier
Subcontract hereunder.
H-15 Priority Rating
"This is a DOC-9 rated order certified for national defense use,
and you are required to follow all the provisions of the Defense
Priorities and Allocations System Regulation" (15 CFR 350).
H-16 Release of News Information
In the event the Subcontractor desires to issue a news release,
public announcement, advertisement, or other form of publicity
concerning their efforts in connection with this Subcontract, the
Subcontractor shall obtain the written approval of SHSU prior to
the release of said information and shall give full consideration
to the role and contribution of SHSU. Written approval shall not
be unreasonably withheld by SHSU and shall be in accordance with
the requirements of the Prime Contract.
H-17 Dissemination of Information - Reserved
H-18 Non-Waiver of Rights
The failure of SHSU or the Subcontractor to insist upon
strict performance of the terms and conditions of this
Subcontract to exercise any rights or remedies, shall not be
construed as a waiver of its rights to assert any of same
rights or to rely on any such terms or conditions at any
time thereafter.
H-19 Subcontracting Approval Requirements
The Subcontractor shall obtain approval from SHSU's Contract
Administrator (Section G-3) prior to purchasing any software or
any single item of equipment, regardless of dollar value.
H-20 Subcontractor Acquired Property
No Subcontractor acquired property, the cost of which the
Subcontractor is entitled to be reimbursed as a direct item of
cost, shall be acquired by the Subcontractor in the performance
of this Subcontract without specific written approval from SHSU's
Contract Administrator (Section G-3).
H-21 Certifications
All certifications and representations including the Small
Disadvantaged Business Concerns Subcontracting Plan, if
applicable, which the Subcontractor has submitted to SHSU in
connection with the award of this Subcontract are incorporated
herein and made a part hereof and such have been relied upon by
SHSU in issuing this Subcontract. Subcontractor agrees to
promptly advise SHSU should there be any change in status with
respect to the matters covered by such representations and
certifications.
H-22 Entire Agreement
This Subcontract is the entire agreement between the parties
hereto which supersedes any prior oral or written agreements,
commitments, understandings, or communication with respect to the
subject matter of this Subcontract.
SECTION I - GENERAL PROVISIONS
The General Provisions appended hereto as Attachment B are hereby
incorporated in this Subcontract by reference with the same force
and effect as if set forth in full text
SECTION J - LIST OF DOCUMENTS AND OTHER ATTACHMENTS
ATTACHMENT A Statement of Work
ATTACHMENT B General Provisions
ATTACHMENT C Monthly Progress, Status, and Management Report
WITNESS THEREOF, the parties hereto have caused this Subcontract
to be executed on the day, month, and year set forth below.
BY: /s/ Martin J. Anisman BY: /s/ Dennis C. Cossey
--------------------------- ---------------------------
Martin J. Anisman Dennis C. Cossey
TITLE: President TITLE: Chairman and Chief
Executive Officer
Date: 10/25/94 Date: 10/31/94
Attachment A
Statement of Work
Subcontract #: SHSU-5000-002
ATTACHMENT A: STATEMENT OF WORK
October 22, 1994
"Program for the Development and Demonstration of
the Nitrogen Removal (NitRem) Process"
References:
1) Technical/Management and Cost Proposals: CHM-9326 funded by
Concurrent Technologies Corporation to Sam Houston State
University:CTC-P-93-058H.
2) Contract between Concurrent Technologies Corporation and Sam
Houston State University: Number 930500075
SUMMARY
This project was initiated by a public-private partnership
consisting of Sam Houston State University (SHSU), Battelle
Pacific Northwest Division (PNL), and Innotek Corporation, which
constitute the project working group.
The goal of the work in this project is to construct and operate
a NitRem pilot plant for the successful destruction of hazardous
munitions waste such as in the product of di-nitrotoluene (DNT)
production.
Details of the work to be performed by the subcontractor are
provided below in the Statement of Work (SOW). For this
contract, SOW will be the primary controlling document for scope
and schedule which is abstracted from the proposal referenced
above. If initial results from testing performed under the
contract indicate that a change in scope is warranted, a revised
SOW may be issued by SHSU as a contract modification. It should
also be noted that results from laboratory tests and engineering
design considerations may affect specific details on the
remaining phases. To the extent that modifications to the
studies do not change the cost or delay the schedule (i.e.,
changes not considered to be a scope change), these changes may
be coordinated between the contractor, the Army and the SHSU
Project Manager. Subsequent changes in the scope must have prior
approval of the SHSU Subcontracts Representative to be verified
formally by CTC and included in the regular Monthly Reports.
APPROACH FOR PROJECT BASE PERIOD
A concurrent multiple task approach taking the process from lab
scale to pilot plant scale is proposed. The initial tasks for
the working group encompassed laboratory scale experiments which
will have determined the kinetics of the NitRem process as
applied to waste streams containing nitrogenous aromatic
hydrocarbons. The NitRem chemistry is already known for other
wastes and the results of this study are anticipated to be
similar to results for these other wastes. The data from these
tasks are used to fine tune the design of the prototype dual-
shell tubular reactor system. The installation and operation of
the dual-shell tubular reactor is the main effort of the project.
In the final task of the total project's base period, the
transportable pilot plant will be located at the DOD designated
site: Radford Army Ammunition Plant (RAAP).
STATEMENT OF WORK
We are proposing the detailed study of the NitRem technology, the
conversion of that study to the construction of a pilot plant,
and the successful operation of that pilot plant. This total
project will consist of distinct phases with specific tasks for
each phase. This Statement of Work addresses the middle phases
of the total project identified in the CTC-SHSU contract which
shall require the project team to work in conjunction with
Innotek-Foster Wheeler in the work performed under Letter
Subcontract, in the development and preparation of the
engineering design package, and in the fabrication, testing and
installation if a five gallon per minute, pelletized NitRem unit
at the Radford Army Ammunition Plant.
Phase 1. Project Working Group Organization
Task 1.1: Innotek Corporation shall assist in the initial short-
term project start-up. This consists of participation in the
Project Execution Meeting and subsequent working group
organization.
Task 1.2: Innotek Corporation shall execute a Teaming Agreement
with an engineering contracting firm with significant background
in hydrothermal reactor fabrication. Previous discussions
indicate that Innotek and Foster Wheeler have agreements in
place.
Task 1.3: Innotek Corporation will assist representatives from
Sam Houston State University and Battelle Pacific Northwest
Laboratories is identifying and securing appropriate Sponsor(s)
and a Stakeholder for the NitRem demonstration project.
Task 1.4: Equipment and instrumentation provided by Innotek
Corporation under separate research and development agreements
shall be made available to the project working group for
preliminary studies of simulants, and nitrogenous aromatic waste
streams.
Phase 2. Design of a Palletized NitRem Unit
Task 2.1: Innotek and its selected engineering design team will
perform process review based upon data collected from Phase I
testing. Concept design will be developed based upon original
process design as described in patent documentation, with
periodic direction from PNL and the Army. Necessary changes as
may be suggested by process review and results of Phase I testing
as well as changes in fabrication opportunities. A list of
fabricators (including Watervliet Arsenal and high-temp, high-
pressure fabrication firms) will be compiled and investigated for
qualifications and experience. When concept is satisfactory,
engineering design computations, and final design work will
proceed.
Engineering will be performed to produce design, construction and
operation documents based on the NitRem processing concept. The
following engineering products will be delivered.
Process Flow Diagrams (PFD) - depicting all material balance
streams and unit processes. All streams will be labeled and
keyed to the material balance. All equipment will be numbered
and labeled.
Sized Equipment Summary Sheets - all process equipment items
shown on the PFDs will be listed, The equipment will be
sufficiently sized, characterized and commented upon so that a
cost estimate can be obtained by experienced cost engineers using
standard estimating methods. Summary sheets will be prepared by
equipment type.
Process Description - the operating sequence, including start-
up and shutdown procedures, will be described by those engineers
who developed the concept. The function of each processing unit
will be explained and related to the other units. Operating
labor functions and requirements will be included.
Equipment Layout - relative positions of the system's
processing units will be determined on the basis of operating,
maintenance and environmental requirements, as well as general
compatibility with typical equipment arrangements used.
Environmental Issues Evaluation - issues surrounding operation,
permits, environmental impact and other considerations, including
use of this technology advantageously in a strategy to meet
environmental requirements, will be investigated and reported.
Operating Requirements - Tabulations of the materials,
utilities and labor requirements to operate this technology will
be prepared.
Final pilot plant design and definitive estimate will be
submitted to Sam Houston State and therefore to the Army for
final process review, constructability review and operational
review. The review package will include the engineering drawings
and specifications as well as a hard dollar bid for procurement,
fabrication, construction and delivery of a pelletized unit.
Army approval to proceed with fabrication is required.
Phases 3.0 and 4.0 are follow-on phases which are yet to be
approved for funding under this contract.
Phase 3.0 Fabrication and Testing of the Palletized Unit
Task 3.1: Upon approval from the Army to proceed, Innotek will
issue an order to begin fabrication and construction of the
NitRem pilot plant. The contractor shall fabricate, assemble and
test the system prototype. The contractor shall submit a report
listing all equipment and detailing the results of the debugging
testing to the Government for review and comment. The Government
must accept the equipment prior to contractor acceptance.
satisfactory, engineering design computations, and final design
work will proceed.
Task 3.2: The contractor shall provide design documentation,
drawings, and equipment specifications for the necessary "tie
lines" and auxiliary requirements (power, water, etc.) at the DOD
facility, RAAP.
Task 3.3: The contractor shall prearrange for any site
modifications to the existing Water Dry House at RAAP with
sufficient lead time for scheduled unit installation.
Task 3.4: The contractor will assist in a health/safety and
environmental impact review by the RAAP safety committee.
Phase 4.0 Installation and Testing of the NitRem Palletized Unit
Task 4.1: Innotek Corporation and the engineering contractor will
coordinate with Hercules Corporation, the operating company at
RAAP to arrange for the installation of the pelletized unit in
the selected Water Dry House.
Task 4.2: The palletized unit will be installed and tested to
meet the Army's specifications. A final test report will be
submitted detailing operational requirements and performance
parameters. Subsequent operation of the unit will require
approval of RAAP and the Army.
MONTHLY REPORTS
By the 1st day of each month, the contractor is to submit to SHSU
a brief report summarizing technical progress achieved in the
previous month and describing expected progress in the current
month. The monthly reports may be foxed to the project manager
at SHSU and followed up with a written report. The monthly
reports must include the following sections: Objective, Progress
During the Month Reported, Major Problems and Action Taken, Work
Planned for Subsequent Months, Schedule Variance Explanation, and
Financial. The Financial Section is to include spending for the
reported month and total accumulated spending under the contract.
It is expected that the monthly reports will be 1 to 2 pages in
length. This requirement assists SHSU in maintaining accurate
communication with its prime CTC.
TENTATIVE SCHEDULE FOR MAJOR MILESTONES
June 1993 Project Team Organization under Letter
Subcontract
December 1993 Sponsor and Stakeholder Identified
May 1994 Engineering Contractor Identified
November 1994 Design and Definitive Bid Delivered
December 1994 Order Placed for Procurement of NitRem Unit
April 1996 Installation Complete
COST AND SCHEDULE
It is expected that Task 1 commenced in July, 1993, and were
completed over a 12 month period at a cost of approximately
$65,000. Task 2 will commence in July, 1994, and be completed at
a cost of $100,000. The initial stages of Task 3 and 4 are yet
to be budgeted subject to contractors definitive bid and the
approval of the Army.
Attachment B
General Provisions
SECTION I - GENERAL PROVISIONS
The following clauses set forth in the Federal Acquisition
Regulation (FAR), as amended and modified below, are applicable
to this Subcontract. Without limiting the subcontract
provisions, the FAR clauses are incorporated by reference into
this Subcontract with the same force and effect as though set
forth in full text. The complete text of any clause referenced
may be obtained from the Buyer. The dates of the FAR clauses
incorporated by reference are the same as the corresponding
responding clause in the prime contract or higher tier
subcontract. The following definitions shall apply to this
Subcontract except as otherwise specifically provided:
"BUYER" - Means legal entity issuing this Order/Subcontract
"SHSU" - Means Buyer or Contractor
"CONTRACTING OFFICER" - Means Buyees authorized representative
who signed this Order/Subcontract or is identified elsewhere in
this Order/Subcontract and will mean Contracting Officer,
whenever appropriate, where indicated elsewhere in these terms
and conditions
"CONTRACTOR" - Means Seller
"SELLER" - Means legal entity which contracts with the Buyer or
Subcontractor
"CONTRACT" or "SCHEDULE" - Means this Order/Subcontract
"SUBCONTRACTOR" - Means Seller
"GOVERNMENT" - Means Buyer and will mean Government, whenever
appropriate, where indicated elsewhere in these terms and
conditions
SECTION 1-1 - FAR CLAUSES APPLICABLE TO ALL ORDERS/SUBCONTRACTS
52.202-1 DEFINITIONS.
52.203-5 COVENANT AGAINST CONTINGENT FEES
52.203-6 RESTRICTIONS ON SUBCONTRACTOR SALES TO THE GOVERNMENT.
52.203-7 ANTI-KICKBACK PROCEDURES.
52.210-5 NEW MATERIAL.
52.210-7 USED OR RECONDITIONED MATERIAL, RESIDUAL INVENTORY AND
FORMER GOVERNMENT SURPLUS PROPERTY.
52.212-8 DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS
52.212-13 STOP WORK ORDER. The title"Termination for Convenience
of the Government" in paragraph (a) (2) means
"Termination" and the words "for the convenience of the
Government in paragraph (c) are replaced by "in
accordance with the Termination clause."
52.222-1 NOTICE TO THE GOVERNMENT OF LABOR DISPUTES.
52.223-3 HAZARDOUS MATERIAL IDENTIFICATION AND MATERIAL SAFETY
DATA.
52.224-2 PRIVACY ACT.
52.225-3 BUY AMERICAN ACT - SUPPLIES.
52.225-11 RESTRICTION ON CERTAIN FOREIGN PURCHASES.
52.228-7 INSURANCE - LIABILITY TO THIRD PERSONS (ALTERNATE 11)
52.233-3 PROTEST AFTER AWARD (ALTERNATE 1)
52.237-2 PROTECTION OF GOVERNMENT BUILDINGS, EQUIPMENT, AND
VEGETATION.
52.242-1 NOTICE OF INTENT TO DISALLOW COSTS
52.245-18 SPECIAL TEST EQUIPMENT. "Government" means Government
and "Contracting Officer means Contracting Officer in
paragraphs (b) and (d) and in the terms "Government-
owned" and "Government property." Insert "Government-
owned" before "special test equipment" in the first
sentence of paragraph (c).
52.247-63 PREFERENCE FOR U. S. - FLAG AIR CARRIERS.
52.249-14 EXCUSABLE DELAYS. "Government" means Government in
example (2) in paragraph (a).
FAR CLAUSES APPLICABLE TO ORDERS/SUBCONTRACTS EXCEEDING $2.500
52.212-8 PRIORITIES, ALLOCATIONS, AND ALLOTMENTS.
52.222-4 CONTRACT WORK HOURS AND SAFETY STANDARDS ACT - OVERTIME
COMPENSATION. Paragraphs (a) through (d) only.
52.222-36 AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS.
FAR CLAUSES APPLICABLE TO ORDERS/SUBCONTRACTS EXCEEDING $10,000
52.215-1 EXAMINATION OF RECORDS BY COMPTROLLER GENERAL.
52.219-8 UTILIZATION OF SMALL BUSINESS AND SMALL DISADVANTAGED
BUSINESS CONCERNS.
52.222-20 WALSH-HEALEY PUBLIC CONTRACTS ACT.
52.222-26 EQUAL OPPORTUNITY. Only subparagraphs (b) (1) through
(b) (11): "Contracting Officer" means Contracting
Officer and "Government" does not mean Buyer.
52.222-35 AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS
OF THE VIETNAM ERA "Contracting Officer means
Contracting Officer of the prime contract under which
this Order was issued and "Government" does not mean
Buyer.
Subcontract#: SHSU-5000-002
52.222-37 EMPLOYMENT REPORTS ON SPECIAL DISABLED VETERANS AND
VETERANS OF THE VIETNAM ERA.
FAR CLAUSES APPLICABLE TO ORDERS/SUBCONTRACTS EXCEEDING $25,000
52.209-6 PROTECTING THE GOVERNMENT'S INTEREST WHEN
SUBCONTRACTING WITH CONTRACTORS DEBARRED, SUSPENDED, OR
PROPOSED FOR DEBARMENT.
52.215-2 AUDIT-NEGOTIATION. "Contracting Officer" means
Contracting Officer and Government does not mean Buyer.
52.219-13 UTILIZATION OF WOMEN-OWNED BUSINESS CONCERNS.
52.220-3 UTILIZATION OF LABOR SURPLUS AREA CONCERNS.
"Government" means Government, not Buyer.
52.227-1 AUTHORIZATION AND CONSENT. This clause applied as it
appears in the FAR without incorporation of the
definitions in Section 1. Insert "through the Buyer
after "Contracting Officer in subparagraph (a) (2)
(II).
52.227-2 NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT
INFRINGEMENT. "Government" means Government or Buyer.
52.244 5 COMPETITION IN SUBCONTRACTING.
52.246-25 LIMITATION OF LIABILITY - SERVICES.
FAR CLAUSES APPLICABLE TO ORDERS/SUBCONTRACTS EXCEEDING $100,000
52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN FEDERAL
TRANSACTIONS
52.215-22 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA. If
Buyer is subjected to any liability as the result of
Sellees or its lower-tier subcontractors submission and
certification of defective cost or pricing data as set
forth in subparagraphs (a) (1) or (2) of this clause,
or their furnishing of data of any description that Is
Inaccurate as set forth in subparagraph (a) (3) of this
clause, then Seller agrees to indemnify and hold Buyer
harmless to the full extent of any loss, damage or
expense (excluding profit) resulting from such failure.
52.215-23 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA. If
Buyer is subjected to any liability as the result of
Sellees or its lower-tier subcontractors' submission
and certification for defective cost or pricing data as
set forth in subparagraphs (a) (1) or (2) of this
clause, or their furnishing of data of any description
that is inaccurate as set forth in subparagraphs (a)
(3) of this clause, then Seller agrees to Indemnify and
hold Buyer harmless to the full extent of any loss,
damage or expense (excluding profit) resulting from
such failure.
52.215-24 SUBCONTRACTOR COST OR PRICING DATA.
52.215-25 SUBCONTRACTOR COST OR PRICING DATA-MODIFICATIONS.
52.223-2 CLEAN AIR AND WATER.
FAR CLAUSES APPLICABLE TO ORDERS/SUBCONTRACTS EXCEEDING $500.000
52.219-9 SUBCONTRACTING PLAN FOR SMALL BUSINESS AND SMALL
DISADVANTAGED BUSINESS CONCERNS.
52.220-4 LABOR SURPLUS AREA SUBCONTRACTING PROGRAM.
SECTION 1-3 - FAR CLAUSES APPLICABLE TO COST REIMBURSEMENT, TIME
AND MATERIAL, AND LABOR HOUR SUBCONTRACTS
52.216-7 ALLOWABLE COST AND PAYMENT. The words "Subpart 31.2"
is deleted from paragraph (a) and "Subpart 31.3" is
included in paragraph (1) in lieu of "Subpart 31.2".
52.227-11 PATENT RIGHTS - RETENTION BY THE CONTRACTOR (SHORT
FORM).
52.232-22 LIMITATION OF FUNDS.
52.243-2 CHANGES - COST REIMBURSEMENT.
52.244-2 SUBCONTRACTS (COST REIMBURSEMENT AND LETTER CONTRACTS).
52.245-5 GOVERNMENT PROPERTY (COST-REIMBURSEMENT, TIME AND
MATERIAL, OR LABOR HOUR CONTRACTS) ALTERNATE 1. The
terms "Government Property" and "Government-furnished
Property" are not modified. "Contracting Officer"
means Contracting Officer in paragraphs (d) and (g)
(6). "Contracting Officer" means Contracting Officer
or Buyees Purchasing Representative in paragraphs (g)
(9). "Government" means Government and "Contracting
Officer" means Contracting Officer in paragraph (e)
(3); "Government" means Government or Buyer and "its"
means "their" in paragraph (f). "Governments" means
Governments and Buyees except in the terms Government's
expense and "Government" means Government and Buyer in
paragraphs (g)(9), (j) and (j); and in the fourth
sentence of paragraph (h). "Government means
Government or Buyer in paragraph (i). Paragraphs (g)
(1), (g) (2), and (g) (3) are replaced by the
following: "The Seller assumes the risk of, and shall
be responsible for, any loss or destruction of, or
damage to, Government property upon its delivery to
Buyer or upon passage of title to the Government under
paragraph (c) of this clause. However, the Seller is
not responsible for reasonable wear and tear to
Government property or for Government property properly
consumed in performing this contract."
52.246-3 INSPECTION OF SUPPLIES (COST REIMBURSEMENT).
52.246-5 INSPECTION OF SERVICES (COST REIMBURSEMENT).
52.246-8 INSPECTION OF RESEARCH AND DEVELOPMENT - COST
REIMBURSEMENT. "Government" means Government and Buyer
in paragraphs (e), (f), (g), (h), (b), and (c), and
"Government" means Government or Buyer in paragraph
(d). The provisions in the clause for access, rights
to inspect, safety prevention, and relief from
liability apply equally to Buyer and the Government.
52.249-6 TERMINATION (Cost-Reimbursement).
Enclosure I to General Provisions
The following DOD Federal Acquisition Regulation (FAR) Supplement
clauses are incorporated by reference into this Subcontract.
These DOD FAR clauses are applicable when required:
252.203-7001 Special Prohibition of Employment (DEC 1991)
252.204-7000 Disclosure of Information (DEC 1991)
252.209-7000 Acquisition From Subcontractors Subject to On-Site
Inspection Under the Intermediate-Range Nuclear
Forees (INF) Treaty (DEC 1991)
252.210-7003 Acquisition Streaming (DEC 1991)
252.211-7011 Audit of Contract Modifications - Commercial Items
(MAY 1991)
252.215-7000 Pricing Adjustments (DEC 1991)
252.222-7000 Restrictions on Employment of Personnel (DEC 1991)
252.225-7026 Reporting of Overseas Subcontracts (DEC 1991)
252.227-7013 Rights in Technical Data and Computer Software
(OCT 1988)
252.227-7018 Restrictive Markings on Technical Data (OCT 1988)
252.227-7019 Identification of Restricted Rights Computer
Software (APR 1988)
252.227-7029 Identification of Technical Data (APR 1988)
252.227-7030 Technical Data - Withholding of Payment (OCT 1988)
252.227-7034 Patents - Subcontracts (APR 1984)
252.227-7037 Validation of Restrictive Markings on Technical
Data (APR 1988)
252.231-7000 Supplemental Cost Principles (DEC 1991)
252.233-7000 Certification of Requests for Adjustment or Relief
exceeding $100,000 (DEC 1991)
Attachment C
Monthly Progress, Status and Management Report
PROGRESS, STATUS, AND MANAGEMENT REPORT
The subcontractor's Progress, Status & Management Report shall
indicate the progress of work, the status of the program and of
the assigned tasks. In addition, it shall report costs and
inform CTC of any existing or potential problem areas. As a
minimum, each section described herewith will require at least
one sentence of description or a notation of no change.
The report shall include a front cover sheet which includes the
subcontractor's name and address, the assigned CTC charge
numbers, the date of the report, the period covered by the report
and the title of the report.
The following sections shall be incorporated into the report:
1.0 Progress Made Against Milestones During the Reporting Period
In this section describe the milestones by task that are due
during the current report period. Report on the status of
the milestone, indicating whether it is complete or delayed.
If it is delayed, a detailed explanation for the delay is
required.
2.0 Status of Previously Identified Problem Areas
An update on the status or resolution of problem areas
identified in previous reports shall be included in this
section. Report on whether the problem has or has not been
resolved. If the problem has been resolved, a description
of the solution is required. If the problem has not been
resolved, explain why.
3.0 Changes to Organization, Method of Operations, Project
Management Network or Milestones
Any significant changes to organization, method of
operations, project management network or milestones must be
reported in this section.
4.0 Problems Areas Effecting Technical Progress or Schedule
Any problem areas effecting technical progress or schedule
of a task shall be identified in this section. A
description of the background of the problem and
recommendations for solutions must be reported.
5.0 Problem Areas Effecting Cost
Any problem areas effecting cost shall be identified in this
section. A description of the background of the problem and
recommendations for solutions must be reported.
6.0 Cost Curve Showing Actual and Projected Expenditures for
Period of Performance
Prepare a line graph which compares actual and projected
cost expenditures for the entire period of performance. See
Attachment A. On this cost profile, plot the actual costs
incurred to date versus projected expenditures. If the
actual costs are greater than the planned, and it is
anticipated that there may be a cost overrun. identify the
reason. the amount of overrun and plans to resolve and bring
into budget as soon as possible. An explanation of
discrepancy of actual versus planned is required.
7.0 Man-hour Curve Showing Actual and Projected Expenditures for
Period of Performance
Prepare a line graph which compares actual and projected
man-hour expenditures for the entire period of performance.
See Attachment B. Plot actual versus projected hours.
Include a brief description of discrepancies, if any.
8.0 Travel Accomplished with Brief Discussions or Results
This section shall report by task the dates, location,
employees who traveled and purpose of the travel completed
during the period. It shall also contain a brief discussion
detailing the results of the travel.
9.0 Plans for Activity During Next Two Months
This section shall describe all plans for activities by task
for the following two months. Items to be reported include
travel, meetings, conferences, milestones, deliverables due
and any miscellaneous activities significant to the progress
of work.
10.0 Cost Report Schedule
This section will report costs by task broken down by direct
labor, travel, other direct costs, material, subcontractors
and equipment. All of these costs are to be reported fully
burdened with overhead and G&A. See Attachment C.
Modification Number 001
To
Subcontract SHSU-5000-002
Between
Sam Houston State University
P. 0. Box 2117
Huntsville, TX 77341
And
Innotek Corporation
1300 Tower Building
Fourth & Center Streets
Little Rock, AR 72201
References: (1) Subcontract between Sam Houston State
University(SHSU) and Innotek Corporation (Innotek) dated October
31, 1994
(2) Letter of Consent to Modify Subcontract
(Modification 007) from Concurrent Technologies Corporation to SHSU
dated July 29, 1996
(3) Cost/Pricing information on a .4 gpm Nitrem
unit submitted to Sam Houston by Glitsch Process Systems through
Innotek Corporation on June 24, 1996.
(4) Sam Houston State University's Technical and
Cost Proposal, CHM-9326, entitled "NDCEE Technical Support" dated
March 23, 1993.
The purpose of modification number 001 is to increase funding to a
total of $1,415,000 to undertake work referenced in the attached
Addendum to Statement of Work dated 16 January 1996.
The parties mutually agree to delete Section B-1 Scope and replace
it in its entirety by the following section:
B-1 Scope
The Concurrent Technologies Corporation/SHSU Cost Proposal Number,
CHM-9326, and as modified during Prime Contract negotiations, are
incorporated by reference into this Subcontract. The parties
estimate that the costs to be incurred by Subcontractor in
performance of the project will be $ 1,415,000. SHSU will not be
required to reimburse, and Innotek shall not be required to incur,
any charges for performance in excess of the above price, unless
mutually agreed to in writing.
The parties mutually agree to delete Section B-3 Allotment of Funds
and Payment and replace it in its entirety by the following
section:
B-3 Allotment or Funds and Payment
A. The amount presently available and allotted to this
Subcontract for payment of cost, subject to the "Limitation of
Funds" clause, reference (FAR 52.232-22) in the General
Provisions, the terms covered, and the period of performance for
which it is estimated that such allotted amount will cover, are as
follows:
Allotted to Cost Period of Performance
$ 1,415,000 May 24, 1993 through April 30, 1997
Sam Houston State University
By: /s/ Dr. B. K. Marks Date: August 7, 1996
---------------------------
Dr. B. K. Marks
President
Innotek Corporation
By: /s/ Dennis C. Cossey Date: August 16, 1996
---------------------------
Dennis C. Cossey
Chairman and Chief Executive
Officer
FCX236
SECTION C
CONTRACT STATEMENT OF WORK (SOW)
FOR
NATIONAL DEFENSE CENTER FOR
ENVIRONMENTAL EXCELLENCE
(NDCEE)
Evaluation of the
Title: Nitrogen Removal Process (NitRem)
on DoD Waste
Task No.: N. 040
Installation: National Defense Center for
Environmental Excellence (NDCEE)
Johnstown, PA
Operating Contractor: Concurrent Technologies Corporation
Date: 10 August 1994
Revision A: 6 September 1995
Revision B: 16 January 1996
U.S. Army Production Base Modernization Activity (PBMA)
PBMA Project Engineer: Mr. Andrew Perich
Division: Environmental Systems
Telephone: DSN 880/ (201) 724-6309
1.0 OBJECTIVE
1.1 Background
The Department of Defense generates large volumes of nitrated waste
streams. Waste associated with the manufacture of propellants and
explosives (TNT Redwater, DNT contaminated wastewater) and their
use (Pink Water) are some examples.
1.2 Objective
The objective of this statement of work is to evaluate the Nitrogen
Removal Process and its ability to economically and safely treat
various RCRA waste streams within the DoD industrial base and DoD
commercial industrial facilities. Other difficult organic based
waste shall also be investigated.
1.3 Intent
It is this SOW's intent to have the contractor develop and build
the necessary equipment for a palletized unit that can be easily
transported to various installations for testing.
2.0 APPLICABLE DOCUMENTS
Not applicable.
3.0 REQUIREMENTS
3.1 General Requirements
3.1.1
3.1.1 The contractor shall provide the necessary
personnel, material and all other items essential to the
performance of the assigned tasks.
3.1.2 All information transfers, speeches, technical
papers, to any forum, associated with this project must be
submitted for Government approval 30 days prior to presentations.
3.1.3 All project documentation shall be submitted for
Government review and approval. The contractor shall resolve and
incorporate all Government review comments. In addition, the
contractor shall provide written responses to each Government
review comment and include them as an appendix to each final draft.
The final project reports and equipment installation plans shall be
issued upon Government approval.
3.1.4 At designated DoD facilities, the contractor shall
comply with the specific facility's security, safety and
environmental regulations. This compliance shall include, but be
not limited to, obtaining proper clearance and identification
badges, and obtaining an escort for entry into sensitive areas.
3.1.5 On the first page of all project reports, the
contractor shall include the following statement(s):
Requests for this document shall be referred to:
Commander
U.S. Army Research Development and Engineering Center
ATTN: SMCAR-ET, Building 172
Picatinny Arsenal, NJ 07806-5000
3.1.6 Functional and design specifications shall be
submitted in standard industrial format.
3.1.7 A Project Management Plan (PMP) shall be developed
that describes how the following phases will be accomplished, and
shall specify the timeframe and budget to accomplish each phase
(DI-MGMT-80909). The contractor shall continually investigate the
potential applications within the DoD base and shall recommend, at
a minimum, 10 waste streams for nitrogen removal applications for
Government review.
3.1.8 The contractor and lower tier subcontractors shall
provide the necessary technical information as may be required to
the appropriate agency for the purpose of preparing, permit
applications.
3.2 Specific Requirements
3.2.1 This SOW consists of four Phases and 13 Tasks.
3.2.2 Phase I - Design Studies
3.2.2.1 - Task 1 - The contractor shall investigate
the waste stream applications at the Radford Army
Ammunition Plant for initial design parameters,
however, a broad-based unit is required. Other
waste stream applications, i.e., Watervliet Arsenal
and Scranton Army Ammunition Plant, may also be
considered as a range of potential future waste
applications.
3.2.2.2 - Task 2 - The contractor shall develop the
necessary kinetic and design data that adequately
demonstrates the technologies' capacity and
provides sufficient information for scale-up to a
palletized unit.
3.2.2.3 - Task 3 - The contractor shall submit a
Phase I Report which shall include a summary of the
work accomplished, the data for scale up equipment,
design, safety and environmental considerations and
an update to the schedule and budget estimates in
the PMP. The report shall also update which DoD
waste(s) can best be treated with this technology.
(DI-MISC-80711)
3.2.3 Phase 2 - Design of Palletized Unit
3.2.3.1 - Task 4 - The contractor shall design a
palletized NitRem unit sized at a .4 gallon per
minute (GPM) capacity. The capacity of the unit
shall be sufficient to provide the Radford AAP
waste stream demonstrations, but be flexible enough
to test other future streams. Design drawings
shall be provided to the government for approval
(DI-DRPR-81002). With government approval, long
lead time items may be procured before design
completion.
3.2.3.2 - Task 5 - The contractor shall perform
an economic evaluation to estimate the cost of
treatment per gallon of the design stream (Radford
AAP Dinitrotoluene waste stream). The evaluation
shall also provide equipment (with procurement lead
times), installation and testing costs for all
subsequent phases as an update to the PMP (DI-F-
1215).
3.2.3.3 - Task 6 - The contractor shall submit a
Phase 2 Report which shall include a summary of the
work accomplished, the design data, safety and
environmental considerations and an update to the
schedule and budget estimates in the PMP. The
report shall also update which DoD waste(s) can
best be treated with this technology (DI-MISC-8071
1).
3.2.4 Phase 3 - Fabrication and Testing of Palletized
Unit
3.2.4.1 - Task 7 - The contractor shall
fabricate, assemble, and test the system prototype.
A report listing all equipment and detailing the
results of the debugging testing shall be submitted
for Government review and comment (DI-NDTI80809A).
3.2.4.2 - Task 8 - The contractor shall provide
design drawings/equipment specifications for the
necessary equipment/tie lines and auxiliary
requirements (power, water, etc.) at the DoD
facility (DI-DRPR-81002).
3.2.4.3 - Task 9 - The contractor shall provide
DoD on-site test plans. These plans shall be
submitted for Government review and approval (DI-
QCIC-80553).
3.2.5 Phase 4 - The Installation, Operation and Testing
at DoD Facility
3.2.5.1 - Task 10 - The contractor shall
assemble/install the transported palletized system
at the designated DoD facility.
3.2.5.2 - Task 11 - The contractor shall provide
on-site operation and maintenance support and data
collection during tests of the prototype system in
accordance with the approved test plan.
3.2.5.3 - Task 12 - The contractor shall provide
a phase 4 report detailing the testing performed at
each DoD facility and each waste stream result (DI-
MISC80711).
3.2.6 Phase 5 - Transition of Equipment and Final Report
Preparation
3.2.6.1 - Task 13 - The contractor shall provide
a training plan and on-site training for the DoD
facility operators (DI-NUSC-80508).
3.2.6.2 - Task 14 - The contractor shall also
provide operations and maintenance documentation
for the palletized system (DI-TMSS-80527).
3.2.6.3 - Task 15 - The contractor shall provide
a final report. The report shall discuss all the
work performed and document the results. The
report shall provide the necessary information
required for full scale development of a NitRem
Process. The result shall also update the "cost of
treatment per gallon" economic analysis (DI-MISC-
80711).
3.3. Patent Rights and Data
3.3.1 The Army may use the equipment associated with the
NitRem Demonstration at any location it chooses.
3.3.2 The Army may use said equipment for an indefinite
period of time.
3.3.3 The Government's right to use NitRem equipment, as
delineated in paragraph 3.3.1 and 3.3.2 above, will be free of any
royalty fee/licensing agreement or other restrictive instrument put
forward by Innotek Corp., Battelle, Inc., or any other contractor
that may be associated with this effort.
3.4 Inspection and Acceptance
3.4.1 Inspection - Each data deliverable received as a
result of this Statement of Work shall be inspected by the
Government office shown in the respective block 6 of the CDRL.
Equipment received as a result of this Statement of Work shall be
inspected by the Contracting Officer or Representative.
3.4.2 Acceptance - The final acceptance of the services
and data deliverables called for herein shall be inspected by the
Contracting Officer on the advice of the above referenced
Government office. Equipment shall be accepted by the Contracting
Officer or Contracting Officer's Representative on the advice of
the referenced government office.
3.5 Completion Date / Reports and Data / Delivery Schedule
The contractor shall submit the following reports and data in
accordance with the attached Contract Data Requirements List. All
the requirements of this Statement of Work shall be completed by
the contractor within 1000 days after contract award (DAC) in
accordance with the following schedule.
<TABLE>
<CAPTION>
Days After
Description of Data Contract SOW Para. No. Data Item
or Milestones Award (DAC) DI-XXXX- Description
- ------------------- ----------- ------------- -----------
<S> <C> <C> <C>
Monthly Report 30* 4.1 80227
Project Management Plan 30 3.1. 80909
Phase I Report 30 3.2.2.3 80711
Palletized NitRem Unit
Design Drawings 112 3.2.3.1 81002
Economic Evaluation 120 3.2.3.2 1215
Phase 2 Report 120 3.2.3.3 80711
Equipment Testing
Report/Acceptance 240 3.2.4.3 80809A
Request
DoD Facility Requirements
(Specs/Interfaces) 240 3.2.4.2 81002
On Site Test Plans 240 3.2.4.3 80553
Install Equipment 420 3.2.5.1 N/A
Phase 4 Report 780 3.2.5.3 80711
Training Plans 780 3.2.6.1 80508
Final Report Draft 960 3.2.6.3 80711
Final Report 1000 3.2.6.3 80711
</TABLE>
*Monthly thereafter
4.0 PROGRESS REPORTS
4.1 Monthly Progress Reports
The contractor shall submit a monthly report showing the progress
of work and the status of the program and of the assigned tasks,
report costs, and existing or potential problem areas with
recommendations for solutions (DI-MGMT-80227).
4.2 Meeting Schedule
The contractor shall be present at the following meetings:
1. Project Kick-off (at contractor site).
2. At the end of each Phase (at contractor site).
3. At quarterly In-Process Reviews (Jan/Apr/Jul/Oct) "at a
location mutually agreed upon by the SHSU Project Manager,
ARDEC Task Monitor and CTC Task Leader."
4. Final Project close-out (at DoD site).
ADDRESS SHEET:
Commander
U.S. Army
Armament Research and Development Center
ATTN: Mr. Mike Wrazen
SMCAR-ET
Building 172
Picatinny Arsenal, NJ 07806-5000
Commander
U.S. Army
Production Base Modernization Activity
ATTN: Mr. Andrew Perich
AMSMC-PBP
Building 172
Picatinny Arsenal, NJ 07806-5000
Commander
U.S. Army
Production Base Modernization Activity
ATTN: Mr. Robert Goldberg
AMSMC-PBE
Building 172
Picatinny Arsenal, NJ 07806-5000
Commander
U.S. Army
Environmental Quality Division
AMSMC-EQS
Rock Island Arsenal, IL 61299-6000
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated December 4, 1996, in
the Registration Statement on Form SB-2 and related Prospectus of
ThermoEnergy Corporation for the registration of 1,600,000 shares
of its Series A Common Stock and 1,600,000 Redeemable Series A
Common Stock Purchase Warrants.
/s/ Kemp & Company
Little Rock, Arkansas
February 6, 1997
Consent of Independent Accountants
To the Board of Directors
Thermo Energy Corporation
(Formerly Innotek Corporation)
Little Rock, Arkansas
We consent to the inclusion in this registration statement on Form
SB-2 of our report dated December 11, 1991 on our audit of the
statements of operation, changes in stockholders' equity (deficit),
and cash flows of INNOTEK CORPORATION for the year ended September
30, 1991 and cumulative since inception through September 30, 1991.
We also consent to the reference to our firm under the caption
"Experts" included in the registration statement.
/s/ Baird, Kurtz & Dobson
Little Rock, Arkansas
February 7, 1997
