MOLTEN METAL TECHNOLOGY INC /DE/, S-1, 1997-10-03

MOLTEN METAL TECHNOLOGY INC /DE/
S-1, 1997-10-03
HAZARDOUS WASTE MANAGEMENT

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION STATEMENT NO. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------------

MOLTEN METAL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>

DELAWARE 8731 52-1659959
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

400-2 TOTTEN POND ROAD
WALTHAM, MASSACHUSETTS 02154
(617) 487-9700

(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)

-----------------------------------

WILLIAM M. HANEY, III
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
MOLTEN METAL TECHNOLOGY, INC.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
(617) 487-9700

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

----------------------------

with a copy to:

ETHAN E. JACKS, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
MOLTEN METAL TECHNOLOGY, INC.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
(617) 487-9700

----------------------------

Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.

----------------------------

IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, 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, PLEASE 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. [_]

CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price per Aggregate Offering Amount of
Registered Registered (1) Share (2) Price (2) Registration Fee (2)
- ---------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share (3)(4) 6,861,064 $5.50 $37,735,852 $11,435.11
- ---------------------------------------------------------------------------------------------------------------------

Common Stock, par value
$.01 per share (4)(5) 566,000 $5.50 $ 3,113,000 $ 943.33
- ---------------------------------------------------------------------------------------------------------------------

Total 7,427,064 $40,848,852 $12,378.44
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Based on an estimate of the maximum number of shares of Common Stock of the
Registrant issuable in connection with the conversion of the Series A Preferred
Stock and the exercise of the warrant as described herein.

(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee, based on the average of the high and low sale prices of the
Registrant's Common Stock on October 1, 1997, as reported on the Nasdaq National
Market.

(3) Represents shares of Common Stock issuable upon the conversion of the
Registrant's Series A Convertible Participating Preferred Stock. For the purpose
of estimating the number of shares of Common Stock issuable upon such
conversion, the calculation of the number of shares being offered is based on an
estimate of 200% of the shares of Common Stock currently issuable at a
conversion price of $5.83, which price is 110% of $5.30, the average of the
closing bid prices of the Common Stock on the Nasdaq National Market for the
five consecutive trading days ending September 5, 1997, the last trading day
prior to the issuance date of the Series A Convertible Participating Preferred
Stock.

(4) In addition to the estimated number of shares set forth in the table, the
amount to be registered includes a presently indeterminate number of shares
issuable in connection with the conversion of the convertible securities and the
exercise of the warrants as described herein or otherwise in respect of such
securities as such number may be adjusted as a result of stock splits, stock
dividends and antidilution provisions (including floating rate conversion
prices) in accordance with Rule 416.

(5) Represents shares of Common Stock issuable upon the exercise of a warrant to
purchase shares of the Registrant's Common Stock.

----------------------

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.

<PAGE> 2

SUBJECT TO COMPLETION DATED OCTOBER 3, 1997

PROSPECTUS
7,427,064 SHARES

[MOLTEN METAL TECHNOLOGY LOGO]

COMMON STOCK

-------------------------

This Prospectus relates to the following shares of common stock, par value
$.01 per share (the "Common Stock"), of Molten Metal Technology, Inc. ("MMT" or
the "Company"): (1) up to 6,861,064 shares of Common Stock issuable to the
holders of the Company's Series A Convertible Participating Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), upon conversion thereof
(which amount represents an estimate of 200% of the maximum number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock, based
upon the average closing bid price for a share of Common Stock for the five
trading days ending September 5, 1997, the last trading day prior to the
issuance date of the Series A Preferred Stock); and (2) 566,000 shares of Common
Stock issuable to GEM Ventures Ltd. ("GEM") upon the exercise of warrants (the
"Warrants"), which warrants are currently vested and exercisable.

The holders of the Series A Preferred Stock are sometimes referred to in
this Prospectus as the "Holders," the Holders and GEM are sometimes referred to
collectively in this Prospectus as the "Selling Stockholders," and the shares of
Common Stock to be sold by the Selling Stockholders pursuant to this Prospectus
are sometimes referred to as the "Shares."

The exact number of shares of Common Stock to be issued by the Company to
the Holders cannot be ascertained as of the date of this Prospectus and, if such
number of shares differs from the number of shares stated in this Prospectus,
the exact number of shares will be stated in a supplement or supplements to this
Prospectus to be filed with the Securities and Exchange Commission promptly
after the determination of said number and prior to any resale of such
additional shares of Common Stock by any of the Holders. See "Description of
Capital Stock--Preferred Stock" and "--Warrants" below for a description of the
Series A Preferred Stock and the Warrants.

The Series A Preferred Stock was issued and sold on September 8, 1997 (the
"Original Offering") to the initial Holders in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Regulation D thereunder. The Registration
Statement of which this Prospectus is a part has been filed with the Securities
and Exchange Commission pursuant to a registration rights agreement dated as of
September 5, 1997 (the "Registration Rights Agreement") between the Company and
the initial Holders, entered into in connection with the Original Offering.

The Common Stock is traded on the Nasdaq National Market under the symbol
"MLTN." On September 30, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market was $5.50 per share.

The Shares may be sold by the Selling Stockholders from time to time
directly to purchasers or through agents, underwriters or dealers. See "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Shares in respect of which this Prospectus is being
delivered and the applicable agent's commission, dealer's purchase price or
underwriter's discount, if any, will be set forth in an accompanying supplement
to this Prospectus. The Selling Stockholders and broker-dealers, agents or
underwriters which participate in the distribution of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Plan of Distribution."

The Company will receive the proceeds from the exercise of the Warrants,
but will not receive any proceeds from the sale by the Selling Stockholders of
the Shares offered hereby. The Selling Stockholders will pay all underwriting
discounts and selling commissions, if any, applicable to the sale of the Shares,
but will not bear any of the expenses related to this registration. All of such
expenses will be borne by the Company.

See "Risk Factors" for a description of certain risks involved in an
investment in the Shares.

------------------

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.

The date of this Prospectus is ______________, 1997.

<PAGE> 3

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 5th Street, N.W., Washington,
D.C. 20549, as well as at the following regional offices: 7 World Trade Center,
Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 5th Street, N.W., Washington, D.C. 20549. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system. The Commission maintains a World Wide
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other document, if
any, filed as an exhibit to the Registration Statement on Form S-1 of which this
Prospectus is a part, each such statement being qualified in all respects by
such reference.

The Company has agreed to distribute to each initial Holder of the Shares
copies of the Company's Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, proxy statements, and press releases until
such initial Holder sells or transfers its Shares.

No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any Selling Stockholder. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby to any person in any jurisdiction in which it is unlawful to make
any such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall in any circumstances create any implication that there
has been no change in the affairs of the Company since the date hereof.

The 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.

<PAGE> 4

RISK FACTORS

An investment in the Shares offered by this Prospectus involves a high
degree of risk. Accordingly, prospective investors should consider carefully the
following risk factors, in addition to the other information concerning the
Company and its business contained in this Prospectus, before purchasing the
Shares offered hereby.

Uncertainty of Future Profitability. The Company's results of operations
have varied significantly in the past and may continue to vary significantly in
the future. The Company had a net loss of approximately $61.2 million for the
year ended December 31, 1996 and net a loss of approximately $49.3 million for
the six months ended June 30, 1997. Other than 1995, the Company has had losses
in each of the years since its incorporation. Losses have resulted principally
from costs incurred in connection with research and development activities and
from costs associated with the Company's administrative and marketing
activities. A significant portion of the Company's revenues for the year ended
December 31, 1996 consisted of technology transfer and success fees from M4
Environmental L.P. ("M4"), the Company's former joint venture with Lockheed
Martin Corporation ("LMC") (approximately $13.1 million in 1996). As a result of
a restructuring completed in June 1997, M4 is now a wholly owned subsidiary of
the Company, and MMT does not expect any future revenues consisting of
technology transfer and success fees from M4. During 1997, MMT will earn limited
revenue from the operations of M4.

The Company's future profitability is dependent upon its ability to
successfully commercialize its CEP technology and to find alternative sources of
revenue. There can be no assurance that the Company will generate sufficient
revenue to achieve profitability.

Uncertainty of Market Acceptance. The Company's Catalytic Extraction
Processing ("CEP") technology is a new technology for which there is no
established market. There can be no assurance that feedstock generators will
view the Company's CEP process as an economically and environmentally acceptable
means of disposing of their hazardous and non-hazardous wastes and industrial
by-products, which could result in the Company experiencing difficulty in
selling its CEP systems. Moreover, there can be no assurance that the economic
terms under which generators may be willing to use the Company's CEP process
will be profitable to the Company. In addition, a particular generator may be
subject to environmental regulation unique to its location which may affect its
ability to use CEP.

Limited Commercial Operations. The Company has limited experience operating
CEP systems on a commercial basis. There can be no assurance that the Company
will be able to operate CEP systems on a sustained basis in commercial-scale use
or that such systems can be operated profitably. In addition, the Company may
experience problems associated with the engineering, construction and scale-up
of its CEP systems, including cost overruns and start-up delays resulting from
technical or mechanical problems or unfavorable conditions in the equipment or
labor market.

The Company has limited experience developing and constructing commercial
CEP plants. In addition, the Company's "first of a kind" CEP plants have
required larger capital expenditures and a longer period to develop and
construct than originally anticipated by the Company. If the Company is not able
to develop and construct CEP plants, particularly "second of a kind" plants, on
time and under budget, this would have a material adverse effect on the
Company's ability to successfully sell CEP plants to customers and to obtain
financing for the development and construction of CEP plants.

Reliance on Environmental Regulation. Federal, state and local
environmental legislation and regulations require substantial expenditures and
impose liabilities for noncompliance. Environmental laws and regulations are,
and will continue to be, a principal factor affecting demand for the systems and
services being developed or offered by the Company. The level of enforcement
activities by federal, state and local environmental protection agencies and
changes in regulations will also affect demand. Any changes in these regulations
which increase compliance standards may require MMT to change or improve the CEP
technology to meet more stringent regulatory requirements. To the extent that
the burdens of complying with such laws and regulations may be eased, the demand
for the Company's services could be materially adversely affected. In addition,
international environmental regulations and enforcement of such regulations vary
by country and are subject to changes which may adversely affect the Company's
operations and its ability to commercialize its CEP technology internationally.

<PAGE> 5

Dependence on Disposal Facilities. The Company's CEP technology may not be
successful in recovering materials in a form that is commercially usable or
saleable. The Company also could be materially adversely affected by a decrease
in the demand for the recovered materials. Some materials produced using CEP may
have little to no commercial value, and may be considered wastes. Such waste may
be classified as a hazardous or low-level radioactive waste (and may need to be
handled as such) under current United States environmental regulations. In
addition, such waste may need to be disposed of at specially permitted disposal
facilities. In order to utilize such facilities, any waste produced by CEP must
meet the acceptance criteria of the particular facility. Fees for disposal of
wastes at such facilities, and the methods for calculating such fees, are
subject to change. The Company's ability to operate its CEP systems profitably
may be adversely affected by increases in such fees or changes in the methods of
calculating such fees. The Company expects that the volume of residual waste
streams produced from the processing of radioactive wastes with Quantum-CEP(R)
will be greater than those produced from otheR applications of CEP.

Availability of Markets for Recovered Materials. CEP has been designed to
perform Elemental Recycling. There can be no assurance, however, that the
Company's CEP process will be successful in recovering materials in a form that
is commercially usable or saleable or that the Company would not be materially
adversely affected by a decrease in the demand for the recovered materials.

Potential Environmental Liability. The Company's business exposes it to the
risk that harmful substances such as hazardous or toxic wastes or radioactive
materials will escape into the environment and cause substantial damages or
injuries. The Company's ownership or operation of CEP systems expose it to
possible liability for investigation and clean-up costs under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, and
the Resource Conservation and Recovery Act of 1976, as amended ("RCRA") and to
possible liability under RCRA for violations of requirements applicable to the
generation, transportation, treatment, storage and disposal of hazardous waste.
In addition, the Company may be exposed to certain environmental risks resulting
from the actions of its customers. Although the Company maintains general
liability insurance, this insurance is subject to coverage limits and generally
excludes coverage for losses or liabilities relating to environmental damage or
pollution. The Company has obtained nuclear insurance for its Quantum-CEP(R)
operations in Oak Ridge, Tennessee and environmental impairment liability
insurance for these operations and its research and development facility in Fall
River, Massachusetts in compliance with applicable state and federal regulatory
standards. Although the Company has developed plans to conduct its operations
prudently and to structure its relationships with customers and contractors in a
manner so as to minimize its exposure to environmental risks, the Company could
be materially adversely affected by a claim that is not covered or is only
partially covered by insurance.

Regulatory Status of Operations. The Company and its customers operate in a
highly regulated environment and certain of the operations at the Company's CEP
facilities will be required to have federal, state and local government permits
and approvals. Any of these permits or approvals may be subject to denial,
revocation or modification under various circumstances. Failure to obtain or
comply with the conditions of permits or approvals may adversely affect the
introduction or operation of the Company's CEP systems and may subject the
Company to penalties. The Company's ability to satisfy permitting requirements
for a particular CEP system does not assure that permitting requirements for
other CEP systems will be more easily satisfied, if at all. In addition, if new
environmental legislation or regulations are enacted or existing legislation or
regulations are amended or are interpreted or enforced differently, the Company
or its customers may be required to obtain additional operating permits or
approvals. There can be no assurance that the Company will meet all of the
applicable regulatory requirements.

Future Capital Needs. The Company will require substantial funds to
construct the commercial CEP systems that it anticipates it will own and
operate, and to continue its development activities. The amount and timing of
the Company's expenditures and 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, including customers' decisions to finance, own
and operate their CEP systems; the terms of any collaborative arrangements
entered into by the Company; the progress of the Company's development of CEP;
the nature and timing of permits required for CEP systems; and the availability
of alternative sources of financing. The Company is currently contemplating a
$20 million tax-exempt bond financing for its Quantum - CEP(R) facility in Oak
Ridge, Tennessee. There can be no assurance that such financing or any other
financing will be available or, if available, that it will be on favorable
terms. Failure to obtain

<PAGE> 6

necessary financing would have a materially adverse impact on the Company's
ability to own and operate certain initial CEP facilities and to continue its
development activities.

Dependence on Certain Customers. During the years ended December 31, 1996
and 1995, revenue from M4 accounted for approximately 87% and 69%, respectively,
of the Company's total revenue, and revenue from the U.S. Department of Energy
("DOE") accounted for approximately 13% and 30%, respectively, of the Company's
total revenue. This revenue was generated primarily by engineering and
construction services, R&D and consulting services and technology transfer and
success fees. The Company does not expect to be receiving substantial revenues
from M4 or the Department of Energy in 1997 and expects that most of its
revenues in 1997 will come from waste processing services. The Company's future
profitability is dependent upon its ability to commercialize successfully its
CEP technology and to find alternative sources of revenue. There can be no
assurance that the Company will generate sufficient revenue to achieve
profitability.

Reliance on Subcontractors. The Company relies principally on
subcontractors to build CEP system components and to assemble and install such
systems. The Company's ability to deliver high quality systems on time will
depend upon the reliability and performance of its subcontractors. The failure
of a subcontractor to meet delivery schedules could cause the Company to default
on its obligations to its customers. In addition, the Company's reliance on
subcontractors for manufacturing, assembly and installation places a significant
part of the Company's quality control responsibilities on these subcontractors.
There can be no assurance that the Company will be able to continue to contract
for the level of quality control required by the Company's customers.

Risks of "Fixed-Price" Contracts. The Company expects that a majority of
its contracts will be performed on a "fixed-price" basis. In a fixed-price
contract, the Company bears the full risk of cost overruns caused by estimates
that differ from actual costs incurred or manufacturing delays during the course
of the contract. If manufacturing or installation costs for a particular project
exceed anticipated levels, gross margins would be materially adversely affected,
and the Company could experience losses on such contracts.

Risks of International Sales. The Company expects that a significant
portion of its revenues will come from sales of CEP systems overseas.
International sales and operations may be limited or disrupted by the imposition
of government controls, export license requirements, trade restrictions, changes
in tariffs, difficulties in staffing, the transport of machinery, managing
international operations and other factors. Regulatory compliance requirements
differ among foreign countries and are also different from those established in
the United States. If the Company's customers are unable to obtain the necessary
foreign regulatory approvals on a timely basis, the Company's international
sales could be materially adversely affected. Additionally, the Company's
business may be materially adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates, difficulties in obtaining
export licenses, ability to maintain or increase prices and competition. Since
the bulk of expenses in connection with international contracts are often
incurred in United States dollars, the Company may be subject to exchange rate
risk. If the Company has significant international sales in the future
denominated in foreign currencies, the Company may purchase hedging instruments
to mitigate the exchange risk on these contracts.

Dependence on Collaborative Relationships. The Company's future success may
depend, in part, on its collaborative relationships.

Risks of Government Contracting. The Company's existing government
contracts can generally be canceled, delayed or modified at the sole option of
the government and are generally subject to annual funding limitations and
public sector financing constraints. The Company believes that any future
government contracts will be structured similarly. In addition, under the terms
of future government contracts, if any, the Company may be required to grant the
federal government greater rights with respect to the Company's intellectual
property than the Company would grant private parties. As a result of engaging
in the government contracting business, the Company is subject to audits and
investigation by government agencies. See "Pending Litigation and
Investigations." The Company also faces the risks associated with government
contracting, which could include substantial civil and criminal fines and
penalties. In addition to potential damage to the Company's business reputation,
the failure by the Company to comply with the terms of any of its government
contracts could result in the Company's suspension or debarment from future
government contracts for a significant period of time. All of the foregoing
risks associated with government contracting also may apply to M4 with respect
to its government contracts.

Pending Litigation and Investigations. Five purported class action
securities suits against the Company and certain of its present and former
directors and officers are pending in the United States District Court for the
District

<PAGE> 7

of Massachusetts. In addition, the Company is in the process of providing
information in connection with investigations being conducted by the DOE, the
Subcommittee on Oversight and Investigations of the U.S. House of
Representatives Committee on Commerce and the U.S. Senate Committee on
Governmental Affairs. See "Business--Legal Proceedings."

Competition. The Company anticipates that the initial market for CEP will
be the hazardous and non-hazardous waste and industrial by-products treatment
and disposal market, which is characterized by several large companies and
numerous small companies. Existing technologies may prove more cost-effective
than CEP, or new technologies which are superior to those of the Company may be
developed. In addition, the Company and its customers will compete with other
producers of raw materials and recycled products for the sale of products
recovered from the CEP process. Many of the Company's competitors are large
companies with substantially greater financial resources than the Company. To
the extent these competitors offer comparable services or products at lower
prices or of higher quality, or more cost-effective waste disposal alternatives,
the Company's ability to compete effectively could be adversely affected.

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 secret protection and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that any of the Company's pending patent applications will be
approved, that the Company will develop additional proprietary processes that
are patentable, that any patents issued or licensed to the Company will provide
the Company with competitive advantages or will not be challenged by third
parties or that the patents of others will not have an adverse effect on the
ability of the Company 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 processes or design around the
patented processes developed by the Company. It is possible the Company may need
to acquire licenses to, or to contest the validity of, issued or pending patents
of third parties relating to the Company's technology. There can be no assurance
that any license 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 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 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.

Dependence on Key Management and Qualified Personnel. The Company is highly
dependent upon the efforts of its senior management and scientific staff. The
Company maintains key man insurance in the amount of $1.0 million on the lives
of each of William M. Haney, III, Chairman of the Board of Directors and Chief
Executive Officer, and Dr. Christopher J. Nagel, Chief Technical Officer. The
Company is the sole beneficiary of these policies, but the proceeds of such
policies may not be adequate to compensate the Company for the loss of either
individual. The loss of the services of one or more of these individuals may
have a material adverse effect upon the Company. The Company's future success
will depend in large part upon its ability to attract and retain further highly
skilled scientific, managerial, manufacturing and marketing personnel. The
Company faces competition for hiring such personnel from other companies,
research and academic institutions, government entities and other organizations.
With the exception of William M. Haney, III, the Company does not have any
employment agreements with any of its executive officers for a specific time.
There can be no assurance that the Company will continue to be successful in
attracting and retaining such personnel.

Effect Of Conversion of Series A Preferred Stock. Based on the fixed
conversion price of $5.83 per share at September 8, 1997, the outstanding Series
A Preferred Stock is convertible into 3,430,532 shares of Common Stock. However,
this amount may prove to be significantly greater in light of a variety of
factors, including a decrease in the average market price for the Common Stock.
See "Description of Securities--Series A Preferred Stock." Purchasers of Common
Stock may therefore experience substantial dilution of their investment in the
event that the holders of the Series A Preferred Stock elect to convert their
holdings of such stock into shares of Common Stock. For the life of the Series A
Preferred Stock, the holders thereof have been given the opportunity to profit
from a rise in the market price of the Common Stock, with a resulting dilution
in the interest of holders of Common Stock. The terms on which the Company will
be able to obtain additional capital during the life of the Series A Preferred
Stock may be

<PAGE> 8

adversely affected by the terms of the Series A Preferred Stock. In addition,
holders of the Series A Preferred Stock may have an incentive to exercise their
rights at a time when the Company would be better able to obtain any needed
capital by a new offering of securities on terms more favorable to the Company
than those provided in the Series A Preferred Stock.

Volatility of Share Price. There has been a history of volatility in the
market prices for securities of emerging growth companies such as the Company,
which volatility often has been unrelated to or disproportionately impacted by
the operating performance of such companies. There can be no assurance that the
market for the Common Stock will not be subject to similar fluctuations. Factors
such as announcements of technological developments, sales of waste treatment or
disposal systems or status of collaborative agreements of the Company or its
competitors, government regulatory action, public concern as to the safety of
products developed by the Company, patent or proprietary rights developments and
market conditions in general could have a significant impact on the future
market price of the Company's securities, including the Common Stock.

<PAGE> 9

THE COMPANY

The Company is an environmental technology company engaged in the
commercialization and continued development of its innovative, proprietary
processing technology known as Catalytic Extraction Processing ("CEP"). The
Company has its principal executive offices at 400-2 Totten Pond Road, Waltham,
MA 02154. The telephone number of said offices is (617) 487-9700.

USE OF PROCEEDS

PRICE RANGE OF COMMON STOCK

Since February 10, 1993, the first day of trading for the Common Stock, the
Common Stock has traded on the Nasdaq National Market under the symbol "MLTN."
The following table sets forth, for the periods indicated, the high and low sale
prices per share of the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>

HIGH LOW
PRICE PRICE
----- -----
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1995
First Quarter .................................................. $19.25 $13.75
Second Quarter ................................................. $26.25 $15.75
Third Quarter .................................................. $33.25 $21.00
Fourth Quarter ................................................. $41.25 $27.50

YEAR ENDING DECEMBER 31, 1996
First Quarter .................................................. $40.25 $29.75
Second Quarter.................................................. $36.50 $28.00
Third Quarter................................................... $34.63 $21.75
Fourth Quarter.................................................. $33.25 $ 9.25

YEAR ENDING DECEMBER 31, 1997
First Quarter .................................................. $13.13 $ 8.38
Second Quarter ................................................. $ 9.25 $ 4.25
Third Quarter (through September 30, 1997) ..................... $ 8.00 $ 4.75
</TABLE>
On September 30, 1997, the last sale price of the Common Stock, as
reported by the Nasdaq National Market, was $5.50 per share. As of September 30,
1997, there were 966 holders of record of the Common Stock.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate doing so in the foreseeable future.

<PAGE> 10

CAPITALIZATION

The following table sets forth the current portion of long-term debt and
the capitalization of the Company as of June 30, 1997. The as adjusted
capitalization gives effect to the issuance of 800 shares of Series A Preferred
Stock and the net proceeds therefrom as if it occurred on June 30, 1997.
<TABLE>
<CAPTION>

JUNE 30, 1997
------------------------------------

ACTUAL AS ADJUSTED
------------- -------------

<S> <C> <C>
Current portion of long-term debt ................................. $ 1,792,949 $ 1,792,949
Long-term debt, excluding current portion ......................... 202,750,000 202,750,000

Stockholders' equity:
Preferred stock, $.01 par value, 3,000 shares authorized
Series A convertible preferred stock, $.01 par value,
800 shares designated, issued and outstanding on an as
adjusted basis at June 30, 1997 ................................. -- 11,531,241
Common stock, $.01 par value, 100,000,000 shares authorized;
23,713,380 shares issued and 23,602,980 outstanding ............. 237,134 237,134
Additional paid-in capital ....................................... 163,545,308 170,594,067
Valuation allowance for short-term investments ................... 33,128 33,128
Accumulated deficit .............................................. (147,159,078) (147,159,078)
------------- -------------
16,656,492 35,236,492

Less: Treasury stock, 110,400 shares at cost ..................... (1,251,319) (1,251,319)
Less: Deferred compensation ...................................... (1,044,493) (1,044,493)
------------- -------------
Total stockholders' equity ................................ 14,360,680 32,940,680
------------- -------------

Total capitalization ............................. $ 218,903,629 $ 237,483,629
============= =============
</TABLE>

9
<PAGE> 11

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected financial information of the
Company for the six months ended June 30, 1997 and the 5 years ended December
31, 1996.

YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------ --------------------------
1996 1995 1994 1993 1992 1997 1996
------------ ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenue................. $ 63,511,190 $ 44,181,398 $ 14,398,829 $ 4,721,953 $ 2,526,327 $ 11,534,041 $40,227,629
Operating expenses:
Cost of revenue....... 50,478,630 34,901,904 11,057,163 2,205,316 2,172,399 19,002,303 30,718,193
Research and
development......... 26,183,268 10,986,234 14,417,327 10,837,484 4,208,319 15,547,991 9,327,001
Selling, general and
administrative...... 18,708,514 2,877,371 7,132,256 5,661,953 4,133,270 14,663,727 4,629,218
------------ ------------ ------------ ------------ ------------ ------------ -----------
95,370,412 48,765,509 32,606,746 18,704,753 10,513,988 49,214,021 44,674,412
Equity income (loss)
from affiliate........ (31,612,891) 834,294 -- -- -- (9,740,565) 2,676,036
------------ ------------ ------------ ------------ ------------ ------------ -----------
Loss from operations.... (63,472,113) (3,749,817) (18,207,917) (13,982,800) (7,987,661) (47,420,545) (1,770,747)

Interest income......... 8,812,303 5,559,690 4,376,403 1,861,077 400,559 2,480,617 3,585,378
Interest expense........ (6,521,654) (1,455,084) (737,741) (160,233) (15,972) (4,398,739) (2,107,699)
------------ ------------ ------------ ------------ ------------ ------------ -----------
Net income (loss)..... $(61,181,464) $ 354,789 $(14,569,255) $(12,281,956) $ (7,603,074) $(49,338,667) $ (293,068)
============ ============ ============ ============ ============ ============ ===========
Net income (loss) per
share............... $ (2.62) $ 0.01 $ (0.67) $ (0.69) $ (0.59) $ (2.09) $ (0.01)
============ ============ ============ ============ ============ ============ ===========
Weighted average common
shares outstanding.... 23,313,243 24,710,423 21,904,213 17,811,830 12,843,220 23,591,090 23,098,323
============ ============ ============ ============ ============ ============ ===========
Supplementary net loss
per share (1)......... $ (0.67) $ (0.52)
============ ============
Supplementary weighted
average common shares
outstanding........... 18,293,320 14,509,887
============ ============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------------------------------ -------------
1996 1995 1994 1993 1992 1997
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents
and short-term
investments.......... $129,067,763 $ 86,276,250 $100,196,475 $104,423,037 $ 2,234,110 $ 44,555,231
Working capital........ 108,630,338 89,306,823 95,318,381 103,689,795 (72,876) 22,873,660
Total assets........... 272,745,249 153,336,001 135,541,524 123,628,053 11,523,176 261,059,240
Long-term liabilities,
less current
maturities (2)....... 173,597,488 26,818,466 24,549,733 3,625,427 3,538,531 206,519,807
Convertible preferred
stock................ -- -- -- -- 72,727 --
Accumulated deficit.... (97,820,411) (36,638,947) (36,993,736) (22,424,481) (10,142,525) (147,159,078)
Stockholders' equity... 63,511,832 109,908,656 102,135,257 116,333,308 5,264,679 14,360,680
</TABLE>

- ---------------
(1) Supplementary net loss per share information for the years ended December
31, 1993 and 1992 is presented to reflect the conversion of preferred stock
as if it occurred on the later of the first day of the period or the date of
issuance of the preferred stock.

(2) Includes (i) deferred revenue of $1,900,000 at December 31, 1992, (ii)
payments due under a technology purchase agreement of $1,385,889 at June 30,
1997 and December 31, 1996 and $1,474,586 at December 31, 1995, 1994, 1993
and 1992, (iii) deferred income of $2,383,918 at June 30, 1997, $2,437,500
at December 31, 1996 and $2,459,918 at December 31, 1995 and (iv) $5,020,765
of accumulated losses of affiliate in excess of investment at December 31,
1996.

<PAGE> 12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Quarters and Six Months Ended June 30, 1997 and 1996

Revenues for the second quarter of 1997 decreased to $6,561,000 from $17,854,000
in the second quarter of 1996 and decreased to $11,534,000 for the first half of
1997 from $40,228,000 for the first half of 1996. The following table compares
sources of revenue for the quarters and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>

QUARTER ENDED JUNE 30,
----------------------

1997 1996
---- ----
<S> <C> <C>
Waste services $ 5,093,000 $ --
Equipment sales 486,000 --
Engineering and construction 663,000 9,241,000
R&D and consulting 319,000 4,863,000
Technology transfer and success fees -- 3,750,000
----------- -----------
$ 6,561,000 $17,854,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>

SIX MONTHS ENDED JUNE 30,
-------------------------

1997 1996
---- ----
<S> <C> <C>
Waste services $ 9,038,000 $ --
Equipment sales 1,193,000 --
Engineering and construction 784,000 25,725,000
R&D and consulting 519,000 7,003,000
Technology transfer and success fees -- 7,500,000
----------- -----------
$11,534,000 $40,228,000
=========== ===========
</TABLE>

Waste services revenue is from processing, managing and handling radioactive
wastes through the Company's nuclear waste services division based in Oak Ridge,
Tennessee. The first quarter of 1997 marked the commercial start-up of the
Company's Quantum-CEP(R) (or Q-CEP(R)) Facility in Oak Ridge, Tennessee ("Q-CEP
Facility") and the commencement OF commercial CEP operations. The Company also
began operations of its newly acquired waste service business from The
Scientific Ecology Group, Inc. ("SEG") and VECTRA Technologies, Inc. ("VECTRA").
The Company expects that revenue from plant operations will continue to increase
in future periods as operations at the Q-CEP Facility ramp up and as commercial
operations commence at additional facilities in Oak Ridge, Tennessee and Bay
City, Texas.

Equipment sales are from the sale of waste storage and processing equipment for
commercial low-level radioactive waste. The sales are a result of operations
related to the acquisitions from SEG and VECTRA which occurred in December 1996
and January 1997, respectively.

During the six months ended June 30, 1996, the Company recognized $25.7 million
in revenue related to the engineering, design and construction of M4's
Technology Center. During the six months ended June 30, 1997, engineering and
construction revenue related solely to the engineering, design and construction
of an initial CEP system for the joint venture with Nichimen Corporation
("Nichimen") and NKK Plant Engineering Corporation ("NKP") for the processing of
fly ash in Japan. The Company expects engineering and construction revenue to
increase in the next few quarters due to increased activities related to
engineering, design and construction of the initial CEP system for the joint
venture with Nichimen and NKP and for a demonstration CEP unit for the DOE's
tanked waste site in Hanford, Washington.

During the six months ended June 30, 1996, the Company recognized revenue
related to research and development and consulting contracts with M4 and the US
government. During the six months ended June 30, 1997, the Company recorded no
such revenue from M4 or the US government. The Company expects to continue with
research and development projects, some of which will be funded by third parties
and some of which will be funded from the Company's working capital. The Company
anticipates that the amount of both internally and externally funded research
and development will decrease over the next year.

<PAGE> 13

There were no technology transfer and success fees for the first six months of
1997. Technology transfer and success fees for 1996 resulted from the
recognition of a portion of the original $14 million license fee from M4 and
from plant start-up fees from M4. Part of the Company's strategy is to license
its technology under arrangements which provide for up-front technology transfer
fees, ongoing tolling fees, license fees or royalties and the Company expects
such revenues to increase in future periods over the first half of 1997.

The existence and timing of revenues related to the Company's commercial
operations will depend on a number of factors, including the ability of the
Company and its affiliates to successfully market, permit and build CEP systems
on a timely and economic basis for their target markets, customer acceptance of
the technology, and competition from other companies in the Company's target
markets, and no assurances can be made in this regard.

Cost of revenues for the second quarter of 1997 decreased to $11,043,000 from
$14,395,000 in the second quarter of 1996 and decreased to $19,002,000 for the
first half of 1997 from $30,718,000 for the first half of 1996. The decreases
are primarily attributable to a reduction in cost reimbursement contracts for
R&D and engineering and construction activities.

R&D expenses for the second quarter of 1997 increased to $6,416,000 from
$4,619,000 in the second quarter of 1996 and increased to $15,548,000 for the
first half of 1997 from $9,327,000 for the first half of 1996. The increases
reflect a lower absorption of R&D expenses into cost of revenue due to a
reduction in cost reimbursement contracts. The Company expects that R&D costs
will decrease during the remainder of 1997 as efforts become more directed
toward commercial operations. SG&A expenses for the second quarter of 1997
increased to $7,724,000 from $2,211,000 in the second quarter of 1996 and
increased to $14,664,000 for the first half of 1997 from $4,629,000 for the
first half of 1996. The increases reflect a lower absorption of SG&A expenses
into cost of revenue due to a reduction in cost reimbursement contracts. The
Company is making efforts to decrease SG&A expenses in future periods. The
classification of expenses between cost of revenue, R&D and SG&A will depend on
the number and amount of future cost reimbursement contracts and the related
absorption of R&D and SG&A expenses into cost of revenue.

Prior to the restructuring of M4 in June 1997 described below, the Company
accounted for its investment in M4 using the equity method. The Company recorded
an equity loss of $6,063,000 for the second quarter of 1997 compared to equity
income of $2,307,000 for the second quarter of 1996 and equity loss of
$9,741,000 for the first half of 1997 compared to equity income of $2,676,000
for the first half of 1996. Under the M4 limited partnership agreement, the
Company and Lockheed Martin Corporation ("LMC") shared equally in M4's revenues
and other income and all expenses were allocated to LMC until the capital
accounts of the Company and LMC became equal. During 1996, the Company's and
LMC's capital accounts were not equal and the Company recorded its share of
revenues and other income from M4 without recognizing any expenses from M4. This
resulted in the Company having equity income from M4 during the first half of
1996. In the fourth quarter of 1996, the Company's and LMC's capital accounts
became equal and the Company began to share in the recognition of expenses from
M4. On March 26, 1997, the Company and LMC agreed to fund the operations of M4
in a manner consistent with how the funding would occur after the restructuring
took place. The Company recognized revenue and expenses of M4 in line with how
the funding occurred and, as a result, recorded equity losses in the second
quarter of 1997.

Interest income for the second quarter of 1997 decreased to $909,000 from
$2,231,000 in the second quarter of 1996 and decreased to $2,481,000 for the
first half of 1997 from $3,585,000 for the first half of 1996. The decreases are
due to the use of cash and short-term investments to fund commercial operations
and investment activities, including expenditures for fixed assets. The Company
expects interest income to decline in the coming year as cash and short-term
investments are used to fund initial commercial operations and continued
investment activities, including expenditures for fixed assets. Interest expense
for the second quarter of 1997 increased to $2,090,000 from $1,675,000 in the
second quarter of 1996 and increased to $4,399,000 for the first half of 1997
from $2,108,000 for the first half of 1996. The increases are due to interest on
the Company's 5 1/2% Convertible Subordinated NoteS due 2006 issued in May 1996.

Inflation is not expected to have a material effect on future results of
operations.

The Company's results of operations have varied significantly in the past and
may continue to vary significantly in the future. The Company's future
profitability is dependent upon its ability to commercialize successfully its
CEP technology and to find alternative sources of revenue. There can be no
assurance that the Company will generate sufficient revenue to achieve
profitability.

<PAGE> 14

In February 1997, Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS 128") was issued by the Financial Accounting Standards Board. FAS 128
specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under FAS 128, "basic earnings per share" will be
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares (stock options, warrants and convertible debt) if they are dilutive. FAS
128 is effective for the Company's fourth quarter of 1997 and will be adopted at
that time. Had the Company determined earnings per share in accordance with FAS
128, basic earnings (loss) per share and diluted earnings (loss) per share for
the quarters ended June 30, 1997 and 1996 would not have been materially
different from the net income (loss) per share reported by the Company.

Years Ended December 31, 1996 and 1995

Revenue was approximately $63.5 million for 1996 compared with $44.2 million for
1995. The following table compares sources of revenue for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Engineering and construction $37,796,000 $20,242,000
R&D and consulting 12,632,000 14,939,000
Technology transfer and success fees 13,083,000 9,000,000
----------- -----------
$63,511,000 $44,181,000
=========== ===========
</TABLE>

Engineering and construction revenue is from services provided to M4 for the
engineering, design and construction of the M4 Technology Center. The increase
in 1996 over 1995 is a result of billings to M4 during the peak period of
construction and start-up of the M4 Technology Center. Overall, the Company
expects engineering and construction revenue to decline until it enters into
definitive contracts to construct commercial CEP systems for customers that will
be financially responsible, in whole or in part, for the construction of such
systems. In June 1997, the Company and LMC entered into definitive agreements to
restructure their relationship with respect to M4's market. Although the Company
may earn revenue in the future pursuant to the new agreements with LMC, the
Company will earn limited additional revenue from the operations of M4 in 1997.
Additionally, there is uncertainty as to the amounts and timing of revenue, if
any, that may be earned by the Company in the future under the new agreements
with LMC.

R&D and consulting revenue decreased in 1996 from 1995 due to a reduction in
billings under a cost sharing contract with the United States Department of
Energy (the "DOE"). During 1996, the Company recorded $8 million in revenue for
the reimbursement of R&D costs incurred under the cost sharing contract with the
DOE compared to approximately $13.2 million for 1995. The decrease is a result
of the Company reaching the funded contract value during the third quarter of
1996 and not entering into any arrangements providing for additional funding
from the DOE. The Company expects to continue with research and development
projects, some of which will be funded by third parties and some of which will
be funded from the Company's working capital. The Company anticipates that the
amount of both internally and externally funded research and development will
decrease over the next year.

Technology transfer and success fees increased in 1996 over 1995 due to $5
million of revenue recognized for the sale of a license to M4 for the Japanese
chemical weapons market. During 1996, the Company recognized the remaining $4
million of the original $14 million license fee from M4. This license fee was
being recognized over a two year period that began in August 1994. Also during
1996, the Company recognized $4 million of plant start-up fees from M4. Under
the terms of the M4 limited partnership agreement, the Company was entitled to a
fee of $2 million upon the start-up of each of the first three CEP plants
developed by M4. As of June 30, 1996, the Company had earned each of these three
success fees. Part of the Company's strategy is to license its technology under
arrangements which provide for up-front technology transfer fees, ongoing
tolling fees, license fees or royalties and the Company expects such revenues to
increase in future periods.

As commercial operations commence at the Company's facilities in Oak Ridge,
Tennessee and Bay City, Texas, the Company expects to generate revenue from
processing and recycling wastes. The Company expects that revenue from plant
operations will be a significant portion of its total revenue in future periods.
During 1996, however, the Company did not receive any revenue from plant
operations. The existence and timing of revenues related to the Company's
commercial operations will depend on a number of factors, including the ability
of the Company and its

<PAGE> 15

affiliates to successfully market, permit and build CEP systems on a timely and
economic basis for their target markets, customer acceptance of the technology,
and competition from other companies in the Company's target markets, and no
assurances can be made in this regard.

During 1996, revenue from M4 and DOE accounted for approximately 87% and 13% of
revenue, respectively. The Company anticipates that during 1997 it will earn
limited revenue from the operations of M4. In addition, other than the NICE3
grant described below in "Business-U.S. Government Market--United States
Department of Energy," the Company does not anticipate receiving research and
development funding from the DOE in 1997.

Certain billings by the Company to M4 for engineering and construction, research
and development and consulting services were disputed by M4 and were not paid by
M4. The Company has investigated the circumstances of these disputes and has
determined that the Company's quarterly results of operations should be restated
for the periods ended June 30, 1996 and September 30, 1996. Revenue of $2.593
million has been reversed in the quarter ended June 30, 1996 because of a
dispute regarding the obligation underlying billings in that amount for that
quarter. Revenue of $481,000 has been reversed and a charge to bad debt expense
in the amount of $1.484 million has been recorded in the quarter ended September
30, 1996 to reflect the doubtful collection, because of an additional dispute
arising prior to the close of the Company's third quarter accounts, of billings
for $1.965 million for the third and prior quarters. The Company is not pursuing
collection of these disputed amounts. The Company has amended its prior filings
on Form 10-Q for the quarters ended June 30, 1996 and September 30, 1996 to
reflect these adjustments. In the opinion of management, all adjustments
necessary to revise the quarterly financial statements have been recorded.
Following is a summary of the unaudited quarterly results of operations for
these quarters:
<TABLE>
<CAPTION>

Quarter Ended
As Previously Reported: JUNE 30, 1996 SEPTEMBER 30, 1996
------------- ------------------
<S> <C> <C>
Revenue $20,447,000 $15,557,000
Income (loss) from operations 1,529,000 (3,886,000)
Net income (loss) 2,084,000 (3,308,000)
Net income (loss) per share $ 0.08 $ (0.14)
</TABLE>
<TABLE>
<CAPTION>

Quarter Ended
As Restated: JUNE 30, 1996 SEPTEMBER 30, 1996
------------- ------------------
<S> <C> <C>
Revenue $17,854,000 $15,076,000
Loss from operations (1,064,000) (5,851,000)
Net loss (509,000) (5,273,000)
Net loss per share $ (0.02) $ (0.22)
</TABLE>

Cost of revenue for 1996 increased to $50.5 from $34.9 million for 1995. The
increase is primarily attributable to an increase in engineering and
construction activities in connection with the development of CEP systems for M4
and the deferral of income related to intercompany profit on the sale of assets
to M4. The Company expects cost of revenue to increase in future periods as
commercial operations commence at its facilities in Oak Ridge, Tennessee and Bay
City, Texas.

Research and development expenses increased to $26.2 million in 1996 from $11.0
million in 1995. The increase reflects an increase in costs associated with the
continued development of CEP and internally funded CEP demonstrations. The
Company expects that R&D costs will decrease in the next year as efforts become
more concentrated on commercial operations. SG&A expenses for 1996 increased to
$18.7 million from $2.9 million in 1995. The increase reflects the hiring of
additional personnel, the expansion of corporate infrastructure and a lower
absorption of SG&A expenses into cost of revenue due to a reduction in cost
reimbursement contracts. The Company is making efforts to decrease SG&A expenses
in future periods. The classification of expenses between cost of revenue, R&D
and SG&A will depend in part on the number and amount of future cost
reimbursement contracts and the related absorption of R&D and SG&A expenses into
cost of revenue.

The Company with respect to M4 recorded an equity loss of $31.6 million in 1996
compared to equity income of $834,000 in 1995. Under the M4 limited partnership
agreement, the Company and LMC share equally in M4's revenues and other income
and all expenses are allocated to LMC until the capital accounts of the Company
and LMC are equal. Thereafter, as long as the capital accounts of the Company
and LMC are equal, the Company and

<PAGE> 16

LMC share the profits and losses of M4 equally. During 1995, the Company's and
LMC's capital accounts were not equal and the Company recorded its share of
revenues and other income from M4 without recognizing any expenses from M4. This
resulted in the Company having equity income from M4 in 1995. In the fourth
quarter of 1996, the Company's and LMC's capital accounts became equal and the
Company began to share in the recognition of expenses from M4. Because of
substantial losses at M4 in the fourth quarter of 1996, the Company recorded
$40.9 million in expenses from M4, resulting in a net equity loss from its
investment in M4 of $31.6 million in 1996. A substantial portion of the losses
at M4 are the result of impairment charges totaling approximately $60.9 million
primarily relating to the M4 Technology Center.

Interest income for 1996 increased to $8.8 million from $5.6 million in 1995.
The increase is due to interest earned on the net proceeds from the issuance of
convertible debt in May 1996. The Company expects interest income to decline in
the coming year as cash and short-term investments are used to fund initial
commercial operations and continued investment activities, including
expenditures for fixed assets. Interest expense for 1996 increased to $6.5
million from $1.5 million in 1995. The increase is due to interest on the
convertible debt issued in May 1996. Interest expense is expected to increase in
1997 due to a full year of interest on the convertible debt issued in May 1996
and other potential debt financing.

In April 1997, the Company's Board of Directors appointed a committee of three
outside directors to review matters concerning the Company's financial
statements for the year ended December 31, 1996 and the allegations in the
securities class actions described below in "Business--Legal Proceedings." The
committee has completed its review of matters affecting the presentation of the
Company's financial statements, including the restatement discussed in Note 17
to the financial statements.

Years Ended December 31, 1995 and 1994

Revenue was approximately $44.2 million for 1995 compared with $14.4 million for
1994. The increase is primarily attributable to an increase in engineering and
construction activities in connection with the development of CEP systems for
M4, an increase in license fees from M4 and an increase in customer-funded
activities under TDPs. The increase in 1995 TDP revenue over 1994 is a result of
revenue earned under a cost-sharing contract with the U.S. government.

During 1995, revenue from M4 and the DOE accounted for approximately 69% and 30%
of revenue, respectively.

Cost of revenue was approximately $34.9 million for 1995 compared with $11.1
million for 1994. The increase is primarily attributable to an increase in
engineering and construction activities in connection with the development of
CEP systems for M4 and an increase in costs related to cost-sharing contracts
with the U.S. government.

Research and development expenses decreased to $11.0 million for 1995 from $14.4
million for 1994. The decrease is a result of increased customer funding
resulting in an increase in research and development expenses being included in
cost of revenue. Selling, general and administrative expenses decreased to $2.9
million for 1995 from $7.1 million for 1994. The decrease is a result of
increased customer funding resulting in an increase in selling, general and
administrative expenses being included in cost of revenue.

Interest income increased to $5.6 million in 1995 from $4.4 million in 1995,
reflecting a full year of interest earned on the net proceeds from debt
financings in 1994. Interest expense increased to $1.5 million for 1995 from $.7
million for 1994, reflecting a full year of interest expense on a $21 million
tax-exempt bond financing received during 1994. Equity income from affiliate
increased to $.8 million in 1995 from $0 in 1994 reflecting the Company's share
of revenue and other income earned by M4.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, the Company had cash, cash equivalents and short-term
investments totaling $44.6 million compared to $129.1 million at December 31,
1996. The decrease was primarily a result of cash used in operations and for the
acquisition of fixed assets. At December 31, 1996, the Company had cash, cash
equivalents and short-term investments totaling $129.1 million compared to $86.3
million at December 31, 1995. The increase was primarily a result of the net
proceeds from the issuance of the Company's 5 1/2% Convertible Subordinated
Notes Due 2006. The increase was offset by cash used in operations and for the
acquisition of fixed assets. During 1997, the Company expects to incur
significant additional expenditures related to the engineering, construction and
start-up

<PAGE> 17

of commercial CEP systems owned by itself and through joint ventures. The
Company expects that its total capital expenditures for 1997 will be
approximately $83 million.

On September 8, 1997, the Company completed a private placement with a group of
institutional investors (the "Private Placement") whereby the Company sold
shares of Series A Preferred Stock for an aggregate purchase price of $20.4
million. The Series A Preferred Stock is convertible into shares of Common Stock
on the basis described below. In connection with the Private Placement, the
Company paid cash in the amount of $900,000 to GEM Advisors, Inc. as a placement
fee ($400,000 of which was funded by the purchasers of the Series A Preferred
Stock) and issued a warrant (the "Warrant") to GEM Ventures Ltd. ("GEM
Ventures") exercisable for 566,000 shares of Common Stock at an exercise price
of $6.625 per share. In addition, the Company paid advisory fees of $350,000 to
each of Oppenheimer & Co. and Lazard Freres & Co. in connection with the Private
Placement. The Company intends to use the proceeds from the Private Placement
primarily to support the start-up of its Bay City CEP Facility and to complete
the construction of its first commercial plant for the municipal waste market in
Japan.

The Series A Preferred Stock has a stated value of $25,000 per share and has an
annual premium accruing at five percent. The Series A Preferred Stock is
non-voting, is subject to voluntary conversion at the option of the holders at
any time commencing 120 days after September 8, 1997, and will automatically
convert into Common Stock on September 8, 2000. The conversion price per share
will be the lower of (i) a fixed price (the "Fixed Price") of $5.83 (110% of the
average closing bid prices of the Company's Common Stock over the five trading
days ending September 5, 1997), or (ii) a variable price (the "Variable Price")
equal to 85% of the average of the closing bid prices of the Common Stock for
the five trading days immediately preceding a notice of conversion. However,
during the first year after closing, any holder of Series A Preferred Stock who
converts any Series A Preferred Stock based on the Variable Price and sells the
underlying shares of Common Stock will pay a legend removal fee to the Company,
initially in the amount of 8% and decreasing over time to 0% by September 1998.

The conversion price of the Series A Preferred Stock is subject to possible
upward performance adjustments. If, at the time of conversion, the closing bid
price of the Common Stock has increased by more than 40% over the original Fixed
Price, the Fixed Price will be automatically increased to equal:

C
-----------------
[(C/F) + (1.4)]/2

Where: C = the average of the closing bid prices of the Common Stock for the
five trading days immediately preceding a notice of conversion; and

F = the original Fixed Price ($5.83 per share).

During December 1996, MMT of Tennessee Inc., a wholly-owned subsidiary of the
Company ("MMT Tennessee") signed a series of agreements to become the full owner
of the Q-CEP facility it had jointly owned with SEG in Oak Ridge, Tennessee and
to acquire certain assets used for handling and processing radioactive "wet
waste." SEG was a wholly-owned subsidiary of Westinghouse Electric Corporation
("Westinghouse"). The Q-CEP facility is designed to process radioactive ion
exchange resins from nuclear power plants. Pursuant to those agreements, MMT
Tennessee acquired SEG's interest in the Q-CEP facility and certain assets of
SEG and Westinghouse used in the "wet waste" business. These assets include
contracts, equipment, services and personnel for processing radioactive waste
streams at the Q-CEP facility. The purchase price for these assets was $31
million in cash, which was based on the parties' mutual agreement as to the fair
market value of the assets being acquired. In connection with the asset
purchase, MMT Tennessee obtained a non-compete agreement with SEG and
Westinghouse which was valued based

<PAGE> 18

upon its estimated economic benefit to MMT Tennessee and is being amortized on a
straight-line basis over the 5 year life of the agreement. The excess cost over
the net assets acquired is being amortized on a straight-line basis over a
period of ten years.

In June 1997, the Company and LMC executed an agreement to restructure their
relationship with respect to the commercialization of CEP and other technologies
for the government and other waste markets. The objective of the restructuring
was to enable MMT and LMC to access target markets more efficiently by
eliminating many of the organizational redundancies associated with the prior M4
structure. LMC and MMT believe that the restructuring also will enable them to
better leverage LMC's expertise in systems integration and MMT's ability to
provide its CEP technology to target markets. LMC and MMT are now free to pursue
projects formerly governed by the previous joint venture agreements, subject to
the requirements established by the new arrangements. The restructuring entailed
five principal changes in the companies' relationship: (1) LMC has the exclusive
right to lead and pursue contracts for the Hanford radioactive tanked waste
cleanup project described below, and MMT will provide directly to LMC certain
construction and development services with respect to Q-CEP, (2) the Company and
LMC formed a new limited liability company to be their exclusive vehicle to
deliver processing services to customers in the chemical demilitarization market
worldwide, (3) MMT has the exclusive right to lead and pursue worldwide
opportunities for processing DUF6, (4) the Company has become the sole owner of
M4, which will continue to own and operate its primary remaining asset, the M4
Technology Center, and (5) the Retech division of M4, which provides plasma arc
technology, was transferred to LMC.

As part of the LMC team for the Hanford tanked waste cleanup project, LMC agreed
to purchase and MMT has agreed to deliver a pilot-scale, demonstration Q-CEP
plant to LMC in 1997 for a fixed price of $5 million. This plant will be used to
process surrogate Hanford tank waste. Additionally, LMC has agreed to fund
certain development work with respect to Q-CEP for possible application to the
Hanford project. LMC has informed the DOE that LMC currently intends to propose
an alternative technology, vitrification, as its baseline processing technology
for Phase 1B of the Hanford contract. However, in connection with the
development work to be performed by MMT, LMC and MMT have agreed to develop a
technology insertion plan for the possible inclusion of Q-CEP in the Hanford
project if such development work is successful. LMC has informed the DOE of the
development of this technology insertion plan and its intent to use such plan to
include Q-CEP in the Hanford project if MMT's development work is successful. If
the LMC team is awarded a contract under Phase 1B of the Hanford cleanup program
and Q-CEP is used in the Phase 1B performance, LMC has agreed to pay MMT a fee
of $15 million. $5 million of this fee will be payable on award of the contract
and the remaining $10 million will be payable upon timely delivery and
acceptance of a CEP production plant pursuant to terms to be agreed upon by LMC
and MMT. MMT also is entitled to an on-going royalty of 3.5% of all revenues
generated from the processing of waste in equipment supplied by MMT under the
Hanford contract. There can be no assurances that LMC will include Q-CEP in any
proposal for any Phase 1B contract or that LMC will submit a bid for Phase 1B.
There also can be no assurances that DOE will award a Phase 1B contract to the
LMC team or that, even if it does so, Q-CEP will prove to be satisfactory to the
DOE for processing the Hanford waste.

The limited liability company (the "LLC") formed by the Company and LMC has
exclusive worldwide rights to commercialize CEP for the chemical weapons
demilitarization market. The LLC is owned 50/50 by subsidiaries of LMC and the
Company, and each of them will share 50/50 in the ownership, funding, profits
and losses with respect to each project undertaken by the LLC, unless otherwise
agreed by the parties. The Company is entitled to success fees of up to an
aggregate of $25 million in connection with the successful deployment of CEP
systems to process chemical weapons, each success fee to be paid from revenues
generated by the CEP plant to which it relates. An additional $3.5 million fee
will be payable to MMT out of the LLC's cash flow from operations upon MMT's
successful technical demonstration of the processing of Japanese chemical
weapons surrogates using CEP. The LLC has an initial term of five years. In
connection with the formation of the LLC, MMT granted the LLC an exclusive
license (including the right to sublicense to qualified third parties) to
design, construct, own and operate CEP plants for the processing of chemical
weapons. Each of the LLC and LMC have agreed to assign to the Company all
intellectual property rights related to CEP which they may develop during the
term of the agreement.

As sole owner of M4, the Company is responsible for the operations of the M4
Technology Center, and is entitled to all revenues from such operations. Under
the terms of the restructuring agreement, the $38 million aggregate principal
amount of bonds issued by the Industrial Development Board of Oak Ridge relating
to the M4 Technology Center remain outstanding, LMC's guarantee of these bonds
remains in place, and each of LMC and the Company is responsible for 50% of the
principal, interest and other costs relating to these bonds.

<PAGE> 19

In addition to the changes described above, the Company and LMC have agreed that
the Company will have the exclusive right to lead and pursue worldwide
opportunities for processing DUF6. LMC has agreed not to pursue this market for
five years except that, at the request of MMT, LMC will consider participating
in this market jointly with MMT on a case-by-case basis, subject to mutual
agreement of the parties.

LMC and the Company also have established a strategic alliance committee, in the
form of a limited liability company governed by three directors from each
company, to review and monitor the relationships created by the restructuring
and to evaluate new market opportunities within the DOE and DoD markets. Prior
to pursuing any such opportunity alone, each of LMC and MMT will be obligated to
first offer such opportunity to the other party by presenting it to the
strategic alliance committee. The committee would determine whether such
opportunity would be pursued jointly by the parties and the terms thereof. If
the committee does not elect to pursue the opportunity jointly, either party
would be free to pursue it alone.

In connection with the restructuring, (i) LMC terminated its line of credit with
M4 and deemed the approximately $15.8 million aggregate principal and accrued
interest outstanding thereunder to have been paid in full, and (ii) the Company
contributed outstanding accounts receivable of $14.6 million to M4's capital.
LMC and the Company will generally share equally in substantially all of the
costs of the restructuring.

Effective on June 16, 1997, M4 became a wholly owned subsidiary of the Company.
Accordingly, use of the equity method of accounting for the Company's investment
in M4 ceased as of that date and M4 was consolidated with the Company for
financial reporting purposes from that date forward. As a result of the
restructuring, the Company assumed liabilities of $51,147,612 and obtained
assets of $45,133,064 which consisted primarily of receivables from LMC and
fixed and intangible assets. As of December 31, 1996, M4 had not earned any
revenues related to the Hanford radioactive tanked waste cleanup project, nor
had M4 earned any revenues from the processing of chemical weapons or DUF6. As
of December 31, 1996, M4 had earned limited revenues from testing and
development work performed at the M4 Technology Center and from testing and
development work related to the chemical demilitarization and DUF6 markets. The
Retech division of M4 was the major source of revenue for M4 since its
contribution to M4 in April 1996.

In periods prior to the restructuring, the Company provided M4 with construction
services. For items that were capitalized by M4, the Company deferred the
portion of the gross profit representing the Company's designated ownership
interest related to such sales. The deferred income was being recognized by the
Company as the related assets were depreciated by M4. The deferred income
balance at June 16, 1997 related to assets that, as a result of the
restructuring, are now owned by the Company has been offset against the carrying
value of such assets.

In 1996, the Company sold the rights to the Japanese chemical weapons market to
M4 and deferred the portion of the gross profit representing the Company's
designated ownership interest. As a result of the restructuring, these rights
are now held by the new limited liability company which will pursue the
worldwide chemical weapons market. Accordingly, the deferred income related to
the sale of the rights to the Japanese chemical weapons market will be
recognized as a reduction of cost of revenue as the rights are amortized by this
limited liability company.

The net amount of funding due from LMC under the restructuring agreements is
recorded as short-term and long-term receivables of $6,292,000 and $19,000,000,
respectively.

On January 29, 1997, MMT Tennessee acquired certain low-level radioactive waste
processing assets of VECTRA, a spent nuclear fuel and radioactive waste services
company located in San Ramon, California. MMT Tennessee paid $3.9 million in
cash for the VECTRA waste-handling assets, which include machinery, equipment,
spare parts, intellectual property and customer contracts

The Company is currently constructing a CEP facility in Bay City, Texas (the
"Bay City CEP Facility") that is designed to service the industrial hazardous
waste market. During the year ended December 31, 1996 and the six months ended
June 30, 1997, the Company spent approximately $12.6 million and $28 million,
respectively, for the engineering, construction and permitting of this facility.

As of December 31, 1996, accounts receivable from affiliate (billed and
unbilled, in the aggregate) decreased by approximately $9.1 million from
December 31, 1995 as a result of the reclassification of certain amounts due
from M4 to accumulated losses of affiliate in excess of investment in light of
the treatment of these receivables in connection with the M4 restructuring.

<PAGE> 20

As of December 31, 1996, other assets increased by approximately $5 million from
December 31, 1995 due to costs incurred for issuance of the Company's 5 1/2%
Convertible Subordinated Notes Due 2006. As of December 31, 1996, prepaid
expenses increased by approximately $4.0 million from December 31, 1995 due to
increases in prepayments to suppliers, accrued interest receivable and spare
parts. Restricted cash decreased by approximately $4.8 million from 1995 to 1996
due to expenditures of funds reserved for qualified spending relating to a
tax-exempt bond financing for the Fall River Facility. The Company's investment
in M4 decreased by approximately $5.9 million from December 31, 1995, resulting
in accumulated losses of affiliate in excess of investment of approximately $5.0
million, primarily due to the recognition of the Company's share of M4's
expenses, including the effect of a reduction in the carrying value of M4's
long-lived assets.

As of December 31, 1996, deferred revenue from affiliate decreased by
approximately $4 million from December 31, 1995 due to the recognition of
technology transfer fees from M4 as revenue in 1996.

In May 1996, the Company issued $143,750,000 of Convertible Subordinated Notes
Due 2006 (the "Notes"). The Notes have a term of ten years and are payable in
full on May 1, 2006. The Notes bear interest at the rate of 5.50% per year
payable semi-annually. The Notes are convertible, at the option of the holder,
into shares of the Company's common stock at an initial conversion price of
$38.75 per share. Beginning in May 1999, the Notes become redeemable at the
option of the Company at an initial redemption price of 102.75% of the principal
amount plus any accrued interest. Upon a change of control (as defined in the
Indenture relating to the Notes) or in the event the Company's common stock is
neither listed on a U.S. national securities exchange nor approved for trading
on an established automated over-the-counter U.S. trading market, each holder of
the Notes will have the right to require the Company to repurchase all or a
portion of such holder's Notes at price equal to 100% of the principal amount
plus any accrued interest. The Notes are subordinated in right of payment to the
Company's other existing debt.

In 1994, the Company completed a tax-exempt bond financing in connection with
the Fall River Facility. Pursuant to the financing, the Company entered into a
loan agreement with the Massachusetts Industrial Finance Agency, which issued
$21 million aggregate principal amount of Solid Waste Disposal Facility Revenue
Bonds. The bonds are payable in annual sinking fund installments beginning in
1998 and ending in 2014 and bear interest at 8.25% per annum payable
semi-annually.

In October 1996, the Board of Directors authorized the Company to repurchase up
to 2,000,000 shares of its common stock. Under this authorization, 40,000 shares
were repurchased by the Company in 1996 for $483,000, and 70,400 shares were
repurchased by the Company in 1997 for $769,000. The Company does not anticipate
repurchasing additional shares in the foreseeable future.

In March 1996, the Company entered into a new lease for the Company's corporate
headquarters. In September 1996, the Company entered into a new lease for
additional space in the same office park as the Company's corporate
headquarters. Each of these leases is for seven years, and future minimum lease
payments of approximately $22.8 million in the aggregate are due on a monthly
basis throughout the seven-year term. The Company does not currently intend to
occupy the second building and is in the process of negotiating subleases for
such space. Currently, more than 95% of this building has been subleased at
rents in excess of the rent which the Company is required to pay. The Company
has accrued $613,000 for anticipated losses relating to this lease, net of
expected sublease income, at June 30, 1997. In connection with the restructuring
of M4, the Company assumed a lease for approximately 42,000 square feet of
office space that it does not intend to occupy. The Company has accrued $2.6
million for anticipated losses relating to this lease. The lease requires
payments on a monthly basis throughout the term of the lease which expires in
2002. The Company has subleased approximately 15,000 square feet of this space
and intends to sublease the remainder of such space.

The Company incurred a net loss of $49.3 million for the six months ended June
30, 1997. The Company's current business plan indicates that the Company will
require additional financing to be used for the completion of its planned
capital expenditures through the end of 1997, including the completion of the
Bay City CEP Facility, and to continue its research, development and other
efforts necessary to commercialize its CEP technology. Accordingly, the Company
intends to raise additional financing during 1997, and has retained several
investment banking firms to assist it in these efforts. As described above, in
September 1997 the Company raised $20.4 million in gross proceeds from the sale
of shares of Series A Preferred Stock. The Company currently is contemplating a
tax-exempt bond financing for MMT Tennessee, which owns and operates the Q-CEP
facility in Oak Ridge, Tennessee and the wet waste assets acquired from SEG and
VECTRA. In order to complete this financing, the Company will be required to

<PAGE> 21

receive from the State of Tennessee, where the Q-CEP Facility is located, a
reservation of the total amount of tax-exempt private-activity bonds permitted
under federal tax rules to be issued by the State of Tennessee in 1997. The
Company has received such a reservation in the amount of $20 million from the
State of Tennessee for this financing. The Company believes that the completion
of the Series A Preferred Stock financing will facilitate the completion of a
bond financing for MMT Tennessee as described above. If the Company does not
complete this bond financing or obtain additional financing during 1997, it
would have a materially adverse effect on the Company's operations. The amount,
timing and effect on liquidity of capital expenditures, including equity
contributions to joint ventures, to be made by the Company in connection with
the development of commercial CEP systems will depend on a number of factors,
including the number of systems to be developed, the timing of the development
of such CEP systems, the terms of the development arrangements with the
Company's customers and partners and the extent to which the Company is able to
obtain financing for such CEP systems.

The Company has provided a full valuation allowance for deferred tax assets
because the realization of the future benefits from these deferred tax assets
cannot be reasonably assured. The amount of the deferred tax assets considered
realizable is subject to change based on estimates of taxable income during
future periods. If the Company achieves sustained profitability, these deferred
tax assets would be available to offset future income taxes, subject to
potential limitations relating to ownership changes.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Certain statements contained in this Prospectus regarding future events or
the future financial performance of the Company are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements include
statements concerning the Company's growth strategies, anticipated trends in the
Company's business, receipt of research and development funding, anticipated
capital expenditures, anticipated revenues from license fees and commercial
operations, continued operations and start-up of operations at the Company's and
M4's CEP facilities, construction and operation of the Company's CEP facilities,
including the Bay City CEP Facility and the CEP facility to be delivered to the
Company's joint venture in Japan, expected sales of CEP systems by the Company
and its partners, regulatory acceptance of the Company's CEP technology, the
Company's plans to obtain additional financing, and expectations regarding the
future performance of the Company's relationship with LMC. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, many of which are beyond the Company's
control. Accordingly, actual results could differ materially from those
contemplated by these forward-looking statements. Among the risks and
uncertainties which could affect actual results are that potential customers
will not accept the Company's CEP technology as an economically and
environmentally acceptable means of disposing of wastes and by-products; that
the Company will not be able to build its CEP plants on time and under budget;
that the Company will not be able to commercially operate CEP plants on a
sustained basis and profitable basis; and that the Company will not be able to
obtain required funding on satisfactory terms or at all.

Additional factors which may cause actual results to differ are described
in "Risk Factors" above, as well as the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, including Exhibit 99.1 thereto, and the
Company's other filings with the Securities and Exchange Commission and are
incorporated herein by reference.

<PAGE> 22

BUSINESS

TECHNOLOGY OVERVIEW

The Company is an environmental technology company engaged in the
commercialization and continued development of its innovative, proprietary
processing technology known as Catalytic Extraction Processing ("CEP"). The core
of CEP is a molten metal bath operating at temperatures in excess of
2,000[degree]F into which feedstocks And selected chemicals ("reactants") can be
introduced. The catalytic and solvent effect of the molten metal bath causes
feedstocks to break down into their constituent elements and dissolve into the
molten metal. The addition of various selected chemicals to the molten metal
allows feedstocks to reform and be recovered as different materials ("Elemental
Recycling(TM)") which generally can be re-used as a raw material by the
feedstock generator or can be sold to other users. The CEP system largely
consists of process, instrument and control components currently used widely in
the metallurgical and chemical industries.

MMT believes that a wide variety of chemical intermediates, by-products and
wastes, both organic and inorganic, can be processed by CEP. Liquids, gases or
solids can be introduced into the CEP system through either bottom or top
addition. Within the CEP system, the elemental constituents of the feedstock and
reactants separate and can be recovered from three distinct phases: (i) gases
which rise above the molten metal bath; (ii) molten ceramic products which form
a separate layer on top of the liquid metal; and (iii) metallic elements which
dissolve and collect in the liquid metal bath.

Recovered products can be re-used as raw materials in the production
process or sold to other industrial customers. For example, it is expected that
many gaseous components can be used as fuels or chemical feedstocks; many
ceramic materials can be recovered and used as specialty chemicals, ceramic
substitutes or abrasives; and most metallic components can be removed and
granulated or cast as ingots for sale.

The Company currently is developing various applications for its CEP1
technology to process particular classes of hazardous wastes and industrial
by-products. Each application uses a molten metal bath to separate waste
compounds into their elemental constituents and reconfigure the elements into
potential gaseous, ceramic, and metal products. MMT has developed Quantum-CEP(R)
(or Q-CEP(R)) to process radioactive wastes and "mixed wastes" (containing both
radioactive and hazardous constituents). Quantum-CEP breaks down hazardous and
toxic materials, while separating and containing radioactive elements in a
stable, self-shielding form suitable for storage or final disposal. This can
result in a substantial reduction in the volume of radioactive materials
requiring storage or disposal. In addition, certain of the resulting
non-radioactive materials have the potential to be recycled into products or
re-used in Q-CEP plant operations. Through acquisition and internal development,
the Company also is developing additional technologies that can be used to
process various types of wastes. These technologies include the methods and
equipment for handling and processing radioactive liquids and resins that the
Company acquired in December 1996 and January 1997 from Scientific Ecology
Group, Inc. and VECTRA Technologies, Inc.

MARKET OVERVIEW

Currently, the most common methods of treatment and disposal of hazardous
and non-hazardous wastes and industrial by-products include landfilling,
deep-well injection, incineration, plasma, vitrification and other thermal
treatment methods, on-site containment (including industrial lagoons) and
release into the environment. Most of these methods have transportation,
treatment and safety risks. In addition, certain of these treatment and disposal
methods result in production of residual waste that may require further
treatment prior to disposal. As a result, many of these methods are being met
with increasing public resistance and more stringent regulations, which may lead
to an increased cost of compliance.

MMT believes the primary factors that create demand for CEP (other than
Q-CEP) include the need for prospective customers to comply with environmental
regulations in a cost-effective manner and the ability of CEP to process
hazardous and non-hazardous wastes and industrial by-products and generally to
recover products for re-use or sale. With respect to Quantum-CEP, MMT believes
that the primary factors that create demand include customers' regulatory
compliance concerns and the ability of Quantum-CEP to reduce the volume of
radioactive materials. Also in the case of mixed wastes, MMT believes that the
recovery of materials which can potentially be

- ----------

1 References to "CEP" within this document refer to both the core CEP
technology and its various related applications.

<PAGE> 23

re-used or recycled creates demand for Q-CEP in this market. In addition,
compared to conventional treatment methods, MMT believes that CEP can be
utilized in a manner which minimizes or eliminates the creation of residual
waste, thereby reducing the costs and risks associated with residual waste
disposal.

MMT Target Markets

For the initial commercialization of CEP, MMT has identified three markets
where it believes CEP offers the greatest immediate value and meets pressing
customer needs: (i) commercial low-level radioactive waste and mixed waste; (ii)
U.S. government waste; and (iii) industrial hazardous waste. In each of these
markets, MMT or M4 Environmental L.P. (the Company's former joint venture with
Lockheed Martin Corporation) ("M4")) has constructed or is constructing
"first-of-a-kind" commercial CEP systems.

In the commercial low-level radioactive waste sector, MMT estimates that
over three million cubic feet (approximately 150 million pounds) of waste is
generated annually in the United States by more than 1,300 generators, including
nuclear power plants and medical and research facilities. These generators seek
technological solutions to effectively process their waste into a weight- and
volume-reduced, stable, self-shielding form, suitable for long-term storage or
disposal. This volume reduction reduces these generators' disposal costs and
lengthens the useful life of current and future radioactive waste repositories.
The Company expects that international markets also will provide additional
opportunities for radioactive waste management. The commercial mixed waste
market in the United States is characterized by a broad range of small volume
waste streams that vary widely in composition. Most of these wastes are
generated from the operations of nuclear power plants. MMT estimates that these
nuclear utilities have stored in excess of 700,000 pounds of mixed waste, and
generate an additional 200,000 to 300,000 pounds of mixed waste annually.

In the government market, MMT estimates that the United States Department
of Energy ("DOE") and the United States Department of Defense ("DoD") together
spend nearly $8 billion annually on waste management and cleanup programs,
making the U.S. government the world's largest consumer of environmental goods
and services. Wastes requiring treatment at over 30 DOE sites include mixed
wastes, waste from the demilitarization of nuclear weapons, and wastes generated
during the remediation of large-scale decontamination and decommissioning
projects. The major focus of the DoD environmental restoration effort is on
munitions demilitarization, destruction of chemical weapons, and remediation of
sites contaminated with these priority wastes. Another government entity, the
United States Enrichment Corporation ("USEC"), annually produces approximately
15 million kilograms of depleted uranium hexafluoride ("DUF6"), a by-product
generated through the conversion of uranium isotopes into highly enriched
uranium. In addition, the DOE currently has approximately 500 million kilograms
of DUF6 in storage.

The industrial waste sector includes hazardous wastes as well as
non-hazardous wastes and byproducts. Based on data obtained from the United
States Environmental Protection Agency ("EPA"), MMT estimates that over 250
million tons of waste generated annually in the United States are classified as
hazardous or toxic under the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), or the Toxic Substance Control Act ("TSCA"). Target markets
for CEP include wastes from the chemical and petrochemical industries, the metal
processing and mining industries, wastes currently processed by hazardous and
municipal waste incinerators and post-consumer plastics.

COMMERCIALIZATION AND SALES STRATEGY

In order to accelerate the commercialization of CEP, MMT intends to own and
operate, by itself or through joint ventures, its initial commercial CEP
facilities. Over the longer term, MMT intends to sell plants directly to
customers, which they would operate. In addition to selling plants, the Company
intends to license its technology under arrangements which provide for any or
all of the following: (i) market rights license fees; (ii) technology transfer
fees; (iii) ongoing tolling and license fees based upon the volume of feedstocks
processed or the sale of recovered products; (iv) service fees for project
development, design, engineering, and construction management; and (v) supply of
critical or proprietary CEP components.

The Company's strategy is to address the demand for a cost-effective method
of processing waste materials while maintaining environmental standards.
Although the CEP systems installed or being installed at each of the Company's
first two commercial facilities and at the M4 Technology Center in Oak Ridge,
Tennessee are central sites to which wastes and feedstocks are shipped for
processing, it is the Company's intent to install CEP systems

<PAGE> 24

on-site at customers' industrial facilities in order to (i) integrate systems
on-site to enable existing facilities to comply with recycling exemptions
applicable to materials that are reclaimed and returned to the manufacturing
process that generated such materials ("closed-loop recycling") and (ii) reduce
certain costs and potential liabilities associated with existing treatment
methods, including transportation and off-site disposal. The Company's business
strategy includes maintaining collaborative arrangements with industry leaders
to aid in the technical development, sales, marketing, design and engineering of
CEP systems. In addition, the Company's commercialization and sales strategy
includes identifying industrial market leaders as initial customer prospects and
performing Technical Development Programs ("TDPs") to demonstrate CEP's
commercial applicability to a variety of customers and waste streams. Such
activities are intended to keep the technical development of CEP focused on
market opportunities.

The Company believes that its commercialization and sales strategy must be
flexible to adapt to a number of factors that may change over time as the market
for CEP systems and any competing technologies evolve. These factors include,
but are not limited to, the relative attractiveness of target markets based on
the customer demand for CEP systems within each of the Company's target markets
as compared to applicable competing methods of recycling, treatment or disposal;
any changes in environmental regulations and their effect on the Company's
operations and various target markets; and the ability of the Company to
successfully permit and build CEP systems on a timely basis within its target
markets. Accordingly, the Company anticipates that its commercialization and
sales strategy may change over time.

COMMERCIAL DEVELOPMENTS

Since 1995, the Company has made substantial progress toward constructing
and initiating commercial operations at CEP plants in its three primary markets.
As described below, (i) the Company is processing radioactive ion exchange
resins at its Quantum-CEP facility in Oak Ridge, Tennessee; (ii) MMT, either
directly or through M4, has built and tested commercial, pilot or bench-scale
CEP systems for processing a broad range of wastes, including DUF6, chemical
weapons, radioactive wastes, hazardous wastes, and mixed wastes for the DOE,
DoD, USEC and commercial customers; and (iii) in the industrial hazardous waste
market, the Company is constructing a commercial-scale system to process
chlorinated organic wastes and other hazardous wastes at a Hoechst Celanese
Corporation chemical plant in Bay City, Texas, and the Company is constructing a
demonstration-scale facility to process fly ash produced by Japanese municipal
solid waste incinerators.

The Company also has entered into letters of intent relating to the
development of additional CEP systems for commercial use both in the Company's
three primary markets and in other market segments. During 1997, the Company
will continue operating and developing the CEP systems described below and will
seek to enter into new agreements to develop additional CEP systems. However,
there can be no assurance as to the successful and timely development of these
CEP systems or the successful negotiation of definitive agreements based on the
existing letters of intent. The Company expects that any sales of such CEP
systems will be made after the Company has demonstrated the successful operation
of its other commercial facilities.

Commercial Radioactive Waste Market

MMT's Q-CEP facility in Oak Ridge, Tennessee began processing radioactive
ion exchange resins in December 1996, and began commercial operations in January
1997. This facility is designed to process up to 130,000 cubic feet per year of
radioactive ion exchange resins from nuclear power plants. Prior to December
1996, the facility was jointly owned and financed by MMT and Scientific Ecology
Group, Inc. ("SEG"), previously a wholly-owned subsidiary of Westinghouse
Electric Corporation ("Westinghouse"). SEG has since been acquired by GTS
Duratek, Inc. In December 1996, MMT of Tennessee Inc., a wholly-owned subsidiary
of the Company ("MMT Tennessee"), purchased SEG's interest in the Q-CEP facility
as well as certain assets used for handling and processing radioactive liquids
and resins ("wet waste") for $31 million in cash. These assets include
contracts, equipment, services and personnel for processing radioactive wastes
at the Q-CEP facility. In connection with that transaction, the agreements that
had been signed by MMT, SEG and Westinghouse in 1994 were terminated. SEG and
GTS Duratek, Inc. continue to be obligated under noncompetition covenants which
generally provide that during the five year period ending December 2001, they
will not compete with MMT in the processing of ion exchange resins in North
America, subject to certain exceptions.

In January 1997, MMT Tennessee acquired from VECTRA Technologies, Inc.
("VECTRA") certain contracts, equipment and personnel used for handling and
processing radioactive wet waste for $3.9 million in cash.

<PAGE> 25

MMT Tennessee will continue to own and operate the Q-CEP facility and the
Company's radioactive waste services business. These services consist of
managing and handling radioactive wet waste on-site at nuclear power plants,
providing equipment such as casks for transportation and storage of radioactive
waste, and processing the waste using Q-CEP or other processing methods such as
reverse osmosis, demineralization and solidification.

The acquisitions of SEG's and VECTRA's wet waste business have allowed MMT
Tennessee to significantly expand its radioactive waste processing services. In
conjunction with the Q-CEP facility, MMT Tennessee's wet waste business is able
to offer processing for a wide variety of radioactive liquids and resins
produced by U.S. nuclear power plants. As of September 30, 1997, MMT Tennessee
had contracts or purchase orders in place to provide radioactive processing
services to 23 nuclear utilities, including 14 contracts to process radioactive
ion exchange resins. In July 1997, the Company announced that MMT Tennessee had
begun work on a $3.6 million contract with Niagara Mohawk Power Corporation to
process radioactive ion exchange resins and a similar contract with SEG
representing up to $3.3 million in revenue.

U.S. Government Market

LOCKHEED MARTIN CORPORATION. In August 1994, the Company entered into a
series of related agreements with Martin Marietta Corporation to form M4
Environmental L.P. ("M4"). Martin Marietta has since merged into Lockheed Martin
Corporation ("LMC"), with LMC as the surviving entity. Pursuant to these
agreements, the Company and LMC formed M4, a 50/50 Delaware limited partnership,
to commercialize CEP to service the environmental remediation, waste management,
decontamination and decommissioning needs of the DoD, the DOE, and USEC. In
April 1996, MMT and LMC expanded M4 through the acquisition by M4 of the Retech
division of Lockheed Environmental Systems & Technologies Co., a wholly-owned
subsidiary of LMC. The Retech division designs and manufactures metallurgical
equipment and waste processing systems that utilize a plasma technology. In
March 1997, MMT and LMC entered into a letter of intent to restructure MMT's and
LMC's relationship with respect to M4's market. This restructuring, which was
completed in June 1997, is described below. During 1996, revenue from M4
accounted for approximately 87% of the Company's total revenue. This revenue was
generated as the result of sales of goods and services to M4, as well as
technology transfer and success fees. As a result of the restructuring described
below, M4 has become a wholly-owned subsidiary of MMT and its revenues will be
consolidated with MMT's. Accordingly, MMT's revenues from M4 in 1997 primarily
will be generated through M4's operations, including the provision of processing
services and funded research and development for third parties, rather than from
M4 purchasing goods and services from MMT. The Company does not anticipate that
these M4 operations will account for a substantial portion of its revenue for
1997.

M4 Technology Center. In February 1995, M4 began construction of its
Technology Center in Oak Ridge, Tennessee (the "M4 Technology Center"). In
October 1995, M4 began operating its first CEP system, a demonstration facility
for DUF6, at the M4 Technology Center. In December 1995, M4 began operating its
first commercial mixed waste CEP facility. The second mixed waste system, which
is substantially larger than the first system, began commercial operations in
August 1997.

Hanford Tanked Waste Cleanup. In September 1996, the Company announced
that the DOE had awarded a contract to a technical team led by LMC to employ
technologies including Q-CEP for Phase 1A of the contract for the cleanup of the
tanked waste site in Hanford, Washington. The Hanford site contains
approximately 56 million gallons of highly radioactive waste stored in 177
tanks. The DOE awarded two prime contracts for Phase 1A of the cleanup. The LMC
team includes Numatec, Fluor Daniel, Duke Engineering and Services, Babcock &
Wilcox, Nukem Nuclear Technologies, Los Alamos Technical Associates, AEA
Technology, OHM Remediation Services, and M4. Phase 1A of the program covers the
first 20 months of the program and includes a $27 million award to each team to
prove the efficacy of their processes. Phase 1B covers waste processing of less
than 10% of the stockpile at Hanford over a five to seven year period. This
project is further described below under "--Restructuring of MMT/LMC
Relationship -Hanford Project.".

Commercial Mixed Waste. In December 1995, MMT and M4 entered into an
agreement to expand M4's processing rights to include mixed wastes generated by
commercial customers in the United States. In March 1996, M4 entered into its
first agreement to process commercial mixed waste with Duke Power Company. Under
this agreement, M4 will process various types of mixed waste, including various
freon wastes and sludges, batteries and halogenated solvents. Since then, M4
also has entered into agreements with IES Utilities Inc., Baltimore Gas &
Electric Company and PECO Energy Company to process such companies' commercial
mixed waste. Mixed wastes from these companies are being or will be processed
using Q-CEP systems at the M4 Technology Center.

<PAGE> 26

DOE Mixed Waste. In August 1996, M4 entered into an approximately
$700,000 contract with the DOE to conduct proof-of-process studies using Q-CEP
on a DOE mixed waste stream. Under the terms of the cost share contract, the DOE
will pay 67% of the cost and M4 will pay the remaining 33%. M4 completed these
tests in January 1997 and provided the results to the DOE in April 1997.

DUF6 Market. In May 1995, M4 entered into a contract with USEC to
construct the DUF6 demonstration unit located at the M4 Technology Center. M4
provided results from the demonstration program to USEC in June 1996. As a
result of the M4 restructuring described below, MMT has assumed responsibility
for negotiations with USEC. The Company expects that any agreement with USEC
would provide that the Company or M4 would be primarily responsible for the
design and construction of a commercial-scale processing system, and that USEC
would agree to furnish DUF6 for processing under a multi-year supply agreement.
In July 1997, President Clinton signed an order commencing the privatization of
USEC. In connection with the anticipated privatization, the transaction
structure which the Company and USEC had been negotiating may no longer be
feasible because it is unclear whether USEC will retain control over the DUF6
which it was expected to supply to the Company under the supply agreement
described above. Accordingly, MMT is reviewing alternatives for this market,
including selling or licensing the technology to be used to process DUF6. There
can be no assurances that the Company's negotiations with USEC will be completed
successfully or that the Company or M4 and USEC will enter into an agreement to
construct a DUF6 processing plant or an agreement to supply and process DUF6, or
that the Company will be able to enter into other acceptable arrangements for
this market.

Chemical Weapons Demilitarization. In 1995, CEP was one of three
commercial, non-incineration technologies selected by the United States Army
from a list of 23 competing technologies for review of their ability to destroy
bulk chemical warfare agents (i.e., VX nerve and mustard agents) stored at the
Newport Chemical Activity in Indiana and the Aberdeen Proving Ground in
Maryland. During 1996, M4 worked with MMT, Bechtel National, Inc., Fluor Daniel,
Inc., and Battelle Memorial Institute to perform bench-scale testing of a CEP
unit located at a Battelle facility. The tests demonstrated that CEP could
achieve greater than or equal to 99.9999999% destruction removal efficiency
(DRE) on VX nerve agent and greater than or equal to 99.999999% DRE on mustard
agent, which in each case exceeded the Army's DRE requirement of 99.9999%.

In November 1996, the Army recommended that neutralization followed by
post-treatment, a technology sponsored by the Army, be piloted. Neutralization
involves mixing bulk chemical agents with dilutive chemicals in order to
neutralize the chemical agents. The remaining material, typically comprising
more than twice the volume of original chemical agent, must then be treated and
disposed.

In September 1996, MMT, LMC and M4 entered into an agreement which expanded
M4's CEP license to include the demilitarization of Japanese chemical weapons.
In return for the expansion of the license, MMT received a $5 million initial
payment. Under the terms of this agreement, MMT also would receive an additional
$3.5 million upon completion of a technical demonstration by MMT of the
processing of one or more munitions shells containing surrogates of Japanese
chemical weapons. Under the terms of a letter of intent with LMC for the M4
restructuring described below, the new limited liability company to be formed by
MMT and LMC would assume M4's rights and obligations under this license. Payment
of the foregoing $3.5 million would be made from the limited liability company's
revenues.

Also during 1996, M4 and Mitsubishi Corporation entered into a memorandum
of agreement to use CEP as the principal technology for destroying bulk chemical
agents located at small burial sites in northern China. The bulk agents along
with thousands of buried agent munitions were left by the Japanese Imperial Army
in China following World War II. Mitsubishi is the leading Japanese company
being considered to spearhead the cleanup of Japanese chemical weapons left in
China. To date, no request for proposals have been issued by the Japanese
government for the cleanup of such chemical weapons, and there can be no
assurances that, if such request for proposal is issued, Mitsubishi will be
awarded a contract for such cleanup.

Restructuring of MMT/LMC Relationship. In June 1997, the Company and
LMC completed a restructuring of their relationship with respect to the
commercialization of CEP and other technologies for the government and other
waste markets. The objective of the restructuring was to enable MMT and LMC to
access target markets more efficiently by eliminating many of the organizational
redundancies associated with the prior M4 structure. LMC and MMT believe that
the restructuring also will enable them to better leverage LMC's expertise in
systems integration and MMT's ability to provide its CEP technology to target
markets. Following the completion

<PAGE> 27

of the restructuring, LMC and MMT are each free to pursue projects formerly
governed by the previous joint venture agreements, subject to the requirements
established by the new arrangements. The restructuring entailed five principal
changes in the companies' relationship: (1) LMC has the exclusive right to lead
and pursue contracts for the Hanford radioactive tanked waste cleanup project
described above, and MMT will provide directly to LMC certain construction and
development services with respect to Q-CEP, (2) the Company and LMC formed a new
limited liability company to be their exclusive vehicle to deliver processing
services to customers in the chemical demilitarization market worldwide, (3) MMT
has the exclusive right to lead and pursue worldwide opportunities for
processing DUF6, (4) the Company has become the sole owner of M4, which will
continue to own and operate its primary remaining asset, the M4 Technology
Center, and (5) the Retech division of M4, which provides plasma arc technology,
was transferred to LMC.

As part of the LMC team for the Hanford tanked waste cleanup project, LMC
agreed to purchase and MMT agreed to deliver a pilot-scale, demonstration Q-CEP
plant to LMC in 1997 for a fixed price of $5 million. This plant will be used to
process surrogate Hanford tank waste. Additionally, LMC has agreed to fund
certain development work with respect to Q-CEP for possible application to the
Hanford project. LMC has informed the DOE that LMC currently intends to propose
an alternative technology, vitrification, as its baseline processing technology
for Phase 1B of the Hanford contract. However, in connection with the
development work to be performed by MMT, LMC and MMT have agreed to develop a
technology insertion plan for the possible inclusion of Q-CEP in the Hanford
project if such development work is successful. LMC has informed the DOE of the
development of this technology insertion plan and LMC's intent to use such plan
to include Q-CEP in the Hanford project if MMT's development work is successful.
If the LMC team is awarded a contract under Phase 1B of the Hanford cleanup
program and Q-CEP is used in the Phase 1B performance, LMC has agreed to pay MMT
a fee of $15 million. $5 million of this fee will be payable on award of the
contract and the remaining $10 million will be payable upon timely delivery and
acceptance of a CEP production plant pursuant to terms to be agreed upon by LMC
and MMT. MMT also is entitled to an on-going royalty of 3.5% of all revenues
generated from the processing of waste in equipment supplied by MMT under the
Hanford contract. There can be no assurances that LMC will include Q-CEP in any
proposal for any Phase 1B contract or that LMC will submit a bid for Phase 1B.
There also can be no assurances that DOE will award a Phase 1B contract to the
LMC team or that, even if it does so, Q-CEP will prove to be satisfactory to the
DOE for processing the Hanford waste.

As sole owner of M4, the Company is responsible for the future operations
of the M4 Technology Center, and is entitled to all future revenues from such
operations. The $38 million aggregate principal amount of bonds issued by the
Industrial Development Board of Oak Ridge relating to the M4 Technology Center
remain outstanding, LMC's guarantee of these bonds remains in place, and each of
LMC and the Company is responsible for 50% of the principal, interest and other
costs relating to these bonds.

In addition to the changes described above, the Company and LMC have agreed
that the Company will have the exclusive right to lead and pursue worldwide
opportunities for processing DUF6. LMC has agreed not to pursue this market for
five years except that, at the request of MMT, LMC will consider participating
in this market jointly with MMT on a case-by-case basis, subject to mutual
agreement of the parties.

<PAGE> 28

LMC and the Company also have established a strategic alliance committee,
in the form of a limited liability company governed by three directors from each
company, to review and monitor the relationships created by the restructuring
and to evaluate new market opportunities within the DOE and DoD markets. Prior
to pursuing any such opportunity alone, each of LMC and MMT will be obligated to
first offer such opportunity to the other party by presenting it to the
strategic alliance committee. The committee would determine whether such
opportunity would be pursued jointly by the parties and the terms thereof. If
the committee does not elect to pursue the opportunity jointly, either party
would be free to pursue it alone.

In connection with the restructuring, (i) LMC terminated its line of credit
with M4 and deemed the approximately $15.8 million aggregate principal and
accrued interest outstanding thereunder to have been paid in full, and (ii) the
Company contributed outstanding accounts receivable of $14.6 million to M4's
capital. LMC and the Company will generally share equally in substantially all
of the costs of the restructuring.

As of December 31, 1996, M4 had not earned any revenues related to the
Hanford radioactive tanked waste cleanup project, nor had M4 earned any revenues
from the processing of chemical weapons or DUF6. As of December 31, 1996, M4 had
earned limited revenues from testing and development work performed at the M4
Technology Center and from testing and development work related to the chemical
demilitarization and DUF6 markets. The Retech division of M4 was the major
source of revenue for M4 since its contribution to M4 in April 1996.

UNITED STATES DEPARTMENT OF ENERGY. In April 1997, the DOE chose the CEP
system that MMT is building at a Hoechst Celanese Corporation chemical plant in
Bay City, Texas to receive a $425,000 grant through the DOE's National
Industrial Competitiveness through Energy, Economics and Environment (NICE3)
Program. The program is designed to help innovative technologies with energy,
economic, and/or environmental benefits move into full commercialization. MMT's
proposal was one of 13 chosen by the DOE out of nearly 70 proposals in a
competitive solicitation process. An independent, third party technical team
reviewed each proposal in a three-phase process. The grant will be paid through
a cost-share contract, pursuant to which the DOE would contribute 40% up to the
$425,000 ceiling. Receipt of this grant is conditioned upon the negotiation of
such a contract with the DOE or the Texas Natural Resource Conservation
Commission which will be administering the grant. There can be no assurances
that MMT will be able to successfully negotiate such contract.

In September 1992, MMT submitted a three-phased proposal under the DOE's
Planned Research and Development Announcement ("PRDA") program. On January 19,
1993, MMT received a favorable determination regarding a $1.2 million
cost-sharing contract for a portion of the proposed PRDA program. The terms of
the contract were finalized in September 1993. Under the contract, MMT has
conducted trials and related activities at its research, development, testing
and demonstration facility in Fall River, Massachusetts to demonstrate the
applicability of CEP to contaminated scrap metals. In November 1993, the DOE
requested that the Company provide a proposal to enhance certain aspects of the
existing statement of work to provide for delivery of a more comprehensive final
report of technical results. This resulted in additional DOE funding of $9
million, bringing the DOE's total contribution to $10.2 million. In February
1995, the DOE issued a unilateral change order to increase the funding for an
undetermined amount with an initial ceiling of $5 million. In June 1995, the DOE
extended its contract for demonstrating CEP and increased its funding by an
additional $10 million, to a total of $25.2 million. In February 1996, the DOE
modified the contract funding for an undetermined amount with an initial ceiling
of $2 million. Additional funding through the end of 1996 brought the total
enhancement to $8 million for that year, and increased the DOE's total
contribution to $33.2 million. Activities under this contract have been
completed. MMT has contributed a total of $22.3 million in connection with the
cost-sharing contract. During 1996, revenue from the DOE accounted for
approximately 13% of the Company's total revenue. Other than the NICE3 grant
described above, the Company does not anticipate receiving research and
development funding from the DOE in 1997.

UNITED STATES DEPARTMENT OF DEFENSE. In September 1996, the U.S. Air Force
Center for Environmental Excellence awarded approximately $480,000 to M4 to
conduct treatability studies on a broad range of hazardous wastes. The wastes
subject to the treatability studies represent approximately 84%, by volume, of
the wastes generated in Air Force operations. In March 1997, the contract was
amended to add treatability studies for two additional hazardous waste streams.
The contract amount was increased by approximately $333,000 in connection with
this modification. The studies are expected to be completed during the contract
period, currently ending December 31, 1997. In December 1996, an additional
$100,000 award was made under this contract with respect to the processing of
oils for the U.S. Navy which are contaminated with polychlorinated biphenyls
("PCBs"). This processing work is expected be completed by the end of 1997.

<PAGE> 29

In September 1994, the U.S. Army Armament, Research, Development, and
Engineering Center at Picatinny Arsenal, New Jersey awarded the Company $420,000
to fund demonstration of CEP's applicability to conventional weapons components.
Trials under this contract demonstrated that the processing of conventional
munitions, smoke and dye agents and propellants in the CEP system resulted in
the destruction of the hazardous constituents to high environmental standards
and the partitioning of the elements into recoverable materials. Activities
under this contract were successfully completed in 1996.

The Company's existing government contracts can generally be canceled,
delayed or modified at the sole option of the government and are generally
subject to annual funding limitations and public sector financing constraints.
The Company believes that any future government contracts will be structured
similarly. In addition, under the terms of future government contracts, if any,
the Company may be required to grant the federal government greater rights with
respect to the Company's intellectual property than the Company would grant
private parties. As a result of engaging in the government contracting business,
the Company is subject to audits and investigation by government agencies. As
described below under "Business--Legal Proceedings," the Company currently is
responding to subpoenas or requests for information issued by the Office of
Inspector General of the DOE, the DOE, the Subcommittee on Oversight and
Investigations of the U.S. House of Representatives Committee on Commerce, and
the U.S. Senate Committee on Governmental Affairs. The Company also faces the
risks associated with government contracting, which could include substantial
civil and criminal fines and penalties. In addition to potential damage to the
Company's business reputation, the failure by the Company to comply with the
terms of any of its government contracts could result in the Company's
suspension or debarment from future government contracts for a significant
period of time. All of the foregoing risks associated with government
contracting may also apply to M4 with respect to its government contracts.

Industrial Hazardous Waste Market

Hoechst Celanese Corporation. Pursuant to agreements signed in May 1995
with Hoechst Celanese Corporation ("HCC"), one of the largest U.S. based
chemical companies, MMT is constructing a CEP facility (the "Bay City CEP
Facility") at HCC's Bay City, Texas chemical plant. This facility will be
financed, owned and operated by MMT or a wholly-owned subsidiary of MMT. The CEP
system being installed at the Bay City CEP Facility will have an initial
capacity to process up to approximately 30,000 tons of feedstocks from HCC's
Texas plants and third-party generators, although this system currently is
permitted to process only 15,000 tons per year. Any increase in the amount of
feedstocks which can be processed in this CEP system is contingent upon
sufficient commercial interest, and application for and receipt of all necessary
regulatory, community and other approvals. The project site is being designed to
support potential additional future expansion of the Bay City CEP Facility. The
facility will produce synthesis gas, an industrial feedstock to be used by HCC
in its chemical processing, and aqueous hydrochloric acid for sale to third
parties. The Company expects to begin processing customers' waste at this
facility in the second half of 1997, but there can be no assurances as to the
successful or timely deployment of this facility.

MMT has signed one agreement and three letters of intent with four other
major chemical manufacturers to process feedstocks from their existing
operations at the Bay City CEP Facility. The agreement and letters of intent
cover an aggregate of up to approximately 20,000 tons of feedstocks per year.
The Company also has entered into a ten-year contract with a major hydrochloric
acid distributor under which the distributor will purchase 85 to 100 percent of
the hydrochloric acid produced at the Bay City CEP Facility, provided that such
acid meets agreed specifications. Under the terms of their letters of intent,
two of the chemical manufacturers have agreed to purchase hydrochloric acid
produced from the processing of their feedstocks at the Bay City Facility,
provided that such acid meets agreed specifications. Pursuant to the agreements
with HCC mentioned above, HCC has agreed to purchase all of the synthesis gas
produced at the Bay City CEP Facility, provided that the gas meets agreed
specifications. There can be no assurances that the Company will enter into
binding agreements to process feedstocks based on the letters of intent or that
the Company will be able to produce hydrochloric acid or synthesis gas meeting
the required specifications.

Nichimen Corporation and NKK Plant Engineering Corporation. In February
1996, MMT, Nichimen Corporation, one of Japan's major trading companies, and NKK
Plant Engineering Corporation, one of Japan's largest engineering providers of
municipal waste systems ("NKP"), signed a letter of intent to form a joint
venture to process fly ash produced by Japanese municipal solid waste
incinerators. A definitive agreement to form this joint venture was executed in
October 1996 by the Company, Nichimen and NKP. The agreement grants the joint
venture

<PAGE> 30

the exclusive right to introduce CEP to the Japanese municipal incinerator ash
market. The joint venture will employ MMT's proprietary Cerex-CEP technology to
process and recycle incinerator ash to recover ceramic and metal products. Under
the agreement, the Company owns 49% of the joint venture and each of Nichimen
and NKP own 25.5% of the joint venture. The joint venture was formed as a
Japanese limited liability company and capitalized with approximately $1
million, contributed by each partner in proportion to their ownership interest.
The funds necessary to purchase and operate the initial CEP system described
below will be loaned to the joint venture by each partner in proportion to their
ownership interest. In addition, if agreed by all of the partners, each partner
has agreed to guarantee the joint venture's working capital requirements, up to
a maximum of $2 million.

In consideration for the grant of the exclusive license to the joint
venture, the Company will receive a two percent royalty on all revenues, and
will receive a $12.5 million licensing fee, to be paid from the joint venture's
profits. Each of the joint venture, Nichimen and NKP have agreed to assign to
the Company all intellectual property rights related to CEP which they may
develop during the term of the agreement. The Company has agreed to provide
research and development and certain other technical services to the joint
venture and its customers and to sell certain CEP components to the joint
venture and its customers, at specified rates.

The joint venture agreement has a term of ten years, unless extended by the
mutual agreement of the partners. The agreement may be terminated by any partner
if the joint venture sustains more than $14,500,000 in losses.

The Company and the joint venture have entered into an agreement pursuant
to which the joint venture will purchase an initial CEP system from MMT. The CEP
system is to be delivered in the first quarter of 1998 for a fixed price of $7.9
million. Final payment for such system will be contingent upon the successful
completion of a performance test once the system has been installed in Japan.
The parties expect that the joint venture will purchase a minimum of 29 CEP
systems from the Company over the first ten years of the joint venture's
operations, including the initial CEP system. There can be no assurances that
the joint venture will order any additional CEP systems from MMT or that such
systems, if ordered and delivered to Japan, will be able to successfully process
and recycle incinerator ash.

Celanese Mexicana, S.A. de C.V. In January 1996, MMT and Celanese Mexicana,
S.A. de C.V. ("CelMex"), Mexico's largest private sector chemical company,
signed a letter of intent to construct a CEP system to process and recycle
manufacturing wastes at CelMex's chemical production facility in Veracruz,
Mexico. The proposed CEP system will be designed to process wastes produced by
CelMex and other Mexican companies. CelMex will purchase the synthesis gas
produced by the CEP system as a raw material in its chemical manufacturing
processes. Under the letter of intent, CelMex would provide the site and
infrastructure for the CEP system and MMT would construct, own and operate the
facility. Development of the CEP system pursuant to this letter of intent is
subject to a number of conditions, including the negotiation and execution of
definitive agreements. There can be no assurances that the parties will be able
to negotiate mutually acceptable agreements to develop the proposed facility. In
addition, MMT may sell all or a portion of its equity interest in this facility
and intends to obtain third party financing for the construction of this
facility. If MMT is unable to sell such equity interest or obtain such financing
on acceptable terms, it may elect not to proceed with the development of this
facility. Although MMT is continuing discussions with CelMex and potential
equity investors for this facility, MMT does not expect to develop this
facility until after the Bay City CEP Facility has begun operations.

COMMERCIAL DEVELOPMENTS -- ONGOING RELATIONSHIPS

Since the Company's formation it has entered into several strategic
alliances with companies that have specialized expertise. The Company believes
that these relationships assist the Company in its planned commercialization of
CEP, either by assisting the Company in marketing to particular industry groups,
or by providing key services in connection with the Company's development and
application of its CEP technology, such as assistance with obtaining insurance
or project finance, or the provision of engineering and construction expertise.
The Company may enter into similar long-term relationships in the future.

Uhde GmbH. In February 1996, MMT entered into a non-exclusive sales
representative and services agreement with Uhde GmbH. Uhde, based in Dortmund,
Germany, is one of the world's leading engineering and construction companies.
Under the agreement, MMT and Uhde will collaborate to market CEP to Uhde's
worldwide customer base. Uhde has committed to identify and sell a minimum of
nine CEP projects outside the United States over a four-year period. If Uhde
fails to meet these minimum requirements, MMT has the right to terminate the
agreement. Uhde will provide facility engineering and design site construction,
equipment installation and project management, and MMT will provide marketing
assistance, CEP system design and fabrication, operator training and

<PAGE> 31

ongoing operational support, as needed, to Uhde's customers. Uhde and MMT have
agreed to focus their joint efforts on addressing a wide range of markets
including chlorinated organic chemical wastes, chemical weapons demilitarization
projects, post-consumer plastics and electronic components, municipal waste
water treatment sludges and waste incinerator ash. To date, Uhde has not sold
any CEP projects and there can be no assurances that it will be able to do so in
the future.

The Electric Power Research Institute ("EPRI"). In November 1995, MMT
entered into an agreement with EPRI to support the application of CEP. Over the
five-year term of the agreement, EPRI, in conjunction with numerous utilities
and their process industry customers, plans to develop collaborative programs
for CEP demonstrations. EPRI will fund up to $25 million in matching research
grants made to member utilities working with industrial process customers in
their service areas to demonstrate CEP. In exchange for this commitment, EPRI
received a warrant to purchase up to 100,000 shares of MMT common stock at an
initial exercise price of $23.375. The warrant will vest in increments upon the
closing of contracts for CEP plants for which EPRI has provided minimum levels
of funding and upon customer acceptance of such plants. To date, none of the
EPRI warrants have vested. The Company expects that the EPRI relationship will
assist the Company in marketing its CEP technology to utilities and process
industry customers.

American Re-Insurance Company and Am-Re Services. In May 1993, MMT entered
into a set of related agreements with American Re-Insurance Company and its
affiliate, Am-Re Services, Inc. In addition, MMT was obligated to perform
certain services for Am-Re Services through December 31, 1993. Pursuant to these
agreements, American Re-Insurance Company purchased 438,885 shares of MMT common
stock for $5.0 million and Am-Re Services agreed to provide services to MMT
relating to obtaining environmental impairment liability insurance and project
financing for the first five commercial CEP facilities to be developed by MMT.
In exchange for these services, Am-Re Services was granted warrants to purchase
an aggregate of 375,000 shares of common stock at prices ranging from $12.25 per
share to $18.37 per share. To date, 70,000 of these warrants have vested in
connection with the Company obtaining environmental impairment liability
insurance for the Q-CEP Facility and the Bay City CEP Facility. The Company
expects that, as it develops additional CEP plants, Am-Re Services will provide
assistance to the Company related to obtaining environmental impairment
liability insurance and project financing for such CEP plants.

Fluor Daniel. Since September 1992, MMT and Fluor Daniel, Inc. or Fluor
Daniel Environmental Services, Inc. ("Fluor Daniel"), an international
engineering and construction firm, have been parties to a series of agreements
pursuant to which Fluor Daniel has provided engineering and construction
services, feasibility studies, designs, cost estimations and other services in
support of CEP plants and potential CEP applications. During 1994 and 1995,
Fluor Daniel invested $5.2 million payable by MMT for such services in MMT
common stock. Fluor Daniel and MMT previously had been parties to an agreement
which required MMT to use Fluor Daniel for engineering and construction services
for CEP plants being built by MMT. In August 1996, Fluor Daniel and MMT amended
this agreement to provide that Fluor Daniel would provide such services to MMT
on a case-by-case basis, at each party's mutual discretion. During 1996, Fluor
Daniel provided substantial engineering and construction services to MMT for the
Bay City CEP Facility and the M4 Technology Center.

TECHNOLOGICAL DEMONSTRATIONS AND TESTING OF CEP

In order to further demonstrate CEP's Elemental Recycling capability on a
variety of prospective customer feedstocks, MMT has constructed an 86,000 square
foot research, development, testing and demonstration facility in Fall River,
Massachusetts that is equipped with several commercial-scale CEP systems (the
"Fall River Facility"). Since February 1993, through internally and
customer-funded TDPs, the Company has demonstrated CEP's ability to break down
feedstocks and recover products in laboratory, bench-scale, pilot-scale and
commercial-scale trials in its Fall River Facility. These tests and
demonstrations on feedstock samples representative of those of prospective
customers have shown the safety and reliability of CEP for a wide range of
chemical components and physical forms.

CEP and its underlying technologies have been demonstrated in tests on many
materials from simple compounds, such as paraffins and alcohols, to complex
materials containing toxic metals, alkali metals, halides, cyanides, fluorinated
species and polyaromatic hydrocarbons (including PCBs). These demonstrations
have included wastes that are classified as hazardous or toxic under RCRA
(including chemical weapons agents), low level radioactive wastes, mixed wastes,
and surrogate hazardous wastes in the form of gases, liquids, slurries,

<PAGE> 32

suspensions, pumpable sludges, and solids. MMT has successfully completed
customer-sponsored trials in which numerous customer-established success
criteria for closed-loop recycling were met or surpassed.

The Company's technological demonstrations are complemented by additional
external research programs, some of which are conducted by members of MMT's
Technical Advisory Board.

In addition to the operating demonstrations described above, MMT has
developed physical models and computer simulations that are used to model CEP
systems functions such as feed addition, molecular dissolution, refractory wear,
vitreous material characteristics and reactor design. Prior to running
experimental trials on particular feedstock, MMT uses such models to predict
capital and operating costs and system performance.

To date, the testing of CEP largely has been limited to trials conducted
under controlled testing conditions. Certain commercial-scale tests of CEP have
been conducted and the Company has developed computer simulations which it uses
to model and predict various CEP system functions. The Company currently is
operating its Q-CEP facility in Oak Ridge, Tennessee and M4 has operated one
mixed waste system at the M4 Technology Center, and is conducting start-up
operations and testing on a second, larger mixed waste system. However, no
demonstration has yet been made that a commercial CEP system, once installed and
operated by MMT or M4 or at a customer's location, will process feedstocks and
recover commodity and specialty products of commercial quality and in
significant quantities.

The Company is continuing its research and development efforts to further
enhance the functionality of its CEP systems, especially in areas such as
removal of ceramic product from the CEP reactor and the addition of large solid
feeds to the CEP reactor, with the goal of making CEP systems more efficient for
processing a wide range of wastes and waste forms and making CEP systems more
cost-effective. The Company expects that broad deployment of CEP into certain of
its target markets will require additional enhancements and functionalities that
are currently being further developed by MMT. MMT's ability to successfully sell
CEP systems for a wide range of waste streams and waste forms in such markets
could be materially adversely affected if the Company is unable to adequately
develop such additional enhancements and functionalities. During the fiscal
years ended December 31, 1996, 1995 and 1994, the Company spent $37.5 million,
$25.3 million and $25.2 million, respectively, on research and development, of
which $26.2 million, $11.0 million and $14.4 million, respectively, was funded
by the Company.

The Fall River Facility

The primary use of MMT's Fall River Facility is to perform TDPs that
demonstrate CEP's Elemental Recycling capability on a variety of feedstocks,
including samples of customers' materials. MMT believes that the Fall River
Facility serves to further the development of CEP technology and MMT's
associated intellectual property estate and assists in facilitating favorable
customer and regulatory acceptance of the process. The Fall River Facility also
is used to conduct training programs for MMT employees and customers.

The 86,000 square foot Fall River Facility contains a 48,000 square foot
recycling area which includes a materials preparation area, feedstock storage,
raw material storage, recovered material storage and a test laboratory. The Fall
River Facility houses commercial-, pilot- and bench-scale CEP units which are
used for treatability and feasibility studies, and also houses physical models
of CEP units. These models are used to analyze injection patterns and to
simulate flow dynamics and various reaction patterns within the molten metal
bath.

Recoverable Products

Laboratory, bench-scale, pilot-scale and commercial-scale trials, including
trials conducted at the Company's Fall River Facility, have demonstrated that
CEP has the potential, through Elemental Recycling, to recover commodity and
specialty products, such as industrial gases, ceramics and metals, from
feedstocks. MMT's test results from demonstration and treatability trials have
shown that greater than 90% of the feedstocks processed in these trials was able
to be recycled into products. Based upon these test results and commercial
specifications for CEP products, the Massachusetts Department of Environmental
Protection has issued MMT recycling certifications for CEP of heterogeneous
inorganic and organic waste streams, including RCRA-listed waste streams. Based
on the elemental composition of particular feedstocks, MMT has demonstrated that
CEP systems can be customized to make specific products by adding different
reactants or by varying the composition of the molten metal bath. CEP is

<PAGE> 33

designed to permit recovered products to be re-used as raw materials by the
feedstock generator in potential closed-loop applications or to be sold to
other industrial customers.

Some materials produced using CEP may have little to no commercial value,
and may be considered wastes. Certain of such wastes may be classified as
hazardous wastes (and may need to be handled as such) under current United
States environmental regulations. Based on experimental trials with hazardous
waste streams, MMT anticipates that the volume of any such unsaleable materials
will be a small portion of the initial feedstock volume and will be
substantially less than the residual waste (including ash) generated by
alternative technologies.

With respect to radioactive wastes, the Company expects that the volume of
reusable products generated from processing such wastes with Q-CEP will be lower
compared with other applications of CEP and expects that the volume of residual
waste streams will be greater. Any such residual waste which is classified as a
low-level radioactive waste will need to be handled as such under current United
States environmental regulations. Operations at MMT's Q-CEP facility in Oak
Ridge, Tennessee, as well as experimental trials have shown, however, that Q-CEP
substantially decreases the volume of such radioactive wastes and contains the
radioactive elements in a stable, self-shielding form.

INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY

MMT has a comprehensive program for the protection of its intellectual
property. This program includes, among other things: established procedures
including notebooks and forms for documenting, evidencing and disclosing all MMT
inventions to management; an Intellectual Property/Patent Management Team which
meets regularly to discuss intellectual property issues; a system for
continuously monitoring patents issued to, and patent applications filed by,
relevant third parties; a program of seminars for employees on intellectual
property topics; a recognized intellectual property law firm on retainer; a
senior in-house patent counsel; a patent administrator and other personnel
dedicated to assisting in the preparation and prosecution of MMT's patents;
personnel policies and agreements requiring disclosure by employees of all
inventions and protection of confidential information; and agreements with all
technical and scientific employees providing for the assignment of inventions
made by such employees to MMT.

As of September 30, 1997, MMT owned 136 United States and foreign patents,
and had pending an additional approximately 150 United States, Japanese,
European and other foreign national patent applications relating to CEP. MMT
also has many invention disclosures describing inventions by employees, many of
which could be the basis for future patent applications.

MMT's intellectual property estate also contains a number of sophisticated
computer models used to predict the thermodynamic, kinetic and physical
transport properties of the CEP system, including tuyere injection, multiphase
jet flow and turbulent diffusion, equilibrium partitioning and kinetic
limitations, product formation and system design. Some of such computer models
include components which are the subject of non-exclusive licenses from computer
software vendors. MMT's computer models are used to identify optimal designs and
operating conditions for specific processing applications. MMT has demonstrated
the accuracy of many of these computer models through actual experimentation.

To protect its trade secrets and other unpatented proprietary information
in its product development activities, MMT's employees, consultants and
contractors are required to enter into agreements providing for confidentiality
and MMT's ownership of such trade secrets and other unpatented proprietary
information originated by them while in MMT's employ.

There can be no assurance that any patents will issue on any of MMT's
patent applications or that any patents will provide meaningful protection
against infringement of the Company's technology. There also can be no assurance
that any of MMT's confidential non-disclosure agreements will provide meaningful
protection of MMT's confidential or proprietary information in the case of
unauthorized use or disclosure.

The Company has ten service marks or trademarks registered, and several
applications to register, with the U.S. Patent and Trademark Office for terms
used in conjunction with MMT's services in material processing, hazardous and
non-hazardous waste treatment, and resource recovery. Registered marks include:
MMT(R), The Elemental Solution(R), Elemental Solution(R), MMT Catalytic
Extraction Processing(R), Molten Metal Technology (and

<PAGE> 34

design)(R), Quantum-CEP(R), Q-CEP(R), and the design of certain MMT logos.
Applications for service marks or trademarks include: Hyco-CEP(TM) AND
Cerex-CEP(TM).

ENVIRONMENTAL MATTERS

Environmental Laws and Regulations Creating a Market for CEP

Various environmental protection laws have been enacted and amended during
recent decades in response to public concern over the environment. MMT's
operations and those of its customers are subject to these evolving laws and the
implementing regulations. MMT believes that the obligations to comply with the
requirements of these laws contribute to the demand for its services.

The environmental legislation and policy which the Company believes are
potentially applicable to CEP operations in the United States include RCRA,
TSCA, the Federal Water Pollution Control Act of 1972, the Clean Air Act of
1970, as amended, the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Superfund Amendments and Reauthorization Act of 1986, and the
Pollution Prevention Act of 1990, and various state analogs to these federal
laws. Additional provisions which may be applicable to Quantum-CEP technology
include the Atomic Energy Act of 1954, the Federal Facility Compliance Act of
1992, the Low-Level Radioactive Waste Policy Amendments Act of 1985, the United
States Department of Energy Orders, Policy and Guidance, the Nuclear Regulatory
Commission Regulatory Policy and Guidance, and their state analogs. These
provisions regulate the management and disposal of radioactive, hazardous and
non-hazardous wastes, control the discharge of pollutants and radionuclides into
the air, land and water, provide for the investigation and remediation of
contaminated land and groundwater resources and establish a pollution prevention
program. Many of these laws have international counterparts, particularly in
Europe and elsewhere in North America.

Environmental Permitting Implications

To maximize the market acceptance of CEP technology, MMT has chosen to
focus certain initial project efforts on the development of systems whose
feedstocks and designs are most likely to qualify for exemptions or favorable
regulatory treatment. These projects involve: (i) systems for processing
feedstocks that are not classified as hazardous wastes and are not subject to
RCRA permitting requirements; (ii) systems that handle feedstocks in a manner
that may qualify such materials for exclusions from RCRA regulation (e.g., a
closed-loop process whereby secondary materials will be returned to the original
manufacturing process in which they were generated or processing of waste
materials as feedstocks to manufacture valuable products); (iii) systems that
may qualify for an exemption from RCRA permitting requirements (e.g., systems
involving bona fide recycling of hazardous wastes); (iv) systems that provide
for significant volume reduction and stable final form for low-level radioactive
waste to allow for increased disposal capacity or a more manageable form for
storage, or both; and (v) systems that provide for volume reduction, stable
final form and recycling for mixed waste streams. MMT also would consider use of
CEP as part of the treatment train in previously permitted RCRA treatment
facilities for which MMT believes that only a permit modification would be
required.

The permitting burden on a facility utilizing CEP will depend on the nature
of the feedstock (including whether it is classified as a solid waste or
hazardous waste), the configuration of the process at the particular facility,
the manner in which product is recovered from the waste and the type of waste
residuals created by the process.

BDAT Equivalency Determinations

Pursuant to EPA environmental regulations, the processing of hazardous
waste that is to be disposed of on or in land must be accomplished using the
Best Demonstrated Available Technology ("BDAT"). In April 1996, EPA issued a
BDAT equivalency determination for CEP for all RCRA-listed waste streams which
were previously required to be incinerated prior to being land disposed. As a
result, generators are permitted to meet their BDAT requirement by using CEP for
these waste streams. In connection with a July 1995 equivalency determination
for chlorinated organic wastes, the EPA noted that dioxin, a toxic and harmful
substance, was not detected at targeted regulatory levels in CEP demonstrations.
The Company believes that the EPA's BDAT equivalency determinations confirmed
that CEP is fundamentally different from incineration, and further confirms that
use of CEP supports the EPA's efforts to minimize cross-media contamination
(transfer of contaminants to air, soil and water from wastes) and to reduce the
quantity of residuals for land disposal.

<PAGE> 35

Research Facility License

On February 27, 1995, the Massachusetts Department of Environmental
Protection (the "MADEP") issued a Research Facility License for recycling
activities (the "License") that regulates hazardous waste recycling research
activities at the Fall River Facility. The License became effective on March 20,
1995, and replaced the original R&D Recycling Permit for the Fall River
Facility, which was issued in September 1993. The License has a term of five
years.

Under the terms of the License and the Demonstration Permit for solid
wastes issued in September 1993 (the "Permit"), most solid and hazardous wastes,
including RCRA-listed hazardous wastes, may be stored and processed at the Fall
River Facility, subject to limits and conditions specified in the License and
the Permit. The License requires MMT to provide a notice to the MADEP, the Fall
River Fire Department and the Fall River Board of Health at least 14 days prior
to conducting hazardous waste recycling demonstrations greater than 250
kilograms/day. This notice must contain a summary of applicable treatability
study data and other information. The Permit requires review and approval by the
MADEP prior to solid waste recycling demonstrations.

In November 1995, the EPA granted an approval to allow the Company to
perform testing on wastes containing PCBs pursuant to the EPA's authority under
TSCA. Also, in November 1995, the MADEP modified certain of the permits for the
Fall River Facility to allow the Company to store and process PCBs. MMT operates
the Fall River Facility pursuant to all necessary permits as well as an
Agreement with the City of Fall River (the "Fall River Agreement"), which first
became effective on March 17, 1993. In April 1995, the Fall River Agreement was
modified and amended to reflect the requirements of the License. In November
1995, the Fall River Agreement was further amended to add provisions related to
the processing of PCBs.

Permits for Commercial Facilities

With respect to the first commercial facilities constructed or under
construction by the Company, the Company and M4 have been successful in
obtaining the permits necessary to construct and operate these facilities. In
February 1996, the Texas Natural Resource Conservation Commission ("TNRCC")
determined that CEP is distinct from incineration and other combustion and
thermal treatment processes, and approved CEP as a RCRA-exempt recycling
technology. This approval means that CEP plants in Texas would not need to
obtain RCRA permits prior to the construction or operation of CEP plant. In
September 1996, the Louisiana Department of Environmental Quality provided a
regulatory determination to a prospective customer of MMT indicating that an
on-site CEP unit installed at the customer's facility would be exempt from RCRA
permitting requirements and Toxic Release Inventory (TRI) emissions reporting.

In January 1997, MMT received approval from the TNRCC to receive a class of
secondary materials for processing at the Bay City CEP Facility as non-RCRA
regulated materials. This approval means that feedstocks fitting the
characteristics approved by TNRCC for processing will not be treated as
hazardous materials under RCRA and will be exempt from TRI emissions reporting.
This regulatory designation should streamline processing of materials at the
facility and should provide a competitive advantage to customers utilizing the
facility for management of their secondary materials.

In the case of the Quantum-CEP facility constructed by MMT and SEG, the
Tennessee Department of Environment and Conservation ("TDEC") issued to SEG an
air permit in May 1995 (amended in October 1995) which allowed the installation
and initial operation of the CEP equipment and related air pollution control
devices at the facility. In addition, in November 1995, SEG received a
radioactive materials license from TDEC that allows the possession, use and
storage of radioactive materials at the Quantum-CEP facility. This license was
transferred to MMT Tennessee in December 1996 in connection with the acquisition
of SEG's interest in the Q-CEP facility.

In September 1995, TDEC issued an air permit to M4 which allowed the
installation and initial operation of the CEP systems at the M4 Technology
Center. In addition, in November 1995, TDEC issued a radioactive materials
license to M4 that allows the possession, use and storage of radioactive
materials at the M4 Technology Center. TDEC also issued an approval in December
1996 allowing the processing and recycling of mixed waste organic liquids and
sludges in connection with the mixed waste processing activities being performed
by M4 for the DOE and commercial customers.

<PAGE> 36

COMPETITION

MMT defines the market for its CEP technology as the recycling, processing
and volume reduction of certain radioactive, hazardous and non-hazardous wastes
and industrial by-products. MMT is aware of some competition from companies
recycling hazardous wastes, but its primary competition comes from companies
that provide radioactive and hazardous waste treatment and disposal services.
The predominant waste treatment and disposal methods include landfilling,
deep-well injection, incineration, plasma, vitrification, or other thermal
treatment methods, on-site containment (including industrial lagoons), and
release into the environment. The hazardous waste treatment and disposal
industries are fragmented and characterized by a number of large and small
companies. Competition is based primarily on cost, regulatory and permit
restrictions, technical performance, dependability and environmental integrity.
The Company believes that CEP will be able to compete favorably on the basis of
these factors. Many technology developers also have begun to focus on the
government markets as new opportunities continue to evolve. Some of these
technologies may also be applied to the commercial radioactive waste and
hazardous waste markets. The government is evaluating a wide variety of
technologies, with the objective of identifying alternatives that offer benefits
over conventional methods, such as incineration. Many of MMT's competitors have
substantially greater financial and technical resources than MMT.

For most waste streams, CEP is designed to provide recovery of products and
re-use by generators or sale of such products to other commercial and government
customers. CEP's potential cost advantage over conventional waste treatment and
disposal methods is dependent, in part, on such re-use or sale. MMT anticipates
that the price of such products will be established on the basis of competition
with other large or small producers of raw materials and recycled products which
may have greater financial resources and experience in connection with the
production and marketing of such materials and products than MMT or its
customers.

EMPLOYEES

As of September 30, 1997, the Company had 455 full-time employees. The
Company believes that it has been successful in attracting experienced and
capable process development, engineering, operations and management personnel.
The Company's growth and expansion plans depend in large part upon its ability
to continue to attract and retain highly skilled scientific, managerial,
manufacturing, operations and marketing 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.

None of the Company's employees is covered by collective bargaining
agreements. The Company considers relations with its employees to be good.

In August 1997, the Company announced that it would eliminate 57 positions,
primarily at the Company's corporate headquarters in Waltham, Massachusetts, and
at the Fall River Facility. Thirty-two jobs were eliminated immediately and the
remaining 25 will be phased out by the end of the year. Most of the eliminations
were from MMT's research and development, engineering and administration areas.
In May 1997, the Company announced that it had eliminated 77 positions (out of
approximately 530), primarily at the Company's corporate headquarters in
Waltham, Massachusetts, and at the Fall River Facility. Most of the eliminations
were from MMT's design and development area. In November 1996, the Company
announced that it had eliminated 58 (out of 480) positions, primarily at the
Company's corporate headquarters in Waltham, Massachusetts. Most of the
eliminations were staff positions from finance and administration, sales and
marketing, and government and regulatory affairs. The Company intends to
continue hiring to fill positions that are critical to meeting the Company's
technology delivery schedule.

PROPERTIES

The Company currently leases approximately 77,000 square feet of office
space in Waltham, Massachusetts, that it uses as its corporate headquarters,
under a seven-year lease expiring in 2003. This lease has a five-year extension
option. The Company also has entered into a lease for an additional
approximately 77,000 square feet of office space in the same office park in
Waltham. This lease also has a seven year term with a five year extension
option. The Company currently does not intend to occupy this additional space
and is in the process of subleasing it to third parties. Currently, more than
95% of this building has been subleased at rents in excess of the

<PAGE> 37

rent which the Company is required to pay, and the Company is negotiating
subleases for the remaining space. The Company also has subleased its prior
corporate headquarters in Waltham through the duration of the lease term. In
addition, the Company has smaller offices in Washington D.C., Oak Ridge,
Tennessee, Houston, Texas, Bay City, Texas and Denver, Colorado that are leased
on a short-term basis.

The Company has a ten-year lease expiring in 2004 with the Greater Fall
River Development Corporation for the Fall River Facility located on ten acres
of land in Fall River, Massachusetts. The lease includes three ten year
extension options, exercisable at the option of the Company. The Fall River
Facility has approximately 86,000 square feet of usable space, of which
approximately 34,000 square feet is used for office and training and the
remainder for research and development operations, warehousing and laboratories.
The Company also has leased approximately 19,800 square feet of office, storage
and warehouse space near the Fall River Facility. In July 1996, the Company
purchased approximately five acres of land adjacent to the Fall River Facility.
This land could be used for potential future expansion of the Fall River
Facility.

The Company has a lease with Hoechst Celanese Chemical Group, Inc. for the
land on which the Bay City CEP Facility is being constructed. The lease has a
term of ten years from the date that the facility begins commercial operation.
The lease will be automatically extended for as long as MMT maintains the
permits necessary to operate the facility and produces synthesis gas meeting
agreed specifications.

M4 leases approximately 42,000 square feet of office space in Oak Ridge,
Tennessee, under a lease expiring in 2002. This lease has a five-year extension
option. M4 currently does not intend to occupy this space and has subleased
approximately 15,000 square feet of such space to a third party. M4 also has a
seven-year lease expiring in 2002 for the M4 Technology Center in Oak Ridge,
Tennessee. The lease has seven one year, two five year and one six year
extension options, all of which are exercisable at M4's option. The M4
Technology Center is situated upon approximately 10 acres of land and has
approximately 93,000 square feet of usable space, of which approximately 24,000
square feet is used for offices and the remainder for commercial and research
and development operations, warehousing and laboratories.

In connection with the acquisition of SEG's interest in the Q-CEP facility
in Oak Ridge, Tennessee, MMT Tennessee purchased the approximately six acre
parcel upon which the facility is located. MMT Tennessee also is occupying an
office building located adjacent to the Q-CEP facility pursuant to a license
which was acquired from SEG. This license has a one year term, expiring in
January 1998, but MMT Tennessee has the right to negotiate a longer term lease
for the building. During the one year period ending in December 1997, MMT
Tennessee also has the right to occupy and use a portion of SEG's facility in
Kingston, Tennessee for the conduct of certain wet waste processing activities.
Thereafter, MMT Tennessee may move the personnel and equipment used for such
activities to the Q-CEP facility site or may attempt to negotiate an extension
to the one year occupancy period.

As part of the acquisition of wet waste processing assets from VECTRA, MMT
Tennessee acquired a maintenance facility located on approximately 16 acres of
land in Columbia, South Carolina. MMT Tennessee will continue to operate this
facility in connection with the wet waste business.

LEGAL PROCEEDINGS

In February and March 1997, purchasers of the Company's common stock filed
five purported class action suits against the Company and certain of its present
and former directors and executive officers in the United States District Court
for the District of Massachusetts. The first suit, filed on February 12, 1997,
and the fifth suit, filed on March 28, 1997, name the Company and Messrs.
William M. Haney, III, Christopher J. Nagel, Benjamin T. Downs, Victor E. Gatto,
Jr., Ian C. Yates, John T. Preston and Maurice F. Strong as defendants. The
other three suits, filed on February 13, February 20, and February 27, 1997,
each name the Company and Messrs. Haney, Nagel, Preston and Strong as
defendants. The complaints variously allege that the Company and the individual
defendants made false and misleading statements concerning the development and
commercialization of CEP and the availability of research and development
funding from the DOE, and disseminated financial statements not prepared in
accordance with generally accepted accounting principles, in violation of
Section 10(b) of the Securities Exchange Act of 1934 and state law. The
complaints variously assert that the alleged false or misleading statements were
made to inflate the price of the Company's common stock in order to facilitate
its March 1996 offering of convertible subordinated notes, to reduce the number
of shares contributed to M4 to match an investment by M4's co-owner, to enhance
the value of stock or options held by the individual defendants, and to increase
the price of stock sold by the individual defendants. Each of the suits seeks
compensatory damages for alleged losses during the class periods (September

<PAGE> 38

26, 1995 through October 21, 1996 in the first suit, March 28, 1995 through
October 18, 1996 in three of the suits, and September 26, 1995 through October
20, 1996 in the fifth suit) as well as fees and costs. The suits are at an early
procedural stage. While the Company has not yet filed answers to the complaints,
the Company expects to move to dismiss and otherwise to deny liability. However,
the ultimate outcome of the litigation cannot be determined at present.

In April 1997, the Company and M4 received subpoenas from the Office of the
Inspector General ("OIG") of the Department of Energy (the "DOE") requesting
various Company and M4 records. In June 1997, the Company received a letter from
DOE, asking the Company to help DOE respond to a request that DOE had received
from the U.S. House of Representatives Committee on Commerce (the "House
Committee") by providing Company records. In July 1997, the Company received a
letter from the Subcommittee on Oversight and Investigations of the House
Committee, requesting that the Company provide the Subcommittee with information
and records in connection with and ongoing investigation of the Office of
Science and Technology of the DOE. The Company is voluntarily complying with
each of these requests. In August 1997, the Company received a subpoena from the
U.S. Senate Committee on Governmental Affairs (the "Senate Committee") seeking
the production of various Company records. William M. Haney, III, the President
and Chief Executive Officer of the Company, has received a similar subpoena from
the Senate Committee. The Company and Mr. Haney are in the process of responding
to these subpoenas. In connection with the foregoing requests for information
and the Senate Committee and OIG subpoenas, employees and former employees of
the Company have been interviewed by representatives of several government
agencies. The Company expects to be providing information and records to the
DOE, the House Committee and the Senate Committee for the immediate future. Any
of these organizations may also conduct further interviews with current and
former Company employees. In addition, the House Committee and/or the Senate
Committee may hold hearings at which current and former employees of the Company
may be asked to testify.

<PAGE> 39

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

Name Age Office Held Director/Officer
- ---- --- ----------- Since
-----
<S> <C> <C> <C>
William M. Haney, III 35 Chairman of the Board of Directors, 1989
President and Chief Executive Officer

Christopher J. Nagel, Sc.D. 39 Chief Technical Officer and Director 1989

Marie J. Langlois (1) 55 Director 1997

Peter A. Lewis (1)(2) 66 Director 1993

John T. Preston (1)(2) 47 Director 1989

Maurice F. Strong 68 Director 1992

Robert A. Swanson 49 Director 1992

Eugene Berman 55 Vice President of Regulatory, Legal and 1992
External Affairs

F. Gordon Bitter 54 Chief Financial Officer 1997

Benjamin T. Downs 34 Executive Vice President of Corporate 1990
Development

David Hoey 37 Vice President, Business Development 1996

Ethan E. Jacks 43 Vice President and General Counsel 1991

Katharyn F. Santoro 43 Vice President of Human Resources 1994

Charles W. Shaver 38 Chief Operating Officer 1996
</TABLE>

- ------------

(1) Currently a member of the Audit Committee.
(2) Currently a member of the Compensation Committee.

WILLIAM M. HANEY, III, has served as a Director of the Company since
December 1989 and as its Chairman of the Board, President and Chief Executive
Officer since June 1990. In 1989, Mr. Haney founded Energy BioSystems
Corporation, a developer of microbial systems for desulfurizing hydrocarbons,
and served as a member of its Board of Directors from 1989 to 1993. Mr. Haney
serves or has served as a member of the President's Circle of the National
Academy of Sciences, on boards for the United States Department of Commerce, the
Environmental Protection Agency, Harvard University and the World Resources
Institute relating to technology innovation and environmental issues, and on the
board of WGBH-Boston. Mr. Haney holds an A.B. degree from Harvard University.

CHRISTOPHER J. NAGEL, Sc.D., has served as a Director of the Company since
November 1989 and as Chief Technical Officer since June 1997. From October 1996
until June 1997, Dr. Nagel served as Vice President of Process
Fundamentals/Founding Scientist. From August 1994 until October 1996, Dr. Nagel
served as Executive

<PAGE> 40

Vice President of Science and Technology, and from 1990 until August 1994, Dr.
Nagel served as Senior Vice President of Science and Technology. From 1986 until
1991, Dr. Nagel was a doctoral student in the School of Chemical Engineering at
Massachusetts Institute of Technology ("M.I.T."). Dr. Nagel holds a Sc.D. in
Chemical Engineering from M.I.T. and a B.S. in Chemical Engineering from
Michigan Technological University.

MARIE J. LANGLOIS has served as a Director of the Company since September
1997. Ms. Langlois was a Senior Vice President at Fleet National Bank prior to
co-founding Phoenix Investment Management Company, a registered investment
advisory firm, in 1988. Ms. Langlois also is a director of the Rhode Island
Philharmonic Orchestra, and is a fellow of Brown University. Ms. Langlois holds
an M.B.A. from the Harvard University School of Business Administration and a
B.A. from Brown University.

PETER A. LEWIS has served as a Director of the Company since June 1993. Mr.
Lewis was a general partner of Lazard Freres & Co. from 1969 until January 1993,
concentrating primarily in the area of domestic and international mergers and
acquisitions. Since January 1993, Mr. Lewis has been a limited partner of Lazard
Freres & Co. and has served as a limited managing director since 1995. From 1966
to 1969, Mr. Lewis served as Deputy Assistant Secretary in the United States
Department of Housing and Urban Affairs and Assistant Director of the United
States Bureau of the Budget. Mr. Lewis is also a director of Breed Technologies,
Inc., a manufacturer of automobile components, and certain privately held
companies. Mr. Lewis holds an M.B.A. from the Harvard Graduate School of
Business, an M.A. from the Harvard Asian Studies Program and an A.B. from
Harvard College.

JOHN T. PRESTON has served as a Director of the Company since December
1989. Mr. Preston has been the President of Quantum Energy Technologies
Corporation, a technology-based startup company working on products to improve
energy efficiency in lighting, combustion and other areas, since January 1996.
Prior to that, Mr. Preston was the Director of Technology Development at M.I.T.
from 1992 to the end of 1995, and the Director of the M.I.T. Technology
Licensing Office from 1986 to 1992. Mr. Preston has been a member of the Board
of Directors of Energy BioSystems Corporation since 1991 and is a member of the
Board of Directors of Clean Harbors, Inc., as well as several privately held
companies. Previously, Mr. Preston was a founder of Visual Communication Network
and Associate Director of the M.I.T. Industrial Liaison Program. Mr. Preston
holds an M.B.A. from Northwestern University and a B.S. in Physics from the
University of Wisconsin.

MAURICE F. STRONG has served as a Director of the Company since 1989 except
during the period of May 1990 to September 1992. Mr. Strong currently is the
Executive Coordinator for U.N. Reform, and has been the Chairman of Strovest
Holdings, Inc. since 1983. From December 1992 to December 1996, Mr. Strong was
Chairman of Ontario Hydro, a major Canadian utility, and was its Chief Executive
Officer from December 1992 to November 1995. From March 1990 to August 1992, Mr.
Strong was Under Secretary General of the United Nations, Secretary-General of
the 1992 U.N. Conference on Environment and Development, and Chairman of the
Earth Summit. Mr. Strong is currently Senior Adviser to the President of the
World Bank, Chairman of Quantum Energy Technologies Corporation, and a member of
the Board of Directors of several other companies. Mr. Strong also is Chairman
of the Earth Council Institute and the World Resources Institute and is
affiliated with numerous environmental, humanitarian and development
organizations.

ROBERT A. SWANSON has served as a Director of the Company since March 1992.
Mr. Swanson, a founder of Genentech and its Chief Executive Officer from 1976 to
1990, was its Chairman of the Board from 1990 to 1996. Currently, Mr. Swanson is
the Chairman of K&E Management, Ltd., a private investment management company.
Prior to forming Genentech, Mr. Swanson was a partner with Kleiner & Perkins, a
venture capital partnership, and from 1970 to 1974 he was an investment officer
with Citicorp Venture Capital Ltd. Mr. Swanson serves on the Board of Fellows of
the Faculty of Medicine at Harvard University, and is a member of the Biology
Visiting Committee of, and has served as a Trustee for, M.I.T. Mr. Swanson is a
member of the Royal Swedish Academy of Engineering Sciences. Mr. Swanson holds
an S.M. from M.I.T.'s Sloan School of Management and a B.S. in Chemistry from
M.I.T.

EUGENE BERMAN joined the company as Vice President of Regulatory and
Community Affairs of the Company in May 1992, and now serves as Vice President
of Regulatory, Legal and External Affairs. Prior to joining the Company, Mr.
Berman was a contract partner responsible for environmental matters, with
particular emphasis on permitting and environmental compliance, in the law firm
of Gaston & Snow from May 1989 to September 1991 and a partner in the law firm
of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo from October 1991 to April 1992.
Mr. Berman holds a J.D. from Georgetown University Law Center and holds a B.S.
in Chemical Engineering from the University of Pennsylvania.

<PAGE> 41

F. GORDON BITTER joined the Company in September 1997 as Chief Financial
Officer. From May 1996 to February 1997, Mr. Bitter was Vice President, Finance
and Chief Financial Officer of Augat, Inc., a $600 million manufacturer of
interconnection products. From September 1995 to March 1996, Mr. Bitter was Vice
President, Finance and Administration and Chief Financial Officer of Harman
International Industries, and from October 1994 to April 1995 Mr. Bitter served
as Senior Vice President, Finance and Accounting of Chicago and Northwestern
Transportation Company. Mr. Bitter worked at The Perkins-Elmer Corporation from
1988 to 1993 in a number of positions, most recently as Senior Vice President
and President of its Metco Division. Mr. Bitter also worked at The Singer
Company from 1969 to 1975 and 1977 to 1988, most recently as its Senior Vice
President and Chief Financial Officer. Mr. Bitter holds an M.B.A. from The
Wharton School of the University of Pennsylvania and a B.S. from Bucknell
University.

BENJAMIN T. DOWNS joined the Company in June 1990 and served as Vice
President of Finance and Administration and Treasurer of the Company from August
1990 until May 1995. From May 1995 until September 1997, Mr. Downs served as
Executive Vice President of Finance and Administration and Treasurer, and now
serves as Executive Vice President of Corporate Development. Mr. Downs was the
Vice President of Finance and Administration of Energy BioSystems Corporation, a
developer of microbial systems for desulfurizing hydrocarbons, from December
1989 until December 1991. Mr. Downs was a founder of Nexus Development in 1989,
a communications software development firm that was sold to Microcom in 1989.
Prior to founding Nexus in 1989, Mr. Downs was employed by Intel Corporation
from 1984 to 1989 where his responsibilities included financial accounting,
budgeting and the development of the corporate financial forecasting system. Mr.
Downs holds an A.B. from Harvard University.

DAVID HOEY joined the Company as Director of Business Development in
September 1992 and has served as Vice President of Business Development since
April 1996. From December 1991 until September 1992, Mr. Hoey was a consultant
to the Company. From 1986 through 1991, Mr. Hoey was a director of Bligh
Ventures Limited, a publicly traded venture capital firm in Australia. In 1987,
Mr. Hoey founded Rodco Pty Ltd., a holding company for several businesses
involved in differing aspects of management consulting, and remained a director
of this company through 1991. Mr. Hoey attended the University of Queensland,
Australia, studying combined business and law degrees.

ETHAN E. JACKS has served as Vice President and General Counsel since
November 1991 and as Secretary or Assistant Secretary of the Company since
August 1990. From 1990 to 1991, Mr. Jacks was a partner in the Corporate and
Finance Department of the law firm of McDermott, Will & Emery. Prior to joining
McDermott, Will & Emery, he was a partner in the Corporate and Finance
Department of Fine & Ambrogne from 1987 to 1990. Mr. Jacks holds a J.D. from
Georgetown University Law Center, an S.M. from the Sloan School of Management at
M.I.T. and a B.S. from M.I.T.

KATHARYN F. SANTORO joined the Company as Vice President of Human Resources
in January 1994. Ms. Santoro had previously been employed by Thinking Machines
Corporation, a supercomputer manufacturer, as Director of Human Resources since
1989 and prior to that was Director of Human Resources for Lotus Development
Corporation, a software company. Ms. Santoro holds a B.A. in Psychology from the
University of California, Santa Barbara and an M.Ed. in Counseling Psychology
from Boston College.

CHARLES SHAVER joined the Company as Vice President of Manufacturing in
August 1996, and is currently the Chief Operating Officer. Mr. Shaver joined MMT
after a most recent assignment as leader for the Epoxy Products Business Unit at
Dow Chemical. The Epoxy Products Business Unit of Dow represented $1.5 billion
in sales and over 20 manufacturing sites around the world, employing over 1200
people. Mr. Shaver had been in a number of management and engineering leadership
roles across a wide variety of business and technologies within Dow Chemical
from 1980 to 1996. Mr. Shaver hold a B.S. in Chemical Engineering from Texas A&M
University.

THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

The Board of Directors is currently set at seven members, each of whom is
elected to hold office until the next annual meeting of stockholders, or special
meeting in lieu thereof, and until their respective successors are duly elected
and qualified.

<PAGE> 42

The Board of Directors has appointed an Audit Committee and a Compensation
Committee. The functions of the Audit Committee include: (1) making
recommendations to the Board of Directors with respect to the engagement of the
Company's independent accountants; (2) reviewing the audit plans developed by
the independent accountants for the annual audit of the Company's books and
records and the results of such audit; (3) reviewing the annual financial
statements; (4) reviewing the professional services provided by the independent
accountants and the accountants' independence; and (5) reviewing the adequacy of
the Company's system of internal controls and the responses to management
letters issued by the independent accountants. The principal functions of the
Compensation Committee are to review and approve salary plans and bonus awards,
as well as other forms of compensation, and to administer the Company's Amended
and Restated 1989 Long Term Incentive Compensation Plan (the "1989 Plan") and
the Company's 1993 Employee Stock Purchase Plan pursuant to the terms of such
plans.

In April 1997, the Board of Directors appointed a committee of three
outside directors to review matters concerning the Company's financial
statements for the year ended December 31, 1996 and the allegations in the
securities class action suits described in "Business - Legal Proceedings" above.
The committee has completed its review of matters affecting the presentation of
the Company's financial statements, including the restatement of the Company's
quarterly results of operations for the periods ended June 30, 1996 and
September 30 1996 discussed in Note 17 to the financial statements for the year
ended December 31, 1996.

COMPENSATION OF DIRECTORS

Except for the option grants described below, directors do not receive
compensation for services on the Board of Directors or any committee thereof.
The Company reimburses directors for expenses incurred in connection with
attendance at meetings of the Board of Directors or committees thereof.

In September 1993, March 1994 and March 1996, the Board of Directors of the
Company amended the 1989 Plan to provide for the automatic grant of stock
options (the "Formula Grants") to directors who are not officers or employees of
the Company ("Non-Employee Directors"). These amendments were approved by the
stockholders of the Company at the 1994 Annual Meeting of Stockholders and at
the 1996 Annual Meeting of Stockholders. A Formula Grant will be granted to any
Non-Employee Director who is elected to the Board of Directors, will be for
25,000 shares of Common Stock, will vest over 20 quarters and will be
exercisable at the fair market value as of the date of the Formula Grant. Each
Non-Employee Director will be eligible to receive an additional Formula Grant
upon his or her reelection to the Board of Directors each time the previous
Formula Grant has fully vested.

<PAGE> 43

EXECUTIVE COMPENSATION

Summary Compensation Table. The table below sets forth certain summary
compensation information for the three years ended December 31, 1996 with
respect to the Company's Chief Executive Officer and the four other most highly
compensated officers of the Company.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- -------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS AWARDS OPTIONS PAYOUTS COMPENSATION
- --------------------------- ---- ---------- ----- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
William M. Haney, III 1996 $335,000 $ -- 30,100 -- $18,140 (2)
Chairman, Chief 1995 $289,167 (3) -- -- 14,826 -- $26,777 (5)
Executive Officer and 1994 $280,000 (4) -- 108,000 -- $17,119 (6)
President --

Christopher J. Nagel, Sc.D 1996 $201,333 $11,250 -- 39,000 -- $69,022 (7)
Chief Technical Officer 1995 $192,000 $21,600 -- 100 -- $24,724 (8)
1994 $182,801 $ 310 -- 54,000 -- $45,897 (9)
Benjamin T. Downs 1996 $190,833 $ -- 35,250 -- $ 146(10)
Executive Vice 1995 $135,993 $19,125 -- 7,600 -- $ 146(11)
President of Corporate 1994 $143,310 $32,448 -- 43,400 -- $ 100(12)
Development

G. Earl McConchie (13) 1996 $163,457 $ 7,031 40,000 50,000 -- $68,587(14)
Vice President of Sales
and Marketing

Victor E. Gatto, Jr 1996 $174,646 $ 6,750 -- 45,250 -- $ 949(15)
Vice President of 1995 $151,000 $55,000 -- 100 -- $ 569(16)
Government and Nuclear 1994 $143,906 $15,310 -- 72,175 -- $ 348(17)
Sales
</TABLE>

1. Salary includes amounts deferred pursuant to the Company's 401(k) Plan.
2. Represents a payment of $17,876 to Mr. Haney to reimburse him for the cost
of a personal life insurance policy maintained by him and $264 in term life
insurance premiums on a group policy maintained by the Company.
3. Includes $9,167 paid to Mr. Haney in 1996 for a salary increase that was
retroactive to 1995.
4. Mr. Haney directed that his bonus for 1995, $100,800, be paid by the
Company to a charitable foundation designated by Mr. Haney.
5. Represents a payment of $26,561 to Mr. Haney to reimburse him for the cost
of a personal life insurance policy maintained by him and $216 in term life
insurance premiums on a group policy maintained by the Company.
6. Represents a payment of $16,903 to Mr. Haney to reimburse him for the cost
of a personal life insurance policy maintained by him and $216 in term life
insurance premiums on a group policy maintained by the Company.
7. Represents a payment of $24,475 to Dr. Nagel to reimburse him for the cost
of a personal life insurance policy maintained by him, $198 in term life
insurance premiums on a group policy maintained by the Company and a
payment of $44,349 pursuant to a Technical Assignment Agreement between the
Company and Dr. Nagel dated May 31, 1990.
8. Represents a payment of $24,526 to Dr. Nagel to reimburse him for the cost
of a personal life insurance policy maintained by him, and $198 in term
life insurance premiums on a group policy maintained by the Company.
9. Represents a payment of $24,547 to Dr. Nagel to reimburse him for the cost
of a personal life insurance policy maintained by him, $187 in term life
insurance premiums on a group policy maintained by the Company and $21,163
in interest forgiven by the Company on a $400,000 note, which was paid in
full in December 1994.
10. Represents $146 in term life insurance premiums on a group policy
maintained by the Company.
11. Represents $146 in term life insurance premiums on a group policy
maintained by the Company
12. Represents $100 in term life insurance premiums on a group policy
maintained by the Company
13. Mr. McConchie was employed by the Company in April 1996 and ceased to be an
employee of the Company in September 1997.
14. Represents $68,067 for reimbursement of relocation expenses, and $522 in
term life insurance premiums on a group policy maintained by the Company.
15. Represents $749 in term life insurance premiums on a group policy
maintained by the Company, and $200 payment of a life-cycle account
maintained by the Company.

<PAGE> 44

16. Represents $369 in term life insurance premiums on a group policy
maintained by the Company, and $200 payment of a life-cycle account
maintained by the Company.
17. Represents $348 in term life insurance premiums on a group policy
maintained by the Company.

Option Grants in Last Fiscal Year. The following table sets forth
information as to stock options granted for the year ended December 31, 1996 to
each of the individuals listed in the Summary Compensation Table.

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

Individual Grants Potential Realizable
---------------------------------------------------------- Value of Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term (3)
Name Options Employees in Price Expiration ------------------------
Granted Fiscal Year ($/Share)(1) Date(2) 5% 10%
---------- ------------ ------------ ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
William M. Haney, III 100(4) 0.01% $37.25 January 25, 2006 $ 2,343 $ 5,937
60,000(5) 6.44% $31.75 May 7, 2006 $1,198,044 $3,036,079
Christopher J. Nagel, 100(4) 0.01% $37.25 January 25, 2006 $ 2,343 $ 5,937
Sc.D. 8,900(6) 0.95% $35.75 March 1, 2006 $ 200,099 $ 507,089
30,000(5) 3.22% $31.75 May 7, 2006 $ 599,022 $1,518,040
Benjamin T. Downs 100(4) 0.01% $37.25 January 25, 2006 $ 2,343 $ 5,937
5,150(6) 0.55% $35.75 March 1, 2006 $ 115,787 $ 293,428
30,000(5) 3.22% $31.75 May 7, 2006 $ 599,022 $1,518,040
G. Earl McConchie 50,000(7) 5.37% $34.75 April 15, 2006 $1,092,704 $2,769,128
Victor E. Gatto, Jr. 100(4) 0.01% $37.25 January 25, 2006 $ 2,343 $ 5,937
15,150(6) 1.62% $35.75 March 1, 2006 $ 340,617 $ 863,191
30,000(5) 3.22% $31.75 May 7, 2006 $ 599,055 $1,518,040
</TABLE>

- ------------

(1) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. On July 30, 1997, the Company's
Board of Directors voted to give all employees of the Company (other than
Mr. Haney, Dr. Nagel and the other Board members) the opportunity to have
their existing stock options repriced to $7.50 per share, approximately
120% of the closing price of the Common Stock on July 30, 1997. The number
of shares of Common Stock issuable upon the exercise of each repriced
options was reduced by 20%, but all other terms of such options, including
the vesting schedule, remained the same. Messrs. Downs, McConchie and Gatto
have elected to reprice all of their options listed in the above table.

(2) The term of each option may not exceed 10 years (except that with respect
to any optionee who owns more than 10% of the total combined voting power
of all classes of stock of the Company, the term may not exceed five years
if such option is an "incentive stock option").

(3) There is no assurance provided to any officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants made to the officers.

(4) These stock options, granted in January 1996, were granted to each employee
of the Company and were vested at time of grant.

(5) These stock options, granted in May 1996, vest over a 4 year period, with
10% vesting in May 1997, 15% vesting in May 1998, 25% vesting in May 1999,
and 50% vesting in May 2000.

(6) These stock options, granted in March 1996, vest over a 5 year period with
20% vesting in each November 1997, November 1998, November 1999, November
2000 and November 2001.

43
<PAGE> 45

(7) These stock options, granted in April 1996, vest over a 5 year period with
20% vesting in each April 1997, April 1998, April 1999, April 2000 and
April 2001.

Option Exercises in Last Fiscal Year. The following table sets forth
information as to options exercised during the year ended December 31, 1996 and
as to unexercised options held at the end of such fiscal year by the individuals
listed in the Summary Compensation Table.

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES (1)
<TABLE>
<CAPTION>

Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
Shares At Fiscal Year at Fiscal Year End (2)
Acquired on Value -------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William M. Haney, III 86,000 $2,977,400 671,811 91,781 $ 6,474,424 $ --
Christopher J. Nagel, Sc.D. -- $ -- 2,040,126 60,900 $20,206,349 $ --
Benjamin T. Downs 105,000 $2,243,100 198,348 98,842 $ 1,988,031 $317,322
G. Earl McConchie -- $ -- -- 50,000 $ -- $ --
Victor E. Gatto, Jr. 2,800 $ 92,470 46,827 101,923 $ 40,794 $ 95,200
</TABLE>
------------

(1) Does not reflect repricing of options described in footnote 1 of the
previous table.

(2) Calculated on the basis of the closing price of the Common Stock on
December 31, 1996 of $11.75 per share, as reported by the Nasdaq National
Market, minus the exercise price.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries. Peter A. Lewis, a member of
the Compensation Committee, is a limited partner of Lazard Freres & Co.
("Lazard") and has served as a limited managing director of Lazard since 1995.
During 1996, Lazard was a lead underwriter of an offering of $143,750,000 of
convertible notes issued by the Company. The Company and John T. Preston, a
member of the Compensation Committee, were parties to a Consulting Agreement
pursuant to which Mr. Preston provided advice on technology implementation,
business planning, and other projects. Pursuant to the Consulting Agreement, the
Company paid Mr. Preston a retainer of $3,334 per month. The Agreement was
terminated by the Company as of September 30, 1997. To the Company's knowledge,
there were no other relationships involving members of the Committee requiring
disclosure in this Prospectus.

The Company's Compensation Committee currently consists of Messrs. Lewis
and Preston.

EXECUTIVE EMPLOYMENT AGREEMENTS

William M. Haney, III, is employed under an Employment Agreement with the
Company effective as of June 30, 1990. Under the terms of the Employment
Agreement as amended to date, which includes confidentiality and non-competition
provisions, Mr. Haney currently receives an annual salary of $266,000, and is
eligible to receive an annual performance bonus. Mr. Haney also received 8,000
vested stock options in lieu of 20% of his base salary for 1997. The agreement
also provides for (i) a non-qualified stock option for the purchase of 666,666
shares of Common Stock at an exercise price of $.60 per share which was granted
to Mr. Haney in October 1991, (ii) payments towards a personal life insurance
policy and (iii) a severance payment, payable in the event Mr. Haney's
employment with the Company is terminated without cause or is constructively
terminated, equal to the present value of the amount of compensation Mr. Haney
would have otherwise received from the Company during the three-year period
following such termination. In addition, the agreement provides for certain
registration rights in respect of the shares of Common Stock owned by Mr. Haney.

<PAGE> 46

G. Earl McConchie, the Company's former Vice President of Sales and
Marketing, and the Company are parties to an Employment Agreement effective as
of April 1996. The Employment Agreement, which includes confidentiality and
non-competition provisions, provides that if Mr. McConchie's employment with
the Company is terminated without cause, the Company will be required to pay
him severance, upon his signing of a severance and release agreement, at his
then current salary until the earlier of (i) Mr. McConchie finding alternative
employment with compensation equal to at least 50% of his base salary or (ii)
five years from the date of termination. In September 1997, Mr. McConchie
ceased to be an employee of the Company and will be paid severance in
accordance with the terms of his Employment Agreement.

CERTAIN TRANSACTIONS

In October 1996, the Company and Maurice F. Strong, a director of the
Company, entered into a Consulting Agreement pursuant to which Mr. Strong
provided advice on the design and implementation of international sales and
marketing strategy for the Company's products and technology, and assisted in
negotiating transactions with international customers. Pursuant to the
Consulting Agreement, the Company granted to Mr. Strong a non-qualified option
to purchase 10,000 shares of Common Stock at an exercise price of $34.75 per
share, which was the closing price of the Common Stock on the date of grant. The
stock option vests in five annual installments of 2,000 shares, provided that
Mr. Strong is then being retained by the Company under the Consulting Agreement.
In addition, the Company paid Mr. Strong a retainer of $5,000 per month. The
Company terminated the Agreement as of September 30, 1997.

The Company and John T. Preston, a director of the Company, were parties to
a Consulting Agreement pursuant to which Mr. Preston provided advice on
technology implementation, business planning, and other projects. Pursuant to
the Consulting Agreement, the Company paid Mr. Preston a retainer of $3,334 per
month. The Company terminated the Agreement as of September 30, 1997.

Peter A. Lewis, a member of the Compensation Committee, is a limited
partner of Lazard Freres & Co. ("Lazard") and has served as a limited managing
director of Lazard since 1995. During 1996, Lazard was a lead underwriter of an
offering of $143,750,000 of convertible notes issued by the Company.

In August 1996, December 1996 and January 1997, the Company loaned G. Earl
McConchie, a former officer of the Company, a total of $60,000, bearing interest
at 8.25% per year, payable on the earlier of (a) the sale of Mr. McConchie's
previous house, or (b) 30 days after Mr. McConchie's termination of employment
with the Company.

In January 1997, the Company loaned Eugene Berman, an officer of the
Company, $60,000, bearing interest at 8.25% per year, payable in December 1997.

The Company may make loans to affiliates in the future, subject to approval
by the Company's Board of Directors.

During 1996, the Company granted Mr. McConchie 40,000 shares of restricted
Common Stock as part of his employment agreement. 30,000 of these shares will be
restricted for a period of five years. Restrictions on the remaining 10,000
shares will lapse at a rate of 25% per quarter beginning March 31, 1997.

During 1996, the Company granted B. J. Garner, an officer of the Company,
10,000 shares of restricted Common Stock as part of his employment agreement.
The restrictions on these shares will lapse at a rate of 25% per quarter
beginning March 31, 1997. In addition, the Company provided Mr. Garner with a
$100,000 signing bonus as an incentive to join the Company and adjust to a
higher cost of living in Massachusetts. Should Mr. Garner terminate his
employment with the Company during his first year, he would be required to
refund the entire amount of the bonus.

In 1990, the Company purchased the rights to certain patents related to CEP
from Christopher J. Nagel, an officer and a director of the Company, and a
member of the Company's Technology Advisory Board for $1,500,000. Each of Dr.
Nagel and the Technology Advisory Board member are entitled to one-half of the
aggregate purchase price. The purchase price is payable in annual payments of
25% of the Company's pre-tax profits, as defined in the purchase agreement;
however, the Company may elect to accelerate the payments. As of December 31,
1996, a total of $57,055 had been paid to Dr. Nagel pursuant to this agreement.

<PAGE> 47

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of September 30, 1997
with respect to the beneficial ownership of the Common Stock by (i) each person
known to the Company to be the beneficial owner of more than 5% of the issued
and outstanding Common Stock as of September 30, 1997, one of whom is the Chief
Executive Officer of the Company, (ii) those persons who were, at December 31,
1996, the other four most highly compensated officers of the Company, (iii) each
director of the Company, and (iv) all present executive officers and directors
of the Company as a group. As of September 30, 1997, 23,665,443 shares of Common
Stock were outstanding.
<TABLE>
<CAPTION>

Amount and Nature of Percentage of
Name and Address Beneficial Ownership Outstanding Shares of
of Beneficial Owner of Common Stock (1) Common Stock Owned (1)
------------------- ------------------- ----------------------

<S> <C> <C>
William M. Haney, III (2) 5,374,445 22.07%
400-2 Totten Pond Road
Waltham, MA 02154

John T. Preston (3) 2,291,807 9.68%
238 Main Street
Cambridge, MA 02141

Christopher J. Nagel, Sc.D. (4) 2,049,746 8.11%
400-2 Totten Pond Road
Waltham, MA 02154

The Travelers Companies (5) 1,913,917 8.09%
One Tower Square
Hartford, CT 06183

Benjamin T. Downs (6) 408,858 1.71%
400-2 Totten Pond Road
Waltham, MA 02154

Robert A. Swanson (7) 269,165 1.13%

Peter A. Lewis (8) 115,947 *

Victor E. Gatto, Jr. (9) 83,311 *

Maurice F. Strong (10) 54,916 *

G. Earl McConchie (11) 53,742 *

Marie J. Langlois 3,500 *

All executive officers and directors as 10,961,512 40.21%
a group (14 persons) (2)-(4), (6)-(8),
(10),(12)
</TABLE>
------------

* Less than 1%.

<PAGE> 48

(1) The shares owned, and the shares included in the total number of shares
outstanding, have been adjusted, and the percentage owned has been
computed, in accordance with Rule 13d-3(d)(1) under the Securities Exchange
Act of 1934, as amended. Includes options with respect to shares of Common
Stock that can be exercised as of September 30, 1997 (or within 60 days
after such date). On July 30, 1997, the Company's Board of Directors voted
to give all employees of the Company (other than Mr. Haney, Dr. Nagel and
the other Board members) the opportunity to have their existing stock
options repriced to $7.50 per share, approximately 120% of the closing
price of the Common Stock on July 30, 1997. The shares of Common Stock
issuable upon the exercise of any repriced options were reduced by 20%, but
all other terms of such options, including the vesting schedule, remained
the same. The numbers listed in the table above reflect any options which
have been repriced at the election of the executive officers. Except as set
forth in these footnotes, such shares are beneficially owned with sole
investment and sole voting power.

(2) Includes 688,666 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date).

(3) Includes 7,500 shares of Common Stock issuable upon exercise of outstanding
options exercisable as of September 30, 1997 (or within 60 days after such
date). Also includes 500 shares held of record by Mr. Preston's children.
Mr. Preston disclaims beneficial ownership of such shares.

(4) Includes 2,049,746 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date).

(5) Represents shares owned by The Travelers Insurance Company; The Travelers
Insurance Group, Inc.; PFS Services, Inc.; Associated Madison Companies,
Inc.; and the Travelers Group, Inc. Information is based upon a joint
Schedule 13G dated January 28, 1997 furnished to the Company by such
beneficial owners.

(6) Includes 240,144 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date).

(7) Includes 229,165 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date). Also includes 40,000 shares of Common Stock held of
record by the Swanson Family Fund, L. P., of which Mr. Swanson is a general
partner and a limited partner.

(8) Includes 21,250 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date). Also includes 25,000 shares of Common Stock held of
record by Mr. Lewis' wife. Mr. Lewis disclaims beneficial ownership of such
shares.

(9) Includes 79,222 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date).

(10) Represents 56,166 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date). Excludes 12,000 shares owned by Strovest Holdings, Inc.,
of which Mr. Strong is Chairman, and 209,000 shares owned by Environmental
Capital Corporation, a subsidiary of Strovest Holdings, Inc. Mr. Strong
disclaims beneficial ownership of such shares.

(11) Includes 9,957 shares of Common Stock issuable upon exercise of outstanding
options exercisable as of September 30, 1997 (or within 60 days after such
date).

(12) Includes 3,596,333 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of September 30, 1997 (or within 60 days
after such date).

<PAGE> 49

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, $.01 par value, and 3,000 shares of Preferred Stock, $.01 par
value ("Preferred Stock").

COMMON STOCK

Holders of Common Stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders. Accordingly,
holders of a majority of the shares of Common Stock entitled to vote in any
election of Directors may elect all of the Directors standing for election.
Subject to preferential dividend rights with respect to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in the assets of
the Company legally available, and subject to any prior rights of any
outstanding Preferred Stock. Holders of Common Stock have no cumulative voting
rights nor any preemptive, subscription, redemption or conversion rights. All
outstanding shares of Common Stock are validly issued, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.

As of September 30, 1997, there were 23,665,443 shares of Common Stock
outstanding held by 966 holders of record.

PREFERRED STOCK

General. The Board of Directors is authorized, without stockholder
approval, to issue the Preferred Stock in one or more series, with such rights,
preferences and qualifications as the Board of Directors may in its discretion
determine. If the Company issues Preferred Stock, the terms of the Preferred
Stock may include, among other things, extraordinary voting, dividend,
redemption or conversion rights which could discourage unsolicited takeovers of
the Company and adversely affect the holders of Common Stock.

Description of Series A Preferred Stock. On September 8, 1997, the Company
completed a private placement with a group of institutional investors (the
"Private Placement") whereby the Company sold 800 shares of Series A Preferred
Stock for an aggregate purchase price of $20.4 million. The Series A Preferred
Stock is convertible into shares of Common Stock on the basis described below.

The Series A Preferred Stock has a stated value of $25,000 per share and
has an annual premium accruing at five percent. Upon any bankruptcy or
liquidation of the Company, the holders of the Series A Preferred Stock will be
entitled to receive the stated value of the Series A Preferred Stock ($25,000)
plus a five percent premium per annum to the date of such bankruptcy or
liquidation. The Series A Preferred Stock is non-voting, is subject to voluntary
conversion at the option of the holders at any time commencing 120 days after
September 8, 1997, and will automatically convert into Common Stock on September
8, 2000. The conversion price per share will be the lower of (i) a fixed price
(the "Fixed Price") of $5.83 (110% of the average closing bid prices of the
Company's Common Stock over the five trading days ending September 5, 1997), or
(ii) a variable price (the "Variable Price") equal to 85% of the average of the
closing bid prices of the Common Stock for the five trading days immediately
preceding a notice of conversion. However, during the first year after closing,
any holder of Series A Preferred Stock who converts any Series A Preferred Stock
based on the Variable Price and sells the underlying shares of Common Stock will
pay a legend removal fee to the Company, initially in the amount of 8% and
decreasing over time to 0% by September 1998. In addition, until approved by the
Company's stockholders in accordance with the rules of The Nasdaq Stock Market,
the Company may not issue shares of Common Stock upon conversion of the Series A
Preferred Stock equal to or in excess of 20% of the Company's outstanding Common
Stock at a price less than the market value of the Common Stock.

<PAGE> 50

C
-----------------
[(C/F) + (1.4)]/2

Where: C = the average of the closing bid prices of the Common Stock for the
five trading days immediately preceding a notice of conversion; and

F = the original Fixed Price ($5.83 per share).

The Series A Preferred Stock is subject to optional redemption by the
Company for cash at any time at an amount equal to 140% of the stated value of
the Series A Preferred Stock and for Common Stock provided that the closing bid
price of the Common Stock for the twenty trading days preceding such redemption
has exceeded 140% of the original Fixed Price. Upon the occurrence of certain
events specified in the Certificate of Designations, Preferences and Rights for
the Series A Preferred Stock (the "Certificate of Designations") (including,
among other things, suspension of trading or delisting of the Common Stock,
failure of the Company to obtain the effectiveness of the Registration Statement
of which this Prospectus forms a part within 180 days after September 8, 1997,
and failure by the Company's stockholders to approve the issuance of shares of
Common Stock upon conversion of the Series A Preferred Stock in excess of twenty
percent of the Common Stock outstanding within 120 days after September 8,
1997), the Series A Preferred Stock may be required to be redeemed by the
Company at a redemption price equal to the greater of (i) 140% of the stated
value of the Series A Preferred Stock ($25,000) and (ii) the amount determined
as follows:

(SV + Pr) x M
----------------

Where: SV = the stated value of the Series A Preferred Stock;
Pr = the accrued premium on the Series A Preferred Stock;
M = the highest closing bid price of the Common Stock from the
date of the redemption notice delivered by the Holder
requesting redemption through the date of redemption; and
CP = the conversion price of the Series A Preferred Stock at such time.

In lieu of redemption, the Company may elect to pay to each Holder cash in the
amount of 5% per week of the sum of the aggregate stated value of the then
outstanding Series A Preferred Stock held by such Holder plus any accrued
premium, until such event no longer exists. The Company shall not be required to
pay more than 25% of such amount in the aggregate to such Holder with respect to
any such event.

Upon the occurrence of certain other events specified in the Certificate of
Designations (including, among other things, failure of the Company to remove
any restrictive legend on any certificate or any shares issued to the Holders
upon conversion of the Series A Preferred Stock, notice by the Company to any
Holder of its intention not to issue shares of Common Stock to any Holder upon
conversion of the Series A Preferred Stock, determination that any
representation or warranty of the Company was false or misleading in any
material respect and the Company knew that the representation or warranty was
false or misleading, and failure of the Company to issue shares of Common Stock
within ten days after the conversion of Series A Preferred Stock), the Series A
Preferred Stock must be redeemed by the Company at the amounts set forth above.

Pursuant to the Private Placement, the Company agreed that, within 20
business days after September 8, 1997, it would file a registration statement
with the Securities and Exchange Commission covering the resale of the shares
of Common Stock issuable upon the conversion of the Series A Preferred Stock
and the exercise of the GEM Warrant described below. In addition, the Company
granted the investors in the Private Placement certain piggyback registration
rights. If such registration involves an underwriting agreement, such
underwriting agreement must include, among other things, customary
indemnification and contribution obligations on the part of the Company.

<PAGE> 51

WARRANTS

In connection with the Private Placement the Company issued a warrant (the
"GEM Warrant") to GEM Ventures Ltd. exercisable at any time over a three year
period for 566,000 shares of Common Stock at an exercise price of $6.625 per
share. The GEM Warrant expires on September 8, 2000. GEM Ventures Ltd. has been
granted certain registration rights with respect to the shares of Common Stock
issuable upon exercise of the GEM Warrant, as described under "Series A
Preferred Stock" above.

As of September 30, 1997, certain holders affiliated with Oppenheimer & Co.
held warrants to purchase an aggregate of up to 43,105 shares of Common Stock at
an exercise price of $10.56 per share. The holders of such warrants are entitled
to certain registration rights in respect of the shares of Common Stock issuable
upon exercise of such warrants. See "--Registration Rights."

As of September 30, 1997, there were also two outstanding warrants held by
Am-Re Services, one of which is a warrant (the "Insurance Warrant") to purchase
up to 125,000 shares of Common Stock at $12.25 per share and the other of which
is a warrant (the "Project Finance Warrant") to purchase up to 250,000 shares of
Common Stock (of which 200,000 shares may be purchased at $12.25 per share and
50,000 shares at $18.37 per share). The shares covered by the Insurance Warrant
vest according to a schedule based upon the Company obtaining acceptable
environmental impairment insurance for the first five CEP facilities developed
by the Company that require environmental impairment insurance. To date, 70,000
shares covered by the Insurance Warrant have vested in connection with the
Company obtaining environmental impairment insurance at the Q-CEP Facility and
the Bay City CEP Facility. The shares covered by the Project Finance Warrant
vest according to a schedule based upon the Company accepting project financing
by or through Am-Re Services for the first five CEP plants developed by the
Company that require project financing. See "Business--Commercial Developments."
Am-Re Services is entitled to certain registration rights in respect of the
shares of Common Stock issuable upon exercise of such warrants. See
"--Registration Rights."

As of September 30, 1997, EPRI held an outstanding warrant to purchase up
to 100,000 shares of Common Stock at an exercise price of $23.375 per share. The
warrant will vest in increments upon the closing of contracts for CEP plants for
which EPRI has provided minimum levels of funding and upon customer acceptance
of such plants.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain anti-takeover provisions. The Company is subject to the provisions
of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits
certain publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person or entity
who, together with affiliates and associates, owns (or within the preceding
three years, did own) 15% or more of the corporation's voting stock. This
statute contains provisions enabling a corporation to avoid the statute's
restrictions if the stockholders holding a majority of the corporation's voting
stock approve an amendment to the corporation's Certificate of Incorporation or
By-Laws.

The Amended and Restated Certificate of Incorporation provides that the
Board of Directors shall have the authority, without stockholder approval, to
issue Preferred Stock in one or more series, with such rights, preferences and
qualifications as the Board of Directors may determine in its discretion. See
"--Preferred Stock." The Amended and Restated By-laws require that any
stockholder proposing to nominate, at any special or annual meeting of
stockholders, one or more persons for election to the Board of Directors, must
give written notice of his or her intention to do so no later than 80 days prior
to the date of such special or annual meeting. The Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws further provide
that vacancies on the Board of Directors shall be filled by a vote of the
majority of the Directors then in office and that any actions requiring approval
of the stockholders may only be approved by the stockholders at a meeting or by
written consent of the holders of at least 66 2/3% of the outstanding capital
stock entitled to vote thereon. The Amended and Restated Certificate of
Incorporation allows amendments of certain provisions thereof, and the Amended
and Restated By-Laws allow amendments to any provision thereof, only with a 66
2/3% or greater vote of the outstanding Common Stock. These provisions of the
Company's Amended and Restated Certificate of Incorporation

<PAGE> 52

and Amended and Restated By-Laws could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company and therefore may limit the price
that certain investors might be willing to pay in the future for shares of the
Company's Common Stock. The provisions described above, although having an
anti-takeover effect, are designed primarily to provide time for management of
the Company to assess and respond to takeover threats, to encourage any person
who might contemplate a takeover to first consult with the Board of Directors
and to negotiate the terms of any proposed offer or business combination with
the Board of Directors, and to ensure that any takeover is fair to all of the
Company's stockholders and other constituencies.

Elimination of Monetary Liability for Officers and Directors. The Company's
Amended and Restated Certificate of Incorporation also incorporates certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of Directors. The provisions eliminate a Director's liability for
monetary damages for a breach of fiduciary duty, including gross negligence,
except in circumstances involving certain wrongful acts, such as the breach of a
Director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. These provisions do not eliminate a
Director's duty of care. Moreover, the provisions do not apply to claims against
a Director for violations of certain laws, including federal securities laws.
The Company's Amended and Restated Certificate of Incorporation also contains
provisions to indemnify the Directors, officers, employees or other agents to
the fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting or
retaining qualified individuals to serve as Directors.

Indemnification of Officers and Directors. The Company's Amended and
Restated Certificate of Incorporation also contains provisions to indemnify the
Directors, officers, employees or other agents to the fullest extent permitted
by the General Corporation Law of Delaware. These provisions may have the
practical effect in certain cases of eliminating the ability of shareholders to
collect monetary damages from directors. The Company believes that these
provisions will assist the Company in attracting or retaining qualified
individuals to serve as Directors.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock of the Company is The
First National Bank of Boston.

REGISTRATION RIGHTS

In addition to the shares of Common Stock registered pursuant to the
registration statement of which this Prospectus is a part, the holders of
5,417,348 shares of Common Stock (the "Registrable Shares") have certain rights
to register such shares for sale under the Securities Act. In addition, warrants
to purchase 418,105 shares of Common Stock (not including the 566,000 shares of
Common Stock issuable to GEM Ventures Ltd. upon exercise of the GEM Warrant) are
exercisable for additional Registrable Shares. Holders of Registrable Shares
have the right to participate in any registration of securities by the Company
in which shares are proposed to be sold by the Company or by selling
shareholders. William M. Haney, III also has the right, pursuant to his
Employment Agreement, to participate in any such registration of securities by
the Company. The Company is required, with respect to each such registration, to
notify Mr. Haney and each holder of Registrable Shares in writing of the
proposed offering.

The holders of Registrable Shares have the right to require the Company to
register such Registrable Shares under the Securities Act on not more than two
occasions. In addition, so long as the Company is eligible to register the
Common Stock on Form S-3, the holders may from time to time request the Company
to register Registrable Shares on Form S-3, provided that the Company is not
required to effect more than three such registrations in any 12-month period.

Am-Re Services and American Re-Insurance Company have certain registration
rights with respect to the 438,885 shares of Common Stock purchased by American
Re-Insurance Company and the 375,000 shares issuable upon exercise of the
Insurance Warrant and the Project Finance Warrant (collectively, the "Am-Re
Registrable Shares"). Holders of the Am-Re Registrable Shares have certain
demand registration rights commencing after June 30, 1997 and certain incidental
registration rights, subject to acceleration in the event of sales of Common
Stock in excess of specified levels by Messrs. Haney, Nagel or Preston or all
MMT Directors and officers as a group.

<PAGE> 53

In connection with the agreement signed by LMC and the Company with respect
to the acquisition by M4 of the Retech division of Lockheed Environmental
Systems & Technologies Co., the Company has issued to LMC 352,361 shares of
Common Stock. MMT has filed a "shelf" registration statement with respect to
such shares.

In connection with the issuance of the Company's 5 1/2% Convertible
Subordinated Notes Due 2006 issued in May 1996, the Company has filed a "shelf"
registration statement with respect to $142,750,000 of such notes and the shares
of Common Stock issuable upon conversion thereof.

<PAGE> 54

SELLING STOCKHOLDERS

The Series A Preferred Stock and the GEM Warrant originally were issued and
sold by the Company to the Initial Holders and GEM Ventures, respectively, in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Regulation D of the Securities Act. The Selling Stockholders (which
term includes their transferees, pledgees, donees or their successors) may from
time to time offer and sell pursuant to this Prospectus any or all of the
Shares.

The following table sets forth information with respect to the Selling
Stockholders and the respective shares of Common Stock (issuable upon conversion
of the Series A Preferred Stock or exercise of the GEM Warrant, as the case may
be) beneficially owned by each Selling Stockholder. Such information has been
obtained from the Selling Stockholders. Except as otherwise disclosed herein,
none of the Selling Stockholders has, or within the past three years has had,
any position, office or other material relationship with the Company or any of
its predecessors or affiliates. Because the Selling Stockholders may offer all
or some portion of the Shares pursuant to this Prospectus, no estimate can be
given as to the amount of the Securities that will be held by the Selling
Stockholders upon termination of any such sales. In addition, the Selling
Stockholders identified below may have sold, transferred or otherwise disposed
of all or a portion of their Shares, since the date on which they provided the
information regarding their Shares, in transactions exempt from the registration
requirements of the Securities Act. With respect to the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock, the number of shares
included in the registration statement of which this Prospectus is a part is
subject to adjustment and could be materially less or more than the estimated
amounts listed below depending on factors which cannot be predicted by the
Company at this time, including, among others, the future market price of the
Common Stock.
<TABLE>
<CAPTION>

Number of Shares Number of Shares
Beneficially Owned of Common Stock
Selling Stockholder And Offered Hereby 1 Beneficially Owned 2
- ------------------- -------------------- --------------------
<S> <C> <C>
CC Investments, LDC............................... 2,744,425 --
Stark International............................... 1,029,160 104,000 3
Olympus Securities................................ 1,132,075 --
Sheperd Investments International, Ltd............ 1,029,160 190,968 5
Nelson Partners................................... 926,244 --
GEM Ventures Ltd.................................. 566,000 --

TOTALS.......................................... 7,427,064 294,968

</TABLE>
- ----------

1 Except with respect to GEM Ventures Ltd., represents shares of Common Stock
issuable upon conversion of such Holder's Series A Preferred Stock, assuming
200% of the shares of Common Stock issuable based on the fixed conversion price
of $5.83 per share, and does not include the 5% premium payable with respect to
such stock or any legend removal fee which may be incurred by such Holder if it
converts and sells its shares of Common Stock prior to the first anniversary of
the issuance date of the Series A Preferred Stock. With respect to GEM Ventures
Ltd., assumes exercise of the GEM Warrant.

2 Does not include shares of Common Stock issuable upon conversion of the Series
A Preferred Stock or upon exercise of the GEM Warrant.

3 Represents shares issuable upon the conversion of $4,030,000 principal amount
of the Company's 5 1/2% Convertible Subordinated Notes Due 2006 at a conversion
price of $38.75 per share.

4 Represents shares issuable upon the conversion of $7,400,000 principal amount
of the Company's 5 1/2% Convertible Subordinated Notes Due 2006 at a conversion
price of $38.75 per share.

<PAGE> 55

PLAN OF DISTRIBUTION

The Company has been advised by the Selling Stockholders that the Shares
offered hereby may be sold from time to time to purchasers directly by the
Selling Stockholders. Alternatively, the Selling Stockholders may from time to
time offer the Shares to or through underwriters, broker/dealers or agents, who
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Stockholders or the purchasers of Shares for whom
they may act as agents. The Selling Stockholders and any underwriters,
broker/dealers or agents that participate in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profit realized by them on the sale of such Shares and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.

The Company has been advised by the Selling Stockholders that the Shares
may be sold from time to time in one or more transactions at fixed prices, at
market prices prevailing at the time of sale, at varying prices determined at
the time of sale or at negotiated prices. The sale of Shares may be effected in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service on which the Shares may be
listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii)
in transactions otherwise than on such exchanges or in the over-the-counter
market or (iv) through the writing of options. At the time a particular offering
of Shares is made, a supplement to this Prospectus, if required, will be
distributed which will set forth the aggregate amount and type of Shares being
offered and the terms of such offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed to be paid to broker/dealers.

To comply with the securities laws of certain jurisdictions, if applicable,
the Shares will be offered or sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain jurisdictions the Shares
may not be offered or sold unless they have been registered or qualified for
sale in such jurisdictions or an exemption from registration or qualification is
available and complied with.

Under Regulation M of the Exchange Act, any person engaged in a
distribution of the Shares may be prohibited, with certain exceptions, from
bidding for or purchasing any security which is the subject of such distribution
until its participation in that distribution is completed. In addition,
Regulation M prohibits any stabilizing bid or stabilizing purchase for the
purpose of pegging, fixing or stabilizing the price of the Common Stock in
connection with the offering of the Shares pursuant to this Prospectus.

Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Shares will be paid by the Company, including without
limitation Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Stockholders
will pay all underwriting discounts and selling commissions, if any. The Selling
Stockholders will be indemnified by the Company against certain civil
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith. The Company will be
indemnified by the Selling Stockholders against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.

<PAGE> 56

CHANGES IN ACCOUNTANTS

On March 27, 1997, M4 engaged Price Waterhouse LLP ("Price Waterhouse") to
audit M4's financial statements for the fiscal years ended December 31, 1996 and
1995. Price Waterhouse was engaged by M4 after Coopers & Lybrand L.L.P., the
previous accountants for M4, resigned as M4's accountants on March 6, 1997.
Coopers & Lybrand advised M4 that it had resigned as M4's accountants mainly
because Price Waterhouse proposed to refer to Coopers & Lybrand's report on M4's
financial statements in Price Waterhouse's audit of the Company's financial
statements, and Coopers & Lybrand did not want to consent to such association.
In its capacity as the Company's independent accountants, Price Waterhouse has
not expressed reliance on any audit report of Coopers & Lybrand relating to M4.
Coopers & Lybrand's audit reports for M4 for the period from inception (August
1994) through the date of resignation did not contain any adverse opinions or
disclaimer of opinions or qualifications or modifications as to uncertainty,
audit scope or accounting principles, and there were no disagreements or
reportable events (within the meaning of Item 304 of Regulation S-K) between M4
and Coopers & Lybrand during such period. Prior to the engagement of Price
Waterhouse, M4 had not consulted with Price Waterhouse regarding the application
of accounting principles to a specified transaction or the type of audit opinion
that might be rendered on M4's financial statements. The Company has consulted
with Price Waterhouse, in Price Waterhouse's capacity as the Company's
independent accountants, on various occasions with respect to transactions
between the Company and M4.

LEGAL MATTERS

The validity of the Shares offered hereby is being passed upon by Elliot J.
Mark, Esq., Associate General Counsel to the Company.

EXPERTS

The consolidated financial statements of Molten Metal Technology, Inc. as
of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting. The
consolidated financial statements of M4 Environmental L.P. as of December 31,
1996 and 1995 and for each of the two years in the period ended December 31,
1996 included in this Prospectus have been so included in the reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.

<PAGE> 57

MOLTEN METAL TECHNOLOGY, INC.

INDEX TO FINANCIAL STATEMENTS

Consolidated Balance Sheet at June 30, 1997
and December 31, 1996................................................. F-1

Consolidated Statement of Operations for the
quarters ended June 30, 1997 and 1996 and for
the six months ended June 30, 1997 and 1996........................... F-2

Consolidated Statement of Cash Flows for the six
months ended June 30, 1997 and 1996................................... F-3

Notes to Consolidated Financial Statements.............................. F-4

Report of Independent Accountants....................................... F-9

Consolidated Balance Sheet at December 31, 1996 and 1995................ F-10

Consolidated Statement of Operations for the years ended
December 31, 1996, 1995 and 1994...................................... F-11

Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994.................. F-12

Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994...................................... F-13

Notes to Consolidated Financial Statements.............................. F-14

<PAGE> 58
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents $ 8,408,046 $ 19,679,104
Short-term investments 36,147,185 109,388,659
Accounts receivable, net of allowance for
doubtful accounts of $150,000 at June 30, 1997 4,434,221 2,573,306
Unbilled accounts receivable 783,057 --
Accounts receivable from affiliates -- 5,525,491
Unbilled accounts receivable from affiliates 783,937 798,980
Other receivables 6,291,667 --
Prepaid expenses and other current assets 6,204,300 6,300,727
------------- -------------
Total current assets 63,052,413 144,266,267

Restricted cash 1,798,220 2,592,925
Fixed assets, net 150,265,646 103,553,945
Intangible assets, net 18,539,779 16,363,201
Long-term receivable 19,000,000 --
Other assets 8,403,182 5,968,911
------------- -------------
$ 261,059,240 $ 272,745,249
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ 1,792,949 $ 1,884,486
Accounts payable 13,895,425 19,273,058
Accrued expenses 19,164,219 6,082,746
Accrued interest 2,107,391 2,161,297
Deferred revenue 3,218,769 1,647,472
Deferred income from affiliate -- 4,586,870
------------- -------------
Total current liabilities 40,178,753 35,635,929
------------- -------------

Long-term debt 202,750,000 164,753,334
------------- -------------
Due to related parties 1,385,889 1,385,889
------------- -------------
Deferred income from affiliate 2,383,918 2,437,500
------------- -------------
Accumulated losses of affiliate in
excess of investment -- 5,020,765
------------- -------------

Stockholders' equity:
Preferred stock, $.01 par value, 3,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $.01 par value, 100,000,000 shares
authorized; 23,713,380 shares issued and
23,602,980 outstanding at June 30, 1997 and
23,643,707 shares issued and 23,603,707
outstanding at December 31, 1996 237,134 236,437
Additional paid-in capital 163,545,308 163,124,587
Valuation allowance for short-term investments 33,128 (86,653)
Accumulated deficit (147,159,078) (97,820,411)
------------- -------------
16,656,492 65,453,960
Less: Treasury stock, 110,400 shares at June 30,
1997 and 40,000 shares at December 31,
1996, at cost (1,251,319) (482,504)
Less: Deferred compensation (1,044,493) (1,459,624)
------------- -------------
Total stockholders' equity 14,360,680 63,511,832
------------- -------------
$ 261,059,240 $ 272,745,249
============= =============

</TABLE>

See notes to consolidated financial statements.

F-1

<PAGE> 59
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
Quarter ended June 30, Six Months ended June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>

Revenue:
Waste services $ 5,093,368 $ -- $ 9,038,330 $ --
Equipment sales 485,663 -- 1,193,024 --
Research and development ("R&D") 318,750 3,785,488 518,750 5,043,297
Construction, R&D and consulting
from affiliates 663,039 10,318,596 783,937 27,684,332
Technology transfer and success
fees from affiliate -- 3,750,000 -- 7,500,000
------------ ------------ ------------ ------------
6,560,820 17,854,084 11,534,041 40,227,629
------------ ------------ ------------ ------------

Operating expenses:
Cost of revenue - Waste services 9,971,873 -- 17,463,543 --
Cost of revenue - Equipment sales 337,133 -- 592,287 --
Cost of revenue - R&D 181,789 3,724,952 287,669 4,903,283
Cost of revenue - construction, R&D,
consulting, technology transfer and
success fees from affiliates 552,245 10,669,969 658,804 25,814,910
R&D 6,416,452 4,618,838 15,547,991 9,327,001
Selling, general and administrative ("SG&A") 7,723,670 2,210,886 14,663,727 4,629,218
------------ ------------ ------------ ------------
25,183,162 21,224,645 49,214,021 44,674,412
Equity income (loss) from affiliate (6,062,612) 2,306,724 (9,740,565) 2,676,036
------------ ------------ ------------ ------------
Loss from operations (24,684,954) (1,063,837) (47,420,545) (1,770,747)

Other income (expense):
Interest income 909,380 2,230,649 2,480,617 3,585,378
Interest expense (2,089,765) (1,675,308) (4,398,739) (2,107,699)
------------ ------------ ------------ ------------
Net income (loss) $(25,865,339) $ (508,496) $(49,338,667) $ (293,068)
============ ============ ============ ============

Net income (loss) per share $ (1.10) $ (0.02) $ (2.09) $ (0.01)
============ ============ ============ ============

Weighted average common and common
equivalent shares outstanding 23,600,212 23,336,091 23,591,090 23,098,323
============ ============ ============ ============

</TABLE>

See notes to consolidated financial statements.

F-2

<PAGE> 60
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Six Months ended June 30,
--------------------------------
1997 1996
------------ -------------
<S> <C> <C>

Cash flows from operating activities:
Net loss $(49,338,667) $ (293,068)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities (net of assets acquired from VECTRA):
Depreciation and amortization 5,770,975 2,750,868
Equity loss (income) from affiliate 9,740,565 (2,676,036)
Compensation expense related to restricted
stock and common stock options 415,131 120,903
Increase in accounts receivable (2,149,464) (3,014,234)
Decrease (increase) in accounts receivable
from affiliate 5,540,534 (10,623,612)
Decrease (increase) in prepaid expenses
and other current assets 1,027,004 (3,283,467)
Increase in other assets (489,958) (411,846)
Decrease in accounts payable (7,070,863) (2,353,347)
Increase in accrued expenses 1,627,091 1,275,106
Increase (decrease) in accrued interest (53,906) 1,317,699
Increase (decrease) in deferred revenue 1,571,297 (3,500,001)
Increase (decrease) in deferred income
from affiliate (206,145) 2,144,875
------------ -------------
Net cash provided by (used in)
operating activities (33,616,406) (18,546,160)
------------ -------------

Cash flows from investing activities:
Expenditures for fixed assets (37,969,438) (13,251,320)
Purchase of intangible assets (539,294) (1,055,031)
Cash paid for acquisition of VECTRA assets (3,950,559) --
Cash investments in affiliates (9,180,521) --
Cash received from M4 restructuring 271,468 --
Redemption of short-term investments, net 73,361,255 (50,480,958)
Decrease in restricted cash 794,705 1,670,583
------------ -------------
Net cash provided by investing activities 22,787,616 (63,116,726)
------------ -------------

Cash flows from financing activities:
Proceeds from issuances of common stock 421,418 2,459,358
Purchase of treasury stock (768,815) --
Net proceeds from issuance of long-term debt -- 139,338,826
Payments to related parties -- (88,697)
Principal repayments of long-term debt (94,871) (95,592)
------------ -------------
Net cash provided by (used in)
financing activities (442,268) 141,613,895
------------ -------------
Increase (decrease) in cash and cash equivalents (11,271,058) 59,951,009
Cash and cash equivalents at beginning of period 19,679,104 6,644,856
------------ -------------
Cash and cash equivalents at end of period $ 8,408,046 $ 66,595,865
============ =============

Additional disclosure of non-cash investing
and financing activities:
Issuance of common stock in exchange for
investment in affiliate $ -- $ 9,770,587
============ =============

</TABLE>

As a result of the restructuring of M4 and the consolidation of M4 with the
Company for financial reporting purposes, the Company assumed liabilities of
$51,147,612 and obtained assets of $45,133,064 which consisted primarily of
receivables from LMC and fixed and intangible assets.

In conjuction with the restructuring, the Company offset deferred income of
$4,434,307 against fixed assets obtained from M4.

See notes to consolidated financial statements.

F-3
<PAGE> 61

MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Molten Metal Technology, Inc. (the "Company" or "MMT") is an environmental
technology company engaged in the commercialization and continued development of
its proprietary processing technology, Catalytic Extraction Processing ("CEP").
The core of CEP is a molten metal bath into which feedstocks and selected
chemicals can be introduced. The catalytic and solvent effects of the molten
metal bath causes feedstocks to break down into their constituent elements and
dissolve in the molten metal. The addition of various selected chemicals to the
molten metal bath allows feedstocks to reform and be recovered as different
materials which generally can be re-used as a raw material by the feedstock
generator or can be sold to other users.

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Net loss per share is determined by dividing net loss by the weighted average
number of common shares outstanding during the period. Common share equivalents,
which consist of common stock that may be issuable upon exercise of outstanding
stock options and warrants, have been excluded from the weighted average number
of common shares since their effect is anti-dilutive. The effect of the assumed
conversion of the Company's 5 1/2% Convertible Subordinated Notes Due 2006 was
anti-dilutive for the periods presented.

In February 1997, Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS 128") was issued by the Financial Accounting Standards Board. FAS 128
specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under FAS 128, "basic earnings per share" will be
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares (stock options, warrants and convertible debt) if they are dilutive. FAS
128 is effective for the Company's fourth quarter of 1997 and will be adopted at
that time. Had the Company determined earnings per share in accordance with FAS
128, basic earnings (loss) per share and diluted earnings (loss) per share for
the periods ended June 30, 1997 and 1996 would not have been materially
different from the net income (loss) per share reported by the Company.

F-4
<PAGE> 62
Certain reclassifications have been made for consistent presentation. The
reclassifications have no effect on the net loss for the periods ended June 30,
1996.

The information furnished is unaudited and reflects all adjustments (consisting
of only normal recurring adjustments) which, in the opinion of management, are
necessary for a fair presentation of the financial position and results of
operations for the interim periods. The accompanying financial statements should
be read in conjunction with the Company's audited financial statements and
related footnotes for the year ended December 31, 1996 which are included in the
Company's annual report on Form 10-K for the year ended December 31, 1996. The
results of operations for the quarter ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year.

NOTE 2. EQUITY TRANSACTIONS

During the quarter ended June 30, 1997, 6,316 shares of common stock were issued
upon the exercise of options.

NOTE 3. RESTRUCTURING OF M4

On June 16, 1997, the Company and Lockheed Martin Corporation ("LMC") executed
agreements to restructure their relationship embodied in M4 Environmental L.P.
("M4"). The agreement stipulates the following: (1) LMC has the exclusive right
to lead and pursue contracts for the clean up of the US Department of Energy's
("DOE") tanked waste site in Hanford, Washington, and the Company will provide
directly to LMC certain construction and development services with respect to
Q-CEP(R). (2) The Company has the exclusive right to lead and pursue the
worldwide opportunities for processing UF6 and LMC has the right to participate
in this market on a case-by-case basis, subject to mutual agreement of the
parties. (3) The Company and LMC formed a new limited liability company to be
their exclusive vehicle to pursue the processing of chemical weapons worldwide.
(4) Retech was transferred to LMC. (5) The Company became the sole owner of M4
of which the principal asset is the Technology Center in Oak Ridge, Tennessee
(the "M4 Technology Center"). The Company is responsible for the operation of
the M4 Technology Center and is entitled to all future revenue from such
operations. The Company and LMC have agreed to share equally the debt service of
the $38 million of bonds issued by the Industrial Development Board of Oak Ridge
relating to the M4 Technology Center. (6) LMC terminated its line of credit with
M4 and deemed the approximately $15.8 million aggregate principal and accrued
interest outstanding thereunder to have been paid in full and the Company
contributed $14.6 million in outstanding accounts receivable to the capital of
M4. (7) LMC and the Company generally share equally in substantially all of the
costs of the restructuring. (8) All existing agreements between the Company, LMC
and M4

F-5

<PAGE> 63
are terminated, including the CEP license to M4. (9) LMC and the Company
established a first offer process pursuant to which they will jointly discuss
new market opportunities within the DOE and US Department of Defense ("DoD")
markets prior to pursuing them individually.

Prior to the restructuring, the Company accounted for its investment in M4 using
the equity method. Under the M4 limited partnership agreement, the Company and
LMC shared equally in M4's revenues and other income and all expenses were
allocated to LMC until the capital accounts of the Company and LMC became equal.
The capital accounts became equal in the fourth quarter of 1996, and from that
date until March 26, 1997 the Company and LMC shared equally in the losses of
M4. On March 26, 1997, the Company and LMC executed a letter of intent that
contemplated the restructuring described above. After the date of the letter of
intent, the Company and LMC agreed to fund the operations of M4 in a manner
consistent with the terms of the restructuring agreements and the Company
recognized losses from M4 in accordance with its funding obligation. Summarized
income statement information of M4 is presented below:

<TABLE>
<CAPTION>
Period April 1, 1997 Period January 1, 1997
through June 16, 1997 through June 16, 1997
--------------------- ----------------------

<S> <C> <C>
Revenue $ 7,261,000 $ 15,995,000
Expenses $(15,281,000) $(31,370,000)
Net loss $ (8,020,000) $(15,375,000)

The Company's share of M4's loss $ (6,063,000) $ (9,741,000)

<CAPTION>
Quarter ended Six months ended
June 30, 1996 June 30, 1996
--------------------- ----------------------

<S> <C> <C>
Revenue $ 4,409,000 $ 4,809,000
Other income 251,000 597,000
------------ ------------
Total revenue and other income $ 4,660,000 $ 5,406,000
Expenses $(15,369,000) $(20,731,000)
------------ ------------
Net loss $(10,709,000) $(15,325,000)

The Company's share of M4's
total revenue and other income $ 2,307,000 $ 2,676,000
=========== ============
</TABLE>

F-6
<PAGE> 64

obtained assets of $45,133,064 which consisted primarily of receivables from LMC
and fixed and intangible assets.

In 1996, the Company sold the rights to the Japanese chemical weapons market to
M4 and deferred the portion of the gross profit representing the Company's
designated ownership interest. As a result of the restructuring, these rights
are now held by the new limited liability company (the "LLC") which will pursue
the worldwide chemical weapons market. Accordingly, the deferred income related
to the sale of the rights to the Japanese chemical weapons market will be
recognized as a reduction of cost of revenue as the rights are amortized by the
LLC.

The net amount of funding due from LMC under the restructuring agreements is
recorded as short-term and long-term receivables of $6,292,000 and $19,000,000,
respectively.

NOTE 4. JAPANESE JOINT VENTURE

In February 1996, MMT, Nichimen Corporation, one of Japan's major trading
companies, and NKK Plant Engineering Corporation, one of Japan's largest
engineering providers of municipal waste systems ("NKP"), signed a letter of
intent to form a joint venture to process fly ash produced by Japanese municipal
solid waste incinerators. A definitive agreement to form this joint venture was
executed in October 1996 by the Company, Nichimen and NKP. The agreement grants
the joint venture the exclusive right to introduce CEP to the Japanese municipal
incinerator ash market. The joint venture will employ MMT's proprietary
Cerex-CEP technology to process and recycle incinerator ash to recover ceramic
and metal products. Under the agreement, the Company owns 49% of the joint
venture, will receive a two percent royalty on all revenues of the joint
venture, and will receive a $12.5 million licensing fee, to be paid from the
joint venture's profits. The Company and the joint venture have entered into an
agreement pursuant to which the joint venture will purchase an initial CEP
system from MMT. The CEP system is to be delivered in the first quarter of 1998
for a fixed price of $7.9 million. During the six months ended June 30, 1997,
the Company recognized revenue of $784,000 for engineering and construction work

F-7
<PAGE> 65

performed under the agreement. Revenue under this agreement is being recognized
using the percentage of completion method based on the ratio that costs incurred
to date bear to estimated total costs at completion. The parties expect that the
joint venture will purchase a minimum of 29 CEP systems from the Company over
the first ten years of the joint venture's operations, including the initial CEP
system. There can be no assurances that the joint venture will order any
additional CEP systems from MMT or that such systems, if ordered and delivered
to Japan, will be able to successfully process and recycle incinerator ash.

NOTE 5. LITIGATION

In February and March 1997, purchasers of the Company's common stock filed five
purported class action suits against the Company and certain of its present and
former directors and executive officers in the United States District Court for
the District of Massachusetts. The complaints variously allege that defendants
made false and misleading statements and disseminated financial statements not
prepared in accordance with generally accepted accounting principles, in
violation of federal securities laws and state law, in order to enhance the
value of the Company's common stock and to enable the Company to issue
securities and the individual defendants to sell shares of the Company's common
stock at inflated prices. Each of the suits seeks compensatory damages for
unspecified alleged losses during the class periods, the longest of which
extends from September 26, 1995 through October 21, 1996. These actions are at
an early procedural stage. While the Company has not yet filed answers to the
complaints, the Company intends to deny liability with respect to these actions.
However, the ultimate outcome cannot be determined at present. As such, no
provision for liability from these suits has been made in the financial
statements as of June 30, 1997.

The Company has certain contingent liabilities resulting from other litigation
and claims incident to the ordinary course of business. Management believes that
the probable resolution of such contingencies will not materially affect the
financial condition or results of operations of the Company.

F-8
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Molten Metal Technology, Inc.

In our opinion, the accompanying consolidated balance sheet in the related
consolidated statements of operation, of cash flows and of changes in
stockholders equity present fairly, in all material respects, the financial
position of Molten Metal Technology, Inc. and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP
Boston, Massachusetts
May 23, 1997

F-9

<PAGE> 67
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents $ 19,679,104 $ 6,644,856
Short-term investments 109,388,659 79,631,394
Accounts receivable 2,573,306 1,282,915
Unbilled accounts receivable -- 634,943
Accounts receivable from affiliate 5,525,491 7,846,987
Unbilled accounts receivable from affiliate 798,980 7,565,209
Prepaid expenses and other current assets 6,300,727 2,309,398
------------- -------------
Total current assets 144,266,267 105,915,702

Restricted cash 2,592,925 7,432,817
Fixed assets, net 103,553,945 34,679,390
Intangible assets, net 16,363,201 3,501,680
Investment in affiliate -- 834,794
Other assets 5,968,911 971,618
------------- -------------
$ 272,745,249 $ 153,336,001
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ 1,884,486 $ 195,043
Accounts payable 19,273,058 9,827,490
Accrued expenses 6,082,746 1,713,557
Accrued interest 2,161,297 789,455
Deferred revenue 1,647,472 --
Deferred income from affiliate 4,586,870 --
Deferred revenue from affiliate -- 4,083,334
------------- -------------
Total current liabilities 35,635,929 16,608,879
------------- -------------

Long-term debt 164,753,334 22,883,962
------------- -------------
Due to related parties 1,385,889 1,474,586
------------- -------------
Deferred income from affiliate 2,437,500 2,459,918
------------- -------------
Accumulated losses of affiliate in excess of investment 5,020,765 --
------------- -------------

Stockholders' equity:
Preferred stock, $.01 par value, 3,000 shares authorized, no shares
issued or outstanding -- --
Common stock, $.01 par value, 100,000,000 shares authorized;
23,643,707 shares issued and 23,603,707 outstanding at December 31, 1996
and 22,746,854 shares issued and outstanding at December 31, 1995 236,437 227,469
Additional paid-in capital 163,124,587 146,641,721
Valuation allowance for short-term investments (86,653) (311,163)
Accumulated deficit (97,820,411) (36,638,947)
------------- -------------
65,453,960 109,919,080
Less: Treasury stock, 40,000 shares at cost (482,504) --
Less: Deferred compensation (1,459,624) (10,424)
------------- -------------
Total stockholders' equity 63,511,832 109,908,656
------------- -------------
$ 272,745,249 $ 153,336,001
============= =============
</TABLE>

See notes to consolidated financial statements

F-10
<PAGE> 68
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Revenue:
Research and development ("R&D") $ 8,307,140 $ 13,613,416 $ 11,263,197
Construction, R&D and consulting from affiliate 42,120,717 21,567,982 218,965
Technology transfer and success fees from affiliate 13,083,333 9,000,000 2,916,667
------------ ------------ ------------
63,511,190 44,181,398 14,398,829
------------ ------------ ------------
Operating expenses:
Cost of revenue - R&D 8,247,081 13,699,110 10,838,198
Cost of revenue - construction, R&D, consulting,
technology transfer and success fees from affiliate 42,231,549 21,202,794 218,965
R&D 26,183,268 10,986,234 14,417,327
Selling, general and administrative ("SG&A") 18,708,514 2,877,371 7,132,256
------------ ------------ ------------
95,370,412 48,765,509 32,606,746
Equity income (loss) from affiliate (31,612,891) 834,294 --
------------ ------------ ------------
Loss from operations (63,472,113) (3,749,817) (18,207,917)

Other income (expense):
Interest income 8,812,303 5,559,690 4,376,403
Interest expense (6,521,654) (1,455,084) (737,741)
------------ ------------ ------------
Net income (loss) $(61,181,464) $ 354,789 $(14,569,255)
============ ============ ============

Net income (loss) per share $ (2.62) $ 0.01 $ (0.67)
============ ============ ============

Weighted average common and common equivalent
shares outstanding 23,313,243 24,710,423 21,904,213
============ ============ ============
</TABLE>

See notes to consolidated financial statements

F-11

<PAGE> 69
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

COMMON STOCK
--------------------------------- ADDITIONAL
NUMBER OF PAID-IN VALUATION
SHARES AMOUNT CAPITAL ALLOWANCE
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 21,740,927 217,409 138,679,471 --

Issuance of common stock 148,719 1,488 1,998,067
Issuance of stock pursuant to
exercise of options 276,317 2,763 631,499
Compensation expense related to
common stock option
Valuation allowance for
short-term investments (2,328,784)
Net loss
---------- ------------ ------------ ------------
Balance at December 31, 1994 22,165,963 221,660 141,309,037 (2,328,784)

Issuance of common stock 139,098 1,391 3,199,056
Issuance of stock pursuant to
exercise of options 424,793 4,248 1,785,843
Issuance of stock pursuant to
employee stock purchase plan 17,000 170 306,850
Compensation expense related to
common stock options 40,935
Valuation allowance for
short-term investments 2,017,621
Net income
---------- ------------ ------------ ------------
Balance at December 31, 1995 22,746,854 227,469 146,641,721 (311,163)

Issuance of common stock in exchange
for investment in affiliate 352,361 3,524 11,183,938
Issuance of stock pursuant to
exercise of options 526,630 5,266 2,951,157
Issuance of stock pursuant to
employee stock purchase plan 17,862 178 341,521
Deferred compensation related to
issuance of restricted stock 2,006,250
Compensation expense related to
restricted stock and common stock options
Purchase of treasury stock
Valuation allowance for
short-term investments 224,510
Net loss
---------- ------------ ------------ ------------
Balance at December 31, 1996 23,643,707 $ 236,437 $163,124,587 $ (86,653)
========== ============ ============ ============
</TABLE>

<TABLE>
<CAPTION>
TOTAL
ACCUMULATED TREASURY DEFERRED STOCKHOLDERS'
DEFICIT STOCK COMPENSATION EQUITY
------- ----- ------------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 (22,424,481) (139,091) 116,333,308

Issuance of common stock 1,999,555
Issuance of stock pursuant to
exercise of options 634,262
Compensation expense related to
common stock option 66,171 66,171
Valuation allowance for
short-term investments (2,328,784)
Net loss (14,569,255) (14,569,255)
------------ --------- ------------- ------------
Balance at December 31, 1994 (36,993,736) -- (72,920) 102,135,257

Issuance of common stock 3,200,447
Issuance of stock pursuant to
exercise of options 1,790,091
Issuance of stock pursuant to
employee stock purchase plan 307,020
Compensation expense related to
common stock options 62,496 103,431
Valuation allowance for
short-term investments 2,017,621
Net income 354,789 354,789
------------ --------- ------------- ------------
Balance at December 31, 1995 (36,638,947) -- (10,424) 109,908,656

Issuance of common stock in exchange
for investment in affiliate 11,187,462
Issuance of stock pursuant to
exercise of options 2,956,423
Issuance of stock pursuant to
employee stock purchase plan 341,699
Deferred compensation related to
issuance of restricted stock (2,006,250) --
Compensation expense related to
restricted stock and common stock options 557,050 557,050
Purchase of treasury stock (482,504) (482,504)
Valuation allowance for
short-term investments 224,510
Net loss (61,181,464) (61,181,464)
------------ --------- ------------- ------------
Balance at December 31, 1996 $(97,820,411) $(482,504) $ (1,459,624) $ 63,511,832
============ ========= ============= ============
</TABLE>

See notes to consolidated financial statements

F-12
<PAGE> 70
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (61,181,464) $ 354,789 $(14,569,255)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities (net of assets acquired from SEG):
Depreciation and amortization 6,745,580 4,874,191 3,694,839
Equity loss (income) from affiliate 31,612,891 (834,294) --
Compensation expense related to restricted stock and common stock options 557,050 103,431 66,171
Decrease (increase) in accounts receivable (655,448) 20,339 (220,818)
Increase in accounts receivable from affiliate (5,482,145) (15,193,231) (218,965)
Increase in prepaid expenses and other current assets (4,011,329) (611,613) (602,581)
Decrease (increase) in other assets (860,409) 74,009 399,500
Increase in accounts payable 9,445,568 11,371,244 426,519
Increase in accrued expenses 4,369,189 383,112 774,900
Increase (decrease) in accrued interest 1,371,842 (16,383) 733,259
Increase (decrease) in deferred revenue from affiliate (4,083,334) (499,999) 4,583,333
Decrease in due to related parties (88,697) -- --
Increase in deferred income from affiliate 4,564,452 2,459,918 --
------------- ------------ ------------
Net cash provided by (used in) operating activities (17,696,254) 2,485,513 (4,933,098)
------------- ------------ ------------

Cash flows from investing activities:
Expenditures for fixed assets (55,125,535) (21,114,446) (7,518,420)
Purchase of intangible assets (1,904,752) (1,368,290) (644,630)
Cash paid for acquisition of SEG assets, net of cash received (29,434,528) -- --
Redemption (purchase) of short-term investments, net (29,532,755) 10,518,819 (18,574,339)
Decrease (increase) in restricted cash and investments 4,839,892 2,438,633 (9,285,850)
------------- ------------ ------------
Net cash used in investing activities (111,157,678) (9,525,284) (36,023,239)
------------- ------------ ------------

Cash flows from financing activities:
Proceeds from issuances of common stock, net 3,298,122 2,097,111 634,262
Purchase of treasury stock (482,504) -- --
Proceeds from issuance of long-term debt 143,750,000 -- 21,000,000
Debt issuance costs (4,486,253) -- (977,371)
Principal repayments of long-term debt (191,185) (476,367) (172,671)
------------- ------------ ------------
Net cash provided by financing activities 141,888,180 1,620,744 20,484,220
------------- ------------ ------------
Increase (decrease) in cash and cash equivalents 13,034,248 (5,419,027) (20,472,117)
Cash and cash equivalents at beginning of year 6,644,856 12,063,883 32,536,000
------------- ------------ ------------
Cash and cash equivalents at end of year $ 19,679,104 $ 6,644,856 $ 12,063,883
============= ============ ============

Additional disclosure of non-cash investing and financing activities:
Purchase of fixed assets under capital leases $ -- $ -- $ 453,555
============= ============ ============
Issuance of common stock in exchange for engineering services $ -- $ 3,200,447 $ 1,999,555
============= ============ ============
Issuance of common stock in exchange for investment in affiliate $ 11,187,462 $ -- $ --
============= ============ ============
Reclass of accounts receivable from affiliate to accumulated losses
of affiliate in excess of investment $ 14,569,870 $ -- $ --
============= ============ ============
In 1996, the Company acquired certain assets from The Scientific Ecology
Group, Inc. for approximately $31 million. In conjuction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 32,927,472
Cash paid for assets (31,280,000)
-------------
Liabilities assumed $ 1,647,472
=============

Supplemental disclosure of cash flow information:
Interest paid $ 5,874,922 $ 1,759,770 $ 182,544
============= ============ ============
</TABLE>

See notes to consolidated financial statements

F-13
<PAGE> 71

MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--NATURE OF OPERATIONS AND RISKS AND UNCERTAINTIES

Molten Metal Technology, Inc. (the "Company") is an environmental technology
company engaged in the commercialization and continued development of its
proprietary processing technology, Catalytic Extraction Processing ("CEP"). The
core of CEP is a molten metal bath into which feedstocks and selected chemicals
can be introduced. The catalytic and solvent effects of the molten metal bath
causes feedstocks to break down into their constituent elements and dissolve in
the molten metal. The addition of various selected chemicals to the molten metal
bath allows feedstocks to reform and be recovered as different materials which
generally can be re-used as a raw material by the feedstock generator or can be
sold to other users.

The Company is subject to certain risks and uncertainties because of the nature
and status of its operations, including uncertainty of market acceptance and
sustained commercial operations of CEP technology, limited revenue from
unaffiliated third parties, and uncertainty of future profitability.

During the years ended December 31, 1996, 1995 and 1994, revenue from M4
Environmental L.P. ("M4") accounted for approximately 87%, 69% and 22%,
respectively, of the Company's total revenue. M4 is a joint venture between the
Company and Lockheed Martin Corporation ("LMC"). As described in Note 13, in
March 1997, the Company and LMC entered into a Letter of Intent to restructure
their relationship currently embodied in M4. Although the Company may earn
revenue in the future pursuant to the proposed new agreements with LMC, no
assurances as to the amount and timing of such revenue, if any, can be made.

The Company's results of operations have varied significantly in the past and
may continue to vary significantly in the future. The Company's results of
operations in the past have been dependent largely on revenue from M4 and the
Department of Energy ("DOE"). During 1996, the Company's cost-share contract
with the DOE reached its funding limit and no additional amounts were authorized
by the DOE. The Company's future profitability is dependent upon its ability to
commercialize successfully its CEP technology and to find alternative sources of
revenue. There can be no assurance that the Company will generate sufficient
revenue to achieve profitability.

The Company has made substantial investments in fixed and intangible assets
(Notes 4, 5 and 6). While the Company has begun initial operations at
Company-owned and operated facilities, the Company has not yet demonstrated that
a commercial CEP system, once installed and operated at a customer's location,
will process customer's feedstocks and recover commodity and specialty products
of commercial quality and in significant quantities. If the Company is unable to
operate CEP systems profitably on a sustained basis in commercial scale use, the
Company will not be able to recover its investments in such fixed and intangible
assets.

In 1996, the Company incurred a net loss of $61 million and at December 31,
1996, had an accumulated deficit of $98 million. In addition, the Company
incurred a substantial net loss for the quarter ended March 31, 1997. The
Company's current business plan indicates that the Company will require
additional financing to be used for completion of its planned capital
expenditures through the end of 1997 and to continue its research, development
and other efforts necessary to commercialize its CEP technology. Accordingly,
the Company intends to raise additional financing during 1997, and has retained
several investment banking firms to assist it in these efforts. If the Company
does not obtain additional financing during 1997, it would have a materially
adverse effect on the Company's operations.

F-14
<PAGE> 72
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications
have been made for consistent presentation.

Use of 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 revenues and expenses during the reporting period. The
more significant estimates made by management include future cash flows
associated with long-lived assets (Note 4), useful lives for depreciation and
amortization (Notes 5 and 6) and estimated losses on lease commitments (Note
16). Actual results could differ from these estimates.

Concentrations

During the year ended December 31, 1996, revenue from M4 and the DOE totaled
approximately $55,204,000 and $8,000,000, or approximately 87% and 13% of
revenue, respectively. During the year ended December 31, 1995, revenue from M4
and the DOE totaled approximately $30,568,000 and $13,162,000, or approximately
69% and 30% of revenue, respectively. During the year ended December 31, 1994,
revenue from M4 and the DOE totaled approximately $3,136,000 and $10,838,000, or
approximately 22% and 75% of revenue, respectively.

Cash Equivalents and Short-term Investments

The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist of
investments in money market funds, U.S. treasury bills and high grade commercial
paper. Accordingly, these investments are subject to minimal credit and market
risk. At December 31, 1996 and 1995, all of the Company's cash equivalents are
classified as held to maturity and all costs approximate fair value.

Short-term investments consist of high grade commercial paper, U.S. government
securities and commercial bonds with original maturities of greater than three
months and mutual funds that invest in government securities. At December 31,
1996 and 1995, all of the Company's short-term investments are classified as
available-for-sale. Securities under this classification are recorded at fair
market value and unrealized gains and losses are recorded as a separate
component of stockholders' equity. The following table summarizes short-term
investments as of December 31, 1996:

<TABLE>
<CAPTION>
Amortized Cost Unrealized Gains(Losses) Market Value
-------------- ------------------------ ------------
<S> <C> <C> <C>
U.S. government securities
(Maturities less than 3 years) $ 40,557,324 $ (131,571) $ 40,425,753
Commercial paper and corporate bonds
(Maturities less than 3 years) 68,917,988 44,918 68,962,906
------------- ------------- ------------
$ 109,475,312 $ (86,653) $109,388,659
============= ============= ============
</TABLE>

F-15
<PAGE> 73
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes short-term investments as of December 31, 1995:

<TABLE>
<CAPTION>
Amortized Cost Unrealized Losses Market Value
-------------- ----------------- ------------
<S> <C> <C> <C>
U.S. government securities
(Maturities less than 3 years) $ 37,735,706 $ (214,553) $37,521,153
Commercial paper and corporate bonds
(Maturities less than 3 years) 42,206,851 (96,610) 42,110,241
------------ ------------ -----------
$ 79,942,557 $ (311,163) $79,631,394
============ ============ ===========
</TABLE>

The proceeds from sales of available-for-sale securities during the years ended
December 31, 1996, 1995 and 1994 were approximately $41 million, $23 million and
$2 million, respectively. Gross realized gains or losses on these sales were
immaterial.

Restricted Cash

Restricted cash includes certificates of deposit and investments in money market
funds. At December 31, 1996 and 1995, the Company's restricted cash is
classified as held-to-maturity and is recorded at cost which approximates fair
value. At December 31, 1996 and 1995, the balances in restricted cash consist of
$807,325 and $6,847,217, respectively, held in trust funds required in
connection with the issuance of tax-exempt bonds (Note 7) and $1,785,600 and
$585,600, respectively, required as security for letters of credit (Notes 6 and
7).

Revenue Recognition

Revenue to date consists of fees charged for the following; licenses,
engineering and construction of CEP systems, research and development contracts
and cost-sharing contracts with the U.S. government.

Revenue from research and development contracts and engineering and construction
services is recognized as services are rendered. Revenue earned on cost-plus
contracts is recognized as the work is performed. Revenue from license fees is
recognized when the Company becomes contractually entitled to receipt of the
fees and upon fulfillment of any significant obligations. Revenue under
cost-sharing contracts with the U.S. government is recorded as costs are
incurred and fees are earned. Payments received in excess of amounts recognized
as revenue are recorded as deferred revenue.

Accounts Receivable

Accounts receivable (other than from affiliates) consist of amounts due to the
Company under commercial and government contracts. At December 31, 1996 and
1995, the balances include $2,548,188 and $1,628,227, respectively, due from
cost-sharing arrangements with the U.S. government.

Fixed Assets

Fixed assets are stated at cost. Depreciation and amortization are provided
using the straight-line method based on estimated useful lives or, in the case
of leasehold improvements, over the lesser of the useful lives or the remaining
lease terms. Maintenance and repair expenditures are charged to expense as
incurred.

F-16
<PAGE> 74
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

Intangible assets include the excess of costs over acquired assets and costs
associated with obtaining patents, trademarks, licenses, permits and engineering
drawings. These costs are amortized using the straight-line method over the
estimated useful lives of the related assets or, in the case of patents,
trademarks, licenses and permits, over the shorter of the legal terms or the
estimated economic lives.

Impairment of Long-Lived Assets

The Company periodically assesses whether any events or changes in circumstances
have occurred that would indicate that the carrying amount of a long-lived asset
may not be recoverable. When such an event or change in circumstance occurs, the
Company evaluates whether the carrying amount of such asset is recoverable by
comparing the net book value of the asset to estimated future undiscounted cash
flows, excluding interest charges, attributable to such asset. If it is
determined that the carrying amount is not recoverable, the Company recognizes
an impairment loss equal to the excess of the carrying amount of the asset over
the estimated fair value of such asset.

Accounting for Stock-based Compensation

Employee stock awards under the Company's compensation plans are accounted for
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. In January 1996, the
Company adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation".

Net Income (Loss) Per Share

Net income (loss) per share is determined by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding
during the period. Common share equivalents consist of common stock which may be
issuable upon exercise of outstanding stock options and warrants (Notes 10, 11
and 14). Common share equivalents have been excluded from weighted average
number of common shares in loss periods since their effect is anti-dilutive. The
effect of the assumed conversion of the convertible debt (Note 7) was
anti-dilutive for the periods presented.

In February 1997, Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS 128") was issued by the Financial Accounting Standards Board. FAS 128
specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under FAS 128, "basic earnings per share" will be
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares (stock options, warrants and convertible debt) if they are dilutive. FAS
128 is effective for the Company's fourth quarter of 1997 and will be adopted at
that time. Had the Company determined earnings per share in accordance with FAS
128, basic earnings (loss) per share and diluted earnings (loss) per share for
1996, 1995 and 1994 would not have been materially different from the net income
(loss) per share reported by the Company.

Reclassifications

Certain reclassifications have been made to prior year balances to conform to
the current year presentation. The reclassifications have no effect on prior
year operating results.

F-17
<PAGE> 75
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 -- ACQUISITIONS

During December 1996, MMT of Tennessee Inc., a wholly-owned subsidiary of the
Company ("MMT Tennessee") signed a series of agreements to become the full owner
of the Quantum Catalytic Extraction Processing ("Q-CEP(TM)") facility it had
jointly owned with The Scientific Ecology Group, Inc. ("SEG") in Oak Ridge,
Tennessee (the "Q-CEP Facility") and to acquire certain assets used for handling
and processing radioactive "wet waste." SEG was a wholly-owned subsidiary of
Westinghouse Electric Corporation ("Westinghouse"). The Q-CEP Facility is
designed to process radioactive ion exchange resins from nuclear power plants.
Pursuant to those agreements, on December 10, 1996, MMT Tennessee acquired SEG's
interest in the Q-CEP Facility and certain assets of SEG and Westinghouse used
in the "wet waste" business. These assets include contracts, equipment, services
and personnel for processing radioactive waste streams at the Q-CEP Facility.

The cost to the Company of the acquisition of these assets was the purchase
price of $31 million in cash plus acquisition related costs of $280,000. The
acquisition was accounted for as a purchase and, accordingly, operating results
of this business subsequent to the date of acquisition were included in the
Company's consolidated financial statements. The excess of cost over the fair
value of the net assets acquired was allocated to goodwill and is being
amortized on a straight-line basis over a period of ten years.

The following unaudited pro forma summary combines the consolidated results of
operations of the Company and the wet waste business as if the acquisition had
occurred at the beginning of 1996 and 1995, after giving effect to certain
adjustments, including amortization of intangible assets, additional
depreciation resulting from increased basis of property and equipment acquired
and reduction in interest income resulting from the payment of the purchase
price and acquisition costs. The pro forma summary does not necessarily reflect
the results of operations as they would have been if the Company and the wet
waste business had constituted a single entity during such periods.

<TABLE>
<CAPTION>
Year ended
December 31,
(unaudited)
---------------------------------
1996 1995
---------------------------------
<S> <C> <C>
Revenue $ 73,778,000 $ 53,228,000
Net loss $(62,986,000) $ (2,382,000)
Net loss per share $ (2.70) $ (0.10)
</TABLE>

On January 29, 1997, MMT Tennessee acquired certain low-level radioactive waste
processing assets of VECTRA Technologies, Inc., a spent nuclear fuel and
radioactive waste services company located in San Ramon, California. MMT
Tennessee paid $3.9 million in cash for the VECTRA waste-handling assets, which
include machinery, equipment, spare parts, intellectual property and customer
contracts. The acquisition will be accounted for as a purchase. In accordance
with APB Opinion No. 16, the purchase price will be allocated to the net assets
acquired based upon their estimated fair values.

NOTE 4 -- IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with FAS 121, the Company reviews long-lived assets for potential
impairment when events or changes in circumstances indicate that an asset's
carrying value may not be recoverable.

F-18
<PAGE> 76
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 1996, the Company announced that government funded research and
development revenues would not meet the Company's expectations and, as a result,
fourth quarter revenue and earnings would be adversely affected. In the fourth
quarter of 1996, management reassessed the focus of the Company's development
and commercialization efforts. As a result of this evaluation, the Company
implemented a restructuring to pursue opportunities in priority markets more
efficiently, to focus the Company's efforts on certain core initiatives, and to
delay certain development projects. In addition, in the fourth quarter of 1996,
the Company and LMC commenced negotiations to restructure their joint venture
relationship. These negotiations culminated in the execution of a letter of
intent, the significant terms of which are described in Note 13. As a result of
these changes in the Company's business and the significant loss for the quarter
ended December 31, 1996, management performed an assessment of the
recoverability of all of the Company's long-lived assets (including fixed assets
and intangible assets) as of December 31, 1996.

In connection with the assessment, management prepared forecasts of the expected
future cash flows related to these assets on an undiscounted basis and without
interest charges. For purposes of these forecasts, assets were grouped at the
lowest level for which there are expected to be identifiable cash flows that are
largely independent of expected cash flows related to other groups of assets.
The Company retained independent valuation experts to assist with this process.
These forecasts were developed based on assumptions developed by management
using management's best estimates of future trends and events. The Company
commenced commercial processing using CEP at its first plant in January 1997 and
has not yet demonstrated sustained commercial operations. Accordingly,
management's estimates of future cash flows are based largely on expected future
trends and events, rather than historical experience. In estimating future cash
flows, management considered a range of the amount and timing of future cash
flows and the likelihood of possible outcomes. The range and likelihood of
possible outcomes considered by management were based on assumptions regarding
various factors, including the likelihood of the CEP plants operating at the
levels required to produce such cash flows, the ranges of prices the Company is
likely to be able to charge for its services, the percentage of the market that
the Company is likely to capture, the likelihood of an emergence of a competing
technology, anticipated capital improvements, and the regulatory environment.
Considering the above assumptions, management assigned a probability percentage
to each of the estimated cash flow scenarios within the range of estimates and
computed a weighted average estimated cash flow for each grouping of assets.

For each grouping of long-lived assets, the sum of the weighted average
forecasted cash flows from management's models exceeded the carrying amount of
the Company's long-lived assets. Accordingly, the Company has not recorded any
adjustments to the carrying amount of these assets. Management's estimates of
forecasted cash flows required an evaluation of various risks and uncertainties,
including those described in Note 1. Although management has made its best
estimate of these factors based on current conditions and expected trends and
events, it is reasonably possible that changes could occur in the near term
which could adversely affect management's estimates of forecasted cash flows. If
such changes occur, asset impairment write-downs could be required in the future
and such write-downs could be material to the Company's financial statements.

F-19
<PAGE> 77
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--FIXED ASSETS

Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
Estimated useful ------------
life (years) 1996 1995
------------ ---- ----
<S> <C> <C> <C>
Land and improvements -- $ 460,295 $ --
Buildings 30 10,210,069 --
CEP units 5-7 21,387,294 13,834,177
Leasehold improvements 3-10 6,280,349 5,366,501
Furniture and equipment 5 10,289,769 5,385,923
Furniture and equipment held under capital leases 5 453,555 453,555
Machinery and equipment 5 4,750,179 1,336,442
Construction in progress -- 64,855,097 17,769,631
------------- -----------
118,686,607 44,146,229
Less -- Accumulated depreciation and amortization (15,132,662) (9,466,839)
------------- -----------
$ 103,553,945 $34,679,390
============= ===========
</TABLE>

Costs of the construction of certain long-term assets include capitalized
interest which is amortized over the estimated useful life of the related asset.
The Company capitalized interest costs of $701,945 and $482,149 in 1996 and
1995, respectively.

Depreciation and amortization expense for the years ended December 31, 1996,
1995 and 1994 was approximately $5,850,000, $4,555,000 and $3,362,000,
respectively. Depreciation expense relating to furniture and equipment held
under capital leases for the years ended December 31, 1996, 1995 and 1994 was
approximately $91,000, $91,000 and $45,000, respectively.

NOTE 6--INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
Estimated December 31,
useful life ------------
(years) 1996 1995
------- ---- ----
<S> <C> <C> <C>
Patents and trademarks 10-17 $ 3,617,151 $2,480,603
Engineering drawings 1-2 567,000 69,178
Licenses and permits 1-10 3,873,799 1,455,589
Non-compete agreement 5 2,768,000 --
Goodwill 10 6,517,748 --
------------ ----------
17,343,698 4,005,370
Less -- Accumulated amortization (980,497) (503,690)
------------ ----------
$ 16,363,201 $3,501,680
============ ==========
</TABLE>

During 1993, the Company was granted a recycling permit for its research,
development, testing and demonstration facility in Fall River, Massachusetts
(the "Fall River Facility"). In conjunction with obtaining this permit, the
Company obtained a $100,000 letter of credit to cover potential environmental
liability, if any, incurred upon the closure of the Fall River Facility.

During 1996, MMT Tennessee acquired a radiological license for the Q-CEP
facility in Oak Ridge, Tennessee. In conjunction with obtaining this license,
MMT Tennessee obtained a $1,400,000 letter of credit to cover the estimated
costs related to the decommissioning of the Q-CEP facility upon its closure.

F-20
<PAGE> 78
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7--LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Convertible debt $ 143,750,000 $ --
Tax-exempt bonds 21,000,000 21,000,000
Loan agreements 1,787,334 1,827,333
Capital lease obligations, including current portion
of $100,486 in 1996 and $155,043 in 1995 (Note 16) 100,486 251,672
------------- ------------
166,637,820 23,079,005
Less -- Current portion (1,884,486) (195,043)
------------- ------------
$ 164,753,334 $ 22,883,962
============= ============
</TABLE>

Convertible Debt

In May 1996, the Company issued $143,750,000 of Convertible Subordinated Notes
Due 2006 (the "Notes"). The Notes have a term of ten years and are payable in
full on May 1, 2006. The Notes bear interest at the rate of 5.50% per year
payable semi-annually. The Notes are convertible, at the option of the holder,
into shares of the Company's common stock at an initial conversion price of
$38.75 per share. Beginning in May 1999, the Notes become redeemable at the
option of the Company at an initial redemption price of 102.75% of the
principal amount plus any accrued interest. Upon a change of control (as
defined in the indenture under which the Notes were issued) or in the event the
Company's common stock is neither listed on a U.S. national securities exchange
nor approved for trading on an established automated over-the-counter U.S.
trading market, each holder of the Notes will have the right to require the
Company to repurchase all or a portion of such holder's Notes at a price equal
to 100% of the principal amount plus any accrued interest. The Notes are
subordinated in right of payment to the Company's other existing debt.

Tax-Exempt Bonds

In 1994, the Company completed a tax-exempt bond financing in connection with
its Fall River Facility. Pursuant to the financing, the Company entered into a
loan agreement with the Massachusetts Industrial Finance Agency which issued
$21,000,000 aggregate principal amount of its Solid Waste Disposal Facility
Revenue Bonds. The bonds are payable in annual sinking fund installments
beginning in 1998 and ending in 2014 and bear interest at 8.25% per annum
payable semi-annually. The loan agreement requires compliance with certain
covenants, which include restrictions on future indebtedness and consolidations
or mergers. As of December 31, 1996, the Company had received the entire $21
million in cash for qualified expenditures.

Loan Agreements

In 1993, the Company borrowed $1,944,000 from the Town of Fall River,
Massachusetts pursuant to certain loan agreements. The loans bear interest at an
effective annual rate of 8.5%, payable in monthly or semi-annual installments.
The loans are due in August 1997 and are secured by certain equipment and a
letter of credit in the amount of $210,000.

Debt Issuance Costs

Unamortized debt issuance costs were $5,043,000 and $906,000 at December 31,
1996 and 1995, respectively. These costs are being amortized over the term of
the debt using the effective interest

F-21
<PAGE> 79
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

method.

Maturities of Long-Term Debt

The amount of long-term debt, including sinking fund installment requirements
and excluding capital lease obligations, maturing in the next five years is as
follows:

Line of Credit

In 1994, the Company entered into a revolving line of credit agreement with a
bank. The agreement provides for a maximum of $1.5 million to be borrowed and
repaid upon demand. Interest accrues at the bank's prime rate plus .50% and is
payable monthly. As of December 31, 1996, the Company had not borrowed against
the line of credit.

NOTE 8--RELATED PARTY TRANSACTIONS

Technology Purchase Agreement

During 1990, the Company purchased the rights to patented technologies related
to CEP from an employee and a member of the Company's Technical Advisory Board
for $1,500,000. The purchased technology was expensed as research and
development in process and the Company recorded a corresponding liability for
$1,500,000. The amount is payable in annual payments of 25% of the Company's
pre-tax profits, as defined; however, the Company may elect to accelerate the
payments. As of December 31, 1996, $114,111 has been paid related to this
agreement.

NOTE 9--RETIREMENT SAVINGS PLAN

The Company has a retirement savings plan under Section 401(k) of the Internal
Revenue Code. This plan covers substantially all employees who meet minimum age
and service requirements and allows participants to defer a portion of their
annual compensation on a pre-tax basis. In addition, Company contributions to
the plan may be made at the discretion of the Board of Directors. No Company
contributions were authorized during the years ended December 31, 1996, 1995 and
1994.

NOTE 10--PREFERRED STOCK

Preferred stock may be issued at the discretion of the Board of Directors of the
Company (without stockholder approval) with such designations, rights and
preferences as the Board of Directors may determine from time to time. The
preferred stock may have dividend, liquidation, conversion, voting or other
rights which may be more expansive than the rights of the holders of the common
stock.

In connection with the issuance of preferred stock in 1993, the Company issued a
warrant to the placement agent to purchase up to 129,317 shares of Series C
convertible preferred stock at $3.52 per share. This warrant converted into a
warrant to purchase up to 43,105 shares of common stock at $10.56 per share upon
completion of the Company's initial public offering. This warrant expires in
January 1998.

F-22
<PAGE> 80
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 -- COMMON STOCK

1989 Long Term Incentive Plan

The Company's 1989 Long Term Incentive Plan (the "1989 Plan") provides for the
granting of incentive stock options, nonqualified stock options, restricted
stock and stock appreciation rights to employees, directors and consultants of
the Company. The Plan allows for the issuance of up to 8,299,383 shares of
common stock through November 1999. The Board of Directors determines the term
of each option, the option price, the number of shares for which each option is
granted and the rate at which each option is exercisable. The exercise price of
incentive stock options shall not be less than 100% of the fair market value of
the common stock at the date of grant (110% for options granted to holders of
more than 10% of the voting stock of the Company).

In 1993 and 1996, the Board of Directors of the Company amended the Plan to
provide for the automatic grant of stock options (the "Automatic Grants") to
directors who are not officers or employees of the Company ("Non-Employee
Directors"). The Plan provides that each Automatic Grant will be made to any
Non-Employee Director who is elected or reelected to the Board of Directors,
will be for 25,000 shares of common stock, will vest over 20 quarters and will
be exercisable at the fair market value as of the date of the Automatic Grant.
Each Non-Employee Director will be eligible to receive additional Automatic
Grants upon his or her reelection to the Board of Directors once their previous
Automatic Grant has fully vested.

During 1996, the Company issued 60,000 shares of restricted common stock under
the 1989 Plan to certain of its employees These shares vest at various times
over the five year period following the grant date. Unvested shares are
restricted as to disposition and subject to forfeiture under certain
circumstances. Upon issuance of the restricted shares, unearned compensation was
charged for the market value of the shares (which totaled approximately
$2,006,000) and is being amortized ratably over the vesting period. The amount
of compensation expense recognized in 1996 was $546,626. The weighted average
grant date fair value of the shares was equal to the market price per share at
the date of grant of $33.44.

A summary of stock option activity under the Company's stock option plans for
the three years ended December 31, 1996 is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, December 31, 1993 5,338,385 $ 3.17

Granted 923,169 20.81
Exercised (254,499) 22.39
Canceled (101,162) 18.09
---------
Outstanding, December 31, 1994 5,905,893 5.75

Granted 591,311 25.11
Exercised (424,792) 28.30
Canceled (179,193) 10.08
---------
Outstanding, December 31, 1995 5,893,219 7.67

Granted 930,664 30.37
</TABLE>

F-23

<PAGE> 81
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C> <C>
Exercised (526,630) 31.24
Canceled (252,369) 20.65
---------
Outstanding, December 31, 1996 6,044,884 $10.80
=========
Exercisable, December 31, 1996 4,158,900 $ 5.48

Available for future grant, December 31, 1996 1,059,907
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1996:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted
Number average Weighted Number average
Range of exercise outstanding at remaining average exercisable at exercise price
prices 12/31/96 contractual life exercise price 12/31/96
<S> <C> <C> <C> <C> <C>
$ .03 - $ .60 1,935,519 3.8 years $ .28 1,932,019 $ .28
$ 2.10 - $ 3.00 1,625,164 3.9 years 3.00 1,340,095 3.00
$ 6.90 - $10.58 158,602 5.2 years 9.15 119,687 8.95
$12.00 - $18.00 442,269 7.3 years 15.40 147,384 15.59
$18.25 - $27.25 954,426 6.9 years 21.82 510,043 21.50
$27.75 - $38.50 928,904 8.8 years 33.17 109,672 35.43
--------- ---------
6,044,884 4,158,900
</TABLE>

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:

<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 72.99% 65.29%
Risk-free interest rate 5.36-6.69% 5.51-7.76%
Expected option term 5 years 5 years
</TABLE>

The weighted average fair value of options granted was $19.82 and $15.17 for
1996 and 1995, respectively.

1993 Employee Stock Purchase Plan

In 1993, the Company adopted the 1993 Employee Stock Purchase Plan (the "1993
Plan"). Under the 1993 Plan, 500,000 shares of common stock are reserved for
issuance to eligible employees at a purchase price of 85% of the lower of the
closing price at the beginning or end of the six month option period. Payment
for the shares to be purchased is made through payroll deductions, which may not
exceed 15% of an employee's base compensation. In addition, no employee may
purchase shares in any one year having a market value (determined at the
beginning of the one year option period) greater than $25,000. Pursuant to the
1993 Plan, 17,862, 17,000 and 21,818 shares were purchased during 1996, 1995 and
1994, respectively, at prices of $19.13, $18.06 and $14.45, respectively.

F-24
<PAGE> 82
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each stock purchase right under the 1993 Plan was estimated
using the Black-Scholes option pricing model with the following assumptions:

<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 118.8% 61.0%
Risk-free interest rate 5.5% 5.7%
Expected option term 6 months 1 year
</TABLE>

The weighted average fair value of the stock purchase rights granted in 1996 and
1995 was $19.06 and $9.59, respectively.

Fair Value Disclosures

Had compensation cost for the 1989 Plan and the 1993 Plan been determined in
accordance with FAS 123, the Company's net income (loss) and net income (loss)
per share would have been as follows:

<TABLE>
<CAPTION>
Year ended
December 31,
1996 1995
---------- ----------
<S> <C> <C>
Net income (loss)
As reported $ (61,181,000) $ 355,000
Pro forma $ (66,206,000) $ (2,188,000)

Net income (loss) per share
As reported $ (2.62) $ 0.01
Pro forma $ (2.84) $ (0.10)
</TABLE>

The provisions of FAS 123 do not apply to options granted prior to January 1,
1995. Since options vest over several years and additional option grants are
expected to be made in future years, the above pro forma disclosures are not
necessarily representative of the pro forma effects of reported income for
future years.

Stock Repurchase Program

Reserved Shares

At December 31, 1996, the Company had reserved 11,835,893 shares of its common
stock for issuance under the 1989 Plan, under the 1993 Plan, upon conversion of
the Notes and upon exercise of outstanding warrants.

F-25
<PAGE> 83
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12--INCOME TAXES

Components of deferred taxes consist of the following:

<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Assets:
Net operating loss and tax credit carryforwards $ 33,704,000 $ 18,235,000
Accumulated losses of affiliate in excess of investment 14,174,000 --
Accrued expenses 768,000 405,000
Deferred compensation 344,000 121,000
Deferred revenue 2,810,000 2,617,000
Due to related parties 554,000 590,000
------------ ------------
Gross deferred tax asset 52,354,000 21,968,000
Deferred tax asset valuation allowance (51,517,000) (20,972,000)
------------ ------------
837,000 996,000
Liabilities:
Depreciation and amortization (837,000) (996,000)
------------ ------------
-- --
============ ============
</TABLE>

The Company has provided a full valuation allowance for deferred tax assets
since the realization of these future benefits cannot be reasonably assured as
of the end of each related year. The amount of the deferred tax asset considered
realizable is subject to change based on estimates of future taxable income
during the carryforward period. If the Company achieves sustained profitability,
these deferred tax assets would be available to offset future income taxes,
subject to potential limitation relating to ownership changes as discussed
below. The Company will assess the need for the valuation allowance at each
balance sheet date based on all available evidence.

At December 31, 1996, the Company had net operating loss carryforwards available
to reduce taxable income, and research and development tax credit carryforwards
available to reduce future tax liabilities, which expire as follows:

<TABLE>
<CAPTION>
Research and
Year of Net operating development tax
expiration loss carryforwards credit carryforwards
---------- ------------------ --------------------
<S> <C> <C>
2005 $ 349,000 $ 4,000
2006 103,000 20,000
2007 6,288,000 150,000
2008 16,569,000 355,000
2009 15,123,000 396,000
2010 4,275,000 314,000
2011 37,906,000 220,000
----------- ----------
$80,613,000 $1,459,000
=========== ==========
</TABLE>

A portion of the net operating loss carryforward totaling approximately
$24,440,000, relating to deductions for incentive stock option disqualifying
dispositions and exercises of non-qualified stock options, would be credited to
additional paid-in capital upon realization. Ownership changes, as defined in
the Internal Revenue Code, resulting from the issuances of stock may limit the
amount of net operating loss and tax credit carryforwards that can be utilized
annually to offset future taxable income or tax liability. The amount of the
annual limitation is determined based upon the Company's value

F-26
<PAGE> 84
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

immediately prior to the ownership change. Subsequent significant ownership
changes could further limit the utilization of these carryforwards in future
years.

NOTE 13 -- INVESTMENT IN JOINT VENTURE

In August 1994, the Company entered into a series of related agreements with
Martin Marietta Corporation ("MMC") to form M4 Environmental L.P. ("M4"). MMC
has since merged into Lockheed Martin Corporation ("LMC"), with LMC as the
surviving corporation. M4 was formed to commercialize CEP to service the
environmental remediation, waste management, decontamination, and
decommissioning needs of the U.S. Department of Defense and U.S. Department of
Energy (the "Market"). In December 1994, the Company and M4 entered into an
agreement to include the United States Enrichment Corporation in the Market. In
March 1996, MMT and LMC executed an agreement to expand M4 through the
acquisition by M4 of the Retech division of a subsidiary of LMC. Under the terms
of this expansion, LMC contributed certain of the assets of the Retech division
to M4. The Company purchased substantially all of the remaining assets in
exchange for 352,361 shares of its common stock, and then immediately
contributed these assets to M4.

The Company and LMC, through wholly-owned subsidiaries, each own a 49.5%
designated interest in M4 and a 50% interest in the corporation acting as the 1%
general partner. Pursuant to the agreements with LMC, as amended in March 1996,
LMC has agreed to fund M4's operations through August 1, 1999, including license
fees payable to the Company and any equity required in order to obtain project
financing for a CEP plant. However, this funding obligation is limited to $20
million in any fiscal year and $75 million over the life of M4. Also, in
connection with the agreements executed in March 1996, LMC agreed to provide M4
with a $15 million working capital line of credit.

Pursuant to the agreements with LMC, the Company granted M4 an exclusive
license, subject to certain exceptions, to use the CEP technology for the Market
and to sublicense the CEP technology to qualified third parties for use in the
Market for a period of 25 years. In 1995 and 1994, M4 paid the Company $6.5
million and $7.5 million, respectively, in license fees. Due to obligations of
the Company pursuant to the agreements with LMC, the Company recognized revenue
and income on the license fees over the two year period beginning in August
1994, the period over which those obligations were fulfilled. During 1996, 1995
and 1994, the Company recognized $4,083,000, $7,000,000 and $2,917,000,
respectively, in revenue relating to the license fees. In September 1996, the
Company, LMC and M4 entered into an agreement which expanded M4's license to
include the demilitarization of Japanese chemical weapons. In return for the
expansion of the license, the Company received a $5,000,000 license fee.
Additionally, M4 was obligated to pay the Company a $2,000,000 success fee upon
the start-up of each of the first three CEP plants developed by M4. During 1996
and 1995, the Company recognized $4,000,000 and $2,000,000, respectively, of
revenue attributable to such fees.

The Company also has agreed to provide research and development and certain
other technical services to M4 and its sublicensees and to sell certain CEP
systems and components. During 1996, 1995 and 1994, the Company recognized
revenue of approximately $42,121,000 , $21,568,000 and $219,000, respectively,
related to such services and sales, which consist of the following:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Engineering and construction services $37,768,000 $20,265,000 $ --
Research, development and
consulting services 4,353,000 1,303,000 219,000
----------- ----------- --------
$42,121,000 $21,568,000 $219,000
=========== =========== ========
</TABLE>

F-27
<PAGE> 85

MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 1996, 1995 and 1994, the Company recognized cost of revenue of
approximately $42,232,000, $21,203,000 and $219,000, relating to such services
and sales, which consists of the following:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Engineering and construction services $38,725,000 $19,873,000 $ --
Research, development and consulting services 3,507,000 1,330,000 219,000
----------- ----------- --------
$42,232,000 $21,203,000 $219,000
=========== =========== ========
</TABLE>

For items that are capitalized by M4, the portion of the gross profit
representing the Company's designated ownership interest related to such sales
has been deferred and included in cost of revenue from affiliate. The Company
will recognize the deferred income over the period the related assets are
depreciated or amortized by M4. At December 31, 1996 and 1995, approximately
$7,024,000 and $2,460,000, respectively, are recorded as deferred income
relating to such sales.

The Company accounts for its investment in M4 and the corporation acting as the
general partner using the equity method. Under the M4 limited partnership
agreement, the Company and LMC share equally in M4's revenues and other income
and all expenses are allocated to LMC until the capital accounts of the Company
and LMC are equal. Thereafter, as long as the capital accounts of the Company
and LMC are equal, the Company and LMC share equally in the profits or losses of
M4. The capital accounts became equal in the fourth quarter of 1996. Condensed
financial information of M4 at December 31, 1996 and 1995 and for the years then
ended is summarized below:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current assets $ 16,059,000 $ 5,879,000
Non-current assets 41,740,000 41,009,000
Total liabilities 92,397,000 20,694,000
Partners' capital (deficit) (34,597,000) 26,194,000
Revenue 19,158,000 1,510,000
Impairment charge for long-lived assets (60,851,000) --
Net loss (107,049,000) (11,993,000)
</TABLE>

Proposed Restructuring of M4

In March 1997, the Company and LMC executed a letter of intent to restructure
their relationship currently embodied in M4. The letter of intent contemplates
the following: (1) LMC would have the exclusive right to lead and pursue
contracts for the clean up of the DOE's tanked waste site in Hanford,
Washington, and the Company would provide directly to LMC certain
construction and development services with respect to CEP. (2) The Company
would have the exclusive right to lead and pursue the worldwide opportunities
for processing UF6 and LMC would have the right to participate in this market
on a case-by-case basis, subject to mutual agreement of the parties. (3) The
Company and LMC would form a new limited liability company to pursue the
processing of chemical weapons worldwide. (4) Retech would be transferred to
LMC. (5) The Company would become the sole owner of M4. After giving effect to
the restructuring, M4's principal asset would be the Technology Center in Oak
Ridge, Tennessee (the "M4 Technology Center"). The Company would be responsible
for the operation of the M4 Technology Center and would be entitled all future
revenue from such operations. The Company and LMC have agreed to share equally
the debt service of the $38 million of bonds issued by the Industrial

F-28
<PAGE> 86
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Development Board of Oak Ridge relating to the M4 Technology Center. (6) LMC
would forgive $15 million outstanding on M4's line of credit, and the Company
would contribute outstanding accounts receivable of $14.6 million to M4's
capital. This amount is included in accumulated losses of affiliate in excess of
investment at December 31, 1996. (7) LMC and the Company generally would share
equally in substantially all of the costs of the restructuring. (8) All existing
agreements between the Company, LMC and M4 would be terminated, including the
CEP license to M4. (9) LMC and the Company would establish a first offer process
pursuant to which they will jointly discuss new market opportunities within the
Market prior to pursuing them individually.

NOTE 14--COLLABORATIVE AGREEMENTS

Agreement with the Electric Power Research Institute, Inc.

In 1995, the Company entered into an agreement with the Electric Power Research
Institute, Inc. ("EPRI"), a nonprofit organization dedicated to fostering
research and development of technologies that support the electric power
industry. Pursuant to the agreement, EPRI agreed to fund certain research and
development programs and to provide marketing and financing support for future
CEP projects. In exchange for the marketing and financing support, EPRI received
a warrant to purchase up to 100,000 shares of the Company's common stock at an
exercise price of $23.375 per share. The warrant will vest in increments if, as
a result of the agreement with EPRI, the Company closes a contract for a CEP
plant for which EPRI has provided minimum levels of funding and upon customer
acceptance of such plants. The warrant expires on July 7, 2015.

Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No.
57 Topic 5-K, an expense is to be recorded by the Company in the amount equal to
the aggregate difference between the exercise price of the warrant and the
market price of the common stock as of the dates the warrant vests. This
expense, if any, will be recognized as the warrant vests. The Company has not
recorded any expense related to these warrants through December 31, 1996.

Collaborative Relationship with Rollins Environmental Services, Inc.

In 1991, the Company entered into a joint development and commercialization
agreement with Rollins Environmental Services, Inc. ("Rollins"). The agreement
provides that the Company will analyze the application of CEP to specific
Rollins waste streams for fees based on the hours worked by the Company.

In 1992, the agreement was superseded. Under the revised terms, Rollins agreed
to pay the Company $50,000 per month for two years beginning September 1, 1992.
In consideration for these payments, the Company provided research and
development and other services to Rollins and Rollins obtained an option to
license the Company's technology for CEP systems at any of Rollins' three waste
processing facilities existing on September 1, 1992. If Rollins decides to
license a CEP system at any of these existing facilities, Rollins will be
entitled to set off against payments due to the Company all amounts paid under
the original and amended agreements, provided that in any year, no reduction
shall exceed 25% of the amounts payable by Rollins to the Company. Such right of
set off is conditioned on the commercialization and licensing of a CEP system at
one of Rollins' three facilities existing on September 1, 1992. Revenue of
$400,000 was recognized under the revised agreement during 1994.

Development Services Agreement with Fluor Daniel Environmental Services, Inc.

In 1992, the Company entered into a Development Services Agreement with Fluor
Daniel Environmental

F-29
<PAGE> 87
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Services, Inc. ("Fluor Daniel"), an affiliate of Fluor Daniel, Inc., an
international engineering and construction firm. Under the terms of the
agreement, Fluor Daniel provided $1.2 million in feasibility studies, designs,
cost estimation and other services in support of commercial plant evaluations,
designs, front-end engineering and other services for potential CEP applications
during 1992 and 1993. During 1994, Fluor Daniel exercised its option to invest
the $1.2 million in shares of common stock, par value $.01 ("Common Stock") of
the Company at an agreed upon price of $10.56 per share. Also during 1994, Fluor
Daniel and the Company extended the agreement for up to five years. Pursuant to
this agreement, Fluor Daniel provided an additional $4 million in services to
the Company during 1994 and 1995. In consideration for such services, Fluor
Daniel received additional Common Stock of the Company at a price equal to the
average market price of the stock in the 10 trading days prior to the end of
each calendar quarter during which the services were provided. In addition,
during the term of the agreement, Fluor Daniel shall be the primary provider of
engineering, procurement, construction and implementation services for CEP
plants owned and operated by the Company and shall be entitled to receive
project fees based upon the cost of such services for specific CEP facilities
managed by Fluor Daniel. The Company will be obligated to pay Fluor Daniel 2% of
certain licensing fees and royalty payments received by the Company during the
term of the agreement as a result of the licensing of CEP technology.

During the years ended December 31, 1995 and 1994, Fluor Daniel provided
$2,542,000 and $1,158,000 respectively, in services to the Company under this
agreement. During the years ended December 31, 1995 and 1994, Fluor Daniel
received 139,098 and 148,719 shares of Common Stock of the Company,
respectively, for payment of services performed under the agreement. During
1996, all services provided by Fluor Daniel were paid for in cash by the
Company.

Sales Representative Agreement with Am-Re Services, Inc.

Am-Re Services, Inc. ("Am-Re") has agreed to provide services to the Company
relating to obtaining environmental impairment liability insurance and project
financing for the first five commercial CEP facilities to be developed by the
Company. In exchange for providing these services, and subject to certain
vesting requirements, Am-Re Services was granted a warrant (the "Insurance
Warrant") to purchase up to 125,000 shares of common stock at $12.25 per share
and a second warrant (the "Project Finance Warrant") to purchase up to 250,000
shares of common stock (of which 200,000 shares may be purchased at $12.25 per
share and 50,000 shares at $18.37 per share). The Insurance Warrant vests
according to a schedule based upon the Company obtaining acceptable
environmental impairment insurance for the first five CEP facilities developed
by the Company. The Project Finance Warrant vests according to a schedule based
upon the Company obtaining acceptable project financing by or through Am-Re
Services for the first five CEP plants which are developed by the Company and
require project financing. The Insurance Warrant and the Project Finance Warrant
expire in 2013.

Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No.
57 Topic 5-K, an expense is to be recorded by the Company in the amount equal to
the aggregate difference between the exercise price of the warrants and the
market price of the common stock as of the dates the warrants vest. This
expense, if any, will be recognized over the term of the environmental
impairment insurance or project financing that causes vesting of the applicable
warrant. The Company has not recorded any expense related to these warrants
through December 31, 1996.

Collaborative Relationship with E.I. Du Pont de Nemours and Company

Pursuant to an agreement dated October 25, 1991, E.I. Du Pont de Nemours and
Company ("Du Pont") agreed to provide $1,500,000 to the Company for the design
and development of the Fall River Facility.

F-30

<PAGE> 88
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In consideration for the funding provided, Du Pont has received a right for
priority usage of the facility for the five-year period beginning in September
1993. The Company will receive consideration from Du Pont at market rates for
such priority usage. Subject to the terms of the agreement, if the Company gains
or has gained a commercial installation for a specified waste stream with a
right to receive royalties, tolling income or their equivalent by December 31,
1997, the Company will be obligated to repay the $1,500,000.

The obligation of the Company to repay Du Pont is conditioned on the
commercialization and sale of CEP systems for specified waste streams. In the
event that such CEP systems are not commercialized, the Company shall have no
obligation to repay Du Pont.

NOTE 15 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE

The following summary disclosures are made in accordance with the provisions of
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" ("FAS 107"), which requires the disclosure of
fair value information about financial instruments when it is practicable to
estimate the value.

<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- -------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 19,679,104 $ 19,679,104 $ 6,644,856 $ 6,644,856
Short-term
investments 109,388,659 109,388,659 79,631,394 79,631,394

Liabilities:
Convertible debt 143,750,000 100,860,000 -- --
Other long-term
debt 22,887,820 24,032,210 23,079,005 23,079,005
</TABLE>

The following methods and assumptions were used in estimating the fair values of
financial instruments:

Cash and cash equivalents - The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate their estimated fair values.

Short-term investments and convertible debt - The fair values of short-term
investments and convertible debt are based on quoted market prices.

Other long-term debt - The fair value of the remaining long-term-debt, including
current portion, approximates the carrying value at December 31, 1996 and 1995.
Rates currently available to the Company for debt with similar terms are used to
estimate fair value of existing debt.

F-31

<PAGE> 89
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 -- COMMITMENTS AND CONTINGENCIES

Leases

The Company leases equipment and office space under noncancelable operating
leases which expire on various dates through 2005. The Company also leases
certain fixed assets under noncancelable capital leases which expire on various
dates through 1997. Future minimum payments under these leases are as follows:

<TABLE>
<CAPTION>
Operating Capital
Year Leases Leases
- ---- ------ ------
<S> <C> <C>
1997 $ 4,934,000 $118,000
1998 5,044,000 --
1999 4,582,000 --
2000 4,071,000 --
2001 4,049,000 --
Thereafter 7,267,000 --
------------ --------
Total minimum lease payments $ 29,947,000 118,000
============
Less--Amount representing interest (18,000)
--------
Present value of minimum lease payments $100,000
========
</TABLE>

Total rent expense under noncancelable operating leases was $2,206,000,
$1,389,000, and $1,022,000 during the years ended December 31, 1996, 1995 and
1994, respectively. In September 1996, the Company entered into a seven year
lease for additional office space in Waltham, Massachusetts that will be used
for future growth, if necessary. The lease term begins March 1, 1997 and amounts
representing future minimum payments under the lease are included above. The
Company intends to sublease this space until it is needed. Based on information
currently available to the Company, $1,300,000 was accrued as of December 31,
1996 for the excess of lease payments due during the term of the lease over
estimated sublease income. However, there are no assurances that the Company
will be able to locate subtenants for this space or enter into satisfactory
subleases under the terms assumed for purposes of estimating this accrual. It is
reasonably possible that the estimates made by management of anticipated
sublease income will change significantly in the near term and the result of any
such change could be material to future results of operations.

Litigation

In February and March 1997, purchasers of the Company's common stock filed five
purported class action suits against the Company and certain of its present and
former directors and executive officers in the United States District Court for
the District of Massachusetts. The complaints variously allege that defendants
made false and misleading statements and disseminated financial statements not
prepared in accordance with generally accepted accounting principles, in
violation of federal securities laws and state law, in order to enhance the
value of the Company's common stock and to enable the Company to issue
securities and the individual defendants to sell shares of the Company's common
stock at inflated prices. Each of the suits seeks compensatory damages for
unspecified alleged losses during the class periods, the longest of which
extends from September 26, 1995 through October 21, 1996. These actions are at
an early procedural stage. While the Company has not yet filed answers to the
complaints, the Company intends to deny liability with respect to these actions.
However, the ultimate outcome cannot be determined at present. As such, no
provision for liability from these suits has been made in the financial
statements as of December 31, 1996.

F-32

<PAGE> 90
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contingent Payment Related to Purchase of Intangible Assets

Pursuant to an agreement to purchase certain intangible assets (Note 6), if the
Company constructs and operates, or licenses to a third party to construct and
operate, a coal gasification system that uses a molten metal bath as the
reaction medium, then after the first year of profitable commercial operation of
such system, the Company will pay $500,000 to the seller of the intangible
assets. Such payment will be required only if the plant is completed prior to
December 31, 1998.

NOTE 17--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Certain billings by the Company to M4 for engineering and construction, research
and development and consulting services were disputed by M4 and were not paid by
M4. The Company has investigated the circumstances of these disputes and has
determined that the Company's quarterly results of operations should be restated
for the periods ended June 30, 1996 and September 30, 1996. Revenue of $2.593
million has been reversed in the quarter ended June 30, 1996 because of a
dispute regarding the obligation underlying billings in that amount for that
quarter. Revenue of $481,000 has been reversed and a charge to bad debt expense
in the amount of $1.484 million has been recorded in the quarter ended September
30, 1996 to reflect the doubtful collection, because of an additional dispute
arising prior to the close of the Company's third quarter accounts, of billings
for $1.965 million for the third and prior quarters. The Company is not pursuing
collection of these disputed amounts. The Company intends to amend its prior
filings on Form 10-Q for the quarters ended June 30, 1996 and September 30, 1996
to reflect these adjustments. In the opinion of management, all adjustments
necessary to revise the quarterly financial statements have been recorded.
Following is a summary of the unaudited quarterly results of operations for
these quarters:

<TABLE>
<CAPTION>
Quarter Ended
As Previously Reported: June 30, 1996 September 30, 1996
------------- ------------------
<S> <C> <C>
Revenue $20,447,000 $ 15,557,000
Income (loss) from operations 1,529,000 (3,886,000)
Net income (loss) 2,084,000 (3,308,000)
Net income (loss) per share $ 0.08 $ (0.14)
</TABLE>

<TABLE>
<CAPTION>
Quarter Ended
As Restated: June 30, 1996 September 30, 1996
------------- ------------------
<S> <C> <C>
Revenue $ 17,854,000 $ 15,076,000
Loss from operations (1,064,000) (5,851,000)
Net loss (509,000) (5,273,000)
Net loss per share $ (0.02) $ (0.22)
</TABLE>

F-33

<PAGE> 91

================================================================================

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES
OR OF SUCH COMMON STOCK IN ANY STATE OR OTHER JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. EXCEPT WHERE
OTHERWISE INDICATED HEREIN, THIS PROSPECTUS SPEAKS AS OF ITS DATE AND NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.

********************

TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk Factors................................ 3
The Company................................. 8
Use of Proceeds............................. 8
Price Range of Common Stock................. 8
Dividend Policy............................. 8
Capitalization.............................. 9
Selected Consolidated Financial Data........ 10
Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................. 11
Business.................................... 22
Management.................................. 39
Certain Transactions........................ 46
Principal Stockholders...................... 47
Description of Capital Stock................ 50
Selling Stockholders........................ 55
Plan of Distribution........................ 56
Changes in Accountants...................... 57
Legal Matters............................... 57
Experts..................................... 57

</TABLE>

7,427,064 SHARES

COMMON STOCK

[MOLTEN METAL TECHNOLOGY LOGO]
MOLTEN METAL TECHNOLOGY

--------------------

PROSPECTUS

--------------------

__________, 1997

================================================================================
<PAGE> 92

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee are estimated):
<TABLE>

<S> <C>
Registration fee...................................................... $ 14,085.81
Accountants' fees and expenses........................................ $ 25,000
Legal fees and expenses............................................... $ 95,000
Placement Agent's and Advisory Fees................................... $1,300,000

Total...................................................................... $1,434,085.81
</TABLE>

All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by the Company.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 ("Section 145") of the Delaware General Corporation Law
provides a detailed statutory framework covering indemnification of directors
and officers against liabilities and expenses arising out of legal proceedings
brought against them by reason of their status or service as directors or
officers. Article Seven of the Registrant's By-Laws provides for indemnification
of directors and officers to the full extent permitted by Section 145. Section
145 generally provides that a director or officer of a corporation (i) shall be
indemnified by the corporation for all expenses of such legal proceedings when
he/she is successful on the merits, (ii) may be indemnified by the corporation
for the expenses, judgments, fines and amounts paid in settlement of such
proceedings (other than a derivative suit), even if he/she is not successful on
the merits, if he/she acted in good faith and in a manner he/she reasonably
believed to be in or not opposed to the best interests of the corporation (and,
in the case of criminal proceeding, had no reasonable cause to believe his/her
conduct was unlawful), and (iii) may be indemnified by the corporation for
expenses of a derivative suit (a suit by a shareholder alleging a breach by a
director or officer of a duty owed to the corporation), even if he/she is not
successful on the merits, if he/she acted in good faith and in a manner he/she
reasonably believed to be in or not opposed to the best interests of the
corporation. No indemnification may be made under clause (iii) above, however,
if the director or officer is adjudged liable for negligence or misconduct in
the performance of his/her duties to the corporation, unless a court determines
that, despite such adjudication, but in view of all of the circumstances, he/she
is entitled to indemnification. The indemnification described in clauses (ii)
and (iii) above may be made only upon a determination that indemnification is
proper because the applicable standard of conduct has been met. Such a
determination may be made by a majority of a quorum of disinterested directors,
independent legal counsel, the stockholders or a court of competent
jurisdiction. The board of directors may authorize advancing litigation expenses
to a director or officer upon receipt of an undertaking by such director or
officer to repay such expenses if it is ultimately determined that he/she is not
entitled to be indemnified for them.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In September 1997, the Company issued $20.4 million of its Series A
Convertible Participating Preferred Stock, $.01 par value per share (the "Series
A Preferred Stock") and warrants to purchase 566,000 shares of Common Stock.
Based on representations made by the purchasers, the Series A Preferred Stock
was offered and sold to a limited number of institutional accredited investors
in accordance with the exemption from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), provided by
Regulation D. The Series A Preferred Stock is convertible into shares of the
Company's Common Stock. The warrants were issued to the placement agent for such
Series A Preferred Stock in a private placement which, based on representations
made by the placement agent, was made in accordance with the exemption from the
registration requirements of the Securities Act provided in Section 4(2) of the
Securities Act. The warrants are exercisable at any time over a three year
period at an exercise price of $6.625 per share.

In May 1996, the Company issued $143,750,000 of its 5.50% Convertible
Subordinated Notes Due 2006 (the "Notes"). The Notes are convertible at the
option of the holder into shares of the Company's Common Stock at a conversion
price of $38.75 per share. The Notes were offered and sold to qualified
institutional buyers in accordance with the exemption from the registration
requirements of the Securities Act provided by Rule 144A and to a

II-1

<PAGE> 93

limited number of other institutional accredited investors (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that executed and delivered
a representation letter to the Company. In addition, certain of the Notes were
sold outside the United States in accordance with procedures intended to support
the Company's reliance on the exemption from the registration requirements of
the Securities Act provided by Regulation S. The principal underwriters for this
offering were Lazard Freres & Co. LLC, Alex. Brown & Sons Incorporated and
Oppenheimer & Co., Inc. The Notes were purchased by these underwriters at a
purchase price of 100% of principal amount less an aggregate offering discount
of 3.0% of the principal amount.

In connection with the acquisition of certain assets of the Retech division
by M4, MMT issued a total of 352,361 shares of its Common Stock to LMC on April
30, 1996, and December 18, 1996. These shares were acquired by Lockheed
Environmental Systems & Technologies Co. ("LESAT"), an indirect wholly-owned
subsidiary of LMC, as consideration for the sale of certain assets of Retech and
were then transferred by LESAT to LMC. The assets purchased by MMT were deemed
to have a value of approximately $11.2 million. The shares were issued in
accordance with the exemption from the registration requirements of the
Securities Act provided in Section 4(2) of the Securities Act.

Pursuant to an agreement between the Company and the Electric Power
Research Institute, Inc. ("EPRI"), EPRI agreed to fund certain research and
development programs and to provide marketing and financing support for future
CEP projects. In exchange for the marketing and financing support, EPRI received
a warrant to purchase up to 100,000 shares of the Company's Common Stock at an
exercise price of $23.375 per share. The warrant will vest in increments if, as
a result of the agreement with EPRI, the Company closes a contract for a CEP
plant for which EPRI has provided minimum levels of funding and upon customer
acceptance of such plants. The warrant expires on July 7, 2015. The warrant was
issued in accordance with the exemption from the registration requirements of
the Securities Act provided in Section 4(2) of the Securities Act.

As payment for the provision of feasibility studies, designs, cost
estimations and other services by Fluor Daniel Environmental Services, Inc.
("Fluor Daniel") during 1992 and 1993, the Company issued 113,636 shares of its
Common Stock to Fluor Daniel in 1994 at a price of $10.56 per share. As payment
for the provision of engineering and other services by Fluor Daniel, the Company
issued an aggregate of 35,083 shares of its Common Stock at prices ranging from
$19.64 per share to $24.10 per share during 1994, and issued an aggregate of
139,098 shares of its Common Stock at prices ranging from $18.30 per share to
$27.04 per share during 1995. The shares were issued in accordance with the
exemption from the registration requirements of the Securities Act provided in
Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:
<TABLE>
<CAPTION>

Exhibit No. Description
- ----------- -----------

<S> <C>
z 2.1 - Master Restructuring Agreement dated as of June 16, 1997 between the Company and Lockheed Martin
Corporation. *15* (2.1).
3.1 - Amended and Restated Certificate of Incorporation of the Registrant. *4* (3.1).
3.2 - Amended and Restated By-Laws of Registrant. *4* (3.2)
4.1 - Specimen Certificate for Shares of the Registrant's Common Stock, $.01 par value. *1* (4.1)
* 5 - Opinion of Elliot J. Mark, Esq. with respect to the validity of the shares being registered.
s 10.1 - Pilot Plant Agreement dated as of October 25, 1991 between the Registrant and E.I. du Pont de
Nemours and Company, as amended by the Pilot Plant Funding Agreement Addendum dated as of February
10, 1992. *1* (10.2)
10.2 - Agreement dated as of December 20, 1991 between the Registrant and L'Air Liquide S.A. *1* (10.4)
10.3 - Lease dated as of July, 1993 for Two University Office Park, Waltham, Massachusetts. #2# (10.8)
10.4 - Lease dated as of June 29, 1992 between the Greater Fall River Development Corporation and the
Registrant for the property located at 421 Currant Road, Fall River, Massachusetts. *1* (10.6)
10.5 - Strategic Alliance and Investment Agreement dated as of May 3, 1993 between the Registrant and
Am-Re Services, Inc. #1# (19(a))
10.6 - Environmental Impairment Insurance Common Stock Warrant issued by the Registrant to Am-Re
Services, Inc. #1# (19(b))
</TABLE>

II-2

<PAGE> 94
<TABLE>
<CAPTION>
<S> <C>
10.7 - Project Financing Common Stock Warrant issued by the Registrant to Am-Re Services, Inc. #1#
(19(c))
10.8 - Registration Rights Agreement dated as of May 3, 1993 among the Registrant, Am-Re Services, Inc.
and American Reinsurance Company. #1# (19(d))
s 10.9 - Asset Purchase Agreement dated as of July 7, 1992 between the Registrant and IPS Interproject
Service AB and IPS Interproject Processteknik AB. *2* (10.8)
10.10 - Technology Assignment Agreement dated as of May 31, 1990 between the Registrant and Christopher J.
Nagel and Robert D. Bach, as clarified by the Clarification Agreement dated as of May 31, 1990 and
as amended by the Amendment to Technology Assignment Agreement dated as of October 12, 1990. *1*
(10.9)
> 10.11 - Employment Agreement dated as of June 30, 1990 between the Registrant and William M. Haney, III.
*1* (10.11)
> 10.12 - Letter Agreement dated as of October 1, 1991 from the Registrant to William M. Haney, III
regarding employment. *1* (10.12)
> 10.13 - Employment Agreement dated as of May, 1993 between the Registrant and Eugene Berman. *4* (10.16)
> 10.14 - Employment Agreement dated as of April 1, 1996 between the Registrant and G. Earl McConchie. #14#
(10.14)
> 10.15 - Registrant's Amended and Restated 1989 Long Term Incentive Compensation Plan, as amended effective
March 27, 1996. #14# (10.15)
> 10.16 - Registrant's 1993 Employee Stock Purchase Plan. *3* (28.2)
> 10.17 - Registrant's 1992 Restricted Common Stock Award Plan. *1* (10.14)
10.18 - Form of Employee Non-Disclosure, Development and Non-Competition Agreement of the Registrant. *1*
(10.16)
10.19 - Loan Agreement dated February 4, 1993 between the Registrant and Jobs for Fall River, Inc. *1*
(10.18)
10.20 - $1,800,000 Promissory Note, dated February 4, 1993, made by the Registrant in favor of Jobs for
Fall River, Inc. *1* (10.19)
10.21 - $50,000 Promissory Note, dated February 4, 1993, made by the Registrant in favor of Jobs for Fall
River, Inc. *1* (10.20)
10.22 - $150,000 Promissory Note, dated February 4, 1993, made by the Registrant in favor of Jobs for Fall
River, Inc. *1* (10.21)
10.23 - Security Agreement dated February 4, 1993 between the Registrant and Jobs for Fall River, Inc.
*1* (10.22)
10.24 - Letter Agreement dated February 4, 1993 between the Registrant and Jobs for Fall River, Inc.
regarding security for loan made by Jobs for Fall River, Inc. to the Registrant. *1* (10.23)
10.25 - Contract No. DE-AC21-9MC30171 dated September 30, 1993 between the Registrant and the United
States Department of Energy, Morgantown Energy Technology Center. *4* (10.31)
t 10.26 - Modification to Contract No. DE-AC21-9MC30171 dated March 24, 1994 between the Registrant and the
United States Department of Energy, Morgantown Energy Technology Center. #3# (10.32)
10.27 - First Amendment to Lease, dated September 21, 1994, between the Registrant and Connecticut General
Life Insurance Company. #5# (10.1)
10.28 - Lease dated as of July 1, 1994 by and between the Registrant and the Greater Fall River
Development Corporation. #5# (10.2)
u 10.29 - Master Agreement For Government Market Development and Commercialization of CEP Technology, dated
as of August 9, 1994, between the Registrant and Martin Marietta Corporation. #5# (10.3)
10.30 - Loan Agreement, dated as of August 1, 1994, between the Registrant and the Massachusetts
Industrial Finance Agency. #5# (10.4)
10.31 - Underwriting Agreement dated as of August 26, 1994, between the Massachusetts Industrial Finance
Agency and CS First Boston Corporation, and approved by the Registrant. #5# (10.5)
10.32 - Letter of representation dated as of August 26, 1994 from Molten Metal Technology, Inc. to the
Massachusetts Industrial Finance Agency and CS First Boston Corporation. #5# (10.6)
v 10.33 - Development Agreement dated as of May 3, 1995 between the Registrant and Hoechst Celanese Chemical
Group, Inc. ("HCC"). #7# (10.1)
v 10.34 - Feedstock Supply Agreement dated as of May 3, 1995 between the Registrant and HCC. #7# (10.2)
</TABLE>

II-3

<S> <C>
v 10.35 - Synthesis Gas Purchase and Sale Agreement dated as of May 3, 1995 between the Registrant and HCC.
#7# (10.3)
w 10.36 - Sales Representative and Master Services Agreement dated as of February 29, 1996 between the
Registrant and Uhde. #8# (10.1)
w 10.37 - Partnership Restructuring Agreement dated as of March 15, 1996 between the Registrant, LMC and
M4. #8# (10.2)
10.38 - Purchase Agreement dated as of April 25, 1996 between the Company and Lazard Freres & Co. LLC.*
#8# (10.3)
10.39 - Indenture dated as of May 1, 1996 between the Company and The Bank of New York, as Trustee.* #8#
(10.4)
x 10.40 - Commercial Mixed Waste Processing Agreement dated as of December 12, 1995 between the Registrant
and M4 Environmental L.P. #9# (10.38)
10.41 - Lease dated as of March 4, 1996 for 400-2 Totten Pond Road, Waltham, Massachusetts. #9#(10.3)
10.42 - Agreement for Expansion of License (Japanese Chemical Weapons) dated as of September 26, 1996
between the Registrant and M4. #10# (10.1)
10.43 - Lease dated as of September 16, 1996 for 400-1 Totten Pond Road, Waltham, Massachusetts. #10#
(10.2)
10.44 - Asset Purchase Agreement dated as of December 10, 1996 between the Registrant, MMT of Tennessee
Inc., Westinghouse Electric Corporation and The Scientific Ecology Group, Inc. #11# (10.1)
10.45 - Asset Purchase Agreement dated as of January 29, 1997 between MMT of Tennessee Inc. and VECTRA
Technologies, Inc. #12# (10.1)
z 10.46 - Joint Venture Master Agreement dated as of October 30, 1996 between Nichimen Corporation, NKK
Plant Engineering Corporation. #14# (10.46)
10.47 - Limited Liability Company Agreement of Lockheed Martin Chemical Demilitarization Systems LLC dated
as of June 16, 1997. #15#(10.1)
10.48 - License Agreement dated as of June 16, 1997 between the Company, Lockheed Martin Chemical
Demilitarization Systems LLC, and Lockheed Martin Corporation. #15#(10.2)
z 10.49 - Asset Transfer Agreement dated as of June 16, 1997 between the Company, Lockheed Martin Advanced
Environmental Systems, Inc., M4 Environmental L.P., and Lockheed Martin Corporation. #15#(10.3)
11 - Computation of Primary, Fully Diluted and Supplementary Net Income (Loss) Per Share. #14# (11)
16 - Letter re: Change of Accountants. #13# (A)
21 - Subsidiaries of the Registrant. #14# (21)
*23.1 - Consent of Price Waterhouse LLP re: financial statements of the Registrant.
*23.2 - Consent of Price Waterhouse LLP re: financial statements of M4 Environmental L.P.
*27 - Financial Data Sheet for 1996 10-K
99.1 - Securities Purchase Agreement, dated as of September 5, 1997, by and among the Company, CC
Investments, LDC, Stark International, Sheperd Investments International, Ltd., Nelson Partners
and Olympus Securities, Ltd. (the "Purchasers"). #16# (99.1)
99.2 - Certificate of Designations, Preferences and Rights of Series A Convertible Participating
Preferred Stock. #16# (99.2)
99.3 - Warrant, dated September 8, 1997, by and between the Company and GEM Ventures Ltd. #16# (99.3)
99.4 - Registration Rights Agreement, dated as of September 5, 1997 by and among the Company, the
Purchasers and GEM Ventures Ltd. #16# (99.4)
</TABLE>

- ----------------
<TABLE>

<S> <C>
* Filed herewith.

> Management contract or compensatory plan filed pursuant to item 14(c) of Form 10-K.
s An unexpired order granting confidential treatment to deleted portions of Exhibits 10.1 and 10.9 was
issued on February 9, 1993.
t An unexpired order granting confidential treatment to deleted portions of Exhibit 10.26 was issued on May
11, 1994.
u An unexpired order granting confidential treatment to deleted portions
of Exhibit 10.29 was issued on January 6, 1995.
</TABLE>

II-4

<S> <C>

v An unexpired order granting confidential treatment to deleted portions of Exhibits 10.33, 10.34 and 10.35
was issued on October 20, 1995.
w An unexpired order granting confidential treatment to deleted portions of Exhibits 10.36 and 10.37 was
issued on September 26, 1996.
x An unexpired order granting confidential treatment to deleted portions
of Exhibit 10.40 was issued on July 30, 1996.
y An unexpired order granting confidential treatment to deleted portions
of Exhibit 10.46 was issued on September 8, 1997.
z Certain portions of Exhibits 2.1 and 10.49 have been omitted and
confidential treatment has been requested for such portions. Complete
copies of these Exhibits have been filed separately with the Securities
and Exchange Commission.

*1* Incorporated by reference to the designated exhibit to the Registration Statement on Form S-1 of the
Registrant (Registration No. 33-56392) filed on December 24, 1992.
*2* Incorporated by reference to the designated exhibit to Amendment No. 3 to the Registration Statement on
Form S-1 of the Registrant (Registration No. 33-56392) filed on February 8, 1993.
*3* Incorporated by reference to the designated exhibit to the Registration Statement on Form S-8 of the
Registrant (Registration No. 33-65688) filed on July 6, 1993.
*4* Incorporated by reference to the designated exhibit to Amendment No. 1 to the Registration Statement on
Form S-1 of the Registrant (Registration No. 33-70210) filed on November 30, 1993.
#1# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.
#2# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.
#3# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.
#4# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
#5# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
#6# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
#7# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
#8# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
#9# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
#10# Incorporated by reference to the designated exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
#11# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on January 3, 1997.
#12# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on February 13, 1997.
#13# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on April 3, 1997.
#14# Incorporated by reference to the designated exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996.
#15# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on June 25, 1997.
#16# Incorporated by reference to the designated exhibit to the Registrant's
Current Report on Form 8-K filed on September 11, 1997.
</TABLE>

II-5

<PAGE> 97

(b) Financial Statement Schedules and Financial Statements of M4

(1) For the three years ended December 31, 1996:

II - Valuation and Qualifying Accounts

(2) The financial statements of M4 Environmental L.P. set forth in
the list below are incorporated herein by reference from the
Company's Annual Report on Form 10-K for the year ended December
31, 1996.

Report of Independent Accountants
Balance Sheet at December 31, 1996 and 1995
Statement of Operations for the years ended December 31, 1996
and 1995 and the period from inception (August 8, 1994)
through December 31, 1994 (unaudited)
Statement of Changes in Partners' Capital (Deficit) for the
period from inception (August 8, 1994) through
December 31, 1996
Statements of Cash Flows for the years ended December 31, 1996
and 1995 and the period from inception (August 8, 1994)
through December 31, 1994(unaudited)
Notes to Financial Statements

ITEM 17. UNDERTAKINGS.

The Company hereby undertakes:

(1) To file, during any period in which offers or sales are being made
pursuant to this Registration Statement, 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;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities 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.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-6

<PAGE> 98

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Waltham, Commonwealth of
Massachusetts, on October 3, 1997.

MOLTEN METAL TECHNOLOGY, INC.

By: /s/ William M. Haney, III
-------------------------------
William M. Haney, III
President and
Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned officers and Directors of Molten Metal Technology,
Inc., hereby severally constitute and appoint William M. Haney, III, Benjamin T.
Downs and Ethan E. Jacks and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-1
filed herewith and any and all post-effective amendments to said Registration
Statement, and generally to do all such things in our names and on our behalf in
our capacities as officers and Directors to enable Molten Metal Technology, Inc.
to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys or any of
them, to said Registration Statement and any and all amendments thereto.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ William M. Haney, III President, Chief Executive October 3, 1997
- -----------------------------------
William M. Haney, III Officer and Director (Principal
Executive Officer)

/s/ Christopher J. Nagel, Sc.D. Chief Technical Officer and October 3, 1997
- -----------------------------------
Christopher J. Nagel, Sc.D. Director

/s/ F. Gordon Bitter Chief Financial Officer October 3, 1997
- ----------------------------------- (Principal Financial and
F. Gordon Bitter Accounting Officer)

/s/ Marie J. Langlois Director October 3, 1997
- -----------------------------------
Marie J. Langlois

/s/ Peter A. Lewis Director October 3, 1997
- -----------------------------------
Peter A. Lewis

/s/ John T. Preston Director October 3, 1997
- -----------------------------------
John T. Preston

/s/ Maurice F. Strong Director October 3, 1997
- -----------------------------------
Maurice F. Strong

/s/ Robert A. Swanson Director October 3, 1997
- -----------------------------------
Robert A. Swanson

</TABLE>
II-7

<PAGE> 1

Exhibit 5

October 3, 1997

Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549

Re: MOLTEN METAL TECHNOLOGY, INC.

Dear Sir or Madam:

I am Associate General Counsel of Molten Technology, Inc., a Delaware
corporation (the "Company"), and have assisted in the preparation of a
Registration Statement on Form S-1 (the "Registration Statement") to be filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Act"), for registration under the Act of 7,427,064 shares of
the Company's common stock, $.01 par value per share (the "Shares"), which are
issuable to holders of the Company's Series A Convertible Participating
Preferred Stock (the "Preferred Stock") upon conversion thereof and the holder
of a certain warrant (the "Warrant") to purchase 566,000 shares of Company's
common stock upon exercise thereof.

I am familiar with the Amended and Restated Certificate of
Incorporation of the Company, as amended, the corporate minute books, the
Amended and Restated By-Laws of the Company and the Registration Statement. I
also have examined such other documents, records and certificates and made such
further investigation as I have deemed necessary for the purposes of this
opinion and have assumed, without independent inquiry, the accuracy of these
documents. In that examination, I have assumed the genuineness of all
signatures, the conformity to the originals of all documents reviewed as copies,
the authenticity and completeness of all original documents reviewed in original
form and the legal competence of each individual executing such documents.

This opinion is solely limited to the Delaware General Corporation Law.

Based upon and subject to the foregoing, I am of the opinion that upon
the issuance and delivery of the Shares upon conversion of the Preferred Stock
in accordance with the terms of the Certificate of Designations, Rights and
Preferences therefor and upon the exercise of the Warrant in accordance with
the terms thereof, the Shares will be legally issued, fully paid and
nonassessable shares of Common Stock.

I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to me under the heading "Legal
Matters" in the preliminary prospectus constituting a part of the Registration
Statement.

Very truly yours,

/s/ Elliot J. Mark
-------------------------
Elliot J. Mark, Esq.
Associate General Counsel

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 23, 1997, relating to
the financial statements of Molten Metal Technology, Inc., which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule listed in Item 16(b) of this Registration Statement when such
schedule is read in conjunction with the financial statements referred to in our
report. The audits referred to in such report also included this schedule. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Price Waterhouse LLP

Price Waterhouse LLP

Boston, Massachusetts
October 3, 1997

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 23, 1997, relating to
the financial statements of M4 Environmental L.P., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.

/s/ Price Waterhouse LLP

Price Waterhouse LLP

Boston, Massachusetts
October 3, 1997

<ARTICLE> 5
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,679,104
<SECURITIES> 109,388,659
<RECEIVABLES> 8,897,777
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 144,266,267
<PP&E> 118,686,607
<DEPRECIATION> 15,132,662
<TOTAL-ASSETS> 272,745,249
<CURRENT-LIABILITIES> 35,635,929
<BONDS> 164,753,334
0
0
<COMMON> 236,437
<OTHER-SE> 63,275,395
<TOTAL-LIABILITY-AND-EQUITY> 272,745,249
<SALES> 0
<TOTAL-REVENUES> 63,511,190
<CGS> 0
<TOTAL-COSTS> 50,478,630
<OTHER-EXPENSES> 44,891,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,521,654
<INCOME-PRETAX> (61,181,464)
<INCOME-TAX> 0
<INCOME-CONTINUING> (61,181,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,181,464)
<EPS-PRIMARY> (2.62)
<EPS-DILUTED> (2.62)

</TABLE>