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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No. 0-21042
MOLTEN METAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1659959
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400-2 Totten Pond Road,
Waltham, MA 02154
(Address of principal executive offices) (Zip Code)
Area Code (617) 487-9700
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
Common Stock, $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at May 19, 1997 was approximately $118
million, based on the closing bid price of such stock on such date as reported
by the NASDAQ National Market ($7.25 per share). On May 19, 1997, 23,599,664
shares of the Registrant's Common Stock, $.01 par value, were outstanding.
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PART I
ITEM 1. BUSINESS
TECHNOLOGY OVERVIEW
Molten Metal Technology, Inc. (including its wholly-owned subsidiaries,
"MMT" or 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 approximately 3,000(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 CEP(1)
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(TM) (or Q-CEP(TM)) 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
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(1) References to "CEP" within this document refer to both the core CEP
technology and its various related applications.
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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 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 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 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 ("DUF(6)"), 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 DUF(6) 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
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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 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.
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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. 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 March 31, 1997, MMT Tennessee had
contracts or purchase orders in place to provide radioactive processing services
to 18 nuclear utilities, including eight contracts to process radioactive ion
exchange resins.
U.S. Government Market
PARTNERSHIP WITH 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 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. The Company and LMC, through wholly-owned subsidiaries, each holds a
49.5% limited partnership interest in M4, and a 50% interest in the corporate
general partner of M4, which holds a 1% interest in M4. In March 1997, MMT and
LMC entered into a letter of intent to restructure MMT's and LMC's
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relationship with respect to M4's market. This restructuring 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 would become a wholly-owned subsidiary of
MMT and its revenues would 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 DUF(6), at the M4 Technology Center. In December 1995, M4 began operating
its first commercial mixed waste CEP facility. The Company expects the second
mixed waste system, which is substantially larger than the first system, to
begin commercial operations during the second half of 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. There can
be no assurances that Q-CEP will prove to be satisfactory to the DOE for
processing the Hanford waste or that, even if satisfactory, the DOE will award a
Phase 1B contract to the LMC team. There also can be no assurances that LMC will
submit a bid for Phase 1B. In addition, LMC is considering the use of other
waste processing technologies, in lieu of or in addition to Q-CEP, for all or
part of any Phase 1B contract. LMC may elect to include Q-CEP in the initial or
later portions of any Phase 1B contract if Q-CEP meets certain technical
criteria, to be established by MMT and LMC. There can be no assurances that
Q-CEP will be able to meet such criteria or that LMC will include Q-CEP in any
portion of any Phase 1B contract.
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. These contracts have an
aggregate value of approximately $4.3 million.
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, and currently is negotiating an agreement 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 DUF(6)
for processing under a multi-year supply agreement. There can be no
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assurances that these negotiations will be completed successfully or that the
Company or M4 and USEC will enter into an agreement to construct a DUF(6)
processing plant or an agreement to supply and process DUF(6).
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. However, $40 million of the DoD's fiscal year 1997 budget has been set
aside to demonstrate at least two alternate technologies to incineration for the
disposal of assembled chemical weapons. Under the sponsorship of M4, MMT has
begun a program to demonstrate the feasibility of utilizing CEP to process
assembled chemical munitions containing a surrogate chemical agent in
preparation for a Request for Proposal from the Army anticipated in mid-1997.
There can be no assurances that MMT or M4 will receive any of the $40 million
budgeted by the DoD for the demonstration of alternative technologies.
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 M4. In March 1997, MMT and LMC announced that they
had executed a letter of intent 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 is to enable MMT and
LMC to access target markets more efficiently by eliminating many of the
organizational redundancies associated with the current M4 structure. LMC and
MMT believe that the contemplated 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. After the completion of the
restructuring, LMC and MMT each would be free to pursue projects formerly
governed by the existing joint venture agreements, subject to the requirements
established by the proposed new arrangements. The letter of intent contemplates
five principal changes in the relationship between LMC and MMT: (1) LMC would
have the exclusive right to lead and pursue contracts for the Hanford
radioactive tanked waste cleanup project described above, and MMT would provide
directly to LMC certain construction and development services with respect to
CEP, (2) MMT and LMC would form a new limited liability company to be their
exclusive vehicle to deliver processing services to customers in the chemical
demilitarization market worldwide, (3) MMT would have the exclusive right to
lead and pursue worldwide opportunities for processing DUF(6), (4) MMT would
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, would be transferred to LMC.
Hanford Project. In connection with the proposed
replacement of M4 by MMT on the Hanford team, MMT would deliver a pilot-scale,
demonstration CEP plant to LMC in 1997 for a fixed
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price of $5 million. In addition, if the LMC team is awarded a contract under
Phase 1B of the Hanford cleanup program and CEP is used in the Phase 1B
performance, LMC would pay MMT a fee of $15 million and order a CEP production
plant meeting agreed upon criteria at a price to be negotiated. $5 million of
this fee would be payable on award of the contract and the remaining $10 million
would be payable upon timely delivery and acceptance of the CEP production
plant. MMT also would be 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. Pursuant to discussions between MMT and LMC in connection with
the negotiation of definitive agreements with respect to the restructuring, it
is anticipated that LMC would fund certain development work with respect to
Q-CEP for possible application to the Hanford project.
Chemical Weapons Demilitarization. The limited liability
company to be formed by MMT and LMC would have worldwide rights to commercialize
CEP for the chemical weapons demilitarization market. The limited liability
company would be owned 50/50 by LMC and MMT. MMT would be 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. The limited liability
company would have an initial term of five years.
M4 Technology Center. As sole owner of M4, MMT would be
responsible for the future operations of the M4 Technology Center, and would be
entitled to all future revenues from such operations. Under the terms of the
letter of intent, the $38 million aggregate principal amount of bonds issued by
the Industrial Development Board of Oak Ridge relating to the M4 Technology
Center would remain outstanding, LMC's guarantee of these bonds would remain in
place, and each of LMC and MMT would be responsible for 50% of the principal,
interest and other costs relating to these bonds.
DUF(6). In addition to the changes described above, MMT and
LMC have agreed in the letter of intent that MMT would have the exclusive right
to lead and pursue worldwide opportunities for processing DUF(6). LMC would have
the right to participate in this market on a case-by-case basis, subject to
mutual agreement of the parties, and would agree not to pursue this market for
five years except jointly with MMT.
LMC and MMT also would establish a strategic alliance committee,
comprising three representatives 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 would 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 proposed restructuring, LMC would forgive $15
million aggregate principal amount and all accrued interest under its line of
credit with M4, MMT would contribute $14.6 million in outstanding accounts
receivable to the capital of M4, and LMC and MMT generally would share equally
in substantially all of the costs of the restructuring.
The restructuring described above is based on the terms set forth in a
non-binding letter of intent between MMT and LMC. Completion of the
restructuring is dependent upon a number of factors, including the negotiation
of definitive agreements and the approval of the Boards of Directors of MMT and
LMC. There can be no assurances that MMT and LMC will successfully consummate
the transactions described in the letter of intent.
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
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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.
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 Item 3, the Company and M4 currently are responding to
subpoenas issued by the Office of Inspector General of the DOE. 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
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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 that commercial operation of this facility will
begin 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 the exclusive right to introduce CEP to the Japanese municipal
incinerator ash market. It is anticipated that, once formed, 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 will own 49% of the joint venture, 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. The agreement provides that the joint venture will
purchase an initial CEP system to be delivered in the first quarter of 1998. 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 CEP systems from MMT or that such systems, if ordered and
delivered to Japan, will be able to successfully process and recycle incinerator
ash. In addition, the agreement is subject to final approval from the Japanese
government, and there can be no assurances that such approval will be received.
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
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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.
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 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 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
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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, none of these
warrants have vested because the Company has not obtained environmental
impairment liability insurance or project financing with the assistance of Am-Re
Services. 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,
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
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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
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.
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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 December 31, 1996, MMT owned 104 United States and foreign patents,
and had pending an additional 203 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 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).
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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 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 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 land must be accomplished using the Best
Demonstrated Available Technology ("BDAT"). In February 1996, EPA issued a BDAT
equivalency determination for CEP for all RCRA-listed waste streams which were
previously required to be incinerated. 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
EPA-promulgated regulatory levels in CEP demonstrations. The
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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 and water from solid wastes) and to reduce the
quantity of residuals for land disposal.
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
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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.
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 December 31, 1996, the Company had 481 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 May 1997, the Company announced that as part of a restructuring
designed to further MMT's transition from research and development into
commercial operations, it had eliminated 77 positions (out
16
<PAGE> 18
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 as part of a restructuring to more efficiently pursue
opportunities in priority markets, 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.
ITEM 2. 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
one third of this building has been subleased at rents in excess of the 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.
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 1997, 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.
17
<PAGE> 19
ITEM 3. 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 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 intends 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 DOE which request various Company and M4
information and records. The OIG has not informed the Company or M4 of its
reasons for requesting such information and records.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to the Company's security-holders in the
fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock began trading on the NASDAQ National Market
System under the Symbol MLTN on February 10, 1993. The following table presents
the quarterly high and low bid as quoted by NASDAQ. These quotations reflect the
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year ended December 31, 1995
High Low
---- ---
<S> <C> <C>
First Quarter $19.25 $13.75
Second Quarter 26.25 15.75
Third Quarter 33.25 21.00
Fourth Quarter 41.25 27.50
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year ended December 31, 1996
High Low
---- ---
<S> <C> <C>
First Quarter $40.25 $29.75
Second Quarter 36.50 28.00
Third Quarter 34.63 21.75
</TABLE>
18
<PAGE> 20
<TABLE>
<S> <C> <C>
Fourth Quarter 33.25 9.25
</TABLE>
As of May 19, 1997, there were 939 holders of record of the Common Stock.
On May 19, 1997, the closing bid price of the Company's Common Stock, as quoted
by the NASDAQ National Market, was $7.25 per share. The Company has never
declared or paid cash dividends on its Common Stock and does not anticipate
doing so in the foreseeable future.
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 of 1933, as amended (the "Securities Act"),
provided by Rule 144A and to a 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.
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<PAGE> 21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information of the Company for
the 5 years ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <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
Operating expenses:
Cost of revenue 50,478,630 34,901,904 11,057,163 2,205,316 2,172,399
Research and development 26,183,268 10,986,234 14,417,327 10,837,484 4,208,319
Selling, general and administrative 18,708,514 2,877,371 7,132,256 5,661,953 4,133,270
------------ ------------ ------------ ------------ ------------
95,370,412 48,765,509 32,606,746 18,704,753 10,513,988
Equity income from affiliate (31,612,891) 834,294 -- -- --
------------ ------------ ------------ ------------ ------------
Loss from operations (63,472,113) (3,749,817) (18,207,917) (13,982,800) (7,987,661)
Interest income 8,812,303 5,559,690 4,376,403 1,861,077 400,559
Interest expense (6,521,654) (1,455,084) (737,741) (160,233) (15,972)
============ ============ ============ ============ ============
Net income (loss) $(61,181,464) $ 354,789 $(14,569,255) $(12,281,956) $ (7,603,074)
============ ============ ============ ============ ============
Net income (loss) per share $ (2.62) $ 0.01 $ (0.67) $ (0.69) $ (0.59)
============ ============ ============ ============ ============
Weighted average common
shares outstanding 23,313,243 24,710,423 21,904,213 17,811,830 12,843,220
============ ============ ============ ============ ============
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,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <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
Working capital 108,630,338 89,306,823 95,318,381 103,689,795 (72,876)
Total assets 272,745,249 153,336,001 135,541,524 123,628,053 11,523,176
Long-term liabilities, less current maturities (2) 173,597,488 26,818,466 24,549,733 3,625,427 3,538,531
Convertible preferred stock -- -- -- -- 72,727
Accumulated deficit (97,820,411) (36,638,947) (36,993,736) (22,424,481) (10,142,525)
Stockholders' equity 63,511,832 109,908,656 102,135,257 116,333,308 5,264,679
</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
December 31, 1996 and $1,474,586 at December 31, 1995, 1994, 1993 and
1992, (iii) deferred income of $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.
20
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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 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,
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
proposed 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
21
<PAGE> 23
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.
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 NICE(3)
grant described in Item 1 above, the Company does not anticipate receiving
research and development funding from the DOE in 1997.
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 accounts for its investment in M4 using the equity method and
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 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. The Company expects to continue
to incur equity losses from M4 until the ongoing restructuring is completed,
which is expected during the second quarter of 1997.
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. 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 results of
operations in the past have been dependent largely on revenue from M4 and DOE
and the Company's future profitability is dependent upon its ability to
22
<PAGE> 24
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.
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.
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 in Item 3 above. 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. Inflation is not expected to have a
material effect on future results of operations.
LIQUIDITY AND CAPITAL RESOURCES
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 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.
23
<PAGE> 25
During December 1996, 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 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 March 1997, the Company and LMC announced that they had executed a letter of
intent to restructure their relationship with respect to commercialization of
CEP for the government waste market. The objective of the restructuring is to
enable MMT and LMC to access target markets more efficiently by eliminating many
of the organizational redundancies associated with the current M4 structure. LMC
and MMT believe that the contemplated 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. After the completion of the
restructuring, LMC and MMT each would be free to pursue projects formerly
governed by the existing joint venture agreements, subject to the requirements
established by the proposed new arrangements. The letter of intent contemplates
five principal changes in the companies' relationship: (1) LMC would have the
exclusive right to lead and pursue contracts for the Hanford radioactive tanked
waste cleanup project described above, and MMT would provide directly to LMC
certain construction and development services with respect to CEP, (2) the
Company and LMC would form a new limited liability company to be their exclusive
vehicle to deliver processing services to customers in the chemical
demilitarization market worldwide, (3) MMT would have the exclusive right to
lead and pursue worldwide opportunities for processing DUF(6), (4) the Company
would 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, would be transferred to LMC.
In connection with the proposed replacement of M4 by the Company on the Hanford
team, the Company would deliver a pilot-scale, demonstration CEP plant to LMC
in 1997 for a fixed price of $5 million. In addition, if the LMC team is
awarded a contract under Phase 1B of the Hanford cleanup program and CEP is
used in the Phase 1B performance, LMC would pay the Company a fee of $15
million and order a CEP production plant meeting agreed upon criteria at a
price to be negotiated. $5 million of this fee would be payable on award of the
contract and the remaining $10 million would be payable upon timely delivery
and acceptance of the CEP production plant. The Company also would be entitled
to an on-going royalty of 3.5% of all revenues generated from the processing of
waste in equipment supplied by the Company under the Hanford contract.
The limited liability company to be formed by the Company and LMC would have
worldwide rights to commercialize CEP for the chemical weapons demilitarization
market. The limited liability company would be owned 50/50 by LMC and the
Company. The Company would be 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. The limited liability company would have an initial
term of five years.
As sole owner of M4, the Company would be responsible for the future operations
of the M4 Technology Center, and would be entitled to all future revenues from
such operations. Under the terms of the letter of intent, the $38 million
aggregate principal amount of bonds issued by the Industrial Development Board
of Oak Ridge relating to the M4 Technology Center would remain outstanding,
LMC's guarantee of these bonds would remain in place, and each of LMC and the
Company would be jointly responsible for the principal, interest and other costs
relating to these bonds.
In addition to the changes described above, the Company and LMC have agreed in
the letter of intent that the Company would have the exclusive right to lead and
pursue worldwide opportunities for processing DUF6. LMC would have the right to
participate in this market on a case-by-case basis, subject to mutual agreement
of the parties, and would agree not to pursue this market for five years except
jointly with the Company.
LMC and the Company also would establish a strategic alliance committee,
comprising three
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<PAGE> 26
representatives 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.
In connection with the proposed restructuring, LMC would forgive $15 million
aggregate principal amount and all accrued interest under its line of credit
with M4, and the Company would contribute 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.
The restructuring described above is based on the terms set forth in a
non-binding letter of intent between the Company and LMC. Completion of the
restructuring is dependent upon a number of factors, including the negotiation
of definitive agreements and the approval of the Boards of Directors of the
Company and LMC. There can be no assurances that the Company and LMC will
successfully consummate the transactions described in the letter of intent.
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 the Bay City CEP Facility in Bay City,
Texas. During 1996, the Company spent approximately $12.6 million 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 proposed treatment of these receivables in connection with the M4
restructuring.
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 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
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<PAGE> 27
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.
During 1996, the Company earned revenue from M4 relating to services provided
for the engineering and construction of CEP systems and from technology transfer
and success fees. For revenue amounts that are capitalized by M4, the portion of
the related gross profit that is allocable to the Company's ownership interest
in M4 has been deferred, and will be recognized over the period that the related
assets are depreciated by M4. As of December 31, 1996, the related deferred
income increased by $4,435,000 from December 31, 1995 due to billings under
license agreements and construction contracts with M4.
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. The Company has accrued $1.3 million for anticipated losses relating
to this lease net of expected sub-lease income.
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 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. These sources of
financing could include 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. If the Company does not 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 Form 10-K 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 Bay City CEP Facility,
expected sales of CEP systems by the Company and its partners, regulatory
acceptance of the
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<PAGE> 28
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:
Customer Acceptance of CEP - CEP is a new and developing technology for
which there is no established market. The Company may be unable to sell CEP
systems if potential customers do not view CEP as an economically and
environmentally acceptable means of disposing of wastes and by-products.
Development Risk - 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.
Lack of Sustained Commercial Operations - The Company has limited
experience operating commercial CEP plants. There can be no assurance that the
Company will be able to operate CEP systems on a sustained basis in
commercial-scale use, that such systems can be operated profitably, or that such
systems will successfully process feedstocks and recover commercially usable or
saleable materials.
Compliance with Regulatory Requirements - The Company and its customers
and potential customers must operate in compliance with federal, state and local
environmental laws and regulations. Failure to obtain required permits or
failure of CEP to meet environmental standards would have a material adverse
affect on the Company's ability to sell, site and operate CEP plants. In
addition, the stringency and level of enforcement of environmental laws and
regulations will have a material effect on demand for the Company's technology.
Obtaining Required Funding - The Company will require substantial funds to
construct the initial commercial CEP systems that it anticipates it will own and
operate, and to continue its development activities. 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 and terms of alternative sources of financing.
Failure to obtain necessary financing could 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 Disposal Facilities - 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 Q-CEP will be
greater than those produced from other applications of CEP.
Significant Customers - The Company has historically been dependent on two
customers, M4 and the DOE, for a substantial portion of its revenues. The
Company does not expect to be receiving substantial revenues from M4 or the
Department of Energy in 1997. The Company's future profitability is
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<PAGE> 29
dependent upon, among other things, its ability to find alternative sources of
revenue. There can be no assurance that the Company will generate sufficient
revenue to achieve profitability.
Operating History - The Company's quarterly revenues and operating results
have varied significantly in the past and may continue to vary significantly in
the future as a result of the factors listed above. In addition, because the
purchase of a CEP plant involves a substantial capital commitment, the Company's
sales cycle can be lengthy and subject to risks and uncertainties over which the
Company has little or no control. These include budgetary constraints,
regulatory requirements, changes in technology, and competition. Variations in
the timing of recognition of particular revenues due to changes in project scope
or timing may adversely and disproportionately affect the Company's operating
results. The Company's future profitability is dependent upon, among other
things, its ability to successfully commercialize its CEP technology. There can
be no assurance that the Company will generate sufficient revenue to achieve
continued profitability.
Competition - The Company's competitors, many of which have substantially
greater financial resources than the Company, may develop technologies superior
to those of 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.
Additional factors which may cause actual results to differ are described
in Exhibit 99.1 to this Form 10-K, as well as the Company's other filings with
the Securities and Exchange Commission and are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules data listed in Item 14 are filed as
part of this report on pages F-1 through F-42.
The filing of this report and the release of the Consolidated Financial
Statements for the year ended December 31, 1996 were delayed by the events
described in Item 9 hereof and by the need to complete assessments of the
recoverability of the long-lived assets of the Company and M4 in accordance with
the requirements of Financial Accounting Standards No. 121.
Also, 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 in Item 3 above. 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On March 27, 1997, M4 engaged Price Waterhouse LLP ("Price Waterhouse") to
audit M4's financial statements for the fiscal year ended December 31, 1996.
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 &
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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.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
There is shown below for each director and executive officer, as reported
to the Company, the name, age and family relationship, if any, with any other
director or officer; the principal occupation and employment over at least the
last five years; the position, if any, with the Company; the period of service
as a director or officer of the Company; and certain other directorships held.
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.
<TABLE>
<CAPTION>
Director/Officer
Name Age Office Held Since
- ---- --- ----------- -----
<S> <C> <C> <C>
William M. Haney, III 35 Chairman of the Board of 1989
Directors, President and
Chief Executive Officer
Christopher J. Nagel, 39 Vice President of Process 1989
Sc.D. Fundamentals/ Founding
Scientist and Director
James B. Anderson (1) 47 Director 1990
Peter A. Lewis (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 Government 1992
and External Affairs
Benjamin T. Downs 34 Executive Vice President of 1990
Finance and Administration and
Chief Financial Officer
William J. Garner 58 Vice President of Design and 1996
Development
Victor E. Gatto, Jr. 50 Vice President, Government and 1993
Nuclear Sales
Ethan E. Jacks 43 Vice President and General 1991
Counsel
G. Earl McConchie 46 Vice President of Sales and 1996
Marketing
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C> <C> <C>
Katharyn F. Santoro 43 Vice President of Human 1994
Resources
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 Vice President of Process Fundamentals/Founding
Scientist since October 1996. From August 1994 until October 1996, Dr. Nagel
served as Executive 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.
JAMES B. ANDERSON, PH.D., has served as a Director of the Company since
December 1990. Dr. Anderson is the Second Vice President responsible for the
venture capital portfolio of The Travelers Companies where he has been
employed since 1987. Prior to joining Travelers, Dr. Anderson was employed
as the Vice President of Research for Technology Assessment for Advest, Inc.
from 1983 to 1987. Dr. Anderson holds a Ph.D. in Materials Science from the
University of Connecticut and a B.S. in Physics from Worcester Polytechnic
Institute. Dr. Anderson also serves on the Board of Directors of Biofield,
Inc. and Voxel, Inc., as well as a number of other private companies.
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.
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<PAGE> 32
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 Government 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.
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. Since May 1995, Mr. Downs has served as
Executive Vice President of Finance and Administration and Treasurer. 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.
WILLIAM J. GARNER joined the Company in August 1996 as Vice President
of Design and Development. Mr. Garner was the Director, Process Research and
Development, of the Polyolefins Division of Union Carbide Corporation from
September 1990 to August 1996. He held a number of management positions at
Union Carbide from 1975, all associated with the development, design,
commercialization and licensing of Union Carbide's leading UNIPOL(R) polymers
technology. During Mr. Garner's tenure at Union Carbide, this technology was
extended to over 110 reactors worldwide and 12 million tons of annual
capacity. Mr. Garner holds a B.S. and M.S. in Chemical Engineering from
Texas A&M University and an M.S. in Industrial Hygiene from the University of
Pittsburgh.
VICTOR E. GATTO, JR., ED.D., joined the Company as Director of
Government Affairs in February 1992, served as Vice President of Government
and Nuclear Business from September 1993 to March 1997, and currently serves
as Vice President of Government and Nuclear Sales. From 1991 to February
1992, Dr. Gatto was an independent consultant assisting start-up companies
with innovative technologies in the
31
<PAGE> 33
areas of government, political and regulatory affairs at the state and federal
level. From 1990 to 1991, Dr. Gatto was Finance Director of the Massachusetts
Republican Party. From 1987 to 1990, Dr. Gatto was employed by Davidson College.
Dr. Gatto holds an Ed.D., an Ed.M. and an A.B. from Harvard University.
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.
G. EARL MCCONCHIE joined the Company as Vice President of Chemicals and
Plastics Business in April 1996, and currently serves as Vice President of
Sales and Marketing. Since 1972, Mr. McConchie has held a number of
management positions at the Dow Chemical Company ("Dow"), one of the largest
U.S. based chemical companies. From 1992 to April 1996, Mr. McConchie served
as the Global Business Director and Global R&D Director of Dow's RCl, HCl and
Incineration Business, where he was responsible for business management and
technology development and implementation, involving 12 major manufacturing
sites and global business. Mr. McConchie holds a B.S. in Chemical
Engineering from Virginia Tech.
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
jointed 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors
and executive officers and any persons holding more than 10% of the Common Stock
are required to report their ownership of the Common Stock and any changes in
that ownership to the Securities and Exchange Commission (the "SEC"). Specific
due dates for these reports have been established and the Company is required to
report in this Annual Report on Form 10-K any failure to file by these due dates
during 1996. Based on a review of the forms filed by the above persons, the
Company believes that all of these filing requirements were timely satisfied by
its directors, executive officers and 10% holders, with the exception of Mr.
Haney, who on one occasion was late in filing the appropriate form documenting
one open market purchase transaction, and Ian C. Yates, a former Vice President
of the Company, who on two occasions after departing from the Company was late
in reporting a total of five option exercise transactions. In making this
statement, the Company has relied upon the written representations of its
directors, officers and ten percent holders and copies of the reports that have
been filed with the Commission.
32
<PAGE> 34
ITEM 11. EXECUTIVE COMPENSATION
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
--------------------------------- ---------------------------------
RESTRICED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL YEAR SALARY(1) BONUS AWARDS OPTIONS PAYOUTS COMPENSATION
- ------------------ ---- --------- ----- ------ ------- ------- ------------
POSITION
--------
<S> <C> <C> <C> <C> <C> <C> <C>
William M. Haney, 1996 $344,167 $ -- -- 30,100 -- $ 18,140(2)
III 1995 $289,167 (3) -- 14,826 -- $ 26,777(4)
Chairman, Chief 1994 $280,000 -- -- 108,000 -- $ 17,119(5)
Executive
Officer and
President
Christopher J 1996 $201,333 $ 11,250 -- 39,000 -- $ 69,022(6)
Nagel, Sc.D 1995 $192,000 $ 21,600 -- 100 -- $ 24,724(7)
Vice President 1994 $182,801 $ 310 -- 54,000 -- $ 45,897(8)
of Fundamentals
and Founding
Scientist
Benjamin T. Downs 1996 $190,833 $ -- -- 35,250 -- $ 146(9)
Executive Vice 1995 $135,993 19,125 -- 7,600 -- $ 146(10)
President of 1994 $143,310 32,448 -- 43,400 -- $ 100(11)
Finance and
Administration
and Chief
Financial Officer
G. Earl McConchie(12) 1996 $163,457 $ 7,031 40,000 50,000 -- $ 68,587(13)
Vice President
of Sales and
Marketing
Victor E. Gatto, 1996 $174,646 $ 6,750 -- 45,250 -- $ 949(14)
Jr 1995 $151,000 $ 55,000 -- 100 -- $ 569(15)
Vice President 1994 $143,906 $ 15,310 -- 72,175 -- $ 348(16)
of Government
and Nuclear 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) Mr. Haney directed that his bonus for 1995, $100,800, be paid by the
Company to a charitable foundation designated by Mr. Haney.
(4) 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.
(5) 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.
(6) 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.
33
<PAGE> 35
(7) 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.
(8) 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.
(9) Represents $146 in term life insurance premiums on a group policy
maintained by the Company.
(10) Represents $146 in term life insurance premiums on a group policy
maintained by the Company.
(11) Represents $100 in term life insurance premiums on a group policy
maintained by the Company.
(12) Mr. McConchie became an employee of the Company in April 1996.
(13) Represents $68,067 for reimbursement of relocation expenses, and $522 in
term life insurance premiums on a group policy maintained by the Company.
(14) 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.
(15) 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.
(16) Represents $348 in term life insurance premiums on a group policy
maintained by the Company.
Option Grants in Last Fiscal Year. The following table sets forth
information as to stock options granted for the year ended December 31, 1996 to
each of the individuals listed in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------ Value of Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term (3)
Options Employees in Price Expiration --------------------
Name Granted Fiscal Year ($/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.
(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").
34
<PAGE> 36
(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.
(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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
Shares at Fiscal Year End at Fiscal Year End(1)
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) 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. To the Company's knowledge,
there were no other relationships involving members of the Committee or other
directors of the Company requiring disclosure in this proxy statement.
The Company's Compensation Committee currently consists of Peter A.
Lewis and John T. Preston.
35
<PAGE> 37
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.
G. Earl McConchie, the Company's 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 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.
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 Company's Amended and Restated 1989 Long Term Incentive
Compensation Plan (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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 19, 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 May 19, 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 May 19, 1997, 23,599,664 shares of Common Stock were
outstanding.
36
<PAGE> 38
<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) 5,346,786 22.01%
400-2 Totten Pond Road
Waltham, MA 02154
John T. Preston(3) 2,290,507 9.70%
238 Main Street
Cambridge, MA 02141
The Travelers Companies(4) 1,913,917 8.11%
One Tower Square
Hartford, CT 06183
Christopher J. Nagel, Sc.D.(5) 2,075,965 8.10%
400-2 Totten Pond Road
Waltham, MA 02154
Benjamin T. Downs(6) 367,092 1.54%
400-2 Totten Pond Road
Waltham, MA 02154
Robert A. Swanson(7) 267,915 1.12%
Peter A. Lewis(8) 114,697 *
Victor E. Gatto, Jr.(9) 65,779 *
Maurice F. Strong(10) 54,916 *
G. Earl McConchie(11) 53,599 *
James B. Anderson, Ph.D.(12) 17,500 *
All officers and directors as a group 10,918,716 40.20%
(14 persons) (2)-(4), (6)-(13)
</TABLE>
------------
* Less than 1%.
(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 May
19, 1997 (or within 60 days after such date). Except as set forth
37
<PAGE> 39
in these footnotes, such shares are beneficially owned with sole
investment and sole voting power.
(2) Includes 697,811 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 1997 (or within 60
days after such date).
(3) Includes 6,250 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 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) 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.
(5) Includes 2,045,346 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 1997 (or within 60
days after such date).
(6) Includes 210,878 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 1997 (or within 60
days after such date).
(7) Includes 227,915 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 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 20,000 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 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 61,690 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 1997 (or within 60
days after such date).
(10) Represents 54,916 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 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 12,446 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 1997 (or within 60
days after such date).
(12) Represents 17,500 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 1997 (or within 60
days after such date).
(13) Includes 3,559,399 shares of Common Stock issuable upon exercise of
outstanding options exercisable as of May 19, 1997 (or within 60
days after such date).
38
<PAGE> 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 will
provide advice on the design and implementation of international sales and
marketing strategy for the Company's products and technology, and will assist 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 will pay Mr. Strong a retainer of $5,000 per month. The
Agreement has a one year term, and renews automatically for successive one year
terms unless terminated by either party.
The Company and John T. Preston, a director of the Company, are parties to
a Consulting Agreement pursuant to which Mr. Preston will provide advice on
technology implementation, business planning, networking with potential
customers, and other projects assigned from time to time by senior management of
the Company. Pursuant to the Consulting Agreement, the Company pays Mr. Preston
a retainer of $3,334 per month. The Agreement has a one year term, and renews
automatically for successive one year terms unless terminated by either party.
In August 1996, December 1996 and January 1997, the Company loaned G. Earl
McConchie, an 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.
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 Mr. William Garner 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 pretax 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.
39
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The documents set forth in the list below are filed as part of this report
on pages F-1 through F-26.
(1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1996 and 1995 Consolidated
Statement of Operations for the years ended December 31,
1996, 1995 and 1994
Consolidated Statement of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
For the three years ended December 31, 1996:
II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
(c) Exhibits
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)
t 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 Current 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))
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))
t 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)
40
<PAGE> 42
+ 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.
*+10.15 - Registrant's Amended and Restated 1989 Long Term Incentive
Compensation Plan, as amended effective March 27, 1996.
+ 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)
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)
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)
10.33 - Development Agreement dated as of May 3, 1995 between the
Registrant and Hoechst Celanese Chemical Group, Inc. ("HCC"). #7#
(10.1)
10.34 - Feedstock Supply Agreement dated as of May 3, 1995 between the
Registrant and HCC. #7# (10.2)
10.35 - Synthesis Gas Purchase and Sale Agreement dated as of May 3, 1995
between the Registrant and HCC. #7# (10.3)
10.36 - Sales Representative and Master Services Agreement dated as of
February 29, 1996 between the Registrant and Uhde. #8#(10.1) '
41
<PAGE> 43
x10.37 - Partnership Restructuring Agreement dated as of March 15, 1996
between the Registrant, LMC and M4. #8#(10.2)
10.38 - Indenture dated May 1, 1996 between the Registrant and The Bank of
New York, as Trustee. #8#(10.3)
10.39 - Purchase Agreement dated April 25, 1996 between the Registrant and
Lazard FrEres & Co. LLC. #8#(10.4)
y10.40 - 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.
* 11 - Computation of Primary, Fully Diluted and Supplementary Net Income
(Loss) Per Share.
16 - Letter re: Change of Accountants. #13#(A)
* 21 - Subsidiaries of the Registrant.
* 23.1 - Consent of Price Waterhouse LLP.
* 27 - Financial Data Schedule.
* 99.1 - Cautionary Statements for the Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995.
- ----------
* Filed herewith.
+ Management contract or compensatory plan filed pursuant to item 14(c)
of Form 10-K.
t An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.1 and 10.9 was issued on February 9, 1993.
u An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.26 was issued on May 11, 1994.
v An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.29 was issued on January 6, 1995.
w An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.33, 10.34 and 10.35 was issued on October 20, 1995.
x An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.36 and 10.37 was issued on October 20, 1995.
y An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.40 was issued on July 30, 1996.
z Confidential treatment has been requested for deleted portions of
Exhibit 10.46.
*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.
42
<PAGE> 44
*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.
(d) Financial Statements of M4
The financial statements of M4 Environmental L.P. set forth in the list
below are filed as part of this report on pages F-27 through F-42.
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
43
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
behalf of the Registrant and in the capacities indicated.
MOLTEN METAL TECHNOLOGY, INC.
By: /s/ William M. Haney, III
-------------------------------------
William M. Haney, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated.
/s/ William M. Haney, III May 27, 1997
- ---------------------------------
William M. Haney, III
Chairman of the Board of
Directors;
President; and Chief Executive
Officer (principal executive
officer)
/s/ Christopher J. Nagel May 27, 1997
- ---------------------------------
Christopher J. Nagel, Sc.D.
Vice President, Process Fundamentals/
Founding Scientist; and Director
/s/ Benjamin T. Downs May 27, 1997
- ---------------------------------
Benjamin T. Downs
Executive Vice President of
Finance and Administration;
Treasurer; and Chief Financial
Officer (principal financial and
accounting officer)
/s/ James B. Anderson May 27, 1997
- ---------------------------------
James B. Anderson, Director
/s/ Peter A. Lewis May 27, 1997
- ---------------------------------
Peter A. Lewis, Director
/s/ John T. Preston May 27, 1997
- ---------------------------------
John T. Preston, Director
/s/ Maurice F. Strong May 27, 1997
- ---------------------------------
Maurice F. Strong, Director
/s/ Robert A. Swanson May 27, 1997
- ---------------------------------
Robert A. Swanson, Director
44
<PAGE> 46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Molten Metal Technology, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) and (2) on page 40 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-1
<PAGE> 47
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-2
<PAGE> 48
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-3
<PAGE> 49
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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-4
<PAGE> 50
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-5
<PAGE> 51
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-6
<PAGE> 52
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-7
<PAGE> 53
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-8
<PAGE> 54
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-9
<PAGE> 55
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-10
<PAGE> 56
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-11
<PAGE> 57
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-12
<PAGE> 58
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-13
<PAGE> 59
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:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,784,000
1998 603,333
1999 700,000
2000 700,000
2001 800,000
</TABLE>
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-14
<PAGE> 60
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-15
<PAGE> 61
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-16
<PAGE> 62
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
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.
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-17
<PAGE> 63
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-18
<PAGE> 64
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-19
<PAGE> 65
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-20
<PAGE> 66
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-21
<PAGE> 67
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-22
<PAGE> 68
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-23
<PAGE> 69
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-24
<PAGE> 70
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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-25
<PAGE> 71
SCHEDULE II
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS END OF YEAR
- ----------- ------ --------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
Valuation allowance for deferred tax asset $20,972,000 $30,545,000 $- $51,517,000
December 31, 1995:
Valuation allowance for deferred tax asset 17,986,000 2,986,000 - 20,972,000
December 31, 1994:
Valuation allowance for deferred tax asset 9,568,000 8,418,000 - 17,986,000
</TABLE>
F-26
<PAGE> 72
M4 ENVIRONMENTAL L.P.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE> 73
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
M4 Environmental L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital (deficit) and of cash flows present
fairly, in all material respects, the financial position of M4 Environmental
L.P. at December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership'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.
As described in Note 1, in March 1997, the Partners executed a letter of intent
to restructure their relationship currently embodied in the Partnership.
Pursuant to the terms of the letter of intent, the Partnership's Retech division
would be transferred to Lockheed Martin Corporation, and the Partnership would
become solely owned by Molten Metal Technology, Inc. After giving effect to the
restructuring, the Partnership's principal asset would be the Technology Center
(Note 4).
Price Waterhouse LLP
Boston Massachusetts
May 23, 1997
<PAGE> 74
M4 ENVIRONMENTAL L.P.
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 154,542 $ 5,610,000
Accounts receivable, net of allowance for
doubtful accounts of $95,000 in 1996 8,016,756 --
Accounts receivable from LMC 1,221,303 --
Costs and earnings in excess of billings 3,447,755 --
Inventories 2,165,286 --
Prepaid expenses and other current assets 673,387 225,147
Due from INC 379,884 43,887
------------ ------------
Total current assets 16,058,913 5,879,034
Property, plant and equipment, net 25,751,932 28,894,764
Technology and market rights, net 10,083,700 12,114,286
Other intangible assets, net 5,626,874 --
Other assets 277,742 --
------------ ------------
$ 57,799,161 $ 46,888,084
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable $ 7,136,598 $ 4,291,224
Accrued expenses and other current liabilities 9,589,988 1,299,146
Due to MMT 21,527,000 15,103,621
Billings in excess of costs and earnings 2,943,410 --
Reserve for loss contracts 1,028,154 --
Line of credit - LMC 10,000,000 --
------------ ------------
Total current liabilities 52,225,150 20,693,991
Long-term debt 38,000,000 --
Due to related party 1,983,334 --
Other long-term liabilities 188,095 --
------------ ------------
92,396,579 20,693,991
------------ ------------
Commitments and contingencies (Note 12)
------------ ------------
Partners' capital (deficit) (34,597,418) 26,194,093
------------ ------------
$ 57,799,161 $ 46,888,084
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 75
M4 ENVIRONMENTAL L.P.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD FROM
INCEPTION
(AUGUST 8,
1994)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue $ 19,157,905 $ 1,510,000 $ --
Cost of revenue 30,146,314 1,510,000 --
------------- ------------- -------------
(10,988,409) -- --
------------- ------------- -------------
Operating expenses:
Selling, general and administrative 18,340,642 6,116,959 1,327,449
Research and development 12,153,077 4,346,169 --
Depreciation and amortization 4,733,543 1,696,341 492,172
Impairment charge for long-lived assets 60,851,167 -- --
------------- ------------- -------------
Loss from operations (107,066,838) (12,159,469) (1,819,621)
Interest income 748,052 166,426 6,757
Interest expense (730,000) -- --
------------- ------------- -------------
Net loss $(107,048,786) $ (11,993,043) $ (1,812,864)
============= ============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 76
M4 ENVIRONMENTAL L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
<S> <C> <C> <C>
Capital contributions (unaudited) $ 76,500 $ 8,923,500 $ 9,000,000
Net loss (unaudited) (18,129) (1,794,735) (1,812,864)
------------- ------------- -------------
Balance at December 31, 1994 58,371 7,128,765 7,187,136
Capital contributions -- 31,000,000 31,000,000
Net loss (119,930) (11,873,113) (11,993,043)
------------- ------------- -------------
Balance at December 31, 1995 (61,559) 26,255,652 26,194,093
Capital contributions -- 30,000,000 30,000,000
Contribution of Retech net assets (Note 1) -- 16,257,275 16,257,275
Net loss (1,070,488) (105,978,298) (107,048,786)
------------- ------------- -------------
Balance at December 31, 1996 $ (1,132,047) $ (33,465,371) $ (34,597,418)
============= ============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 77
M4 ENVIRONMENTAL L.P.
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD FROM
INCEPTION
(AUGUST 8, 1994)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(107,048,786) $ (11,993,043) $ (1,812,864)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,733,543 1,696,341 492,172
Impairment charge for long-lived assets 60,851,167 -- --
Changes in assets and liabilities (net of contribution of Retech):
Accounts receivable (3,322,815) -- --
Accounts receivable from LMC (1,217,359) -- --
Costs and earnings in excess of billings 2,702,271 -- --
Inventories (130,225) -- --
Prepaid expenses and other current assets (425,845) (211,444) (13,703)
Due from INC (331,647) 205,860 (249,747)
Accounts payable 1,989,779 4,039,661 251,563
Accrued expenses and other current liabilities 3,778,147 1,199,274 99,871
Due to MMT 2,877,912 (218,965) 218,965
Billings in excess of costs and earnings 1,161,394 -- --
Reserve for loss contracts 888,810 -- --
Other long-term liabilities (188,035) -- --
------------- ------------- -------------
Net cash used in operating activities (33,681,689) (5,282,316) (1,013,743)
------------- ------------- -------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (44,172,653) (13,639,284) (454,657)
Purchase of technology and market rights (5,000,000) (6,500,000) (7,500,000)
Payments to related party (296,093) -- --
------------- ------------- -------------
Net cash used in investing activities (49,468,746) (20,139,284) (7,954,657)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from line of credit - LMC 10,000,000 -- --
Proceeds from long-term debt 38,000,000 -- --
Debt issuance costs (308,602) -- --
Proceeds from capital contributions 30,000,000 31,000,000 9,000,000
Cash acquired in Retech contribution 3,579
------------- ------------- -------------
Net cash provided by financing activities 77,694,977 31,000,000 9,000,000
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (5,455,458) 5,578,400 31,600
Cash and cash equivalents, beginning of period 5,610,000 31,600 --
------------- ------------- -------------
Cash and cash equivalents, end of period $ 154,542 $ 5,610,000 $ 31,600
============= ============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE> 78
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF BUSINESS
M4 Environmental L.P. (the "Partnership"), a Delaware limited partnership,
was formed on August 8, 1994. Lockheed Martin Corporation ("LMC") and
Molten Metal Technology, Inc. ("MMT"), through their respective
wholly-owned subsidiaries, each own a designated 49.5% limited partnership
interest in the Partnership and a 50% interest in M4 Environmental
Management Inc. ("INC"), the 1% general partner of the Partnership.
Pursuant to the terms of the partnership agreement, the Partnership will
terminate on July 1, 2019. The Partnership may be terminated by LMC or MMT
in 1998 or in the event certain technological or commercial goals are not
met, or by mutual consent of LMC and MMT.
The Partnership was formed to commercialize catalytic extraction
processing ("CEP") to service the environmental remediation,
waste-management, decontamination, and decommissioning needs of the U.S.
Department of Defense and the U.S. Department of Energy (the "Market"). In
December 1994, the Partnership and MMT entered into an agreement to
include feedstocks from the United States Enrichment Corporation ("USEC")
in the Market. In September 1996, the Partnership, MMT and LMC entered
into an agreement which expanded the Partnership's license to include the
demilitarization of Japanese chemical weapons (Note 3). In March 1996, MMT
and LMC executed an agreement to expand the Partnership through the
acquisition by the Partnership of the Retech division of a subsidiary of
LMC. Under the terms of this expansion, LMC contributed certain of the net
assets of the Retech division to the Partnership. MMT purchased
substantially all of the remaining assets of Retech from LMC for 352,361
shares of its common stock, and then immediately contributed the assets to
the Partnership.
The core of CEP is a molten metal bath into which waste feedstocks and
selected chemicals can be injected. The catalytic and solvent effect of
the molten metal bath causes the waste feedstocks to break down into their
constituent elements and dissolve in the molten metal bath. The addition
of various selected chemicals to the molten metal bath enables the
reconfiguration of the elements into useful raw materials. The Retech
division designs and manufactures metallurgical equipment and waste
processing systems that utilize a plasma technology.
In March 1997, MMT and LMC executed a letter of intent to restructure
their relationship currently embodied in the Partnership. The letter of
intent contemplates the following: (1) LMC would control and pursue the
clean up of the tanked waste site in Hanford, Washington, and MMT would
provide directly to LMC certain construction and development services with
respect to CEP. (2) MMT 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) MMT 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) MMT would become the sole
owner of the Partnership. After giving effect to the restructuring, the
Partnership's principal asset would be the Technology Center (Note 4). MMT
would be responsible for the operation of the Technology Center and would
be entitled to all future revenue from such operations. MMT and LMC have
agreed to share equally the debt service of the $38 million
<PAGE> 79
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
of bonds issued by the Industrial Development Board of Oak Ridge,
Tennessee relating to the Technology Center (Note 8). (6) LMC would
forgive $15 million outstanding under the Partnership's line of credit,
and MMT would contribute outstanding accounts receivable from the
Partnership of $14,569,870 to the Partnership's capital. (7) LMC and MMT
generally would share equally in substantially all of the costs of
completing the restructuring. (8) All existing agreements between MMT, LMC
and the Partnership would be terminated, including the Partnership's CEP
license from MMT. (9) LMC and MMT would establish a first offer process
pursuant to which they will jointly discuss new market opportunities
within the Market prior to pursuing them individually.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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 estimates of the costs to complete long-term contracts,
future cash flows associated with long-lived assets (Note 4), and useful
lives for depreciation and amortization (Notes 5 and 6). Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments that are readily
convertible to cash or that have an original maturity of three months or
less when purchased to be cash equivalents. Such equivalents consist
principally of overnight repurchase agreements. The Partnership does not
require collateral on the excess of its cash deposits or repurchase
agreements over federal depository insurance coverage. At December 31,
1995, the Partnership has classified its cash equivalents totaling
$5,610,000 as available-for-sale. These investments are carried at cost
which approximates fair value.
REVENUE RECOGNITION, ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Revenue in 1995 consisted of contractual services performed primarily for
one customer, USEC. The contract related to the demonstration by the
Partnership of the feasibility of using CEP to treat certain of USEC's
radioactive waste stockpiles.
The Partnership's revenue during 1996 was primarily from the operations of
Retech under fixed price long-term contracts. During the year ended
December 31, 1996, revenues from two customers were $3,973,490 and
$2,858,295, or 21% and 15% of total revenue, respectively. At December 31,
1996, accounts receivable and costs and earnings in excess of billings due
from these customers totaled $1,994,367 and $1,426,761, respectively.
Accounts receivable from a third customer totaled $1,285,716 at December
31, 1996.
2
<PAGE> 80
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
During the year ended December 31, 1996, revenue from North America,
Europe, and Asia totaled approximately $12,589,000 (66%), $3,355,000
(17%), and $3,214,000 (17%) of total revenue, respectively.
Fixed price contract revenue is recognized using the
percentage-of-completion method based on the ratio that costs incurred to
date bear to estimated total costs at completion. Adjustments to contract
cost estimates are made in the period in which the facts which require the
revisions become known. When the revised estimate indicates a loss, such
loss is provided for in its entirety currently. Costs and earnings in
excess of billings represent costs incurred and profit to date in excess
of amounts billed. Billings in excess of costs and earnings represent
amounts billed in excess of revenue recognized. Revenue from other
contracts is recognized as services are provided and billed.
The Partnership has numerous contracts in various stages of completion.
Such contracts require estimates to determine the appropriate cost and
revenue recognition. Although management believes that its estimates of
progress toward completion, contract revenue and contract costs are
appropriate, it is reasonably possible that changes could occur in the
near term which could materially affect management's estimates of such
amounts.
The Partnership sells its products and services to various governmental
and commercial entities. Ongoing credit evaluations of customer's
financial condition are performed and collateral is not required. The
Partnership maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.
INVENTORIES
Inventories, which consist primarily of purchased components, are stated
at the lower of cost or market, cost being determined using the first-in,
first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. For assets written down
to estimated fair value due to impairment (Note 4), the reduced carrying
amount becomes the new cost basis. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, which
range from five to seven years. Leasehold improvements are amortized over
the shorter of the useful life or the remaining term of the lease.
Maintenance and repairs are charged to expense as incurred. During 1996,
the Partnership capitalized interest of $1,578,269 related to the
construction of a facility in Oak Ridge, Tennessee. No such amounts were
capitalized during 1995 or 1994.
TECHNOLOGY AND MARKET RIGHTS
Technology and market rights relate to license fees paid to MMT and are
recorded at cost less accumulated amortization (Note 3). For assets
written down to estimated fair value due to impairment (Note 4), the
reduced carrying amount becomes the new cost basis. Such rights are being
amortized using the straight-line method over the estimated useful life of
the rights (ten years). Such useful life is an estimate and is subject to
change based on, among other factors, the existence or emergence of
competing technologies and the degree of acceptance of the technology by
the Partnership's targeted customer markets.
3
<PAGE> 81
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
INTANGIBLE ASSETS
Intangible assets, which include intellectual property rights, a
noncompete agreement and goodwill related to Retech, are carried at cost
less accumulated amortization. These costs are being amortized using the
straight-line method over the estimated useful lives of the related
assets. Such useful life is an estimate and is subject to change based on,
among other things, the existence or emergence of competing technologies
and, with regard to the noncompete agreement, management's ongoing
evaluation of the level of protection provided to the Partnership by the
noncompete covenant.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121 ("FAS 121"), Impairment of Long-lived Assets.
In accordance with FAS 121, management 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, management 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, an impairment loss
equal to the excess of the carrying amount of the asset over the estimated
fair value of such asset is recognized.
INCOME TAXES
The partners are required to report their respective shares of the
Partnership's taxable income or loss in their income tax returns and are
liable for any related taxes thereon. Accordingly, no provision for income
taxes is made in the financial statements of the Partnership.
STATEMENT OF CASH FLOW INFORMATION
Non-cash investing and financing activities include the acquisition of
technology and market rights and property, plant and equipment from MMT,
payable at December 31 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C>
Technology and market rights $ -- $ -- $ 6,500,000
Property, plant and equipment 3,545,467 15,103,621 --
</TABLE>
Additionally, as a result of the contribution of Retech by LMC and MMT,
the Partnership obtained assets of $22,168,044 and assumed liabilities of
$5,910,769.
During 1996, the Partnership paid interest of approximately $1,457,370.
1994 FINANCIAL INFORMATION
The 1994 financial information is unaudited; however, in the opinion of
management, this information includes all adjustments necessary for a fair
presentation of the results of operations for the period from inception
(August 8, 1994) through December 31, 1994.
4
<PAGE> 82
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
RECLASSIFICATIONS
Certain reclassifications were made to the 1995 balances in order to
conform to the current year presentation. These reclassifications had no
effect on the 1995 operating results.
3. PARTNERSHIP AND RELATED AGREEMENTS
Pursuant to the agreements between LMC and MMT, LMC agreed to fund the
Partnership's operations through August 1, 1999, including license fees
payable to MMT and any equity required in order to obtain project
financing for a CEP plant. However, this funding obligation is limited to
$20,000,000 in any fiscal year (unless otherwise agreed to by the
Partners) and $75,000,000 over the life of the Partnership. In connection
with the agreement executed in March 1996 to expand the Partnership, LMC
agreed to provide the Partnership with a line of credit under which it can
borrow up to $15 million through the earlier of April 30, 2006 or the date
the Partnership enters into a credit facility with a third party (other
than a project financing). Borrowings under the agreement bear interest at
the higher of the prime rate of a bank plus 2% (10.25% at December 31,
1996) or 2.5% above the Federal Funds Rate. At December 31, 1996,
$10,000,000 was outstanding under the line of credit. During 1996, the
Partnership paid LMC interest of $99,419. At December 31, 1996, accrued
interest and other current liabilities included $86,816 of interest due to
LMC.
MMT has granted the Partnership an exclusive license, subject to certain
exceptions, to use the CEP technology for the Market and to sublicense the
CEP technology, under certain conditions, to qualified third parties for
use in the Market. The Partnership paid MMT $14,000,000 for this license
($7,500,000 in 1994 and $6,500,000 in 1995). In September 1996, the
Partnership, MMT and LMC entered into an agreement which expanded the
Partnership's license to include the demilitarization of Japanese chemical
weapons. In return for the expansion of the license, the Partnership paid
a $5,000,000 license fee to MMT. At December 31, 1996 and 1995, technology
and market rights, after the impairment charge described in Note 4,
include $13,507,833 (less accumulated amortization of $3,424,133) and
$14,000,000 (less accumulated amortization of $1,885,714), respectively,
related to license payments to MMT. Additionally, the Partnership was
obligated to pay MMT a $2,000,000 success fee upon the start-up of each of
the first three CEP plants. During 1996 and 1995, the Partnership paid MMT
$4,000,000 and $2,000,000, respectively, of such fees. In addition, the
Partnership will pay MMT an ongoing royalty of 2% or 3.5% (depending on
the market) of the Partnership's revenues from activities related to CEP,
with the amount paid in any year not to exceed 50% of the Partnership's
cash flow.
5
<PAGE> 83
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
All of the Partnership's obligations for the aforementioned license fees
were guaranteed by LMC. LMC has also agreed to provide guaranties of any
project or third party financing obtained for the development of CEP
plants by the Partnership. In return for the guaranties, the Partnership
will pay LMC a fee of 2% of the average amount of guaranteed debt
outstanding. If LMC withdraws its guaranties under certain circumstances,
as allowed by the Partnership agreement, MMT has the right to terminate
the Partnership. At December 31, 1996, accrued expenses and other current
liabilities includes approximately $728,000 due to LMC for guarantee fees
related to the Industrial Development Board bonds (Notes 7 and 8).
MMT provides, under certain conditions, research and development and
certain other technical services to the Partnership. Amounts incurred for
such services were approximately $42,121,000, $21,568,000 and $219,000 in
the periods ended December 31, 1996, 1995 and 1994, respectively, and
consist of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
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>
Amounts incurred for research, development and consulting services are
expensed as incurred. Amounts related to engineering and construction
services are generally capitalized as plant and equipment.
As described in Note 1, the net assets of the Retech division of LMC were
contributed to the Partnership effective April 30, 1996. The net assets of
Retech were recorded by the Partnership at their historical cost of
$16,257,275. The results of operations of Retech are included in the
statement of operations commencing April 30, 1996.
4. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with FAS 121, the Partnership reviews for impairment of
long-lived assets when events or changes in circumstances indicate that an
asset's carrying value may not be recoverable. Pursuant to the proposed
restructuring of the Partnership described in Note 1, the Partnership (the
principal asset of which would be the Technology Center - primarily CEP
units - after giving effect to the restructuring) would become solely
owned by MMT, and MMT would be entitled to all future revenue from the
operations of the Technology Center. Additionally, the Partnership's CEP
license would terminate upon the consummation of the proposed
restructuring. As a result of these circumstances, management performed an
6
<PAGE> 84
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
assessment of the recoverability of the net book value of the assets
related to the Partnership's Technology Center and of the technology and
market rights related to the CEP license as of December 31, 1996 and
determined that these assets were impaired.
The Partnership obtained an independent appraisal to determine the
estimated fair value of these assets. Estimated fair value of the
Technology Center assets was determined utilizing a discounted cash flow
technique. Estimated fair value of the technology and market rights was
determined based on an analysis of the price paid for the rights adjusted
by technology and market related factors to reflect changes in these items
from the date of payment. An impairment charge of $60,851,167 was
recognized in the 1996 statement of operations.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31,
IN YEARS 1996 1995
<S> <C> <C> <C>
Office furnishings and equipment 5-7 $ 2,163,049 $ 780,646
Computer equipment and software 5 3,399,019 1,514,729
CEP units 7 7,070,955 4,865,880
Leasehold improvements 5-7 3,886,740 521,161
Construction in progress -- 13,167,120 21,515,147
----------- -----------
29,686,883 29,197,563
Less - Accumulated depreciation 3,934,951 302,799
----------- -----------
$25,751,932 $28,894,764
=========== ===========
</TABLE>
Depreciation and amortization expense for the periods ended December 31,
1996, 1995 and 1994 were $2,743,352, $219,228 and $25,069 (unaudited),
respectively.
7
<PAGE> 85
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
6. INTANGIBLE ASSETS
Intangible assets (excluding technology and market rights) consist of the
following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31,
IN YEARS 1996
<S> <C> <C>
Goodwill 15 $3,720,667
Intellectual property rights 15 1,866,667
Noncompete agreement 4 1,000,000
----------
6,587,334
Less - Accumulated amortization 960,460
----------
$5,626,874
==========
</TABLE>
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
DECEMBER 31,
1996 1995
<S> <C> <C>
Employee compensation and benefits $3,348,643 $1,235,140
Due to LMC - debt guarantee fees 728,333 --
Other accrued expenses 5,513,012 64,006
---------- ----------
$9,589,988 $1,299,146
========== ==========
</TABLE>
8
<PAGE> 86
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
8. LONG-TERM DEBT
In January 1996, the Partnership completed a tax-exempt bond offering to
finance 1995 and 1996 construction expenditures. Pursuant to this
financing, the Partnership entered into a loan agreement with the
Industrial Development Board of the City of Oak Ridge, Tennessee, which
issued revenue bonds of $38,000,000 for the purpose of financing the
Partnership's acquisition, construction, and equipping of a CEP facility
in Oak Ridge, Tennessee. Borrowings are required to be repaid in 2006,
with interest payments at variable rates due monthly beginning in February
1996. The interest rate in effect at December 31, 1996 was 3.2%. The bonds
are secured by a letter of credit with a bank. As of December 31, 1996, no
drawings had been made against the letter of credit. Unamortized debt
issuance costs were $277,742 at December 31, 1996. These costs are being
amortized over the term of the debt using the effective interest method.
9. RELATED PARTY TRANSACTIONS
The corporate purpose of INC is to manage the business of the Partnership
and, as such, to pay all liabilities on behalf of the Partnership. The
Partnership reimburses INC for all payments made on behalf of the
Partnership. Amounts reimbursed to INC were approximately $26,614,000,
$19,535,000 and $1,450,000 (unaudited) in 1996, 1995, and 1994,
respectively.
Advance payments of $379,884 and $31,160 in 1996 and 1995, respectively,
were made by the Partnership to INC and are included in due from INC.
Accounts payable and accrued expenses in the accompanying balance sheet
represent amounts payable to third party vendors, but for which the actual
payment to such vendors will be made on behalf of the Partnership through
INC.
Retech leases certain facilities and office space from an employee and
former owner under non-cancelable operating lease agreements which expire
on September 30, 2010. Rental payments of $498,264 were made to this
individual in 1996. In addition, an aggregate of $2,367,667 was due to
this individual under certain non-compete and intellectual property right
agreements at December 31, 1996 (see Note 6), of which $383,333 was
included in accrued expenses and other current liabilities.
Retech is engaged in certain contracts with subsidiaries of LMC. Revenue
recognized and cost of revenue incurred under these agreements during the
year ended December 31, 1996 was $1,262,054 and $4,380,014, respectively.
At December 31, 1996, the balance sheet includes accounts receivable,
costs and earnings in excess of billings, and deferred revenue related to
these contracts of $1,221,303, $142,250, and $367,332, respectively. In
addition, at December 31, 1996, the Partnership maintained a reserve of
$980,043 for additional losses expected to be incurred under these
contracts.
9
<PAGE> 87
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
10. 401(k) AND EQUITY APPRECIATION PLANS
The Partnership and INC provide a 401(k) defined contribution retirement
plan for substantially all full-time employees who meet minimum age and
service requirements. Contributions, if any, are at management's
discretion.
In 1995, INC and the Partnership established an Equity Appreciation Plan
(the "Plan") whereby participants are compensated for the increase in the
fair value of a partnership unit over a specified base amount. Fair value
is determined annually by a compensation committee designated by the
executive committee of INC. The Plan awards units to participants which
vest ratably over a five year period from the date of grant. All outside
directors and employees of the Partnership, INC and any affiliate are
eligible to participate in the Plan. The maximum number of units to be
granted under the Plan is 600,000. A total of 202,800 units (with a base
amount of $5.60) and 221,950 units (with a base amount of $7.50) were
granted during 1996 and 1995, respectively. Compensation expense of
approximately $180,000 was recognized related to this plan in 1996. No
such expense was recognized during 1995.
11. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
The following 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 $ 154,542 $ 154,542 $ 5,610,000 $ 5,610,000
Liabilities:
Line of credit-LMC 10,000,000 10,000,000 -- --
Long-term debt 38,000,000 38,000,000 -- --
</TABLE>
The following methods and assumptions are used in estimating 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.
Line of credit - LMC and long-term debt - The fair value of these
financial instruments approximates the carrying value at December 31,
1996. Rates currently available to the Partnership for debt with similar
terms are used to estimate the fair value of existing debt.
10
<PAGE> 88
M4 ENVIRONMENTAL L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AND DATA RELATING TO 1994 IS UNAUDITED)
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
LEASES
The Partnership and INC have noncancelable operating leases for the
Technology Center (the site of the CEP plant), office space, and office
equipment. Rent expense under these operating leases was $1,880,117,
$772,167 and $84,486 (unaudited) in 1996, 1995 and 1994, respectively.
Commitments under noncancelable operating leases with original terms in
excess of one year are as follows:
<TABLE>
<S> <C>
1997 $ 1,763,997
1998 1,794,329
1999 1,757,460
2000 1,738,128
2001 1,733,358
Thereafter 7,167,059
-----------
$15,954,331
===========
</TABLE>
LETTER OF CREDIT
At December 31, 1996, the Partnership had outstanding to a customer an
irrevocable letter of credit in the amount of $309,306. This letter of
credit expired unused on April 30, 1997.
LITIGATION
The Partnership has certain contingent liabilities resulting from
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 position or results of operations
of the Partnership.
11
<PAGE> 1
Exhibit 10.14
Employee: Earl McConchie
MOLTEN METAL TECHNOLOGY, INC.
EMPLOYMENT AGREEMENT
IN CONSIDERATION of my employment or the continuance of my employment by
Molten Metal Technology, Inc. or any of its subsidiaries (collectively, the
"Company") and for other valuable consideration, receipt of which is
acknowledged, I agree as follows:
1. General.
I agree to use my best efforts, skills and abilities to promote the
interests of the Company, to diligently, competently and faithfully carry out my
duties to the Company in compliance with all Company policies and procedures as
from time to time determined by the Company's Board of Directors. During the
term of any employment by the Company I agree to devote the whole of my business
time and energies to the Company, and to not be involved, directly or
indirectly, in any other business enterprise without the prior written consent
of the Company. I understand I shall be entitled to receive such compensation as
from time to time determined by the Board of Directors, and shall be entitled to
receive such benefits as are normally provided to employees of the Company in
comparable positions. I understand that my employment is on an "at will" basis
and may be terminated at any time by the Board of Directors with or without
cause, and that this Agreement shall not imply that such employment will
continue for any period of time.
2. Proprietary Information of the Company.
(a) I agree that all information and know-how, whether or not in
writing, of a private, secret, or confidential nature concerning the Company's
business or financial affairs (collectively, "Proprietary Information") is and
shall be the exclusive property of the Company. By way of illustration, but not
limitation, Proprietary Information may include inventions, products, processes,
methods, techniques, formulas, compositions, compounds, projects, developments,
plans, research data, financial data, personnel data, computer programs,
functional specifications and customer and supplier lists. I will not disclose
any Proprietary Information to others outside the Company or use the same for
any unauthorized purposes without written approval by an officer (other than
myself if I am or become an officer) of the Company, either during or after my
employment, unless and until such Proprietary Information has become public
knowledge without fault by me.
(b) I agree that all files, letters, memoranda, reports, records, data,
sketches, drawings, laboratory notebooks, program listing, or other written,
photographic, tangible material containing Proprietary Information, whether
created by me or others, which shall come into my custody or possession, shall
be and are the exclusive property of the Company to be used by me only in the
performance of my duties for the Company. All such records or copies thereof and
all tangible
<PAGE> 2
property of the Company in my custody or possession shall be delivered to the
property of the Company upon the earlier of (i) a request by the Company or (ii)
termination on my employment. After such delivery, I shall not retain any such
records or copies thereof or any such tangible property.
Notwithstanding the foregoing, in the event that I am required (by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand, or similar process) to disclose any Proprietary
Information, I shall provide to the Company with prompt notice thereof so that
the Company may seek any appropriate protective order and/or waive compliance by
me with the provisions hereof; provided, however, if in the absence of a
protective order or the receipt of a waiver hereunder, I am, in the opinion of
my counsel (such opinion to be reasonably acceptable to the Company) compelled
so to disclose Proprietary Information not otherwise disclosable hereunder to
any legislative, judicial, or regulatory body, agent, or authority, or else be
exposed to liability for contempt, fine, or penalty, or to other censure, such
Proprietary Information may be so disclosed to the extent necessary to comply
with such disclosure requirement. The parties agree that in the event that I am
given an opinion of my counsel (such opinion to be reasonably acceptable to the
Company) that (i) failing to retain a copy or sample of such Proprietary
Information would violate an applicable federal, state, local, or foreign law,
or (ii) maintaining the Proprietary Information would be needed to protect my
interest in existing or potential civil, regulatory or criminal action, I shall
be permitted to retain copies of the Proprietary Information relevant to such
matter or action, provided that I provide the Company with a written log of such
Proprietary Information and promptly return such Proprietary Information to the
Company when retention hereof is no longer necessary for such purposes.
(c) I agree that my obligation not to disclose or to use information,
know-how and records of the types set forth in paragraphs (a) and (b) above, and
my obligation to return records and tangible property, set forth in paragraph
(b) above, also extends to such types of information, know-how, records, and
tangible property of customers of the Company or suppliers of the Company or
other third parties who may have disclosed or entrusted the same to the Company
or to me in the course of the Company's business. Information, know-how,
records, and tangible property of customers of the Company or suppliers of the
Company or third parties, which was received prior to my employment with the
Company or is public record and information, are excluded from my obligation to
return records and tangible property to the Company.
3. Developments.
(a) I will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments, software, and
works of authorship, whether patentable or not, which are created, made,
conceived or reduced to practice by me or under my direction or jointly with
others during my employment by the Company, whether or not during normal working
hours or on the premises of the Company (all of which are collectively referred
to in this Agreement as "Developments").
(b) I agree to assign and do hereby assign to the Company (or any person
or entity designated by the Company) all my rights, title, and interest in and
to all Developments and all
2
<PAGE> 3
related patents, patent applications, copyrights, copyright applications, mask
works and applications to register mask works (both in the United States and in
foreign countries). However, this paragraph 3(b) shall not apply to Developments
which do not relate to the present or the planned business or research and
development of the Company and which are made and conceived by me not during
normal working hours, not on the Company's premises and not using the Company's
tools, devices, equipment or Proprietary Information. I understand that, to the
extent this Agreement shall be construed in accordance with the laws of any
state which precludes a requirement in an employee agreement to assign certain
classes of inventions made by an employee, this paragraph 3(b) shall be
interpreted not to apply to any invention which a court rules and/or the Company
agrees falls within such classes.
(c) I agree to cooperate fully with the Company, both during and after
my employment with the Company, with respect to the procurement, maintenance and
enforcement of copyrights and patents (both in the United States and foreign
countries) relating to Developments. I shall sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths,
formal assignment of priority rights, and powers of attorney, which the Company
may deem necessary or desirable in order to protect its rights and interests in
any Development.
(d) In the event the Company is unable, after reasonable effort, to
secure my signature on any letters patent, copyright or other analogous
protection relating to Developments, whether because of my physical or mental
incapacity or for any other reason whatsoever, I hereby irrevocably designate
and appoint the Company and its duly authorized officers and agents and
attorney-in-fact, to act for and on my behalf and stead to execute and file any
such application or applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent, copyright or other
analogous protection thereon with the same legal force and effect as if executed
by me.
4. Non-Competition.
I agree that during the term of my employment with the Company and for a
period of three (3) years after the termination of such employment, irrespective
of the reason for such termination, I will not (a) directly engage in, or (b)
participate as an officer, director, partner, joint venturer, employee or agent
of, or as the holder of more than 1% of the equity interests in, or as a
consultant or independent contractor to, any corporation, partnership, or other
entity or business which engages in any business which is substantially similar
to, or functionally equivalent to, the Company's Catalytic Extraction Processing
technology. I agree to notify the Company in writing prior to accepting any
employment or consulting relationship with any entity which engages in such
activity. The Company agrees to respond in writing to such notification within 7
days of receipt indicating whether or not the Company reasonably considers such
employment or consulting relationship to be covered by the foregoing
non-competition agreement. However, nothing herein shall prohibit me from owning
more than 1% of any class of securities of any publicly traded entity.
I further agree that, during such employment and for three years
thereafter, I will not, directly or indirectly, employ, or knowingly permit any
company or business organization directly
3
<PAGE> 4
or indirectly controlled by me to employ, any person who is then employed by the
Company or in any manner seek to induce any such person to leave his or her
employment with the Company.
5. Other Agreements.
I hereby represent that, except as I have disclosed in writing to the
Company and attached hereto as Exhibit A, I am not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or confidential or proprietary information in the
course of my employment with the Company or to refrain from competing, directly
or indirectly, with the business of such previous employer or any other party. I
further represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by me in
confidence or trust prior to my employment with the Company to use any
confidential or proprietary information of material belonging to any previous
employer or others.
6. United States Government Obligations.
I acknowledge that the Company from time to time may have agreements with
the other persons or with the United States Government, or agencies thereof,
which impose obligations or restrictions on the Company regarding inventions
made during the course of work under such agreements or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions which are made known to me and to take all action necessary to
discharge the obligations of the Company under such agreement.
7. Certain Claims Upon Termination.
(a) I understand that if within one year prior to the termination of my
employment with the Company I have engaged in any specified action (as defined
below):
(i) The Company will have no obligation to provide severance in
the manner described below.
(ii) Any Option awarded to me under any Stock Option Award
Agreement or Restricted Stock Award Agreement (each, an "Award
Agreement") from the Company to me shall terminate as of the date of
such termination, and notwithstanding anything contained in the
Award Agreement or the Plan (as defined in the Award Agreement), I
shall have no further right to purchase shares of Common Stock of
the Company pursuant to the Option or the Award Agreement,
irrespective of whether such shares are Vested under the Award
Agreement at the time of such termination; and
4
<PAGE> 5
(iii) the Company shall have the right to purchase any or all shares
of Common Stock of the Company owned by me at the time of such
termination which were acquired pursuant to the exercise of any
Award Agreement for a purchase price equal to the amount that I paid
for such shares, together with interest thereon at a rate of the
then prime rate per annum. If the Company desires to exercise such
right, it shall notify me within sixty (60) days after the date of
such termination and I shall tender the shares being purchased by
the Company at the time and place designated in such notice from the
Company upon receipt of the purchase price for such shares. If I
fail to so tender such shares, the shares shall be deemed to be
canceled as of the date the Company tenders payment of the purchase
price thereof.
(b) For purposes of this Section 7, I shall be deemed to have engaged in
a specified action if the Company has determined that any of the following shall
have occurred:
(i) I shall have committed an act of theft, dishonesty, gross
dereliction of duty, fraud, embezzlement, misappropriation, or
breach of fiduciary duty against the Company or any other act of
comparable misconduct against the Company;
(ii) I shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or nolo contendere to, any felony
or any crime involving moral turpitude or dishonesty; or
(iii) I shall have breached any of my obligations under this
Agreement.
(c) For the purposes of this Section 7, severance consists of continuing
to pay my weekly rate of pay then in effect, but not less than $4,807.69 per
week, for a period of up to five years or until I have found other work with
compensation equivalent to 50% of my base salary in effect at the time of the
termination, whichever comes first. Such payments will be contingent upon my
following the Company's customary "exit procedures" which include the signing of
a standard severance agreement (at hearing understood that there shall be no
expressed or implied obligation for me to seek other employment in order to
receive to such severance payments). My right to receive severance payments
hereunder shall terminate on the tenth anniversary of the date hereof.
(d) I understand that if I am involuntarily terminated for any reason
and I have not engaged in a specified action or if I die or become permanently
disabled, the restrictions on the grant of restricted stock awarded to me with
my offer of employment will be lifted.
(e) I understand that if I am involuntarily terminated for any reason
(including, but without limitation, as a result of downsizing, reorganization or
a change of control of the Company), and I have not engaged in a specified
action, I will receive severance according to Section 7(c). The parties agree
that a reduction in my salary below $4,807.69 per week shall constitute
involuntary termination.
(f) I further understand that if I resign voluntarily for any reason, I
will not be entitled to receive severance.
5
<PAGE> 6
8. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral,
between me and the Company, relating to the subject matter of this Agreement.
This Agreement may not be modified, changed or discharged in whole or in part,
except by an agreement in writing signed by me and the Company. I agree that any
change or changes in my duties, salary or compensation after the signing of this
Agreement shall not affect the validity or scope of this Agreement.
(c) This Agreement will be binding upon my heirs, executors and
administrators and will inure to the benefit of the Company and its successors
and assigns.
(d) No delay or omission by the Company in exercising any right under
this Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on any
other occasion.
(e) By acceptance hereof the Company specifically confirms to me that I
shall be entitled to be indemnified by the Company in my capacity as an officer
or director of the Company to the same extent that officers and directors are
generally indemnified by the Company.
(f) In view of the substantial harm which will result from my breach of
any of the provisions contained in Sections 2, 3, or 4 above, I agree that such
provisions shall be enforced to the fullest extent permitted by law.
Accordingly, I agree that if, in any judicial proceeding, a court shall
determine that such provisions are unenforceable because they cover too
extensive a geographic area or survive for too long a period of time, or for any
other reason, such provisions shall be deemed to cover such maximum geographic
area and maximum period of time and shall otherwise be deemed to be limited in
such a manner as will permit enforceability by such court.
(g) I agree that my breach of any of the provisions of Sections 2, 3, or
4 above will cause irreparable damage to the Company and that the recovery by
the Company of money damages will not constitute an adequate remedy for such
breach. Accordingly, I agree that the provisions of Sections 2, 3, or 4 above
may be specifically enforced against me in addition to any other rights or
remedies available to the Company on account of such breach, and I hereby
recognize that if there is material violation of the provisions of Sections 2,
3, or 4 above, the Company shall be entitled to an injunction or similar
equitable relief to be issued by court of competent standing.
(h) This Agreement is governed by and will be construed as a sealed
instrument under and in accordance with the laws of the Commonwealth of
Massachusetts.
6
<PAGE> 7
I HAVE READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND I UNDERSTAND, AND
AGREE TO, EACH OF SUCH PROVISIONS.
By: /s/ Garnet Earl McConchie
-------------------------------
Earl McConchie
Accepted as of the
date above written:
Dated as of March 29, 1996
MOLTEN METAL TECHNOLOGY, INC.
By: /s/ Katharyn Santoro
-------------------------------
Date: April 1, 1996
7
<PAGE> 1
Exhibit 10.15
MOLTEN METAL TECHNOLOGY, INC.
AMENDED AND RESTATED
1989 LONG TERM INCENTIVE COMPENSATION PLAN
1. PURPOSE
The purpose of the Amended and Restated 1989 Long Term Incentive
Compensation Plan (the "Plan") is to promote the interests of Molten Metal
Technology, Inc. (the "Company") and its stockholders by providing a means to
attract, retain and motivate employees and outside directors of and consultants
to the Company and its subsidiaries, if any, and to encourage stock ownership in
the Company by such persons and provide them with a means to acquire a
proprietary interest in the Company.
The various types of long term incentive awards provided under the Plan
will enable the Company to respond to changes in compensation practices, tax
laws, accounting regulations, and the size and diversity of its businesses.
2. DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings
below unless the context clearly indicates otherwise:
2.1 "Award" shall mean an Incentive Stock Option, a Non-qualified Stock
Option, a Restricted Stock Award, a Performance Share/Unit or Other Stock-Based
Award granted under the Plan.
2.2 "Awarded Option" means all Options other than Formula Options.
2.3 "Award Agreement" shall mean an agreement between a Participant and
the Company covering the specific terms and conditions of an Award.
2.4 "Board of Directors" shall mean the Board of Directors of the Company.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.6 "Committee" shall mean the Compensation Committee of the Board of
Directors, or any other Committee of the Board of Directors formed for the
purpose of administering the Plan.
2.7 "Company" shall mean Molten Metal Technology, Inc.
2.8 "Consultant" shall mean a person or entity providing consulting or
professional advice to the Company or any Subsidiary.
2.9 "Disability" shall mean permanent disability within the meaning of
Section 22(e)(3) of the Code.
2.10 "Employee" shall mean an employee of the Company or any of its
Subsidiaries who has been designated by the Company, under the criteria in
Section 5, as eligible to participate in the Plan.
2.11 "Fair Market Value" shall have the meaning specified in Section
6.2(b).
2.12 "Formula Grant" means a grant of Options pursuant to Section 6.3.
2.13 "Formula Grant Date" shall have the meaning specified in Section 6.3
2.14 "Formula Options" means options granted pursuant to Section 6.3.
2.15 "Incentive Stock Option" shall mean an option to purchase Stock
granted under Section 6.2 of the Plan which is designated as an Incentive Stock
Option and is intended to meet the requirements of Section 422 of the Code.
<PAGE> 2
2.16 "Non-qualified Stock Option" shall mean an option to purchase Stock
granted under Section 6.2 or Section 6.3 of the Plan which is not intended to be
an Incentive Stock Option.
2.17 "Option" shall mean an Incentive Stock Option or a Non-qualified
Stock Option.
2.18 "Option Period" shall mean the period from the date of the grant of
an Option to the date when the Option expires as stated in the terms of the
Award Agreement.
2.19 "Optionee" shall mean a Participant who has been granted an option to
purchase shares of Stock under the provisions of the Plan.
2.20 "Other Stock-Based Award" shall have the meaning specified in Section
6.6(a).
2.21 "Outside Director" shall mean a member of the Board of Directors who
is not an officer or an employee of the Company or any Subsidiary of the
Company.
2.22 "Participant" shall mean an Employee or Outside Director or
Consultant who has been granted an Award under the Plan.
2.23 "Performance Share/Unit" shall mean the grant of contingent shares of
Stock or units under Section 6.5 of the Plan.
2.24 "Plan" shall mean this Molten Metal Technology, Inc. Amended and
Restated 1989 Long Term Incentive Compensation Plan.
2.25 "Restricted Period" shall mean the period of time from the date of
grant of a Restricted Stock Award to the date when the restrictions placed on
the Stock in the Award lapse.
2.26 "Restricted Stock Award" shall mean an Award of Stock granted under
Section 6.4 of the Plan.
2.27 "Stock" shall mean the Company's common stock of a par value of $.01
per share.
2.28 "Subsidiary" or "Subsidiaries" shall mean any corporation which at
the time qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" in Section 424(f) of the Code.
2.29 "Termination of Employment" shall be deemed to have occurred at the
close of business on the last day on which an Employee is carried as an active
employee on the records of the Company or any of its Subsidiaries. The Committee
shall determine whether an authorized leave of absence, or other absence on
military or government service, constitutes severance of the employment
relationship between the Company or a Subsidiary and the Employee.
2.30 "Termination of Service" shall be deemed to have occurred at the
close of business on the last day on which an Outside Director of or Consultant
to the Company is carried as an active Outside Director, or Consultant, as
applicable, on the records of the Company or any of its Subsidiaries.
2.31 "Vested Shares," as of any date, means those shares of Stock
available at that date for purchase by exercise of an Automatic Option pursuant
to Section 6.3(c).
3. STOCK SUBJECT TO THE PLAN
3.1 Authorized Stock. Subject to adjustment as provided in this Section,
the aggregate number of shares of Stock subject to an Award under the Plan as a
whole or to any single Participant shall not exceed 8,299,383. Stock delivered
under the Plan may consist, in whole or in part, of authorized and unissued
shares or treasury shares. The payment of Performance Share/Unit and Other
Stock-Based Awards shall be deemed to constitute an issuance of Stock under the
Plan whether paid in Stock or in cash.
2
<PAGE> 3
3.2 Effect of Expirations. If any Award granted under the Plan expires or
terminates without exercise, the Stock no longer subject to such Award shall be
available to be re-awarded under the Plan.
3.3. Adjustments in Authorized Shares. Upon any merger, reorganization,
consolidation, recapitalization, separation, liquidation, stock dividend,
split-up, share combination, or other change in the corporate structure of the
Company affecting the number of shares of Stock or the kind of shares or
securities, an appropriate and proportionate adjustment shall be made in the
number and kind of shares that may be delivered under the Plan, and in the
number and kind of or price of shares subject to outstanding Awards; provided,
however, that the number of shares subject to any Award shall always be a whole
number. Any adjustment of an Incentive Stock Option under this Section shall be
made in such a manner so as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code.
4. ADMINISTRATION
4.1 Authority of the Committee. The Plan shall be administered by the
Committee. Except for Formula Grants granted in accordance with the terms of
Section 6.3, no member of the Committee shall have received an Award during
service on the Committee or during the one-year period preceding such service.
Subject to the provisions of the Plan (including without limitation the
provisions of Sections 6.3 and 7), the Committee shall have sole power (a) to
construe and interpret the Plan; (b) to establish, amend, or waive rules and
regulations for its administration; (c) to determine and accelerate the
exercisability of any Award other than a Formula Option or the end of a
performance period or the termination of any Restricted Period; (d) to correct
inconsistencies in the Plan or in any Award Agreement, or any other instrument
relating to an Award; and (e) (subject to the provisions of Section 7) to amend
the terms and conditions of any outstanding Option or other Award other than a
Formula Option to the extent the terms and conditions are within the discretion
of the Committee as provided in the Plan.
4.2 Selection of Participants. The Committee shall have the authority to
grant Awards other than Formula Options from time to time to such Employees
(including officers of the Company and officers and directors of any of its
Subsidiaries who are Employees), Consultants, or Outside Directors (other than
members of the Committee) as the Committee may select. The Committee shall
select Participants from among those who have been identified by the Company as
prospective Participants.
4.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive and
binding on all persons, including the Company, its stockholders and
Participants, and their estates and beneficiaries.
4.4 Procedures of the Committee. All determinations of the Committee shall
be made by not less than a majority of its members present at a meeting (in
person or otherwise) at which a quorum is present, or by unanimous written
consent. A majority of the entire Committee shall constitute a quorum for the
transaction of business. To the fullest extent permitted by law, no member of
the Committee shall be liable, and the Company shall indemnify each of its
directors for any act or omission with respect to his services with respect to
the Plan.
4.5 Award Agreements. Each Award under the Plan shall be evidenced by an
Award Agreement which shall be signed by an officer of the Company and by the
Participant and shall contain such terms and conditions as may be approved by
the Committee, which, subject to Section 6.3(c), need not be the same in all
cases. Any Award Agreement may be supplemented or amended in writing from time
to time as approved by the Committee, provided that the terms of any such
Agreement as amended or supplemented, as well as the terms of the original Award
Agreement, are not inconsistent with the provisions of the Plan. An Employee,
Outside Director or Consultant who receives an Award under the plan shall not,
with respect to the Award, be deemed to have become a Participant or an
Optionee, or to have any rights with respect to the Award, unless and until the
Employee, Outside Director or Consultant has executed an Award Agreement or
other instrument evidencing the Award and shall have delivered an executed copy
thereof to the Company, and has otherwise complied with the applicable terms and
conditions of the Award.
5. ELIGIBILITY
Employees, Outside Directors and Consultants who are expected to
contribute substantially to the growth and profitability of the Company and its
Subsidiaries are eligible to receive Awards. However, members of the Committee
may not receive any Award pursuant to this Plan except for Formula Options
pursuant to Section 6.3.
3
<PAGE> 4
6. AWARDS UNDER THE PLAN
6.1 General. Any Award granted to an Employee, Outside Director or
Consultant may be made either alone or in conjunction with any other type of
Award that may be granted under the Plan.
6.2 Incentive Stock Options/Non-qualified Stock Options.
(a) Grant. An Incentive Stock Option may be granted only to an
Employee of one or more of the Company or any of its Subsidiaries. A
Non-qualified Stock Option may be granted to an Employee or Outside Director of,
or Consultant to, one or more of the Company or any of its Subsidiaries. All
Awarded Options granted under the Plan shall be evidenced by an Award Agreement
in such form as the Committee may from time to time approve. All Awarded Options
shall be subject to the terms and conditions described in the remainder of this
Section 6.2 and shall contain such additional terms and conditions (which need
not be the same in each case), not inconsistent with the provisions of the Plan,
as the Committee shall deem desirable.
More than one Award may be granted to the same Participant.
(b) Option Price. The purchase price per share of Stock covered by
an Awarded Option shall be determined by the Committee but, in the case of any
Incentive Stock Option, shall not be less than 100 percent of the fair market
value (the "Fair Market Value") of such Stock on the date the Option is granted.
If the Stock is listed on a stock exchange or on the Nasdaq National Market on
the date of grant, the Fair Market Value shall be the closing price on the date
of the grant or, if no trades were reported on that date, the closing price on
the most recent trading day immediately preceding the date of the grant.
Otherwise, the Fair Market Value shall equal the fair market value of the Stock
as determined in good faith by the Committee. An Incentive Stock Option granted
to any person who owns (within the meaning of Section 424(d) of the Code) stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of its parent or any Subsidiary at the time
the Awarded Option is granted shall have an exercise price that is at least 110
percent of the Fair Market Value of the Stock subject to the Awarded Option.
(c) Option Period. The Option Period shall be determined by the
Committee, but no Awarded Option shall be exercisable later than ten years from
the date of grant. Notwithstanding the foregoing, an Incentive Stock Option
granted to any person who owns (within the meaning of Section 424(d) of the
Code) more than 10 percent of the total combined voting power of all classes of
stock of the Company or of its parent or any Subsidiary at the time the Awarded
Option is granted shall not be exercisable later than five years from the date
of grant. No Awarded Option may be exercised at any time unless the option is
valid and outstanding as provided in this Section 6.2.
(d) Limitation on Amount of Incentive Stock Options. The aggregate
Fair Market Value (determined as of the time the Awarded Option is granted) of
the Stock with respect to which a Participant's Incentive Stock Options are
exercisable for the first time during any calendar year (under this and all
other stock option plans of the Company, any Subsidiary, or any parent
corporation) shall not exceed $100,000. Awarded Options or portions of Awarded
Options in excess of the $100,000 limit described herein shall be treated as a
Non-qualified Stock Option for tax purposes.
(e) Nontransferability of Options. No Awarded Option that is an
Incentive Stock Option shall be transferable by the Optionee otherwise than by
will or by the laws of descent and distribution, and such Option shall be
exercisable, during the Optionee's lifetime, only by the Optionee. Awarded
Options that are Non-qualified Stock Options shall be transferable under the
circumstances and subject to the conditions set forth in the applicable Award
Agreement.
(f) Exercisability. An Awarded Option may be exercised, so long as
it is valid and outstanding, from time to time in part or as a whole, subject to
any limitations with respect to the number of shares for which the Awarded
Option may be exercised at a particular time and to such other conditions (e.g.,
exercise could be conditioned on performance) as the Committee in its discretion
may specify upon granting the Awarded Option or as otherwise provided in this
Section 6.2.
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(g) Method of Exercise. To exercise an Awarded Option, the
Participant or other person or persons entitled to exercise the Awarded Option
shall give written notice of exercise to the Committee, specifying the number of
full shares to be purchased. Such notice shall be accompanied either by payment
in full in cash for the Stock being purchased plus any required withholding tax
as provided in Section 9; provided, however, that after the date that any shares
of Stock have been registered under the Securities Act of 1933, as amended, for
sale to the public, such payment may be made, at the election of the Participant
or other person or persons entitled to exercise the Awarded Option, in: (1)
cash; (2) in the form of Stock owned by the Optionee for at least six months
(based on the Fair Market Value of the Stock on the date the Awarded Option is
exercised) evidenced by negotiable Stock certificates registered either in the
sole name of the Optionee or the names of the Optionee and spouse; or (3) in any
combination of cash or such Stock. No shares of Stock shall be issued unless the
Optionee has fully complied with the provisions of this Section 6.2(g).
(h) Termination of Employment or Service. After a Participant's
Termination of Employment or Termination of Service, as applicable, an Awarded
Option may be exercised, subject to adjustment as provided in Section 3.3 or
8.11, only with respect to the number of shares of Stock that the Optionee could
have acquired by an exercise of the Awarded Option immediately before the
Termination of Employment or Service but in no event after the expiration date
of the Awarded Option as specified in the applicable Award Agreement. Except to
the extent otherwise provided by the Committee at the time of grant or
thereafter, an Optionee's right to exercise any Awarded Option that is an
Incentive Stock Option upon Termination of Employment or Service, as applicable,
shall terminate:
(1) At the expiration of one year in the event of Disability
of the Employee, Outside Director or Consultant, the determination of the
Committee on any question involving disability being conclusive and
binding; or
(2) At the expiration of one year after death if Termination
of Employment or Service occurs by reason of death, such Awarded Option to
be exercised, to the extent exerciseable at Termination of Employment or
Service, by the legal representative of the estate of the Optionee or by
the person or persons who acquire the right to exercise the Awarded Option
by bequest or inheritance; or
(3) No later than three months after the Termination of
Employment or Service for any other reason.
Except as otherwise provided by the Committee at the time of grant or
thereafter, an Optionee's right to exercise any Awarded Option that is a
Non-qualified Stock Option upon Termination of Employment or Service, as
applicable, shall terminate five (5) years after the Termination of Employment
or Service, as applicable.
(i) Not a Stockholder. The person or persons entitled to exercise,
or who have exercised, an Awarded Option shall not be entitled to any rights as
a stockholder of the Company with respect to any shares subject to the Option
until the person or persons shall have become the holder of record of the
shares.
6.3 Formula Grants of Options to Certain Outside Directors; Method of
Exercise; Restriction on Transfer.
(a) Directors Elected or Re-Elected at Annual Stockholders Meeting,
Special Meeting in Lieu of Annual Meeting or at Other Times. Commencing in 1994,
each individual who is not, immediately prior to his or her election or
re-election to the Board of Directors, either an officer or employee of the
Company or any Subsidiary of the Company, and who is elected or re-elected to
the Board of Directors during the term of the Plan (whether elected at an annual
or special stockholders' meeting or by action of the Board of Directors) shall
be granted, on the date of such meeting or other appointment (as used in or with
reference to this Section 6.3(a), a "Formula Grant Date"), a Non-qualified Stock
Option to purchase 25,000 shares of Stock. Notwithstanding the foregoing, no
Outside Director shall be granted a new Formula Grant until such Outside
Director's previous Formula Grant has fully vested pursuant to Section 6.3(c).
(b) Formula Grants in 1993 and 1994. Each Outside Director (other
than any director employed by or otherwise affiliated with The Travelers
Companies and their affiliates) in office on September 7, 1993 shall be granted
a Non-qualified Stock Option as of September 7, 1993 (also referred to as a
"Formula Grant Date") to purchase 25,000 shares of Stock. Each Outside Director
in office on March 7, 1994 who is employed by or otherwise affiliated
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<PAGE> 6
with The Travelers Companies and their affiliates shall be granted a
Non-qualified Stock Option as of March 7, 1994 (also referred to as a "Formula
Grant Date") to purchase 25,000 shares of Stock.
(c) Terms of Formula Options. Each Option granted to an Optionee
under this Section 6.3 shall (i) have an exercise price equal to 100% of the
Fair Market Value of the Stock on the applicable Formula Grant Date, and (ii)
become exerciseable for Vested Shares in twenty (20) equal installments, with
the Formula Option becoming exerciseable for 1,250 Vested Shares on the last day
of the fiscal quarter which includes the Formula Grant Date, and an additional
1,250 Vested Shares on the last day of each of the Company's next nineteen (19)
fiscal quarters, if the Optionee remains an Outside Director of the Company on
the applicable date. No Formula Option granted pursuant to this Section 6.3 is
intended to qualify as an incentive stock option within the meaning of Section
422 of the Code. The Formula Grants shall be evidenced by Award Agreements. The
Award Agreements shall contain provisions consistent with this Section 6.3, and
the Award Agreements shall contain identical terms and conditions, except (i) as
otherwise required by this Section 6.3 and (ii) for any restrictions imposed
with respect to Formula Grants granted prior to the receipt of any stockholders'
approval required pursuant to Rule 16b-3(b) under the Securities Exchange Act of
1934, as amended.
(d) Option Period. The Option Period for any Formula Option granted
pursuant to this Section 6.3 shall be ten years from the date of grant. No
Formula Option may be exercised at any time unless the Formula Option is valid
and outstanding as provided in this Section 6.3.
(e) Nontransferability of Options. Unless otherwise provided in all
the Award Agreements for Formula Options, no Formula Option shall be
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution, and such Formula Option shall be exercisable, during the
Optionee's lifetime, only by the Optionee.
(f) Exercisability. A Formula Option may be exercised, so long as it
is valid and outstanding, from time to time in part or as a whole for that
number of Vested Shares then subject to such Formula Option.
(g) Method of Exercise. To exercise a Formula Option, the
Participant or other person or persons entitled to exercise the Formula Option
shall give written notice of exercise to the Committee, specifying the number of
full shares to be purchased. Such notice shall be accompanied either by payment
in full for the Stock being purchased plus any required withholding tax as
provided in Section 9, such payment to be made, at the election of the
Participant or other person or persons entitled to exercise the Formula Option,
in: (1) cash; (2) in the form of Stock owned by the Optionee for at least six
months (based on the Fair Market Value of the Stock on the date the Formula
Option is exercised) evidenced by negotiable Stock certificates registered
either in the sole name of the Optionee or the names of the Optionee and spouse;
or (3) in any combination of cash or such Stock. No shares of Stock shall be
issued unless the Optionee has fully complied with the provisions of this
Section 6.3(g).
(h) Termination of Service. After a Participant's Termination of
Service a Formula Option may be exercised, subject to adjustment as provided in
Section 3.3 or 8.11, only with respect to the number of shares of Stock that the
Optionee could have acquired by an exercise of the Formula Option immediately
prior to the Termination of Service but in no event shall any Formula Option be
exercisable after the earlier to occur of (i) the expiration date of the Formula
Option as specified in the applicable Award Agreement, or (ii) five years after
the Termination of Service.
(i) Not a Stockholder. The person or persons entitled to exercise,
or who have exercised, a Formula Option shall not be entitled to any rights as a
stockholder of the Company with respect to any shares subject to the Formula
Option until the person or persons shall have become the holder of record of the
shares.
6.4 Restricted Stock Award.
(a) Grants. The Committee, in its sole discretion, shall determine
the terms and conditions of each Restricted Stock Award to Employees or
Consultants at the time of the grant, which terms and conditions need not be the
same in each case.
(b) Restricted Period. Except as otherwise specified by the
Committee, the Restricted Period shall commence on the date of grant of the
Award and shall expire at the time specified in the Award Agreement. During the
Restricted Period, the Participant shall not sell, transfer, pledge, assign, or
otherwise dispose of shares of Stock
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subject to a Restricted Stock Award. Any attempt by the Participant to sell,
transfer, pledge, assign, or otherwise dispose of that Stock shall constitute
immediate forfeiture of the Award.
(c) Rights of Participant. Except as provided in paragraph (b) of
this Section 6.4, the Participant shall have, with respect to the shares subject
to the Restricted Stock Award, all of the rights of a stockholder of the
Company, including the right to vote the shares, and the right to receive all
dividends and other distributions with respect to the shares, provided that the
Participant has become the holder of record of the shares. In the event of any
adjustment as provided in Section 3.3 or any securities received as a dividend
on the Award shares, the new or additional shares or securities shall be subject
to the same terms and conditions as relate to the original Restricted Stock
Award.
(d) Lapse of Restriction. Upon termination of the Restricted Period,
the restrictions on the Restricted Stock Award shall lapse, whereupon (subject
to the provisions of Section 8.3 or 8.5) the Company shall promptly deliver to
the Participant a stock certificate evidencing those shares.
(e) Termination of Employment or Service. Except as otherwise
provided by the Committee either at the time of the Restricted Stock Award or
thereafter, the Restricted Period and any other restrictions specified in the
Award Agreement shall automatically terminate upon the Participant's Termination
of Employment or Service by reason of death or Disability during the Restricted
Period. In the event of the Participant's Termination of Employment or Service
during the Restricted Period for any other reason, the Participant's rights to
the shares subject to the Restricted Stock Award shall be forfeited and all such
shares shall immediately be surrendered to the Company.
6.5 Performance Share/Unit Awards.
(a) Grants. Performance Share/Unit Awards granted under the Plan
shall be in such form as the Committee may from time to time approve, subject to
the terms and conditions of this Section 6.5 and may contain such additional
terms and conditions (which terms and conditions need not be the same in each
case), not inconsistent with the Plan, as the Committee shall deem desirable.
(b) Performance Period. The Committee shall, at the time of grant,
establish a performance period for the Award. The period shall commence and end
on the dates specified by the Committee. Notwithstanding the above, the
Committee may, in its sole discretion, accelerate the end of a performance
period.
(c) Performance Criteria and Valuation. The Committee shall, at the
time of grant, establish performance criteria with respect to the Performance
Share/Unit Award. These performance criteria may include any measures of
performance of the Company or its Subsidiaries or such other criteria as the
Committee shall select. At the end of the performance period established by the
Committee pursuant to Section 6.5(b), the Committee shall evaluate actual
performance during the performance period compared to the performance criteria
established for the Award, and shall determine the value of the Performance
Share/Unit Award.
(d) Payment. Performance Share/Unit Awards shall be paid to the
extent the performance criteria established under Section 6.5(c) are deemed by
the Committee to have been achieved, subject to such other terms and conditions
as may have been established by the Committee at the time the Award was made.
Payment shall be made, in the sole discretion of the Committee, in cash or in
Stock having a Fair Market Value (on the date of payment) equal to the value of
the Award, or partly in cash and partly in Stock. No fractional shares of Stock
will be issued.
(e) Termination of Employment; Termination of Service.
(1) If Termination of Employment or Termination of Service
occurs during the performance period specified in the Award Agreement by
reason of death or Disability, any payment to the Participant, or to the
Participant's estate or to the person or persons who acquire the right to
receive payment by bequest or inheritance, shall be determined at the end
of the performance period. The determination of payment shall be made by
the Committee based on the criteria established under Section 6.5(c). Any
such payment shall be pro-rated on the basis of the time the Participant
was employed during the performance period. Notwithstanding the above, the
Committee may, in its sole discretion, accelerate payment by taking
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into consideration the extent to which the performance criteria were
achieved at the time of Termination of Employment or Service.
(2) If Termination of Employment or Service occurs before the
end of the specified performance period for any reason other than those
specified in Section 6.5(e)(1), the Participant's right to the Performance
Share/Unit Award shall be forfeited as of the date of his Termination of
Employment or Service, except that the Committee in its sole discretion
may make such provisions for payment, if any, as it deems appropriate.
6.6 Other Stock-Based Awards.
(a) Grants. Other grants of Stock and other awards that are valued
in whole or in part by reference to, or are otherwise based on, Stock ("Other
Stock-Based Awards") may be granted under the Plan. The provisions of Other
Stock-Based Awards need not be the same in each case. The Committee in its sole
discretion may grant such Other Stock-Based Awards as it deems appropriate to
take advantage of the compensation practices or tax and accounting regulations
applicable at the time of the grant although the practices or regulations may be
different from those in effect on the effective date of the Plan.
(b) Terms and Conditions. Other Stock-Based Awards made pursuant to
this Section 6.6 shall be subject to the following terms and conditions:
(1) Subject to the provisions of the Plan and the Award
Agreement, Stock subject to awards made under this Section 6.6 may not be
sold, assigned, transferred, pledged, or otherwise encumbered before the
date on which the Stock is issued or, if later, the date on which any
applicable restriction or performance period lapses.
(2) Subject to the provisions of the Plan and the Award
Agreement, the recipient of an Award under this Section 6.6 may be
entitled to receive (currently or on a deferred basis) such interest or
dividends, or interest or dividend equivalents, with respect to the number
of shares of Stock covered by the Award as the Committee in its sole
discretion may determine at the time of the Award, and the Committee may
provide that such amounts (if any) shall be deemed to have been reinvested
in additional Stock or otherwise been reinvested.
(3) Any Award under this Section 6.6 and any Stock covered by
any such Award may be forfeited to the extent provided in the Award
Agreement as determined by the Committee in its sole discretion.
(c) Termination of Employment or Service. If Termination of
Employment or Service occurs for any reason, the Committee in its sole
discretion may waive in whole or in part any or all of any remaining
limitations, restrictions, or requirements imposed pursuant to the Plan or in
the applicable Award Agreement with respect to any Award granted under this
Section 6.6.
7. AMENDMENTS AND TERMINATION
7.1 Amendments and Termination. The Board of Directors may terminate,
suspend, amend, or alter the Plan, but no action of the Board of Directors may:
(a) Impair or adversely affect the rights of an Optionee or
Participant under an Option or other Award theretofore granted, without the
Optionee's or Participant's consent, other than as provided in Section 8.11; or
(b) Without the approval of the shareholders:
(1) Increase the total amount of Stock that may be delivered
under the Plan except as is provided in Section 3 of the Plan;
(2) Decrease the option price of any Option to less than the
Option price on the date the Option was granted;
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(3) Change the class of persons eligible to receive Awards
under the Plan;
(4) Extend the duration of Awards to a period greater than
that specified in Section 8.12; or
(5) Extend the period during which Awards may be granted, as
specified in Section 11.
provided, however, that the provisions of Sections 2, 4.1, 5 and this Section 7,
insofar as they relate to Formula Options, and Section 6.3 shall not be amended
more often than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules and regulations thereunder.
7.2 Conditions on Awards. In granting an Award, the Committee may
establish any conditions that it determines are consistent with the purposes and
provisions of the Plan, including, without limitation, a condition that the
grant of an Award is subject to the surrender for cancellation of any or all
outstanding Awards held by the Participant. Any new Award made under this
section may contain such terms and conditions as the Committee may determine,
including an exercise price that is lower than that of any surrendered Option.
7.3 Selective Amendments. Any amendment or alteration of the Plan may be
limited to, or may exclude from its effect, particular classes of Participants.
8. GENERAL PROVISIONS
8.1 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive compensation, and the Plan is not intended to
constitute a plan subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, and shall not extend, with respect to any
payments not yet made to a Participant or Optionee, any rights that are greater
than those of a general creditor of the Company. In its sole discretion, the
Committee of the Company may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Stock or
payments with respect to Options, or other Awards hereunder; provided, however,
that the existence of such trust or other arrangements is consistent with the
unfunded status of the Plan.
8.2 Transfers, Leaves of Absence, and Other Changes in Employment Status.
For purposes of the Plan (a) a transfer of an Employee from the Company to a
Subsidiary, or vice versa, or from one Subsidiary to another, or (b) a leave of
absence, duly authorized in writing by the Company or a Subsidiary, for military
service, sickness, or any other purpose approved by the Company or a Subsidiary
if the period of leave does not exceed 90 days, (c) any leave of absence in
excess of 90 days approved by the Company, or (d) any change in the nature of
relationship of any individual to the Company or its Subsidiaries (e.g., from
Employee to Consultant), shall not be deemed a Termination of Employment or
Service. The Committee, in its sole discretion subject to the terms of the Award
Agreement, shall determine the disposition of all Awards (other than Formula
Grants, which shall be governed by the express provisions of Section 6.3) made
under the Plan in all cases involving any substantial change in employment
status other than those specified in this Section 8.2.
8.3 Distribution of Stock - Securities Restrictions. The Committee may
require Participants receiving Stock pursuant to any Award under the Plan to
represent to and agree with the Company in writing that the Participant is
acquiring the Stock for investment without a view to distribution thereof. No
Stock shall be issued or transferred pursuant to an Award unless the issuance or
transfer complies with all relevant provisions of law, including but not limited
to, (a) limitations, if any, imposed in the state of issuance or transfer, (b)
restrictions, if any, imposed by the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, and (c) requirements of any stock exchange upon which
the Company's shares might then be listed. The certificates for Stock may
include any legend that the Committee deems appropriate to reflect any
restrictions on transfer.
8.4 Assignment Prohibited. Subject to the provisions of the Plan and the
Award Agreement, no Award shall be assigned, transferred, pledged, or otherwise
encumbered by the Participant otherwise than by will or by the
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laws of descent and distribution, and Awards shall be exercisable, during the
Participant's lifetime, only by the Participant.
8.5 Stop Transfer Orders. All certificates for shares of Stock delivered
under the Plan pursuant to any Restricted Stock Award or Other Stock-Based Award
shall be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable federal, state or foreign
securities law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to the restrictions.
8.6 Payment for Restricted Stock, Performance Share/Unit, or Other
Stock-Based Awards. Except as otherwise required in the applicable Award
Agreement, recipients of Awards under the Plan (other than Options) shall not be
required to make any payment or provide consideration for the receipt of Awards,
other than the rendering of services.
8.7 Other Compensation Plans. Nothing contained in the Plan shall prevent
the Committee from adopting other compensation arrangements, subject to
stockholder approval if that approval is required.
8.8 Subsidiary Plans. The Committee may approve or adopt incentive
compensation plans of Subsidiaries under the Plan as required to meet the
provisions of the tax laws or another applicable laws, rules, or regulations in
the jurisdictions in which any Subsidiary operates. Any shares of Stock issued
under any such Subsidiary plans shall be deemed to have been issued under the
Plan.
8.9 Authority Limited to the Committee. No person shall at any time have
any right to receive an Award hereunder and no person shall have authority to
enter into an agreement on behalf of the Company for the granting of an Award or
to make any representation or warranty with respect thereto, except for Formula
Grants and except as granted by the Committee. Participants shall have no rights
in respect to any Award except as set forth in the Plan and the applicable Award
Agreement.
8.10 No Right to Employment or Association. No action of the Company in
establishing the Plan, nor any action taken by it or by the Committee under the
Plan or any Award Agreement, nor any provision of the Plan, shall be construed
as giving to any person the right to be retained in the employ of or continue
any association with the Company or any Subsidiary.
8.11 Change of Control/Tender Offers.
(a) For the purpose of this Section, a "change of control" shall be
deemed to have taken place on the tenth day after:
(1) Any individual, firm, corporation, or other entity, or any
group (as defined in Section 13(d)(3) of the Securities Exchange Act of
1934 (the "Act")) becomes, directly or indirectly, the beneficial owner
(as defined in the General Rules and Regulations of the Securities and
Exchange Commission with respect to Sections 13(d) and 13(g) of the Act)
of more than 30 percent of the then-outstanding shares of the Company's
capital stock entitled to vote generally in the election of directors of
the Company; or
(2) The shareholders of the Company approve a definitive
agreement for (A) the merger or other business combination of the Company
with or into another corporation pursuant to which the stockholders of the
Company do not own, immediately after the transactions, more than 50
percent of the voting power of the corporation that survives, or (B) the
sale, exchange or other disposition of all or substantially all of the
assets of the Company; provided, however, that a "change of control" shall
not be deemed to have taken place if beneficial ownership is acquired by
(i) the Company or any of its Subsidiaries, (ii) any profit-sharing,
employee ownership, or other employee benefit plan of the Company or any
Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in that capacity, or (iii) any group comprised solely of those
entities.
(b) In the event of a "change of control" as defined in Section
8.11(a), Awards granted under the Plan may be subject to the following
provisions (in the case of any Award other than a Formula Option, to the extent
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so provided in the applicable Award Agreement and, in the case of Formula
Options, with respect to all Formula Options), unless, with respect to any Award
other than a Formula Option, the provisions of this Section 8.11 are suspended
or terminated by an affirmative vote of a majority of the Committee before the
occurrence of such a "change of control:"
(1) All outstanding Options shall become exercisable in full
whether or not otherwise exercisable at that time, and any such Option or
Stock Appreciation Right shall remain exercisable in full thereafter until
it expires pursuant to its terms;
(2) All restrictions contained in Restricted Stock Awards
shall lapse, and the Participant shall thereupon own the Stock free and
clear of the restrictions;
(3) With respect to Performance Share/Unit Awards, the
performance period established for the awards shall be deemed to have been
completed, and the Committee shall, as soon as practicable, make a
determination as to payment of the Awards pursuant to Section 6.5(c), or
such other determination of value of the Awards as the Committee shall
deem appropriate, provided that any such determination of value is
consistent with the provisions of the Plan; and
(4) With respect to Other Stock-Based Awards, the Awards shall
become fully exercisable or payable in accordance with the terms and
conditions specified in the Award Agreement.
8.12 Award Period. No Award granted under the Plan shall be exercisable or
payable more than 10 years from the date of grant.
8.13 Beneficiaries. The Committee in its discretion may allow the
Participant receiving any Award to designate in writing any person or trust (a
"Beneficiary") to receive upon the Participant's death as much of the Award as
may be transferred pursuant to this Plan. A Beneficiary designation may be
revoked in writing at any time, but no new designation or revocation of a
Beneficiary designation shall be effective until it is actually received and
acknowledged by the Committee. If the Participant dies before receiving or
exercising any of the Award, the remaining Award shall be transferred to the
primary Beneficiary if the primary Beneficiary is then living. If the primary
Beneficiary is not living, the Award shall be transferred to the secondary
Beneficiary, if any. If neither the primary Beneficiary nor the secondary
Beneficiary is living at the time of the Participant's death, the Award shall be
transferred to the Participant's estate, and exercisable, if at all, by his
personal representative. Unless otherwise directed by the Participant, multiple
Beneficiaries shall share equally.
9. TAXES
9.1 Tax Withholding--Section 83 Election. If any Participant properly
elects (within 30 days of the date on which property subject to a substantial
risk of forfeiture and nontransferable by the Participant is transferred
pursuant to an Award) pursuant to Section 83 of the Code to include in gross
income for federal income tax purposes an amount equal to the fair market value
(on the date of the Award) of the Stock subject to the Award (or, with respect
to an Option, the ascertainable fair market value of the Option), the
Participant shall make arrangements satisfactory to the Committee to pay to the
Company, at the time of the Award, all federal, state, and local taxes required
to be withheld with respect to the Stock. If the Participant shall fail to make
any required tax payments, the Company and its Subsidiaries, to the extent
permitted by law, shall have the right to deduct the taxes from any payment of
any kind otherwise due to the Participant.
9.2 Tax Withholding. Any Participant who does not or cannot make the
election described in Section 9.1 with respect to an Award shall, no later than
the date as of which the value of the Award first becomes includable in the
gross income of the Participant for income tax purposes, pay to the Company, or
make arrangements satisfactory to the Company regarding payment of all taxes of
any kind required by law to be withheld with respect to the Stock or other
property subject to the Award, and the Company and its Subsidiaries shall, to
the extent permitted by law, have the right to deduct the taxes from any payment
of any kind otherwise due the Participant.
9.3 Share Withholding. The withholding obligation described in this
Section 9 may be satisfied by the Company retaining shares of Stock with a fair
market value equal to the amount required to be withheld.
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10. EFFECTIVE DATE OF PLAN
The Plan shall be effective on the date (the "Effective Date") when the
Board of Directors adopts the Plan, subject to approval of the Plan by the
Company's stockholders, provided, however, that Awards may be granted before
obtaining stockholder approval of the Plan, but any such Awards shall be
contingent upon the stockholder approval being obtained and may not be exercised
before such approval is granted.
11. TERM OF PLAN
Unless terminated earlier by the Committee, no Award shall be made under
the Plan more than ten years after the Effective Date as defined in Section 10.
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Exhibit 10.46*
JOINT VENTURE MASTER AGREEMENT
This is a Joint Venture Master Agreement, dated as of October 30, 1996
(the "Agreement"), between Nichimen Corporation, a Japanese corporation
("Nichimen"), NKK Plant Engineering Corporation, a Japanese corporation ("NKP"),
and Molten Metal Technology, Inc., a Delaware corporation ("MMT").
WHEREAS, MMT is an environmental technology company engaged in the
commercialization and continued development of its proprietary processing
technology known as Catalytic Extraction Processing (or CEP);
WHEREAS, Nichimen and NKP have substantial experience and knowledge of the
Japanese environmental market, particularly with respect to processing of MSW
Incinerator Ash;
WHEREAS, Nichimen and NKP have evaluated various alternative technologies
for processing MSW Incinerator Ash and have selected CEP as the best technology
for commercialization in the Japanese market; and
WHEREAS, the parties wish to enter into an arrangement whereby they
commercialize CEP by marketing, demonstrating and operating CEP Plants, and
sublicensing CEP technology to Nichimen, NKP and appropriate third parties to
permit them to sell and operate CEP Plants for the processing of MSW Incinerator
Ash produced from the incineration of Japanese municipal waste in Japan and
under certain circumstances for the processing of Industrial Incinerator Ash
produced from the incineration of Japanese industrial waste in Japan.
NOW, THEREFORE, the parties hereto agree as follows:
Article 1
Defined Terms
In addition to the defined terms found elsewhere in this Agreement, as
used in this Agreement the following terms shall have the following meanings:
"Advisors" means, with respect to any Person, any of such Person's
attorneys, accountants, lenders or consultants.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with, such Person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means the possession, directly
or indirectly, of power to direct or cause the
*Confidential Treatment has been requested for certain portions of this
Exhibit 10.46.
<PAGE> 2
direction of the management and policies of a Person, whether through the
ownership of Voting Securities, by contract or otherwise.
"Articles of Incorporation" means the Articles of Incorporation of the JV
in the form of Exhibit A hereto.
"Bankruptcy" means, with respect to any Person, (i) the filing by such
Person of a voluntary petition seeking liquidation, reorganization, arrangement
or readjustment, in any form, of its debts under Title 11 of the United States
Code or equivalent provisions of Japanese law, or corresponding provisions of
future laws (or any other federal or state insolvency law), (ii) the filing by
such Person of an answer consenting to or acquiescing in any such petition,
(iii) the making by such Person of any assignment for the benefit of its
creditors or the admission by such Person in writing of its inability to pay its
debts as they mature, (iv) the suspension by a clearinghouse of transactions
between a Person and such Person's bank or other lending institution in
accordance with the rules of such clearinghouse, provided that such suspension
shall not have been withdrawn within thirty (30) days after the invocation
thereof, (v) the filing of an involuntary petition against such Person under
Title 11 of the United States Code or equivalent provisions of Japanese law (or
corresponding provisions of future laws), an application for the appointment of
a receiver for the assets of such Person, or an involuntary petition seeking
liquidation, reorganization, arrangement or readjustment of its debts under any
other federal or state insolvency law, provided that the same shall not have
been vacated, set aside or stayed within a 60-day period after the occurrence of
such event, or (vi) the entry against such Person of a final non-appealable
order for relief under any bankruptcy, insolvency or similar law now or
hereafter in effect.
"Board of Directors" means the Board of Directors of the JV.
"Business Plan" means the Business Plan of the JV that has been approved
by the Partners, as revised from time to time pursuant to Section 4.2(b) hereof.
"Catalytic Extraction Processing" or "CEP" means the processes, methods
and systems (including all Intellectual Property and other intangible and
tangible property associated therewith and including all aspects of accepting
Feedstocks, reactions within a CEP Plant, and handling Recovered Resources)
directed to the processing of Feedstocks by introducing the Feedstocks to a
processing vessel containing liquefied metal.
"CEP Core Technology" means any technical information, know-how, data,
applications, formulae, models, computations, applied technology, computer
simulations, designs, drawings and expertise necessary or useful in connection
with CEP, including but not limited to reactor design, feed and reactant
introduction, and removal of Recovered Resources.
"CEP Plant" means the plant, equipment and other facilities necessary to
perform, operate and maintain CEP on a commercial basis (or, in the case of any
so-called
2
<PAGE> 3
"demonstration" CEP Plant, on the basis generally provided in the applicable
demonstration program).
"CEP Plant Agreement" means the CEP Plant Purchase and Sale Agreement
entered into by MMT, Nichimen and the JV in the form of Exhibit B hereto.
"Competing Activity" has the meaning set forth in Section 7.2.
"Confidential Information" means, as applicable, JV Confidential
Information, MMT Confidential Information, Nichimen Confidential Information
and NKP Confidential Information.
"Dispute Resolution Agreement" means the Dispute Resolution Agreement
entered into by the Partners and the JV in the form of Exhibit C hereto.
"Employee Non-Disclosure Agreement" means an employee non-disclosure and
invention agreement in the form attached as Annex A to the License Agreement or
in such other form as is approved from time to time by the Board of Directors.
"Exclusive Market" means the processing in Japan of MSW Incinerator Ash
produced from the incineration in Japan of Municipal Waste generated in Japan.
"Feedstocks" means, with respect to any CEP Plant, the wastes, industrial
by-products and other materials to be processed by such CEP Plant.
"Improvements" shall mean any improvements, developments, updates,
upgrades, enhancements, additions, revisions, corrections, fixes and other
modifications to any party's Intellectual Property which relates to the JV's
business and which MMT, Nichimen, NKP or the JV may acquire, discover, invent,
originate, conceive or have a right to develop or manufacture, whether or not
the same is patentable, commercially useful or reducible to writing or practice.
"Industrial Incinerator Ash" means the ash by-products remaining after the
incineration of Industrial Waste, other than any ash by-products which are
radioactive or have been produced from the incineration of radioactive
industrial waste.
"Industrial Waste" means waste that is generated by industrial facilities
and that is processed at industrial waste incinerators in Japan.
"Initial Business Paradigm" means the anticipated initial operational
structure of the JV, as described in Section 5.2 and as illustrated in Exhibit D
hereto.
"Initial CEP Plant" means the CEP Plant to be sold to the JV pursuant to
the CEP Plant Agreement.
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<PAGE> 4
"Intellectual Property" means all patents, inventions, patent
applications, patent rights, trademarks, trademark registrations, trade names,
brand names, all other names and slogans embodying business or product goodwill
(or both), copyright registrations, copyrights (including those in computer
programs, software, including all source code and object code, development
documentation, programming tools, drawings, specifications and data), software,
trade secrets, know-how, mask works, industrial designs, formulae, processes and
technical information, including confidential and proprietary information,
whether or not subject to statutory registration or protection.
"JV" means the joint venture which Nichimen, NKP and MMT have agreed to
form pursuant to this Agreement.
"JV Confidential Information" means any confidential or proprietary
information of any type of the JV.
"License Agreement" means the License Agreement entered into by MMT and
the JV in the form of Exhibit E hereto.
"Limited Guaranty" means any Limited Guaranty in the form of Exhibit F
hereto that may be executed by any of the Partners from time to time.
"Market" means the Exclusive Market and the Non-Exclusive Market,
collectively.
"Market Feedstocks" means MSW Incinerator Ash produced from the
incineration in Japan of Municipal Waste generated in Japan and under certain
circumstances Industrial Incinerator Ash produced from the incineration in Japan
of Industrial Waste generated in Japan.
"MMT Confidential Information" means any confidential or proprietary
information of any type of MMT or furnished by MMT, including but not limited to
any confidential or proprietary portion of the Licensed Property.
"MMT Directors" means MMT's designees to the Board of Directors.
"MSW Incinerator Ash" means the ash by-product captured in the
gas-handling train of an incinerator after the incineration of Municipal Waste
(fly ash), and the ash by-product captured at the bottom of an incinerator
(bottom ash) after the incineration of Municipal Waste.
"Municipal Waste" means waste that is typically generated by households,
retail facilities or business offices and that is processed at municipal waste
incinerators in Japan.
"Nichimen Confidential Information" means any confidential or proprietary
information of any type of Nichimen or furnished by Nichimen.
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<PAGE> 5
"Nichimen/NKP Directors" means Nichimen's and NKP's designees to the
Board of Directors.
"NKP Confidential Information" means any confidential or proprietary
information of any type of NKP or furnished by NKP.
"Non-Exclusive Market" means the processing in Japan of Industrial
Incinerator Ash produced from the incineration of Industrial Waste generated in
Japan.
"Partners" means Nichimen, NKP and MMT, collectively.
"Person" means any individual, partnership, corporation, association,
trust, limited liability company, joint venture, unincorporated organization and
any government, governmental department or agency or political subdivision
thereof.
"President-Director" means the Representative Director nominated by
Nichimen and NKP, subject to the approval of MMT, who shall be responsible for
the day-to-day management of the JV.
"Recovered Resources" means the elements and compounds produced by a CEP
Plant (whether or not produced through the use of reactants) that are suitable
for use or sale.
"Recycling" means the return of resources which are recovered or produced
from waste or other similar materials for use or sale.
"Related Agreements" means this Agreement, the License Agreement, the
Dispute Resolution Agreement, the Articles of Incorporation, the CEP Plant
Agreement, and any Limited Guaranty, each as amended from time to time, and any
other agreement between any of the JV, Nichimen, NKP or MMT relating to the JV
which specifies that it is a Related Agreement for purposes of this Agreement.
"Subsidiary" means a corporation, company or other entity:
(i) more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority) are, now or hereafter, owned
or controlled, directly or indirectly, by a party hereto, but such
corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists; or
(ii) which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture or unincorporated association,
but more than fifty percent (50%) of whose ownership interests
representing the right to make the decisions for such corporation,
company or other entity is now or hereafter, owned or controlled,
directly or indirectly, by a party hereto, but such
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<PAGE> 6
corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.
"Treatment" means, with respect to any material, (i) any physical,
mechanical, thermal and/or chemical actions which, individually or in concert,
alter the chemical composition of such material or (ii) any method for
containment or disposal of such material.
"Voting Securities" mean, with respect to any Person, all securities
issued by such Person having the ordinary power to vote in the election of
directors of such Person, other than securities having such power only upon the
occurrence of a default or any other extraordinary contingency.
Article 2
Formation of the JV
2.1. Purpose of JV. The Partners agree that, subject to the terms and
conditions of this Agreement and the Related Agreements, they shall form the JV
to market, demonstrate, sell, own and operate CEP Plants, and sublicense CEP
technology to Nichimen, NKP and appropriate third parties to permit them to
sell, own and operate CEP Plants, to serve the Exclusive Market and under
certain circumstances the Non-Exclusive Market.
2.2. Establishment of the JV. As soon as possible after the date hereof,
the Partners shall cause the JV to be established as a Japanese corporation
under a name to be agreed on by the Partners. The registered office of the JV
shall be located at NKP's office, 3 Benten-Cho, Tsurumi-ku, Yokohama, Japan 230.
Each of the Partners shall cooperate with each other in carrying out the
procedures necessary to establish and register the JV. At the time the JV is
established, the Partners shall cause the JV to adopt the Articles of
Incorporation.
2.3. Roles and Responsibilities of the Partners.
(a) Recognizing MMT's expertise as a technology provider, MMT's roles
and responsibilities shall be the following:
(i) to assist in the overall management and operation of the JV;
(ii) to grant to the JV the exclusive license (with rights to
sublicense) to sell, own, lease, rent, operate, install and
maintain CEP Plants in the Exclusive Market, under the terms
and conditions of the License Agreement;
(iii) to grant to the JV the non-exclusive license (with rights to
sublicense)
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<PAGE> 7
to sell, own, lease, rent, operate, install and maintain CEP
Plants in the Non-Exclusive Market, under the terms and
conditions of the License Agreement;
(iv) to construct and sell CEP Plants and critical spare parts
to the JV, under the terms of the License Agreement;
(v) to provide the necessary designs, specifications, drawings and
other technical information necessary to operate and maintain
the CEP Plants supplied by MMT; and
(vi) to use its best efforts to assist the JV in promoting the use
of CEP for the processing of MSW Incinerator Ash in the
Market.
(b) Recognizing Nichimen's expertise as a Japanese trading company,
Nichimen's roles and responsibilities shall be the following:
(i) to assist in the overall management and operation of the JV;
(ii) to act as the sole importer of CEP Plants and spare parts on
behalf of the JV and to provide all necessary services and logistics
for importation of CEP Plants and spare parts into Japan, including
land and ocean transportation, marine insurance and customs
clearance;
(iii) to arrange credit and financing for the sale of CEP Plants
in Japan on standard commercial terms;
(iv) to act as a prime contractor for the sale of CEP Plants to
customers of the JV, including negotiating price to customer and
scope of supply; and
(v) to use its best efforts to assist the JV in promoting the use
of CEP for the processing of MSW Incinerator Ash in the Market.
(c) Recognizing NKP's expertise in engineering, construction, operation
and maintenance of municipal incinerators and related systems, NKP's
roles and responsibilities shall be the following:
(i) to assist in the overall management and operation of the JV;
(ii) to assist in the start-up of the Initial CEP Plant by
providing dedicated engineering and operations personnel in
accordance with Section 5.7 hereof;
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<PAGE> 8
(iii) to act as contractor in connection with the transportation,
installation, operation and maintenance of CEP Plants in
Japan;
(iv) to act as a prime contractor for the sale of CEP Plants to
customers of the JV, including negotiating price to customer
and scope of supply; and
(v) to use its best efforts to assist the JV in promoting the use
of CEP for the processing of MSW Incinerator Ash in the
Market.
Article 3
Capitalization and Funding of the JV; Accounting
3.1. Capitalization of the JV. At the time of formation of the JV, the
Partners shall mutually determine the authorized capital of the JV. At the time
the JV is funded, Nichimen shall contribute twenty-five and one-half percent
(25.5%) of the initial capital in exchange for 25.5% of the equity interests of
the JV, NKP shall contribute twenty-five and one-half percent (25.5%) of the
initial capital in exchange for 25.5% of the equity interests of the JV, and MMT
shall contribute forty-nine percent (49%) of the initial capital in exchange for
49% of the equity interests of the JV. Payment for all such equity interests
shall be made in cash. The Partners shall mutually determine how the balance of
the JV's initial funding is to be paid. All such funding shall be contributed by
each Partner in proportion to its initial equity investment.
3.2. Additional Capital Contributions. Unless otherwise agreed by the
Partners, no Partner shall be obligated to make capital contributions to the
JV other than as set forth in Section 3.1.
3.3. Funding of JV's Operations. In addition to the Partners' initial
capital contributions pursuant to Section 3.1, if necessary, the JV may issue
debt or obtain a working capital line of credit to fund its operations. The
issuance of any debt or the obtaining of a working capital line of credit shall
require the prior approval of the Board of Directors.
*
*Confidential Treatment has been requested for this portion of Exhibit 10.46.
8
<PAGE> 9
*
3.4. Income and Loss. All distributions of income and responsibilities
for losses shall be based on each Partner's equity interest in the JV.
3.5 Accounting; Books and Records. The JV's fiscal year shall end on
such date as the Partners shall mutually agree. The JV shall retain a mutually
acceptable accounting firm to audit the JV's financial statements for each
fiscal year and to prepare the JV's income tax returns. The books and records of
the JV shall be maintained, and the financial statements of the JV shall be
prepared, in accordance with generally accepted accounting principles as in
effect in Japan, consistently applied. The Board of Directors shall appoint a
Partner to be responsible for keeping and maintaining the JV's books and
records.
Article 4
Governance
4.1. Establishment.
(a) Simultaneously with the incorporation of the JV, the Partners
shall establish the Board of Directors to implement this
Agreement and the Related Agreements. Except as otherwise
provided for in the Articles of Incorporation or as required by
applicable law, the Board of Directors will oversee the
development and operations of the JV and shall have
responsibility of the management, direction and control of the
JV. Unless the Partners agree otherwise, the Board of Directors
shall consist of a total of four (4) members, two of whom shall
be designated by MMT and two of whom shall be designated by
Nichimen and NKP. Each director shall serve at the pleasure of
the Partner which designated such director and may from time to
time be replaced by such Partner. Any such replacement must be a
member of senior management of the designating Partner. Each
Partner shall notify the other Partners in writing of the persons
designated by it to serve on the Board of Directors and any
replacement for such person promptly following such designation
or replacement. Each Partner hereby agrees to votes its shares
of the JV, and to cause the directors of the JV designated by
such Partner to cast their votes, so as to appoint as directors
and President-Director the individuals nominated by the other
Partners in accordance with this Section 4.1.
(b) One of the Nichimen/NKP Directors shall be nominated jointly by
Nichimen and NKP to serve as the Representative Director, subject
to the approval of MMT. The Representative Director also shall
be designated as the President of the JV (the "President-Director").
The President-Director shall preside at all meetings of the Board
of Directors and shall have such other duties and responsibilities
as are assigned from time to time by the Board of Directors.
*Confidential Treatment has been requested for this portion of Exhibit 10.46.
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<PAGE> 10
4.2. Authority and Duties.
(a) The Board of Directors shall have the specific authority delegated
to it pursuant to this Agreement and the Related Agreements.
(b) Without limiting the general duties and authority of the Board of
Directors as set forth in this Article 4, the Board of Directors
shall have responsibility for the following matters related to the
business of the JV:
(i) the appointment and evaluation of the performance of any
Nichimen, NKP, MMT or other personnel assigned or hired to
participate in the management of the JV's operations;
(ii) the evaluation of the performance of the President-Director;
(iii) the establishment and monitoring of capital and operating
budgets;
(iv) issuance of sublicenses for CEP Plants;
(v) incurrence of indebtedness;
(vi) establishment of sales and marketing policies;
(vii) approval of any sales representative agreement,
manufacturing agreement, or sublicense agreement;
(viii)approval of capital increases;
(ix) election or removal of independent public accountants;
(x) approval of the distribution of profits or the payment of
losses;
(xi) approval of any proposals required to be submitted to the
shareholders;
(xii) approval of employment policies and personnel regulations;
and
(xiii)such other duties agreed to from time to time by the
Partners.
The Board of Directors shall also review the Business Plan at least
annually, and revise it as appropriate to reflect the business
conditions and prospects for the JV.
4.3. Meetings. The Board of Directors will meet as often as the members
deem necessary, presently contemplated to be four times per year. Meetings may
be conducted in
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<PAGE> 11
person or by telephone or in any other manner agreed to by the Board of
Directors. Any Partner may call a meeting of the Board of Directors upon at
least three (3) weeks' prior notice. No notice of a meeting shall be necessary
when all members of the Board of Directors are present. The presence of at least
both MMT Directors and both Nichimen/NKP Directors shall constitute a quorum.
All actions of the Board of Directors shall require the unanimous consent of all
Directors present and participating in a meeting. Meetings of the Board of
Directors may be attended by other representatives of the Partners and other
persons related to the JV all as agreed to from time to time by the Board of
Directors. The Board of Directors will set up procedures relating to the
recording of minutes of its meetings. To the extent permitted by applicable law,
actions of the Board of Directors may also be taken without a meeting by
unanimous written consent of the Board of Directors.
4.4. JV Personnel.
(a) It is anticipated that the JV will not have any employees but will
rely on personnel from Nichimen, NKP and MMT to manage its
operations. Such personnel shall be designated by the applicable
Partner, subject to approval by the Board of Directors. Unless
otherwise agreed by the Board of Directors, all such personnel shall
be paid by the Partner which designated them.
(b) Notwithstanding paragraph (a), until such time as the JV has sold at
least one CEP Plant, the JV may, if necessary, retain not more than
one employee for administrative and related functions. Such
employee, if any, will be nominated by the President-Director,
subject to approval by the Board of Directors. The terms of such
employee's employment, including compensation, will be determined by
the Board of Directors. After the JV has sold at least one CEP
Plant, the Board of Directors shall decide whether or not to hire
additional employees based on the actual business needs of the JV.
4.5. President-Director. The President-Director shall have the duties and
responsibilities described in Section 4.6. The President-Director may be removed
from office only with the unanimous agreement of the Board of Directors (other
than the President-Director), except that if either the MMT Directors or the
Nichimen/NKP Directors have objected to the Board of Directors on at least three
separate occasions about the President-Director's performance, providing
information about the grounds for such objections in reasonable detail, then
upon the request of the objecting party the Board of Directors shall remove the
President-Director. Upon the retirement or removal of the President-Director,
Nichimen and NKP shall nominate a new President-Director, subject to the
approval of MMT.
4.6. Duties of President-Director. Except as provided in Section 4.2
hereof and the Articles of Incorporation, the President-Director shall be
responsible for the day-to-day management, operations, direction and
administration of the JV, implementing the policies established by the Board of
Directors, and shall have such other duties and responsibilities
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<PAGE> 12
related to the JV as the Board of Directors shall from time to time direct. The
President-Director shall be responsible for advising the Board of Directors on
the status of the JV on a regular basis or more frequently as requested by the
Board of Directors. The President-Director also shall be responsible for hiring
such personnel, if any, as the President-Director and the Board of Directors
deem necessary and appropriate. Unless otherwise agreed by the Board of
Directors, all such personnel shall be subject to the approval of the Board of
Directors.
Article 5
Operations of the JV; Sales and Marketing of CEP Plants; Certain Commitments
5.1. Operations of the JV. In commercializing CEP pursuant to this
Agreement, the Partners will consider all appropriate business structures to
maximize sales of CEP Plants. Based on the Partners' analysis of the existing
conditions in the Market, the Partners anticipate that the JV's operations
initially will be conducted as described in the Initial Business Paradigm set
forth in Section 5.2.
5.2. Initial Business Paradigm.
(a) Pursuant to a sublicense from the JV, sales of CEP Plants will be
made by Nichimen and NKP (and potentially MMT or third party sales
representatives appointed pursuant to Section 5.5) directly to
owners of municipal waste incinerators in the Exclusive Market and
under certain circumstances in the Non-Exclusive Market ("End
Users"). It is anticipated that Nichimen and NKP would enter into
long-term contracts with such End Users which would provide for the
sale, importation, transportation, installation, start-up, testing,
operation and maintenance of CEP Plants by Nichimen and NKP for the
benefit of the End Users. The price for the CEP Plant and other
goods and services to be provided to the End Users will be
negotiated by Nichimen and NKP as prime contractors directly with
the End Users. An itemized list of prices for the CEP Plant and such
goods and services will be provided to the Board of Directors.
(b) Nichimen and NKP will utilize, subject to MMT's approval, a form of
agreement to be used for such CEP Plant sales and services. Such
agreement will, at a minimum, include provisions requiring the End
User of the CEP Plant to (i) protect the MMT and the JV's
Confidential Information and Intellectual Property, (ii) only use
the CEP Plant for the processing of the Market Feedstocks expressly
specified in the CEP Plant sales agreement, (iii) purchase specified
critical spare parts for the CEP Plant only from MMT, and (iv)
indemnify the JV and the Partners from any damage or injury caused
by the End User's improper use or operation of the CEP Plant.
Changes to the standard agreement may be made to the extent required
as a result of negotiations with the End User, provided that the
Board of Directors will have
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<PAGE> 13
the right to review all CEP Plant contracts and to approve any
material changes to the standard agreement.
(c) MMT will design, engineer and construct all CEP Plants and spares to
be sold by Nichimen, NKP and any third party sales representatives
on behalf of the JV. The price to the JV for each CEP Plant shall be
determined solely by MMT based on the capacity of the CEP Plant and
any special customer requirements. All prices quoted by MMT shall be
free on truck "ex works". Nichimen, as sole importer for the JV,
shall purchase the CEP Plants and spares from MMT and shall be
responsible for the transportation of such CEP Plants and spares
from MMT's factory to Japan.
*
(d) The JV will purchase the CEP Plants and spares from Nichimen and
then resell them to Nichimen or NKP, as applicable, for resale to
the End User on the terms described in paragraph (a). NKP will act
as the prime contractor for the installation, operation and
maintenance of CEP Plants on behalf of the End User unless (i)
otherwise requested by the End User for business reasons, or (ii)
the purchaser of the CEP Plant will act as the prime contractor for
the End Use. If the End User requests that NKP not serve as the
prime contractor, Nichimen will propose another prime contractor to
the Board of Directors. The Board of Directors shall have the right
to approve or disapprove any such other prime contractor.
(e) Nichimen and NKP acknowledge and agree that as prime contractors
they shall be responsible for negotiating, consummating and
financing sales of CEP Plants to End Users. All such sales shall be
without recourse to the JV and shall not impose any financial
obligations on the JV. To the extent possible, Nichimen and NKP will
keep the terms of transactions between Nichimen, NKP, MMT and the JV
consistent with respect to the purchase and sale of CEP Plants and
spares.
5.3. Other Business Paradigms. The Partners agree that one of their
shared goals is to minimize the involvement of the JV from the
actual delivery of CEP Plants in order to minimize the transaction
and overhead costs of the JV to the maximum extent possible.
However, to the extent that the use of business paradigms designed
to implement this goal result in the incurrence of extraordinary tax
liabilities by the JV, the Partners will continue to use the Initial
Business Paradigm or attempt to structure other operational
paradigms that meet this goal.
5.4. Sales and Marketing. Each of the Partners will provide marketing
support at their own expense to the JV. This support shall include
making available to the JV all
13
*Confidential treatment has been requested for this portion of Exhibit 10.46.
<PAGE> 14
commercial opportunities in the Market known to the Partners. The Partners agree
to cooperate in their provision of marketing support to the JV in order to make
such marketing as successful as possible. Except as provided in Section 5.2, the
JV shall be required to obtain the consent of the Board of Directors with
respect to the customer, material contract terms, license arrangements and
related matters prior to the completion of any sale of a CEP Plant by the JV. In
order to coordinate and maximize the Partners' respective sales and marketing
efforts, representatives of the Partners with responsibility for sales and
marketing in the Market shall meet from time to time, but no less often than
four times per year, to discuss marketing strategy and the steps each Partner is
taking to promote CEP Plants in the Market. Such meetings may take place at or
in conjunction with meetings of the Board of Directors. Each Partner shall
provide to the other Partners copies of all marketing materials and shall keep
the other Partners informed of any regulatory changes that may affect the sale
or use of CEP Plants in the Market.
5.5. Sales Representatives. In addition to direct sales to customers, the
JV may enter into sales representative agreements with any of the Partners and
any other entity which services the Market. Such sales representatives will be
paid commissions based on the sales price of CEP Plants which they sell. The
Partners will agree upon a form of Sales Representative Agreement (including
commissions) to be used by the JV. Consistent with the Initial Business
Paradigm, it is not presently anticipated that the JV will enter into Sales
Representative Agreements with Nichimen or NKP.
5.6. Fall River Demonstration Programs. Nichimen and NKP acknowledge that
MMT is constructing a demonstration CEP Plant in Fall River, Massachusetts which
will be used for, among other things, demonstration programs for Market
Feedstocks and surrogate Market Feedstocks. The Partners agree that the data
from such demonstration programs may be useful for the JV in its efforts to
commercialize CEP in the Market. The Partners also agree that the demonstration
CEP plant in Fall River may be a valuable marketing tool for the sales
activities of the JV and the Partners. Accordingly, the Partners agree that if
potential customers of the JV desire to have MMT perform demonstration programs
at the Fall River Facility, such demonstration programs will be paid for by the
JV. The payment terms for any such demonstration programs will be agreed on a
case-by-case basis by the JV and MMT. In connection with such demonstration
programs, MMT agrees to permit potential customers of the JV to visit the Fall
River facility and observe the operations of the demonstration CEP Plant. All
such visits shall be at reasonable times and shall require at least two (2)
weeks' notice to MMT. All potential customers will be required to sign
non-disclosure agreements whereby they agree not to disclose any of the
information learned from their observation of the demonstration CEP Plant or any
data or other information provided by MMT.
5.7. Start-Up of Initial CEP Plant. In order to assist the JV in the
start-up and operation of the Initial CEP Plant, NKP will provide the services
of two engineers and five technicians at the JV's expense. Such engineers and
operators will be dedicated solely to the start-up of the Initial CEP Plant.
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Article 6
Effectiveness of Agreement; Related Agreements
6.1. Effectiveness of Agreement. The effectiveness of this Agreement and
the Related Agreements executed as of October 30, 1996 is subject to and
conditional upon (i) approval by the Board of Directors of each of the Partners
and (ii) receipt of all necessary approvals from the Japanese government and
agencies of the Japanese government, including the Fair Trade Commission. The
Partners will use their best efforts to cause all such approvals to be received
no later than December 31, 1996. If all such approvals are not received by such
date, the Partners shall meet to determine what actions will be taken to cause
such approvals to be received.
6.2. Articles of Incorporation. Promptly after the execution and
delivery of this Agreement, the Partners shall form the JV by adopting and
filing the Articles of Incorporation.
6.3. License Agreement. Simultaneously with the formation of the JV,
MMT and the JV shall enter into the License Agreement.
6.4. Dispute Resolution Agreement. Simultaneously with the execution
and delivery of this Agreement, the Partners shall enter into the Dispute
Resolution Agreement. Simultaneously with the formation of the JV, the JV
shall enter into and become a party to the Dispute Resolution Agreement.
6.5. CEP Plant Agreement. Simultaneously with the formation of the
JV, MMT, Nichimen and the JV shall enter into the CEP Plant Agreement.
Article 7
Exclusivity; Non-Competition
7.1. Exclusive Market Obligation of MMT. MMT agrees that, during the term
of this Agreement, except pursuant to this Agreement and other Related
Agreements it shall not either directly or indirectly (whether through its
Affiliates, as a shareholder, partner, or consultant) own or operate any CEP
Plant that processes MSW Incinerator Ash in Japan or sell or license any CEP
Plant pursuant to sale or license terms which permit such CEP Plant to process
MSW Incinerator Ash in Japan.
7.2. Non-Competition Obligation of Nichimen and NKP.
*
*Confidential treatment has been requested for this portion of Exhibit 10.46.
15
<PAGE> 16
*
*Confidential treatment has been requested for this portion of Exhibit 10.46.
16
<PAGE> 17
*
Article 8
Termination
8.1. Termination by Mutual Consent. This Agreement, and the business
relationship established by this Agreement and the Related Agreements, may be
terminated at any time by the mutual written consent of the Partners.
8.2. Bankruptcy of Nichimen, NKP or MMT. Upon the Bankruptcy of Nichimen,
NKP or MMT, either of the non-bankrupt Partners may elect within ninety (90)
days of the Bankruptcy to terminate the business relationship established by
this Agreement and the Related Agreements.
*
8.5. Termination for Incurrence of Losses. If the JV sustains in excess of
$14,500,000 in losses (determined in accordance with generally accepted
accounting principles as applied in Japan) in the aggregate, any Partner may
elect to terminate the business relationship established by this Agreement and
the Related Agreements by providing written notice of such election to the other
Partners at least ninety (90) days prior to the date on which such termination
shall occur. Either of the other Partners may require the Partner which
delivered the foregoing notice to comply with the procedures set forth in the
Dispute Resolution Agreement prior to any such termination.
8.6. Scheduled Termination. This Agreement shall terminate on October
30, 2006, unless Nichimen, NKP and MMT agree prior to such date to renew this
Agreement for an additional term.
8.7. Effects of Termination.
(a) In the event of any termination of this Agreement pursuant to
Section 7.2(b) or any one of Sections 8.1 to Section 8.6, (i) the
Partners' obligations under the Dispute Resolution Agreement shall
remain in effect, (ii) the provisions of Sections 7.2 and 8.7 and
Articles 9, 10, 12, 13, 14 and 17 shall survive any
17
* Confidential treatment has been requested for this portion of Exhibit 10.46.
<PAGE> 18
such termination, (iii) any provision of a Related Agreement which
by its terms states that it shall survive such a termination shall
survive and (iv) such termination shall not effect any Partner's
rights with respect to any breach or non-performance by another
Partner prior to such termination.
(b) In the event of any termination of this Agreement pursuant to
Section 7.2(b) or any one of Sections 8.1 to 8.6, the Board of
Directors will be responsible for winding up the JV. The Board
of Directors shall wind up the JV in an orderly and prudent
manner consistent with the JV's then-existing obligations
(including with respect to developed CEP Plants), with the goals
of fulfilling the JV's contractual obligations, protecting
customer goodwill, limiting any residual liability to the
Partners and effecting a division of assets consistent with the
Partners' ownership interests in the JV. It is anticipated that
all sublicense agreements (including sublicenses granted in
connection with the operation and maintenance of one or more CEP
Plants) in effect at the time the JV is wound up would remain
effective for the expected life of the CEP Plant. The Partners
also may elect to wind up the relationship established by this
Agreement by causing the sale by one or more Partners of its or
their interest in the JV to one of the other Partners.
Article 9
Confidentiality and Related Matters
9.1. Confidentiality Obligations.
(a) Each of Nichimen, NKP and MMT agrees that it will use the other
parties' Confidential Information only in connection with the
activities contemplated by this Agreement and the Related
Agreements, and it will not disclose any other party's Confidential
Information to any Person except as expressly permitted by this
Section 9.1.
(b) Nichimen, NKP or MMT may disclose another party's Confidential
Information:
(i) to any of the other parties to this Agreement;
(ii) to their respective officers and employees who have a
reasonable need to know the contents thereof and who have
signed an agreement substantially in the form of the Employee
Non-Disclosure Agreement, a copy of which shall be provided to
each of the other parties;
(iii) on a confidential basis to their respective Advisors who have
a reasonable need to know the contents thereof, so long as
such
18
<PAGE> 19
disclosure is made pursuant to the procedures referred to in
Section 9.3(c);
(iv) to customers who have a reasonable need to know the contents
thereof in connection with the activities contemplated by this
Agreement if such disclosure is made pursuant to the
procedures referred to in Section 9.3(c);
(v) to the extent required by applicable statute, rule or
regulation or any court of competent jurisdiction; provided
that Nichimen, NKP or MMT, as applicable, has made reasonable
efforts to conduct its relevant business activities in a
manner such that the disclosure requirements of such statute,
rule or regulation or court of competent jurisdiction do not
apply, and provided further that the relevant party is given
notice and an adequate opportunity to contest such disclosure
or to use any means available to minimize such disclosure; and
(vii) to the extent such Confidential Information has become
generally available publicly through no fault of Nichimen,
NKP, MMT or their directors, officers, employees, Advisors or
sublicensees.
9.2. Disclosure to Government Authorities. The Board of Directors shall
promptly establish and implement all procedural safeguards required or advisable
in connection with the performance of government contracts to protect the
Confidential Information. Each of Nichimen, NKP and MMT agree to comply, and
cause their employees to comply, with such procedural safeguards.
9.3. Ongoing Confidentiality Program.
(a) In order to ensure that each of Nichimen, NKP and MMT complies with
its obligations in this Article 9, the Board of Directors together
with any advising attorneys shall meet as required to discuss issues
relating to confidentiality and disclosure and other matters
addressed by this Article 9.
(b) With respect to any disclosure by Nichimen, NKP or MMT to any of its
officers or employees permitted pursuant to Section 9.1(b)(ii), such
parties shall cause each of its officers and employees to sign
Employee Non-Disclosure Agreements.
(c) With respect to any disclosure by Nichimen, NKP or MMT to any of its
Advisors pursuant to Sections 9.1 (b)(iii) or to any customers
pursuant to Section 9.1(b)(iv), the Board of Directors will
institute procedures designed to maintain the confidentiality of
Confidential Information while facilitating the business activities
contemplated by this Agreement and the Related Agreements. These
procedures shall include the preparation of standard forms
19
<PAGE> 20
of confidentiality agreements to be used by the parties in
connection with such disclosures. The Partners acknowledge
that it is not anticipated that they will be disclosing the
other Partners' Confidential Information to their Affiliates.
Any such disclosure shall require the consent of the Partner
whose Confidential Information is the subject of the proposed
disclosure, and compliance with the provisions of this Section
9.3(c).
Article 10
Improvements and Inventions
10.1. Improvements and Inventions.
*
10.2. Assignment of Intellectual Property and Improvements. During
and after the term of this Agreement, each of Nichimen, NKP and MMT shall, and
shall cause their respective personnel assigned to work on JV activities to,
from time to time as and when requested by the party or parties which have
ownership rights to Intellectual Property or Improvements in accordance with
this Article 10 (the "Requesting Party"), and at the Requesting Party's expense,
but without further consideration, execute all papers and documents and perform
all other acts necessary or appropriate, in the discretion of the
20
*Confidential treatment has been requested for this portion of Exhibit 10.46.
<PAGE> 21
Requesting Party, to evidence or further document the Requesting Party's
ownership of such Intellectual Property and Improvements.
Article 11
Transfers of Shares
11.1. General Restriction on Transfer of Shares. Except as
otherwise expressly provided in this Article 11, each Partner hereby covenants
and agrees not to sell, assign, transfer, pledge or otherwise encumber any of
its shares of the JV.
11.2. Transfers to Subsidiaries. Notwithstanding the provisions of
Section 11.1, any Partner may transfer its shares of the JV to a wholly-owned
Subsidiary of such Partner, provided that the Partner and its Subsidiary comply
with the requirements of Section 17.8.
Article 12
Acquisition of Voting Securities
(a) Each of Nichimen and NKP agrees with MMT that, until three (3)
years after the termination of this Agreement, without the
prior written consent of MMT, it will not directly or
indirectly (through an Affiliate or otherwise or in concert)
acquire beneficial ownership of any Voting Securities of MMT
or any of its Subsidiaries, any securities convertible into or
exchangeable for Voting Securities of MMT or any of its
Subsidiaries, or any other right to acquire Voting Securities
of MMT or any of its Subsidiaries, without the consent of MMT
if the effect of such acquisition would be to increase the
percentage of Voting Securities of MMT or such Subsidiary then
beneficially owned directly or indirectly by Nichimen and NKP
and their respective Affiliates collectively to more than 4.9%
of the Voting Securities of MMT or such Subsidiary then issued
and outstanding.
(b) MMT agrees with each of Nichimen and NKP that, until three (3)
years after the termination of this Agreement, without the
prior written consent of Nichimen or NKP, as the case may be,
it will not directly or indirectly (through an Affiliate or
otherwise) acquire beneficial ownership of any Voting
Securities of Nichimen or NKP or any of their respective
Subsidiaries, any securities convertible into or exchangeable
for Voting Securities of Nichimen or NKP or any of their
respective Subsidiaries, or any other right to acquire Voting
Securities of Nichimen or NKP or any of their respective
Subsidiaries, without the consent of Nichimen or NKP, as
applicable, if the effect of such acquisition would be to
increase the percentage of Voting Securities of Nichimen, NKP
or such Subsidiary then beneficially owned directly or
indirectly by MMT and its Affiliates to more than 4.9% of the
Voting Securities of Nichimen, NKP or such Subsidiary then
issued and outstanding.
21
<PAGE> 22
Article 13
*
Article 14
Disclosure and Publicity
The Partners agree that prior to any public disclosures concerning the
transactions established by this Agreement or the operations of the JV, the
Partner issuing such disclosure shall provide a copy thereof to each of the
other Partners. All such disclosures shall be subject to the confidentiality
provisions of Article 9 of this Agreement.
Article 15
Uncontrollable Circumstances
(a) Except as provided in paragraph (b) below, if any party is rendered
wholly or partly unable to perform its obligations under this Agreement because
of Uncontrollable Circumstances (as defined below), that party shall be excused
from whatever performance is affected by the Uncontrollable Circumstances to the
extent so affected, provided that:
(i) the nonperforming party, within five (5) days after
it becomes aware of the occurrence of the
Uncontrollable Circumstances, gives the other parties
oral notice, followed by written confirmation,
describing the particulars of the occurrence;
(ii) the suspension of performance is of no greater scope
and of no longer duration than is reasonably required
by the Uncontrollable Circumstances and shall not in
any event apply to any obligation solely to pay
money;
(iii) no obligation of any party which arose before the
occurrence causing the suspension of performance is
suspended as a result of the occurrence; and
22
*Confidential treatment has been requested for this portion of Exhibit 10.46.
<PAGE> 23
(iv) the nonperforming party uses its best efforts to
promptly remedy its inability to perform.
(b) "Uncontrollable Circumstances" shall mean any act or event
that prevents a party from performing its obligations, or
complying with any conditions that it must comply with, under
this Agreement if such act or event was not caused by and is
beyond the reasonable control of the party relying thereon as
justification for such nonperformance or noncompliance. Such
acts or events include, without limitation but only to the
extent not caused by and outside the reasonable control of the
applicable party, acts of God, explosion, fire, epidemic,
earthquake, flood or similar cataclysmic occurrence, act of
the public enemy, war, blockade, insurrection, riot, civil
disturbance, or restrictions or restraints imposed by law or
by rule, regulation or order of governmental authorities,
whether Federal, state or local. Economic hardship involving a
party shall not constitute Uncontrollable Circumstances.
Article 16
Representations and Warranties
Each of Nichimen, NKP and MMT represents and warrants to the others
that: (i) it has the corporate power and authority to enter into this Agreement
and the Related Agreements to which it is a party and perform the obligations
required to be performed by it hereunder and thereunder; (ii) the execution and
delivery by it of this Agreement and the Related Agreements to which it is a
party and the performance by it of the obligations required to be performed by
it hereunder and thereunder have been duly authorized by its Board of Directors
or other governing body and no consent of its stockholders is required,
provided, however, that approval of this Agreement by the Board of Directors of
Nichimen and NKP is pending and expected no later than November 30, 1996; (iii)
this Agreement represents, and the Related Agreements to which it is a party
when executed and delivered by it will represent, the valid and binding
obligation of it, enforceable against it in accordance with its terms; (iv) the
execution and delivery of this Agreement and each of the Related Agreements to
which it is a party by it and the performance by it of the obligations required
to be performed by it hereunder or thereunder will not conflict with, violate or
otherwise breach, or require a consent under, any agreement or instrument to
which it is a party or by which its property is bound; (v) it has and will
obtain and maintain all licenses, permits, approvals and authorizations
necessary in order to enable it to perform its obligations under this Agreement
and the Related Agreements; (vi) it is and shall continue to be in compliance
with all applicable laws and regulations which could, directly or indirectly,
affect its ability to perform its obligations under this Agreement or any of the
Related Agreements, including but not limited to all United States and Japanese
laws regarding import or export controls; and (vii) there is no action, suit,
proceeding or investigation pending, or to its knowledge, threatened before any
court, administrative agency or other regulatory body which could affect its
ability to perform its obligations under this
23
<PAGE> 24
Agreement or any of the Related Agreements or which could affect the JV or the
JV's business as presently contemplated. The foregoing representations and
warranties shall survive the execution and delivery of this Agreement and the
Related Agreements. The representations and warranties set forth in this Article
16 are not exclusive and are in addition to the other representations and
warranties made by the Partners in this Agreement and the Related Agreements.
Article 17
General
17.1. Expenses. Except as expressly set forth in this Agreement, all
expenses of the preparation, execution and consummation of this Agreement and
the Related Agreements and of the transactions contemplated hereby, including,
without limitation, attorneys', accountants and outside advisers' fees and
disbursements, shall be borne by the Partner incurring such expenses.
17.2. Notices. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid or if sent by overnight courier or sent by
written telecommunication, as follows:
If to Nichimen to:
Nichimen Corporation
1-23, Shiba 4-Chome
Minato-ku, Tokyo, Japan 108
Attention: Ituro Hashimoto,
Deputy Senior General Manager
Aircraft, Vessels & Industrial Machinery Division
If to NKP to:
NKK Plant Engineering Corporation
3 Benten-Cho, Tsurumi-ku
Yokohama, Japan 230
Attention: Kosaku Watando,
Director, R&D Department
24
<PAGE> 25
If to MMT:
Molten Metal Technology, Inc.
400-2 Totten Pond Road
Waltham Massachusetts 02154
Attention: William M. Haney, III,
President and Chief Executive Officer
Ethan E. Jacks, Esq.,
Vice President and General Counsel
17.3. Entire Agreement. This Agreement (including the Exhibits hereto)
together with the Related Agreements contains the entire understanding of the
parties hereto and thereto, except as provided below supersedes all prior
agreements and understandings relating to the subject matter hereof and thereof,
including but not limited to the Letter of Intent dated February 15, 1996. This
Agreement shall not be amended except by a written instrument hereafter signed
by all of the parties hereto. No waiver of any provision of this Agreement shall
be effective unless evidenced by a written instrument signed by the waiving
party. The parties further acknowledge and agree that, in entering into this
Agreement and the Related Agreements, they have not in any way relied upon any
oral or written agreements, statements, promises, information, arrangements,
understandings, representations or warranties, express or implied, not
specifically set forth in this Agreement or the Related Agreements.
17.4. Governing Law, Etc. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
all rights and remedies being governed by such laws, without regard to its
conflict of laws rules, and, to the extent applicable, federal laws of the
United States of America.
*
17.5. Waiver of Jury Trial. Each of Nichimen, NKP and MMT hereby
irrevocably waives any rights that they may have to a trial by jury in respect
of any litigation based upon, or arising out of, this Agreement or any of the
Related Agreements or any course of conduct, course of dealing, statements or
actions of any of them relating thereto.
17.6. Waiver of Certain Damages. Each of the parties hereto to the
fullest extent permitted by law irrevocably waives any rights that they may have
to punitive, special, exemplary or consequential damages in respect of any
litigation based upon, or arising out of, this Agreement or any Related
Agreement or any course of conduct, course of dealing, statements or actions of
any of them relating thereto.
25
*Confidential treatment has been requested for this portion of Exhibit 10.46.
<PAGE> 26
17.7. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
17.8. Assigns. This Agreement and the Related Agreements shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns. Except as provided in this Section
17.8, neither this Agreement and the Related Agreements nor the obligations of
any party hereunder or thereunder shall be assignable or transferable by such
party without the prior written consent of the other party hereto or thereto.
Any Partner may assign its rights and obligations under this Agreement and the
Related Agreements to a wholly-owned Subsidiary of such Partner provided that:
(i) such Subsidiary agrees in writing to be bound by all of the provisions of
this Agreement and the Related Agreements as if it were a signatory thereto;
(ii) such Partner executes a Limited Guaranty guaranteeing the performance by
such Subsidiary of its obligations under this Agreement and the Related
Agreements; and (iii) such Partner provides written notice of such assignment
and a fully-executed copy of the Limited Guaranty to the JV and each of the
other Partners.
17.9. No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any Person, except the Partners, any rights
or remedies under or by reason of this Agreement.
17.10. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.11. Dispute Resolution. All disputes or claims arising under or in
any way relating to this Agreement shall be subject to the Dispute Resolution
Agreement.
17.12. Construction; English Version Controlling. The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rule of strict construction will be applied
against any party. In case of any conflict between the English version and any
translated version of this Agreement or any Related Agreement, the English
version shall govern.
17.13. Severability. The invalidity or unenforceability of any
particular provision of this Agreement or any Related Agreement shall not affect
the other provisions hereof or thereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision was omitted.
17.14. Payments in U.S. Dollars. Unless otherwise expressly agreed in
writing by MMT, all payments to MMT from or in connection with the JV shall be
made in U.S. dollars.
26
<PAGE> 27
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed and delivered as a
sealed instrument as of the date and year first above written.
NICHIMEN CORPORATION
By: /s/ Shunro Itoh
------------------------------------
Name: Shunro Itoh
Title: Vice President
NKK PLANT ENGINEERING CORPORATION
By: /s/ Takeo Katsu
------------------------------------
Name: Takeo Katsu
Title: President
MOLTEN METAL TECHNOLOGY, INC.
By: /s/ William M. Haney, III
------------------------------------
Name: William M. Haney, III
Title: President and Chief Executive Officer
27
<PAGE> 28
EXHIBITS
Exhibit A - Form of Articles of Incorporation
Exhibit B - Form of CEP Plant Purchase and Sale Agreement
Exhibit C - Form of Dispute Resolution Agreement
Exhibit D - Illustration of Initial Business Paradigm
Exhibit E - Form of License Agreement
Exhibit F - Form of Limited Guaranty
<PAGE> 29
Exhibit A to Joint Venture Master Agreement
ARTICLES OF INCORPORATION
CHAPTER 1. GENERAL PROVISIONS
ARTICLE 1. (CORPORATE NAME)
The name of the Company shall be Yugen Kaisha CEREX CEP JAPAN, and in
English it shall be Yugen Kaisha (LLP) CEREX CEP JAPAN.
ARTICLE 2. (PURPOSE)
The purpose of the Company shall be to engage in the following
businesses:
1. Import, export and domestic sale of industrial and general waste
processing and recycling plants for the processing and recycling of ash from the
incineration of municipal and industrial waste;
2. Construction, operation, maintenance and consulting services for
industrial and general waste processing and recycling plants for the processing
and recycling of ash from the incineration of municipal and industrial waste;
3. Processing and recycling of ash from the incineration of municipal and
industrial waste; and
4. Any business incidental to the foregoing.
ARTICLE 3. (LOCATION OF HEAD OFFICE)
The Company's head office shall be located at 3, Benten-cho, Tsurumi-ku,
Yokohama, Kanagawa Prefecture.
ARTICLE 3-2. (METHOD OF NOTICE)
Notices of the Company to all Members shall be sent by registered mail
to those Members residing in Japan and by registered express airmail, return
receipt requested, to those Members residing outside Japan.
<PAGE> 30
ARTICLE 4. (TOTAL AMOUNT OF CAPITAL)
The total amount of the capital of the Company shall be (Y)51,000,000.
CHAPTER 2. MEMBERS AND CONTRIBUTIONS
ARTICLE 5. (NUMBERS OF SHARES AND AMOUNT THEREOF)
The capital amount of the Company shall be divided into 1,020 shares,
and the amount of one share shall be (Y)50,000.
ARTICLE 6. (NAMES, ADDRESSES AND CONTRIBUTIONS OF MEMBERS)
The names and addresses of the Members and their contributions shall be
as set forth below:
510 shares: Nichimen Corporation
2-2, Nakanoshima 2-chome, Kita-ku, Osaka
510 shares: NKK Plant Engineering Corporation
1-1, Ono-cho, Tsurumi-ku, Yokohama-shi, Kanagawa Prefecture
CHAPTER 3. GENERAL MEETING OF MEMBERS
ARTICLE 7. (GENERAL MEETINGS OF MEMBERS)
General Meetings of the Company shall be the ordinary meetings and
special meetings. An ordinary meeting shall be held in April each year, and a
special meeting shall be held whenever necessary.
ARTICLE 8. (CONVOCATION OF GENERAL MEETINGS)
1. A General Meeting shall be convened by the Director who shall be
President.
2. In order to convene a General Meeting, a notice shall be given to each
Member at least fourteen (14) days prior to the date set for the meeting, unless
each Member waives such period.
2
<PAGE> 31
ARTICLE 8-2. (CONVOCATION BY MINORITY MEMBER)
A Member or Members holding 25% or more of the shares of the Company
shall be entitled to demand that the President convene the General Meeting, by
submitting a document stating the subject of the meeting and the reasons for
convocation.
ARTICLE 9. (CHAIRMAN)
The Chairman of the General Meeting shall be the Director who shall be
President, and in the event that he or she is unable to act, another Director
shall take his or her place.
ARTICLE 10. (RESOLUTION)
1. A resolution of a General Meeting shall be adopted by the majority of
the votes held by the Members present, unless otherwise provided by law,
ordinance or these Articles of Incorporation.
2. Adoption of any resolution on the following matters requires the
affirmative vote of all of the Members of the Company:
(i) increase in share capital;
(ii) approve transfer of shares by a Member;
(iii) transfer, lease or otherwise dispose of any part of the
Company's business;
(iv) assume any security interest or other encumbrance upon any of
the property of the Company;
(v) make any expenditures to acquire fixed assets or make any
capital expenditures or other investment involving a sum in
excess of(Y)_______;
(vi) owe any monetary obligations for borrowed money or otherwise
or guarantee any obligation in an amount in excess
of(Y)_______;
(vii) loan or make other extensions of credit to any other person;
(viii) redeem any contribution of the Company, or declare any
dividends thereon;
3
<PAGE> 32
(ix) approve remuneration, bonus or retirement allowances for any
member of the Board of Directors or Statutory Auditor;
(x) enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve the Company; and
(xi) amend or supplement these Articles of Incorporation.
ARTICLE 11. (VOTING RIGHTS)
Each Member shall have one voting right for one share of the
contribution.
ARTICLE 12. (MINUTES)
The minutes shall be prepared for a General Meeting in order to keep a
record of matters discussed and the results thereof, and shall bear the names
and seals of the Chairman and all of the Directors present at the meeting.
CHAPTER 4. OFFICERS
ARTICLE 13. (NUMBER OF DIRECTORS AND STATUTORY AUDITOR)
The number of Directors of the Company shall be not more than four (4),
and the number of Statutory Auditors shall be one (1).
ARTICLE 14. (ELECTION OF DIRECTORS AND STATUTORY AUDITOR)
The Directors and Statutory Auditor of the Company shall be elected from
among the Members of the Company at a General Meeting of Members.
ARTICLE 15. (PRESIDENT AND REPRESENTATIVE DIRECTOR)
The Company shall have one (1) President, who shall be determined by
election by Directors from among them.
4
<PAGE> 33
ARTICLE 16. (REMUNERATION)
The Directors and Statutory Auditor shall not be paid any remuneration.
CHAPTER 5. ACCOUNTING
ARTICLE 17. (BUSINESS TERM)
The business term of the Company shall consist of two terms a year, from
March 1 to August 31 (first half) and from September 30 to the end of February
of the following year (second half).
ARTICLE 18. (DIVIDEND TO MEMBERS)
The dividend payable to the Members shall be paid to the Members as of
the close of each business term.
CHAPTER 6. SUPPLEMENTAL PROVISIONS
ARTICLE 19. (FIRST BUSINESS TERM)
The first business term of the Company shall be from the date of
incorporation of the Company to February 28, 1998.
ARTICLE 20. (OFFICERS AT THE TIME OF INCORPORATION)
The Officers at the time of the incorporation shall be as set forth
below:
Director: Ituro Hashimoto
Director: Katsunori Terasawa
Representative-Director: Ituro Hashimoto
Statutory Auditor: Zukitaka Nakamura
ARTICLE 21. (GOVERNING LAW)
Any matter not provided in these Articles of Incorporation shall be
governed by the Yugen Kaisha Ho (Law of Yugen Kaisha) and other laws and
ordinances.
5
<PAGE> 34
IN WITNESS WHEREOF, in order to incorporate Yugen Kaisha CEREX CEP
JAPAN, these Articles of Incorporation shall be prepared, with Members affixing
their names and seal impressions.
March 13, 1997
Member: Nichimen Corporation
Representative Director: You Watari (seal)
Member: NKK Plant Engineering Corporation
Representative Director: Takeo Katsu (seal)
(seal of Nichimen) (seal of NKK Plant)
6
<PAGE> 35
Exhibit B to Joint Venture Master Agreement*
CEP PLANT PURCHASE AND SALE AGREEMENT
This is a CEP Plant Purchase and Sale Agreement, dated as of March 31,
1997 (the "Agreement"), between Yugen Kaisha (LLP) Cerex CEP Japan , a Japanese
close corporation (the "JV"), Nichimen Corporation, a Japanese corporation
("Nichimen"), and Molten Metal Technology, Inc. a Delaware corporation ("MMT").
WHEREAS, MMT, Nichimen and NKK Plant Engineering Corporation ("NKP")
have entered into a Joint Venture Master Agreement, dated as of October 30, 1996
(as in effect from time to time, the "JV Agreement"), pursuant to which MMT,
Nichimen and NKP formed the JV to commercialize MMT's proprietary processing
technology known as Catalytic Extraction Processing (or CEP) by marketing,
demonstrating, selling, operating and sublicensing CEP facilities in Japan for
the processing of MSW Incinerator Ash produced by municipal incinerators in
Japan and under certain circumstances for the processing of Industrial
Incinerator Ash produced from the incineration of Japanese industrial waste in
Japan;
WHEREAS, in the JV Agreement, MMT and Nichimen agreed to enter into, and
MMT, Nichimen and NKP agreed to cause the JV to enter into, this Agreement;
WHEREAS, MMT and the JV have entered into a License Agreement, dated as
of March 31, 1997 (as in effect from time to time, the "License Agreement"),
pursuant to which MMT licensed to the JV the exclusive right to sell, own and
operate CEP plants in Japan for the processing of MSW Incinerator Ash produced
by municipal incinerators in Japan and under certain circumstances for the
processing of Industrial Incinerator Ash produced from the incineration of
Japanese industrial waste in Japan;
WHEREAS, the JV has agreed to purchase the first CEP plant to be used in
Japan for the processing of MSW Incinerator Ash pursuant to the terms and
conditions hereof; and
WHEREAS, pursuant to the JV Agreement, Nichimen has agreed to act as the
sole importer of CEP Plants for the JV, and accordingly has agreed to act as the
importer of the CEP plant to be purchased by the JV hereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth below and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, MMT, Nichimen and the
JV agree as follows:
1. Defined Terms
In addition to the defined terms found elsewhere in this Agreement, as
used in this Agreement the following terms shall have the following meanings:
"Construction Services" means the design, engineering, procurement and
construction services to be provided by MMT pursuant to this Agreement.
*Confidential treatment has been requested for certain portions of this Exhibit
10.46.
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"Fixed Price" has the meaning set forth in Section 3.1.
"Transportation and Logistics Services" means the importing,
transportation, logistics and related services to be provided by Nichimen
pursuant to this Agreement.
"Installation and Operations Consulting Services" means the
installation, commissioning and start-up consulting services to be provided by
MMT pursuant to this Agreement after the Project has been delivered to the
Project Site.
"Japan Performance Test" means the Performance Test to be performed by
the JV in Japan pursuant to Section 5.4.
"MMT Services" means, collectively, Construction Services, Installation
and Operations Consulting Services and Training Services.
"MSW Incinerator Ash" means the ash by-product captured in the
gas-handling train of an incinerator after the incineration of Municipal Waste
(fly ash), and the ash by-product captured at the bottom of an incinerator
(bottom ash) after the incineration of Municipal Waste.
"Municipal Waste" means waste that is typically generated by households,
retail facilities or business offices and that is processed at municipal waste
incinerators in Japan.
"Project" means the CEP Plant to be designed, engineered and constructed
by MMT pursuant to this Agreement, as more fully described on Exhibit A hereto.
"Project Site" means the initial location of the Project in Japan.
"Related Agreements" means this Agreement, the JV Agreement, the License
Agreement, the Dispute Resolution Agreement, the Articles of Incorporation, and
any Limited Guaranty, each as amended from time to time, and any other agreement
between any of the JV, Nichimen, NKP or MMT relating to the JV which specifies
that it is a Related Agreement for purposes of this Agreement.
"Running Costs" means
*
"Training Services" means the training, technical support and related
services to be provided by MMT from time to time to personnel hired or engaged
by the JV to operate the Project, both in connection with the start-up of the
Project and its continued operation.
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*Confidential treatment has been requested for this portions of Exhibit 10.46.
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"U.S. Performance Test" means the Performance Test to be performed by
MMT in the United States on the MX-1 demonstration CEP plant pursuant to Section
5.1.
Capitalized terms used without definition herein shall have the meanings
ascribed to such terms in the License Agreement.
2. Scope of Services
2.1 Pursuant to this Agreement, MMT shall:
(i) design, engineer and construct the Project until the
Project is ready for shipment from the United States
to Japan;
(ii) mount the Project components on skids which, to the
extent possible, have been designed to fit into
standard 20 foot and 40 foot containers, prepare the
Project for shipment in seaworthy export packing, and
load the Project on shipping trucks;
(ii) provide such Installation and Operations Consulting
Services as are necessary to make the Project
operational in Japan, to the mutual satisfaction of
the JV and MMT; and
(iii) provide such initial and ongoing Training Services as
are necessary, in MMT's sole judgment, to ensure that
the personnel hired or engaged by the JV to operate
the Project are technically proficient.
2.2 Pursuant to this Agreement, Nichimen shall provide all
necessary services and logistics for the importation of the Project into Japan,
including land and ocean transportation, marine insurance and customs clearance.
Prior to the time that the Project is loaded into containers for shipment,
Nichimen and NKP shall have the right to conduct a reasonable inspection of the
Project and the components thereof. From the time that Nichimen takes possession
of the Project for shipment until it is delivered to the Project Site, Nichimen
shall be responsible for any damage which may occur to the Project.
3. Price and Payment Terms
3.1 MMT shall perform the Construction Services for a fixed price of
seven million nine hundred thousand dollars ($7,900,000) (the "Fixed Price"),
free on truck "ex works," subject to changes in the Project or the scope of the
Construction Services pursuant to Article 4. The following amounts shall become
payable to MMT for the Construction Services in accordance with the following
schedule:
<TABLE>
<CAPTION>
Anticipated
Event Payment Date
----- ------- -----------
<S> <C> <C>
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C> <C>
Upon execution of this Agreement $1,975,000 November 1996
Upon start-up of the MX-1 demonstration
CEP plant being constructed by MMT in
Fall River, Massachusetts $1,580,000 May 1997
Upon completion of Performance Test on
MX-1 demonstration CEP plant $1,975,000 October 1997
Upon shipment of the Project from the U.S. $ 790,000 December 1997
Upon completion of Performance Test in Japan $1,580,000 March 1998
</TABLE>
The dates set forth in the foregoing table are anticipated dates and MMT shall
not be deemed to be in breach of this Agreement or otherwise liable to the JV or
Nichimen for any costs incurred by either of them as a result of MMT's failure
to meet any such anticipated date, provided that if the Project is not made
available for shipment from the United States by January 31, 1998, the JV shall
have the right to negotiate a commercially reasonable penalty for any period of
delay after January 31, 1998. The foregoing provision shall not apply if any
such delay is the result of any action taken by MMT, with the consent of
Nichimen and NKP.
3.2 Installation and Operations Consulting Services and Training
Services shall be provided on the terms and at the costs set forth in Section
8.6 of the License Agreement.
3.3 Payment for Construction Services shall be made within two (2)
days of the date set forth on the payment schedule in Section 3.1. Payment for
Installation and Operations Consulting Services and Training Services are
fifteen (15) days from the date of MMT's invoice.
3.4 Nichimen shall perform the Transportation and Logistics Services for
a trading commission equal to *
4. Changes and Modifications
Upon mutual agreement of the JV and MMT, the scope of the Project or the
Construction Services may be changed. Any such change will be evidenced in a
written amendment to or other modification to this Agreement, signed by all of
the parties. If any such changes will cause the price of the Project to exceed
the Fixed Price, such amendment shall reflect the new Fixed Price for the
Project, as so changed.
5. Performance Tests
5.1 During 1997, MMT shall perform a performance test (the "U.S.
Performance Test") on the MX-1 demonstration CEP plant in the United States over
a seven (7) day period
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*Confidential treatment has been requested for this portions of Exhibit 10.46.
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(the "U.S. Test Period") to determine whether the MX-1 meets the following
criteria (the "U.S. Performance Criteria"):
*
5.2 During the U.S. Test Period, MMT shall collect samples and
measurements to determine whether throughput, product specifications and utility
consumption figures are being met. If the performance of the MX-1 as determined
by the average of these measurements collected during the U.S. Test Period meets
the specifications set forth in the U.S. Performance Criteria, the U.S.
Performance Test shall be deemed satisfactorily completed, and MMT shall
thereupon give written notice to that effect to the JV, Nichimen and NKP. If the
JV agrees that the MX-1 has met the U.S. Performance Test, the JV shall execute
and return to MMT one copy of an acceptance letter to be provided by MMT. If the
JV does not agree that the MX-1 has met the U.S. Performance Test, the JV shall
notify MMT of such disagreement within ten (10) days from receipt of MMT's
notice, stating the specific reasons therefor. The JV shall be deemed to have
accepted the results of the U.S. Performance Test if the JV has failed to
respond to MMT's notice within the foregoing ten-day period.
5.3 If the performance of the MX-1 during the U.S. Performance Test
does not meet the U.S. Performance Criteria, MMT, at its own expense, shall make
such changes in the MX-1 as it deems necessary to make the MX-1 meet the U.S.
Performance Criteria. Thereafter, the U.S. Performance Test shall be repeated as
required until such time as the performance of the MX-1 has met the U.S.
Performance Criteria.
5.4 As soon as practicable after the Project has been installed at
the Project Site, the JV, with the assistance of NKP, shall perform a
performance test (the "Japan Performance Test") in Japan over a seven (7) day
period (the "Japan Test Period") to determine whether the Project meets the
following criteria (the "Japan Performance Criteria"):
*
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*Confidential treatment has been requested for this portions of Exhibit 10.46.
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*
5.5 During the Japan Test Period, the JV shall collect samples and
measurements to determine whether throughput, product specifications and utility
consumption figures are being met. If the performance of the Project as
determined by the average of these measurements collected during the Japan Test
Period meets the specifications set forth in the Japan Performance Criteria, the
Japan Performance Test shall be deemed satisfactorily completed, and the JV
shall thereupon give written notice to that effect to MMT, Nichimen and NKP.
5.6
*
6. Equipment Warranty
6.1
*
6.2 The warranty set forth in Section 6.1 shall not apply to (i)
items designed to be consumed or subject to normal wear while undergoing normal
operation, including but not limited to refractories and tuyeres, or (ii) any
equipment which, after delivery, has been subject to abuse, accident,
alterations by anyone other than persons authorized by MMT, improper storage or
installation, misuse in its applications, improper maintenance or failure to
observe the operating instructions.
6.3 MMT's obligation under the warranty set forth in Section 6.1
shall be limited solely to repair or replacement of defective products. Before
MMT undertakes any obligation to
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*Confidential treatment has been requested for this portions of Exhibit 10.46.
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remedy defects, the JV must give written notice of its claim within fifteen (15)
days after discovery within the warranty period. The decision on the remedy to
any claim will rest solely with MMT. In no event shall MMT's liability for any
and all losses and damages to the JV resulting from defective equipment exceed
the cost of repair and/or replacement of the defective parts. MMT shall use
attempt to cause the manufacturer of any repaired or replaced equipment to
provide an extended warranty for such equipment.
7. Limitations; Exclusive Remedy
EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 5 AND ARTICLE 6, MMT MAKES NO
WARRANTY, REPRESENTATION OR GUARANTEE OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
*
IN NO EVENT SHALL MMT BE LIABLE FOR INDIRECT OR CONSEQUENTIAL DAMAGES INCLUDING,
WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS OR DOWN TIME OF THE PROJECT.
8. Monitoring By MMT; Access to Project Site; Operation of Project
At any time and from time to time after the execution of this Agreement,
upon the request of MMT, the JV shall permit MMT to have access to the Project
and the Project Site for the purpose of (i) performing such MMT Services as are
required to be performed at the Project Site; (ii) observing the JV's operation
of the Project; (iii) ensuring that the JV is operating the Project properly and
within the safety parameters established by MMT and in conformance with all
applicable permits, laws and regulations; and (iv) any other reasonable purpose.
At all times, the JV shall use and operate the Project in a manner consistent
with the terms and conditions of the License Agreement.
9. Safety
With respect to any MMT Services performed by MMT on the Project Site,
the following provisions shall apply:
9.1 The safety of all persons employed or engaged by MMT who enter
upon the Project Site or other property of the JV for reasons relating to this
Agreement ("MMT's Agents"), shall be the sole responsibility of the JV, provided
that MMT shall take reasonable measures and precautions to prevent injuries to
or the death of any of MMT's Agents. MMT
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*Confidential treatment has been requested for this portions of Exhibit 10.46.
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shall confine MMT's Agents to that portion of the Project Site or the JV's
premises where the MMT Services are to be performed.
9.2 The JV shall ensure that MMT's agents are provided with all
safeguards and warnings necessary to protect such persons against any conditions
on the Project Site or the JV's premises which could be dangerous and to prevent
accidents of any kind whenever MMT Services are being performed. The JV shall
provide MMT's Agents with any and all applicable safety rules, policies and
procedures in effect on the Project Site or the JV's premises.
10. Permits and Licenses
The JV shall secure and pay for all licenses and permits which may be
required to comply fully with all laws, ordinances, and regulations of the
proper public authorities in connection with the installation and operation of
the Project, and shall operate the Project in accordance with such licenses,
permits, laws, ordinances and regulations.
11. Indemnity
11.1 The JV agrees to indemnify, defend and save harmless MMT, its
affiliates, agents and subcontractors, and their respective officers, employees,
or agents (collectively, the "Indemnitees"), from and against all claims,
demands, actions, damages, actions, causes of action, losses, costs, expenses or
penalties (including costs of defense, settlement and reasonable attorney's
fees), including but not limited to death or bodily injury to any person,
destruction of property of whatever kind, or any contamination of or adverse
effect on the environment or any violation of environmental laws, regulations or
orders (collectively, "Losses"), which arise out of or in connection with (a)
the ownership, use or operation of the Project by the JV; (b) any breach by the
JV of any term or provision of this Agreement; and (c) the JV's failure to
comply with any applicable permit, license, law, rule, regulation, ordinance or
order governing the operation of the Project. In connection with any demands,
claims or any other legal proceedings covered by this Section 11.1, the JV shall
have the right to control the defense thereof, provided that MMT retains the
right to be represented, at its sole option, by attorneys of its own selection.
The exercise of this right to select its own attorneys will in no way detract
from or release the JV from its obligation to indemnify and hold MMT harmless
hereunder.
11.2
*
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*Confidential treatment has been requested for this portions of Exhibit 10.46.
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12. Insurance
12.1 After delivery of the Project to the JV, the JV will maintain, at
its expense, property and primary and third party liability insurance for the
Project and such other insurance as shall be required by Japanese law or
agreement of the Board of Directors of the JV. The Board of Directors shall
determine the appropriate insurance to be maintained by the JV
12.2 All such insurance policies shall name MMT as an additional
insured. The JV agrees to furnish to MMT certificates of insurance, issued by
such insurance companies, which shall provide that the insurance company agrees
to notify MMT in writing ten (10) days in advance of any material change in, or
cancellation of, any of the insurance described in such certificates. The
obligation of the JV to provide the insurance hereinabove specified shall not
limit in any way the liability or obligations assumed by MMT elsewhere in this
Agreement.
13. Termination; Exclusive Remedy for Breach
13.1 MMT may terminate this Agreement in the event of a breach by the
JV of the provisions of Articles 3, 8, 9, or 12 hereof.
13.2
*
14. Miscellaneous
14.1. All notices, demands and other communications hereunder shall be
in writing or by written telecommunication, and shall be deemed to have been
duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid or if sent by overnight courier or sent by
written telecommunication, as follows:
If to the JV to:
c/o NKK Plant Engineering Corporation
3 Benten-Cho, Tsurumi-ku
Yokohama, Japan 230
Attention: Kosaku Watando,
Director, R&D Department
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*Confidential treatment has been requested for this portions of Exhibit 10.46.
9
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If to Nichimen to:
Nichimen Corporation
1-23, Shiba 4-Chome
Minato-ku, Tokyo, Japan 108
Attention: Ituro Hashimoto,
Deputy Senior General Manager
Aircraft, Vessels & Industrial Machinery Division
If to MMT:
Molten Metal Technology, Inc.
400-2 Totten Pond Road
Waltham Massachusetts 02154
Attention: William M. Haney, III,
President and Chief Executive Officer
Ethan E. Jacks, Esq.,
Vice President and General Counsel
14.2 This Agreement (including the Exhibits hereto) together with the
Related Agreements contains the entire understanding of the parties hereto and
thereto, except as provided below supersedes all prior agreements and
understandings relating to the subject matter hereof and thereof, including but
not limited to the Letter of Intent dated February 15, 1996. This Agreement
shall not be amended except by a written instrument hereafter signed by all of
the parties hereto. No waiver of any provision of this Agreement shall be
effective unless evidenced by a written instrument signed by the waiving party.
The parties further acknowledge and agree that, in entering into this Agreement
and the Related Agreements, they have not in any way relied upon any oral or
written agreements, statements, promises, information, arrangements,
understandings, representations or warranties, express or implied, not
specifically set forth in this Agreement or the Related Agreements.
14.3 This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York, all rights and remedies
being governed by such laws, without regard to its conflict of laws rules, and,
to the extent applicable, federal laws of the United States of America.
14.4 Each of the JV, Nichimen and MMT hereby irrevocably waives any
rights that they may have to a trial by jury in respect of any litigation based
upon, or arising out of, this agreement or any of the Related Agreements or any
course of conduct, course of dealing, statements or actions of any of them
relating thereto.
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14.5 The headings of sections and subsections are for reference only
and shall not limit or control the meaning thereof.
14.6 This Agreement and the Related Agreements shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. Neither this Agreement and the Related
Agreements nor the obligations of any party hereunder or thereunder shall be
assignable or transferable by such party without the prior written consent of
the other party hereto or thereto.
14.7 Except as otherwise expressly provided herein, nothing herein
expressed or implied is intended or shall be construed to confer upon or to give
any Person, except the Partners, any rights or remedies under or by reason of
this Agreement.
14.8 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
14.9 All disputes or claims arising under or in any way relating to
this Agreement shall be subject to the Dispute Resolution Agreement.
14.10 The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rule of
strict construction will be applied against any party. In case of any conflict
between the English version and any translated version of this Agreement or any
Related Agreement, the English version shall govern.
14.11 The invalidity or unenforceability of any particular provision of
this Agreement or any Related Agreement shall not affect the other provisions
hereof or thereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision was omitted.
14.12 The provisions of Article 5, 6, 8, 9, 10, and 11 of the License
Agreement are specifically incorporated into and made a part of this Agreement.
14.13 Unless otherwise expressly agreed in writing by MMT, all payments
to MMT under this Agreement shall be made in U.S. dollars.
14.14 MMT and the JV acknowledge that the terms of this Agreement,
including the performance test, warranty, limitation of liability and
indemnification provisions hereof, have been agreed upon solely in connection
with the sale of the Project contemplated by this Agreement. Such terms shall
not, unless the parties otherwise agree, constitute precedents for the terms of
agreements for sales of commercial CEP Plants to be made by MMT to the JV.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
by their duly authorized representatives as of the date first set forth herein.
YUGEN KAISHA (LLP) CEREX CEP JAPAN
By:
---------------------------------------
Ituro Hashimoto
President-Director
NICHIMEN CORPORATION
By:
---------------------------------------
Name:
Title:
MOLTEN METAL TECHNOLOGY, INC.
By:
---------------------------------------
William M. Haney, III
President and Chief Executive Officer
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Exhibit C to Joint Venture Master Agreement*
DISPUTE RESOLUTION AGREEMENT
THIS DISPUTE RESOLUTION AGREEMENT is made and entered into as of this
31st day of March, 1997 by and among Nichimen Corporation, a Japanese
corporation ("Nichimen"), NKK Plant Engineering Corporation, a Japanese
corporation ("NKP"), Molten Metal Technology, Inc., a Delaware corporation
("MMT"), and Yugen Kaisha (LLP) Cerex CEP Japan, a Japanese close corporation
(the "JV").
WHEREAS, Nichimen, NKP and MMT are parties to a Joint Venture Master
Agreement dated as of October 30, 1996 (as in effect from time to time, the "JV
Agreement"), pursuant to which they have agreed to form the JV in order to
commercialize CEP by marketing, demonstrating and operating CEP Plants, and
sublicensing CEP technology to Nichimen, NKP and appropriate third parties to
permit them to sell and operate CEP Plants, for the processing of MSW
Incinerator Ash produced from the incineration of Japanese municipal waste in
Japan; and
WHEREAS, in the JV Agreement, Nichimen, NKP and MMT agreed to enter
into, and to cause the JV to enter into, this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth below and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Defined terms used in this Agreement without
definition have the meanings given to such terms in the JV Agreement. In
addition, the following defined terms have the following meanings:
"Agreement" means this Dispute Resolution Agreement, including the
preamble and premises and any exhibits and schedules hereto, as in effect from
time to time.
"Covered Disputes" has the meaning set forth in Section 2.
"Designated Representatives" has the meaning set forth in Section 3.3.
"Mediator" has the meaning set forth in Section 3.4.
"Notice Date" has the meaning set forth in Section 3.1.
"Noticed Dispute" has the meaning set forth in Section 3.1.
"Permitted Litigation" has the meaning set forth in Section 3.2.
"Related Agreements" means this Agreement, the JV Agreement, the
License Agreement, the Charter Documents, the CEP Plant Agreement, and any
Limited Guaranty, each as amended
* Confidential treatment has been requested for certain portions of this Exhibit
10.46.
<PAGE> 48
from time to time, and any other agreement between any of the JV, Nichimen, NKP
or MMT relating to the JV which specifies that it is a Related Agreement for
purposes of this Agreement.
"Requesting Party" has the meaning set forth in Section 3.1.
"Settlement Information" has the meaning set forth in Section 3.5.1.
2. Covered Disputes. The dispute resolution procedures provided for in
this Agreement shall apply to all disputes which may arise among any of the
parties hereto with regard to any aspect of the interpretation or performance of
any of the Related Agreements, or any aspect of or circumstance relating to the
negotiations, preparation, execution of any of the Related Agreements or any
aspect of the relationship contemplated by the JV Agreement. Such disputes
subject to this Agreement are referred to herein as "Covered Disputes."
3. Dispute Resolution Procedures.
3.1. Notice and Invocation of Mediation Procedures. The procedures
provided for by this Agreement shall not apply to any Covered Dispute unless and
until either the JV, Nichimen, NKP or MMT (a "Requesting Party") shall have
given written notice invoking the mediation procedures contained herein to each
other party to the Covered Dispute. Such notice shall specify in reasonable
detail the dispute to which it is intended to apply. Such dispute is hereinafter
referred to as a "Noticed Dispute." The effective date of delivery of such
notice is referred to herein as the "Notice Date."
3.2. Stay of Litigation Upon Election of Mediation; Tolling. (a) Each
of the parties hereto agrees that it will not commence any litigation relating
to any Covered Dispute unless prior thereto such party has engaged in the
mediation procedures contemplated by this Section 3 with respect to such Covered
Dispute, except that any party shall be entitled to exercise any remedy in
connection with such Covered Dispute if such party reasonably believes that a
statute of limitations or other similar statute or doctrine will bar its claim
or claims unless a judicial proceeding is commenced or that its rights cannot be
protected other than through immediate injunctive or equitable relief
(collectively, "Permitted Litigation").
(b) In the event that the Requesting Party delivers a notice of a
Noticed Dispute, each party hereto shall refrain from commencing any litigation
relating to the Noticed Dispute against any other party to this Agreement,
except for any Permitted Litigation. Such stay shall remain in effect until the
earlier of (i) sixty (60) days after the Notice Date, (ii) completion of the
dispute resolution process without settlement of the Noticed Dispute, or (iii)
written agreement by all parties to discontinue the dispute resolution
procedures. If any litigation (other than Permitted Litigation) is pending at
the time of the notice, the parties shall each take appropriate steps, including
all necessary filings with the court having jurisdiction over such litigation to
suspend such litigation for the period of the stay provided for by this Section
3.2. During the pendency of the stay of litigation provided for in this Section
3.2, all statutes of limitation which may be applicable to the Noticed Dispute
shall be tolled as between or among the parties hereto.
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3.3. Negotiation. Within five (5) days after the Notice Date, each
party to such Noticed Dispute shall designate in writing to the other parties
the name of one of its senior executive officers who shall be its "Designated
Representative" in the dispute resolution proceedings. Designation by any party
of its Designated Representative shall constitute a representation by such party
that its Designated Representative has full power and authority to bind such
party to any compromise of the Noticed Dispute or any release of rights in
connection therewith. The Designated Representatives shall negotiate in good
faith for ten (10) days to resolve such Noticed Dispute.
3.4. Third Party Mediator. In the event that the Designated
Representatives are unable to resolve the Noticed Dispute, then within twenty
(20) days after the Notice Date, the parties shall mutually appoint a neutral
third party mediator (the "Mediator"). In selecting the Mediator, the parties
shall select someone with substantial experience in corporate and partnership
legal matters. If the parties are unable to agree upon the Mediator by the 20th
day following the Notice Date, any party may obtain the appointment of the
Mediator by Endispute/J.A.M.S. or its successor (or if such organization shall
no longer exist or shall refuse to act) by any court of competent jurisdiction.
Thereafter the parties to such Noticed Dispute shall use good faith efforts for
thirty (30) days to mediate the Noticed Dispute using the services of the
Mediator. In the event the parties have not resolved the Noticed Dispute within
such thirty (30) day period, the dispute resolution procedures shall be deemed
completed, and any litigation stay shall terminate.
3.5. Confidentiality; Use in Litigation.
3.5.1. All statements, disclosures, submissions, and other
communications made by a party in the course of mediation of a Noticed Dispute
(collectively, "Settlement Information") shall be confidential information and
shall not be disclosed to any Person other than the employees, officers, counsel
and consultants directly involved in the Noticed Dispute, and each party in
receipt of Settlement Information shall require all persons to whom it is
permitted to disclose Settlement Information to make a similar nondisclosure
commitment for the benefit of and enforceable by the party providing Settlement
Information. Such nondisclosure obligation shall remain in effect for a period
of six years from the date of disclosure.
3.5.2. Prior to commencing the mediation process, the parties
shall require the Mediator to sign a confidentiality agreement in which he or
she commits, for the benefit of and on a basis which is enforceable by each
party and its respective Affiliates, that he or she will hold the Settlement
Information confidential and not disclose it to any party other than the parties
and their respective Affiliates, counsel and advisors and agents involved in the
Noticed Dispute except under order of disclosure by a court of competent
jurisdiction or pursuant to a written authorization signed by the party or
parties providing the Settlement Information which is to be disclosed. Each
party agrees that it will not and it will not cause or permit any of its
Affiliates to seek a court order requiring testimony in any court or other
proceeding by the Mediator, with respect to any matter.
3
<PAGE> 50
3.5.3. All Settlement Information shall be deemed to be statements
made in the furtherance of settlement negotiations and, as such, shall not be
admissible in any litigation or proceeding; provided, that, no party shall be
prevented from obtaining discovery concerning or offering evidence of facts
disclosed in Settlement Information from sources other than disclosures made in
mediation, to the extent otherwise permissible by law.
4. Fees and Expenses of Mediator. The fees and expenses of the
Mediator shall be divided equally among Nichimen, NKP and MMT.
5. Scope of Obligation; Specific Performance. The parties are
agreeing to utilize the settlement procedures outlined above in a good faith
effort to provide for a speedy and economical means of resolving disputes.
However, the parties agree that no party shall be in default or in breach hereof
for failure to adhere to any of the procedures outlined above except that (i)
compliance with the procedures hereof in full when and as required shall be a
condition precedent to the other party's obligation to continue its
participation in the negotiation and mediation procedures and (ii) either party
may obtain an order of specific performance in respect of the other party's
obligation under Sections 3.2, 3.5.1, 3.5.2, and 3.5.3 and an award of money
damages in respect of Section 4. In addition, nothing herein shall be construed
to require any party to agree to any particular settlement of a dispute. It is
the intention of the parties that this Agreement be purely procedural in nature.
Its purpose is to ensure that the possibilities of settlement are fully explored
by the parties with the aid of a neutral mediator before either party resorts to
or continues the prosecution of litigation.
6.
*
7. Miscellaneous.
7.1. Entire Agreement. This Agreement together with the Related
Agreements constitutes the entire agreement between the parties with respect to
the subject matter hereof and thereof and merges and replaces all prior
negotiations, discussions, offers, representations, warranties, covenants, and
agreements of the parties in respect of such subject matter.
7.2. Amendment; Waiver. This Agreement may be amended only by a written
instrument signed by all parties. The failure of any party to insist on one or
more occasions upon strict performance by the other party of any its obligations
hereunder shall not constitute a waiver, release, or amendment of such party's
right to insist upon strict performance of such obligation on future occasions.
- --------
* Confidential treatment has been requested for this portion of Exhibit 10.46.
4
<PAGE> 51
7.3. Notices. Notices given to either of the parties pursuant to, or in
connection with, this Agreement shall be effective upon delivery and shall be
transmitted by manual delivery, certified or registered mail with return receipt
requested or express courier at the address set forth below in respect of each
party:
If to Nichimen to:
Nichimen Corporation
1-23, Shiba 4-Chome
Minato-ku, Tokyo, Japan 108
Attention: Ituro Hashimoto,
Deputy Senior General Manager
Aircraft, Vessels & Industrial Machinery Division
If to NKP to:
NKK Plant Engineering Corporation
3 Benten-Cho, Tsurumi-ku
Yokohama, Japan 230
Attention: Kosaku Watando,
Director, R&D Department
If to MMT to:
Molten Metal Technology, Inc.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
Attention: William M. Haney, III, President
and Chief Executive Officer
Ethan E. Jacks, Esq., Vice President
and General Counsel\
If to the JV to:
c/o NKK Plant Engineering Corporation
3 Benten-Cho, Tsurumi-ku
Yokohama, Japan 230
Attention: Kosaku Watando,
Director, R&D Department
5
<PAGE> 52
7.4. Governing Law, Etc. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
all rights and remedies being governed by such laws, without regard to its
conflict of laws rules. MMT hereby agrees that any action brought by it against
Nichimen, NKP or the JV shall be brought in Tokyo, Japan. Each of Nichimen, NKP
and the JV hereby agrees that any action brought by it against MMT shall be
brought in New York, New York.
7.5. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY RIGHTS THAT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS OR
ACTIONS OR ANY OF THEM RELATING THERETO.
7.6. Waiver of Certain Damages. EACH OF THE PARTIES HERETO TO THE
FULLEST EXTENT PERMITTED BY LAW IRREVOCABLY WAIVES ANY RIGHTS THAT IT MAY HAVE
TO PUNITIVE, EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY
LITIGATION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS OR ACTIONS OF ANY OF THEM RELATING
THERETO.
7.7. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
7.8. Assigns. This Agreement and the Related Agreements shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns. Neither this Agreement and the Related
Agreements nor the obligations of any party hereunder or thereunder shall be
assignable or transferable by such party without the prior written consent of
the other party hereto.
7.9. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.10 Construction; English Version Controlling. The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rule of strict construction will be applied
against any party. In case of any conflict between the English version and any
translated version of this Agreement, the English version shall govern.
7.11 Severability. The invalidity or unenforceability of any particular
provision of this Agreement or any Related Agreement shall not affect the other
provisions hereof or thereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision was omitted.
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<PAGE> 53
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first set forth above.
NICHIMEN CORPORATION
By: ______________________________________________
Ituro Hashimoto
Deputy Senior General Manager
Aircraft, Vessels & Industrial Machinery
Division
NKK PLANT ENGINEERING CORPORATION
By: ______________________________________________
Kosaku Watando
Director, R&D Department
MOLTEN METAL TECHNOLOGY, INC.
By: ______________________________________________
William M. Haney, III
President and Chief Executive Officer
YUGEN KAISHA (LLP) CEREX CEP JAPAN
By: ______________________________________________
Ituro Hashimoto
President-Director
7
<PAGE> 54
Exhibit D to Joint Venture
Master Agreement
INITIAL BUSINESS PARADIGM
<TABLE>
<CAPTION>
<S> <C>
(JAPAN) (USA)
___(End User Contract)__ __(Sub-license)___ ____________________________________(License)______________________
| || | | |
____|___________ ___||_______ _______|____|___ __________________ ______|_________
Client Contractor J/V Importer (Nichimen) Supplier (MMT)
________________ __________ ________________ __________________ ________________
Local Government________ NKP _____CEP Plant (Hard)_______ CEP Plant (Hard)_______________________________CEP Plant (Hard)
Private Sector Nichimen | CEP Plant (Soft) CEP Plant (Soft) | CEP Plant (Soft)
________________ __________ | ________________ __________________ | _________________
| |
| (Free on Truck Ex Works) | (FOB MMT's Factory)
| | (Free on Truck)
| |
| __________________ |
| NKP ____________|_________________
| __________________ Inland Transportation (JPN/USA)
| Engineering (Part) Ocean Freight/shipping Charge
|__ Civil & Building Marine Insurance
Installation Import Duty, etc. (if any)
__________________ _______________________________
</TABLE>
<PAGE> 55
Exhibit E to Joint Venture Master Agreement*
LICENSE AGREEMENT
This is a License Agreement, dated as of March 31, 1997 (the
"Agreement"), by and between Molten Metal Technology, Inc., a Delaware
corporation ("MMT"), and Yugen Kaisha (LLP) Cerex CEP Japan, a Japanese close
corporation (the "JV").
WHEREAS, MMT, Nichimen Corporation ("Nichimen"), and NKK Plant
Engineering Corporation ("NKP") have entered into a Joint Venture Master
Agreement, dated as of October 30, 1996 (as in effect from time to time, the "JV
Agreement"), pursuant to which MMT, Nichimen and NKP formed the JV to
commercialize MMT's proprietary processing technology known as Catalytic
Extraction Processing (or CEP) by marketing, demonstrating, selling, operating
and sublicensing CEP facilities in Japan for the processing of MSW Incinerator
Ash produced by municipal incinerators in Japan and under certain circumstances
for the processing of Industrial Incinerator Ash produced from the incineration
of Japanese industrial waste in Japan;
WHEREAS, in the JV Agreement, MMT agreed to enter into, and MMT,
Nichimen and NKP agreed to cause the JV to enter into, this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth below and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, MMT and the JV agree
as follows:
Article 1
Defined Terms
In addition to the defined terms found elsewhere in this Agreement or
the JV Agreement, as used in this Agreement the following terms shall have the
following meanings:
"Advisors" means, with respect to any Person, any of such Person's
attorneys, accountants, lenders or consultants.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with, such Person. As used in
this Agreement, "control" (including, with its correlative meanings, "controlled
by" and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Board of Directors" means the board of directors maintained pursuant
to the JV Agreement.
"Catalytic Extraction Processing" or "CEP" means the processes, methods
and means and equipment, apparatus and systems (including all intellectual and
intangible and tangible property
* Confidential treatment has been requested for certain portions of this Exhibit
10.46.
<PAGE> 56
associated therewith and including all aspects of accepting Feedstocks,
reactions within a CEP Plant, and handling Recovered Resources) directed to the
processing of Feedstocks by introducing the Feedstocks to a processing vessel
containing liquefied metal.
"CEP Plant" means the plant, equipment and other facilities necessary
to perform, operate and maintain CEP on a commercial basis (or, in the case of
any so-called "demonstration" CEP Plant, on the basis generally provided in the
applicable demonstration program).
"Confidential Information" means, as applicable, JV Confidential
Information and MMT Confidential Information.
"Dispute Resolution Agreement" means the Dispute Resolution Agreement
dated as of the date hereof between MMT, Nichimen, NKP and the JV, as in effect
from time to time.
"Employee Non-Disclosure Agreement" means an employee non-disclosure
and invention agreement in the form attached hereto as Annex A or in such other
form as is approved from time to time by the Board of Directors.
"Exclusive Market" means the processing in Japan of MSW Incinerator Ash
produced from the incineration in Japan of Municipal Waste generated in Japan.
"Failure Notice" has the meaning set forth in Section 5.6.
"Feedstocks" means the wastes, industrial by-products and other
materials to be processed by a CEP Plant.
"Gross Revenues" means the JV's revenues in any fiscal year.
"Improvements" shall mean any improvements, developments, updates,
upgrades, enhancements, additions, revisions, corrections, fixes and other
modifications to the Licensed Property as it then exists that MMT or the JV may
acquire, discover, invent, originate, conceive or have a right to develop or
manufacture, whether or not the same is patentable, commercially useful or
reducible to writing or practice.
"Industrial Incinerator Ash" means the ash by-products remaining after
the incineration of Industrial Waste, other than any ash by-products which are
radioactive or have been produced from the incineration of radioactive
industrial waste.
"Industrial Waste" means waste that is generated by industrial
facilities and that is processed at industrial waste incinerators in Japan.
"Infringements" has the meaning set forth in Section 9.1.
"Intellectual Property" means all patents, inventions, patent
applications, patent rights, trademarks, trademark registrations, trade names,
brand names, all other names and slogans
2
<PAGE> 57
embodying business or product goodwill (or both), copyright registrations,
copyrights (including those in computer programs, software, including all source
code and object code, development documentation, programming, drawings,
specifications and data), software, trade secrets, know-how (including operating
procedures, scheduling procedures and process regimes), mask works and
industrial designs, whether or not subject to statutory registration or
protection.
"JV Confidential Information" means any confidential or proprietary
information of any type of the JV.
"JV Term" means the period of time that the JV is in existence pursuant
to the JV Agreement.
"Licensed Copyrights" means any and all copyright protection of MMT
covering any of the Licensed Software Programs, the Licensed Know-How or any
Improvements thereto.
"Licensed Know-How" means any information possessed as of the date
hereof by MMT or hereafter acquired by, or, subject to the restrictions of
Section 2.2, licensed to MMT, or developed by MMT at any time during the term of
this Agreement and necessary for the use of CEP in the Market, whether or not
considered proprietary and whether or not subject to statutory registration or
protection, including, without limitation, inventions disclosed by the Licensed
Patent Applications, invention records, experimental and other engineering
reports, CEP Plant designs, production specifications, raw material
specifications, quality control reports and specifications, drawings,
photographs, models, tools and parts, manufacturing and production techniques,
processes and methods.
"Licensed Patent Applications" means the Japanese patent applications
listed on Annex B hereto and any Japanese patent applications filed or acquired
by or, subject to the restrictions set forth in Section 2.2, licensed to MMT,
during the JV Term, which are necessary for the use of CEP in the Market.
"Licensed Patents" means the Japanese patents listed on Annex C hereto
and any Japanese patents granted to, acquired by, or, subject to the
restrictions set forth in Section 2.2, licensed to MMT, during the JV Term,
which are necessary for the use of CEP in the Market.
"Licensed Property" means the Licensed Patents, the Licensed Patent
Applications, the Licensed Trademarks, the Licensed Software Programs, the
Licensed Copyrights and the Licensed Know-How.
"Licensed Software Programs" means any computer programs the copyrights
to which are currently owned by MMT or, subject to the restrictions set forth in
Section 2.2, acquired by or licensed to MMT during the JV Term, which are
necessary for the use of CEP in the Market.
"Licensed Trademarks" means the Japanese Trademarks listed on Annex D
hereto and any Japanese Trademarks developed or acquired by or, subject to the
restrictions set forth in
3
<PAGE> 58
Section 2.2, licensed to MMT, during the JV Term, which are necessary for the
use of CEP in the Market.
"Market" means the Exclusive Market and the Non-Exclusive Market,
collectively.
"Market Feedstocks" means MSW Incinerator Ash produced from the
incineration in Japan of Municipal Waste generated in Japan and under certain
circumstances Industrial Incinerator Ash produced from the incineration in Japan
of Industrial Waste generated in Japan.
"MMT Confidential Information" means any confidential or proprietary
information of any type of MMT or furnished by MMT, including but not limited to
any confidential or proprietary portion of the Licensed Property.
"MMT Infringement Claim" has the meaning set forth in Section 9.2.
"MSW Incinerator Ash" means the ash by-product captured in the
gas-handling train of an incinerator after the incineration of Municipal Waste
(fly ash), and the ash by-product captured at the bottom of an incinerator
(bottom ash) after the incineration of Municipal Waste.
"Municipal Waste" means waste that is typically generated by
households, retail facilities or business offices and that is processed at
municipal waste incinerators in Japan.
"Net Income" means the net income of the JV determined in accordance
with generally accepted accounting principles as applied in Japan, including
depreciation and amortization expense, but excluding any taxes paid or accrued
during the relevant period.
"Non-Exclusive Market" means the processing in Japan of Industrial
Incinerator Ash produced from the incineration of Industrial Waste generated in
Japan.
"Permitted Feedstocks" means MSW Incinerator Ash and Industrial
Incinerator Ash and other Feedstocks added as "Permitted Feedstocks" to the
relationship contemplated by this Agreement by the Board of Directors.
"Person" means any individual, partnership, corporation, association,
trust, joint venture, limited liability company, unincorporated organization and
any government, governmental department or agency or political subdivision
thereof.
"Quality Standard" has the meaning set forth in Section 5.6.
"Recovered Resources" means the elements and compounds produced by a
CEP Plant (whether or not produced through the use of reactants) that are
suitable for use or sale.
"Subsidiary" means a corporation, company or other entity:
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<PAGE> 59
(i) more than fifty percent (50%) of whose outstanding
shares or securities (representing the right to vote
for the election of directors or other managing
authority) are, now or hereafter, owned or
controlled, directly or indirectly, by a party
hereto, but such corporation, company or other entity
shall be deemed to be a Subsidiary only so long as
such ownership or control exists; or
(ii) which does not have outstanding shares or securities,
as may be the case in a partnership, joint venture or
unincorporated association, but more than fifty
percent (50%) of whose ownership interests
representing the right to make the decisions for such
corporation, company or other entity is now or
hereafter, owned or controlled, directly or
indirectly, by a party hereto, but such corporation,
company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control
exists.
"Trademarks" shall mean:
(i) all of the trademarks, service marks, trade names,
designs, logos, indicia, corporate names, company
names, business names, fictitious names, trade
styles, elements of package or trade dress, and/or
other source and/or other service identifiers and
general intangibles of like nature which are now or
in the future adopted, acquired, owned, held and/or
used by MMT in its business and which are necessary
for the use of CEP in the Market; and
(ii) all past, present or future federal, state, local and
foreign registrations or recordations of any of the
foregoing enumerated in clause (i), all renewals and
extensions of such registrations or recordations, all
past, present and future applications for any such
registrations or recordations of any of the foregoing
enumerated in clause (i) (and any such registrations
or recordations thereof upon approval of such
applications), including such recordings,
registrations or applications set forth on Annex D
hereto.
"Uncontrollable Circumstances" has the meaning set forth in Article 11.
"Voting Securities" mean, with respect to any Person, all securities
issued by such Person having the ordinary power to vote in the election of
directors of such Person, other than securities having such power only upon the
occurrence of a default or any other extraordinary contingency.
5
<PAGE> 60
Article 2
Technology License; Certain Related Matters
2.1. Grant of License.
(a) Subject to the terms and conditions of this Agreement, MMT
hereby grants to the JV:
(i) a non-transferable royalty-bearing exclusive license
under the Licensed Property (other than the Licensed
Trademarks) to sell, own, lease, rent, operate,
install and maintain CEP Plants located anywhere in
Japan that process solely MSW Incinerator Ash;
(ii) a non-transferable royalty-bearing exclusive license
to sublicense the Licensed Property, subject to and
in accordance with the requirements of Article 7, to
Nichimen, NKP and appropriate third parties in order
to permit them to sell, own, operate, install and
maintain CEP Plants located anywhere in Japan that
process solely MSW Incinerator Ash; and
(iii) a non-transferable royalty-bearing non-exclusive
license to use the Licensed Trademarks in connection
with the activities permitted under clause (i) or
(ii) above.
(b) Subject to the terms and conditions of this Agreement, MMT
hereby grants to the JV:
(i) a non-transferable royalty-bearing non-exclusive
license under the Licensed Property (other than the
Licensed Trademarks) to sell, own, lease, rent,
operate, install and maintain CEP Plants located
anywhere in Japan that process Industrial Incinerator
Ash;
(ii) a non-transferable royalty-bearing non-exclusive
license to sublicense the Licensed Property, subject
to and in accordance with the requirements of Article
7, to Nichimen, NKP and appropriate third parties in
order to permit them to sell, own, operate, install
and maintain CEP Plants located anywhere in Japan
that process Industrial Incinerator Ash; and
(iii) a non-transferable royalty-bearing non-exclusive
license to use the Licensed Trademarks in connection
with activities permitted under clause (i) or (ii)
above.
The licenses granted to the JV pursuant to this paragraph (b)
shall be applicable only where sales of CEP Plants are made to
owners or operators of facilities
6
<PAGE> 61
which process both MSW Incinerator Ash and Industrial
Incinerator Ash, provided that such facilities process
predominantly MSW Incinerator Ash.
(c) In the event that the JV desires to sell a CEP Plant to an
owner or operator of a facility which does not process
predominantly MSW Incinerator Ash, the JV shall provide MMT
with a description of the Feedstocks which would be processed
by such CEP Plant and such other information as MMT may
request in order to permit it to quote a price and the terms
of sale for such CEP Plant. The JV acknowledges that such
price may include additional engineering and design work
necessary for MMT to deliver such CEP Plant. MMT shall have
the option, on a case-by-case basis, to agree to the sale of
any such CEP Plant. To the extent that MMT agrees to sell any
such CEP Plant to the JV, the licenses granted to the JV in
paragraph (b) shall be applicable to such sale.
(d) The licenses granted pursuant to this Section 2.1 shall not
permit the JV or its sublicensees to process any Feedstocks at
any CEP Plant that are not Market Feedstocks or to sell or
operate any CEP Plant except in accordance with the provisions
of this Agreement and the Related Agreements.
2.2. Third Party Limitations on License Grants. The licenses
granted by MMT pursuant to Section 2.1 above, insofar as they relate to
technology, property or rights that have been or are in the future developed
with or acquired from any third party, are or may become subject to any
applicable restrictions and consents relating to such technology, property or
rights under any license or similar agreement to which MMT is or may in the
future become a party. In the event that any future license or other agreement
imposes restrictions that may apply to the transactions contemplated by this
Agreement, MMT will make reasonable efforts to obtain license rights as
contemplated by this Agreement for the JV. If MMT is unable to so obtain such
rights, it will cooperate to make available to the JV such rights as the third
party is willing to grant to or for the JV.
Article 3
Exclusivity; Retention of Rights
3.1. Exclusive Market Obligation of MMT. MMT agrees that, during
the term of this Agreement, except pursuant to this Agreement and the Related
Agreements it shall not either directly or indirectly (whether through its
Affiliates, as a shareholder, partner, or consultant) own or operate any CEP
Plant that processes MSW Incinerator Ash in Japan or sell or license any CEP
Plant pursuant to sale or license terms which permit such CEP Plant to process
MSW Incinerator Ash in Japan.
3.2. Retention of Rights by MMT. Notwithstanding anything in this
Agreement to the contrary, MMT shall have no obligation to offer the JV any
rights, including but not limited to rights of expansion under Section 3.2,
outside the Exclusive Market, and shall be free to enter into any arrangements
with respect to the Non-Exclusive Market or any markets outside the
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<PAGE> 62
Exclusive Market as MMT shall deem appropriate in its sole discretion. If during
any three (3) one-year periods commencing January 1, 1998 the JV does not sell
any CEP Plants pursuant to the non-exclusive licenses granted under Sections
2.1(b) and (c) above, then MMT may terminate such licenses. The purchase of a
CEP Plant shall be evidenced by the execution of binding contracts between
Nichimen, NKP or other contractor of the JV and a customer for the purchase of
such CEP Plant, on the one hand, and between the JV and MMT for the design and
construction of such CEP Plant, on the other hand.
Article 4
License Fees and Royalties; Interest; Reports
4.1. Market Rights License Fee. As partial consideration for the
licenses granted hereunder, the JV shall pay to MMT a market rights license fee
(the "Market Rights License Fee") which will be due and payable on an annual
basis in an amount equal to fifty percent (50%) of the JV's Net Income for the
preceding year until the JV has paid to MMT a total of twelve million five
hundred thousand dollars (U.S.$12,500,000). The JV shall expense when paid the
Market Rights License Fee paid to MMT. The JV shall not be required to pay the
Market Rights License Fee in any year in which the JV does not have Net Income.
The Market Rights License Fee shall be paid within 30 days after the completion
of the JV's financial statements for the preceding year, but in no event later
than ninety (90) days after the end of the JV's fiscal year.
4.2. Technology Fees. As partial consideration for the licenses
granted hereunder, the JV shall pay to MMT an ongoing technology fee (the
"Technology Fee") equal to two percent (2%) of the JV's Gross Revenues from the
sale of inside battery limits equipment of CEP Plants and spare parts for CEP
Plants for each one year period of the JV's operations commencing January 1,
1997. The Technology Fee shall be paid in U.S. dollars within 30 days after the
completion of the JV's financial statements for the preceding year, but in no
event later than ninety (90) days after the end of the JV's fiscal year.
4.3. Reports and Payments.
(a) Within twenty (20) days after completion of the JV's financial
statements for any year, but in no event later than March 31
of the following year, the JV shall deliver to MMT copies of
the financial statements for such year, together with a
certificate of the Partner appointed to keep the JV's books
and records or the General Manager, if any (the "Fee
Certificate") setting forth in reasonable detail (i) the Gross
Revenues for such year, (ii) the amount of Gross Revenues
attributable to sales of inside battery limits equipment of
CEP Plants and spare parts for CEP Plants, (iii) the JV's Net
Income for such year, (iv) a calculation of the Market Rights
License Fee due with respect to such year, and (v) a
calculation of Technology Fee due with respect to such year.
The JV shall permit MMT and its authorized Advisors to
inspect, on a confidential basis, the books and records of the
JV in order to verify the accuracy of the Fee Certificate.
Nichimen and NKP, and their respective authorized Advisors,
also will have the right to inspect,
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<PAGE> 63
on a confidential basis, the books and records of the JV in
order to verify the accuracy of the payments of the Market
Rights License Fees and the Technology Fees to MMT.
(b) Payments of Market Rights License Fees and Technology Fees
shall be made by wire transfer of immediately available funds
to an account designated by MMT for such purpose. Any such
payment and the acceptance thereof shall be without prejudice
to the rights of MMT or the JV under paragraph (c) below. For
the purposes of payments to be made under this Article 4, the
conversion rate of Japanese yen into U.S. dollars shall be
calculated based on the average of the exchange rate quoted in
the Wall Street Journal over the period from the last day of
the JV's applicable fiscal year until the day preceding the
date on which any such payment is made.
(c) If MMT disputes any amount or calculation set forth in a Fee
Certificate or the amount or timing of any payment made to
MMT, then MMT and the JV shall resolve such dispute pursuant
to the Dispute Resolution Agreement.
Article 5
Title to Licensed Property;
Confidentiality and Related Matters
5.1. Title to Licensed Property. Title to all Licensed Property
shall at all times remain and vest solely with MMT. The JV agrees that it will
not claim or assert any right, title or interest in or to any such Licensed
Property or, except for sublicensing effected in accordance with Article 7,
attempt to transfer any right, title or interest in or to any Licensed Property
to any third parties, or challenge the validity of or assert the invalidity of
any Licensed Property.
5.2. Confidentiality Obligations.
(a) Each of the JV and MMT agrees that it will use the other
party's Confidential Information only in connection with the
activities contemplated by this Agreement and the Related
Agreements, and it will not disclose the other party's
Confidential Information to any Person except as expressly
permitted by this Section 5.2.
(b) The JV or MMT may disclose the other party's Confidential
Information:
(i) to their respective officers and employees who have a
reasonable need to know the contents thereof and who
have signed an agreement substantially in the form of
the Employee Non-Disclosure Agreement, a copy of
which shall be provided to each of the other parties;
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<PAGE> 64
(ii) on a confidential basis to their respective Advisors
who have a reasonable need to know the contents
thereof, so long as such disclosure is made pursuant
to the procedures referred to in Section 5.5(c);
(iii) to customers who have a reasonable need to know the
contents thereof in connection with the activities
contemplated by this Agreement if such disclosure is
made pursuant to the procedures referred to in
Section 5.5(c);
(iv) to any sublicensee in accordance with the terms of
the applicable sublicense agreement;
(v) to the extent required by applicable statute, rule or
regulation or any court of competent jurisdiction;
provided that the JV or MMT, as applicable, has made
reasonable efforts to conduct its relevant business
activities in a manner such that the disclosure
requirements of such statute, rule or regulation or
court of competent jurisdiction do not apply, and
provided further that the relevant party is given
notice and an adequate opportunity to contest such
disclosure or to use any means available to minimize
such disclosure; and
(vi) to the extent such Confidential Information has
become generally available publicly through no fault
of the JV, MMT or their directors, officers,
employees, Advisors or sublicensees.
5.3. Treatment of Licensed Software Programs. Any Licensed Software
Programs furnished by MMT to the JV shall be furnished in object code form only.
The JV agrees that it will not attempt to modify, disassemble, decompile,
reverse-engineer or otherwise endeavor to discover or disclose the methods and
concepts embodied in the Licensed Software Programs. All Licensed Software
Programs shall be marked with such copyright, patent, proprietary legends,
restrictions or other notices as MMT may request, and the JV agrees not to
remove or destroy any such mark or notice on any of the Licensed Software
Programs.
5.4. Disclosure to Government Authorities. The Board of Directors
shall promptly establish and implement all procedural safeguards required or
advisable in connection with the performance of government contracts to protect
the confidentiality and value of the Licensed Property and the assets of the JV.
Each of MMT and the JV agrees to comply, and cause their employees to comply,
with such procedural safeguards.
5.5. Ongoing Confidentiality Program; Patent Markings.
(a) In order to ensure that each of the JV and MMT complies with
its obligations in Sections 5.1 through 5.4, the Board of
Directors together with any advising attorneys shall meet as
required to discuss issues relating to confidentiality and
disclosure and other matters addressed by this Article 5.
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(b) With respect to any disclosure by the JV to any of its
officers or employees permitted pursuant to Section 5.2(b)(i),
the JV shall cause each of its officers and employees to sign
Employee Non-Disclosure Agreements.
(c) With respect to any disclosure by the JV or MMT to any of its
Advisors pursuant to Sections 5.2(b)(ii) or to any customers
or sublicensees pursuant to Section 5.2(b)(iii) or (iv), the
Board of Directors will institute procedures designed to
maintain the confidentiality of Confidential Information while
facilitating the business activities contemplated by this
Agreement and the Related Agreements. These procedures shall
include the preparation of standard forms of confidentiality
agreements to be used by the parties in connection with such
disclosures.
(d) The Board of Directors will implement a program for the use of
patent markings by the JV as appropriate to fully protect the
Licensed Patents and Licensed Patent Applications in each
applicable country where they exist.
5.6. Quality Control. The JV shall provide to MMT a reasonable
opportunity to inspect the CEP Plants using the Licensed Property and the
services provided by the JV under the Licensed Trademarks (collectively, the "JV
Services"), upon MMT's request from time to time in order to enable MMT to
maintain an appropriately high level of quality commensurate with the valuable
goodwill associated with the Trademarks (the "Quality Standard"). If MMT
reasonably determines that the applicable CEP Plants or the JV Services being
performed by the JV do not meet the Quality Standard, MMT shall provide the JV
with written notice (the "Failure Notice") of such failure, specifying the
particular aspect of the applicable CEP Plants or the JV Services which MMT
claims does not meet the Quality Standard and the particular failure, together
with any supporting documentation of such failure. If the JV shall not have met
such Quality Standard for such JV Services and does not (i) take appropriate
action to diligently commence to cure such failure within thirty (30) days after
receipt of the Failure Notice and (ii) cure such failure by causing such JV
Services to meet such Quality Standard and provide documentation of such cure
reasonably acceptable to MMT within sixty (60) days after the receipt of the
Failure Notice, MMT may pursue any available remedies pursuant to the Dispute
Resolution Agreement. The JV may recommend to MMT any actions which the JV
reasonably believes should be taken to meet the Quality Standard and, if MMT
agrees with any such recommendation, the JV and MMT shall work together to
determine the appropriate actions which should be taken to meet the Quality
Standard.
5.7. Corporate Names. The JV shall be entitled to refer to
Nichimen, NKP and MMT in its advertising and other promotional materials,
subject to compliance with guidelines, to be adopted by the Board of Directors,
addressing the need to maintain a separate corporate identity for the JV, to
identify the JV as a licensee of the Licensed Property and similar concerns.
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Article 6
Improvements and Inventions
6.1. Improvements and Inventions. All Intellectual Property
(including all Improvements) relating to CEP or necessary or useful to any
application of CEP conceived, created, made, developed or reduced to practice by
or for MMT or JV personnel, will be owned by MMT and title to all such
Intellectual Property, including patents, patent applications and copyrights
filed or granted with respect thereto, will be issued solely in MMT's name. The
JV shall promptly disclose to MMT all Improvements which it may conceive or
discover during the JV Term. All Improvements, to the extent that they come
within the definition of Licensed Property, will be subject to the licenses
granted by MMT pursuant to Section 2.1, and the JV shall not be required to pay
any royalties or other fees for the license of such Improvements other than
those fees to be paid by the JV set forth in Article 4. Subject to MMT's
obligations under Section 3.1, MMT shall have the unrestricted right to license
any of the Improvements to any third parties without notice or accounting to the
JV, Nichimen or NKP.
6.2. Assignment of Improvements and Inventions.
(a) During and after the JV Term, the JV shall, and
shall cause its personnel to, from time to time as and when
requested by MMT and at MMT's expense, but without further
consideration, execute all papers and documents and perform
all other acts necessary or appropriate, in the discretion of
MMT, to evidence or further document MMT's ownership of all
Intellectual Property and Improvements.
(b) In the event MMT is unable after reasonable effort, for any
reason whatsoever, to secure the signature of the JV on
disclosure or other documents in connection with the
assignment of rights in Intellectual Property and Improvements
as provided in Section 6.1, the JV hereby irrevocably
designates and appoints MMT and its duly authorized officers
and agents as its attorney-in-fact, to act for and in the JV's
behalf and stead to execute and file any such documentation,
and to do all other lawfully permitted acts to prepare
documentation for and further the prosecution and issuance of
any rights in Intellectual Property or Improvements with the
same legal force and effect as if executed by the JV.
Article 7
Sublicensing
7.1. Obligations To Sublicense. In order to commercialize CEP
technology in the Market, the JV shall create and implement a comprehensive
program to promote sublicensing of the Licensed Property to appropriate third
parties in order to permit them to sell, own and operate CEP Plants located in
Japan that process Market Feedstocks. It is anticipated that consistent with the
terms of the JV Agreement, the JV will grant sublicenses to Nichimen and NKP to
permit
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them to sell, import, transport, operate and maintain CEP Plants to service the
Market as described in Section 5.2 of the JV Agreement. Such sublicenses with
Nichimen and NKP will be in the form of Annex E hereto.
7.2. Form of Sublicensing Agreements. As part of the comprehensive
sublicensing program referred to in Section 7.1, MMT and the JV shall develop
various forms of sublicense agreements to be used by the JV. With respect to any
sublicense agreement to be used by the JV, the Board of Directors shall have the
right to approve the sublicensee and the final terms of the sublicense
agreement.
Article 8
Design and Construction of CEP Plants and Certain Related Issues;
Minimum Sales Goals
8.1. Design and Construction of CEP Plants. MMT will be responsible for
all aspects of the design, engineering and construction of CEP Plants and the JV
will purchase these services exclusively from MMT. The specific terms, including
price, and scope of work for such design, engineering and construction shall be
set forth in separate mutually acceptable project agreements between the JV and
MMT consistent with the provisions of this Agreement. MMT will provide
warranties (including warranties as to conformance with technical
specifications) in CEP Plant sales agreements which are standard for the
relevant industry with respect to CEP Plants and services provided to the JV.
The JV will pass such warranties along to the customer pursuant to an equipment
sale agreement between the JV and the customer. It is anticipated that such
warranties, as well as any indemnification to be provided by MMT and the
limitations of MMT's liability in connection with sales of CEP Plants to the JV,
will be determined on a case-by-case basis based on industry standards and the
requirements of the End User.
8.2. Component Sales. As part of the ongoing quality control program of
MMT, MMT shall sell to the JV and any customers of the JV, and the JV and such
customers shall be required to purchase, specified CEP system components,
including those components listed on Schedule 8.2 hereto, in connection with the
sale and operation of CEP Plants. The particular CEP components to be purchased
with respect to any CEP Plant shall be specified in the applicable design
package for such CEP Plant. Any sales by MMT of such components shall be
pursuant to purchase orders or other documentation mutually acceptable to the JV
and MMT. MMT shall be compensated for sales of CEP system components
*
- ----------
*Confidential treatment has been requested for this portion of Exhibit 10.46.
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8.3. Manufacture of CEP Components Outside the United States. Over
time, if economically feasible and desirable, Nichimen or NKP may be entitled to
manufacture components of CEP Plants in Japan or elsewhere with MMT's prior
written consent and under terms and conditions to be mutually agreed, always
giving highest priority to quality.
8.4. Feasibility Studies; Research and Development. For customers of
the JV that require any technical analysis, engineering or research and
development for evaluation of their feedstocks, the JV and any such customer
shall be required to retain MMT to perform, or have performed at MMT's
direction, a feasibility study prepared by MMT which will specify, as necessary,
the design basis, scope, schedule, expected operating cost data and fixed price
quote for delivery of the particular CEP Plant. For any CEP Plant to be built by
the JV or its customers, MMT shall perform, and the JV and any such customer
shall be required to retain MMT to perform or have performed at its direction,
all research and development activities which may be required for such customer.
As described in Section 2.1(c), MMT shall have the right to charge the JV for
any additional design and engineering work that may be required in order to
permit MMT to deliver CEP Plants to customers of the JV which are not processing
solely MSW Incinerator Ash.
8.5. Technical Training. MMT shall provide, and the JV and its
customers shall be required to purchase from MMT, such initial and ongoing
training services and technical support as MMT shall deem necessary to ensure
that the JV's and such customers' CEP Plant operators are technically
proficient.
8.6. Reimbursement for Services. During the period from the date hereof
until two years after the date that the JV is notified that the demonstration
plant to be purchased by the JV pursuant to the CEP Plant Agreement is ready for
shipment to Japan, the JV shall reimburse MMT for any services provided by MMT
under Sections 8.4 and 8.5 in accordance with the following schedule:
Training, start-up, demonstration
and general operations * per person per day
Consulting and research and
development services * per person per day
After such period, the fees for training, start-up, demonstration and general
operations services shall increase to * per person per day and the fees for
consulting and research and development services shall increase to * per person
per day. Per day payments shall be calculated based on both working days and
travel days. All fees for services payable to MMT
14
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*Confidential treatment has been requested for this portion of Exhibit 10.46.
<PAGE> 69
under the terms of this Section 8.6 shall be indexed to U.S. inflation. MMT also
shall be reimbursed for the cost of the travel and related expenses of all such
personnel.
8.7. Minimum Sales Goals. The JV shall use its best efforts to meet the
following minimum sales goals (the "Minimum Sales Goals") with respect to the
purchase of CEP Plants from MMT:
From date of Agreement to December 31, 1997 At least one CEP Plant
(demonstration plant)
From January 1, 1998 to December 31, 1998 At least one CEP Plant
From January 1, 1999 to December 31, 1999 At least two CEP Plants
From January 1, 2000 to December 31, 2000 At least two CEP Plants
From January 1, 2001 to December 31, 2001 At least three CEP Plants
Each subsequent year At least four CEP Plants
The purchase of a CEP Plant shall be evidenced by the execution of binding
contracts between Nichimen, NKP or other contractor of the JV and a customer for
the purchase of such CEP Plant, on the one hand, and between the JV and MMT for
the design and construction of such CEP Plant, on the other hand.
*
Article 9
Infringements
9.1. Detection of Infringements, Etc. MMT and the JV shall use their
respective reasonable efforts to detect any infringement, misappropriation,
violation, dilution or unauthorized or improper use of the Licensed Property or
unfair competition related to the Licensed Trademarks (collectively,
"Infringements", and individually an "Infringement"). In the event that either
MMT or the JV shall become aware of any such Infringement, or of any claim that
the use of the Licensed Property infringes, misappropriates, violates or dilutes
any proprietary right or property of any third Person, or of any product
liability claim or action based
- ----------
*Confidential treatment has been requested for this portion of Exhibit 10.46.
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on or arising out of the use of the Licensed Property by either MMT or the JV,
such party shall promptly give written notice thereof to the other parties.
9.2. Infringements of Licensed Property. In the event of any
Infringement of the Licensed Property or any claim that any Licensed Property,
or any equipment, material or process based on or utilizing Licensed Property,
infringes any proprietary right of any third Person (an "MMT Infringement
Claim"), then, subject to Section 9.4 below, MMT shall take such action as MMT
deems appropriate to address such Infringement or MMT Infringement Claim, as the
case may be. The JV, Nichimen and NKP shall cooperate as may be requested by MMT
in the prosecution, settlement or compromise of any such Infringement or MMT
Infringement Claim, and agrees to be joined as a party to any legal action or
proceeding commenced by MMT if it is deemed to be necessary or desirable by MMT
for the prosecution of such action or proceeding. If MMT proceeds to bring any
legal action or proceeding pursuant to the procedure provided for in this
Section 9.2, MMT will bear all reasonable costs of such action or proceeding
and, as applicable, will be entitled to receive and retain all proceeds realized
as a result of any settlement thereof or any judgment thereon or will pay any
judgment or settlement amount awarded or obtained with respect thereto.
9.3. JV Infringement Claims. In the event of any claim that any
combination by the JV of any non-infringing Licensed Property, or any
non-infringing equipment, material or process based on or utilizing Licensed
Property, with any Intellectual Property not furnished by MMT, or any claim that
the use by the JV of the Licensed Property, or any equipment, material or
process based on or utilizing Licensed Property, in a manner not contemplated by
this Agreement infringes, misappropriates, violates or dilutes any proprietary
right or property of any third Person (each a "JV Infringement Claim"), then,
subject to Section 9.4 below, the JV shall have the obligation to take all
actions reasonably necessary to oppose or defend such claims and to pay any
judgment or settlement amount awarded or obtained with respect to such JV
Infringement Claim. In the course of opposing or defending any such JV
Infringement Claim, the JV shall consult with MMT, Nichimen and NKP in
connection with all material issues relating to such opposition or defense and
shall consult with MMT, Nichimen and NKP prior to commencing the same and shall
consider any recommendations by MMT, Nichimen and NKP with respect to the
conduct and settlement or compromise thereof and any reasonable alternative
resolutions of the JV Infringement Claim. In the event that the JV does not
undertake to oppose or defend any such action within ninety (90) days after the
JV becomes aware of such JV Infringement Claim, MMT will have the right to
undertake the opposition or defense of such claim in the JV's name. MMT shall
not settle any JV Infringement Claim without the prior written consent of
Nichimen and NKP. If MMT undertakes to oppose or defend any JV Infringement
Claim pursuant to the procedure provided for in this Section 9.3, the JV shall
bear all costs of such action or proceeding and shall pay any judgment or
settlement amount awarded or obtained with respect to such JV Infringement
Claim. In the event that MMT does not undertake to oppose or defend any such
action within 180 days after the JV becomes aware of such JV Infringement Claim,
Nichimen and NKP shall have the right to undertake the opposition or defense of
such claim in the JV's name on the same basis as is applicable to MMT pursuant
to the preceding sentences.
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9.4. Mixed Claims. In the event of any claim which combines
elements of both an MMT Infringement Claim and a JV Infringement Claim, MMT and
the JV shall defend such claim jointly, with the costs of such defense and any
judgment or settlement amount awarded or obtained to be shared between them
based on the damages attributable to the MMT Infringement Claim versus the
damages attributable to the JV Infringement Claim.
Article 10
Representations and Warranties
10.1. Representations and Warranties of the JV and MMT. Each of the
JV and MMT represents and warrants to the other as follows:
(a) It has full power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated
hereby.
(b) It has obtained all necessary authorizations and approvals
required for the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of it,
enforceable against it in accordance with its terms.
(c) Neither the execution and delivery of this Agreement by it nor
the consummation by it of the transactions contemplated hereby
constitutes a violation of, or conflicts with, constitutes or
creates a default under, or results in the creation or
imposition of any liens upon any of its property pursuant to
(a) this Agreement; (b) any agreement or commitment to which
it is a party or by which it or any of its properties is bound
or to which it or any of its properties is subject; or (c) any
statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge or other restriction of any
government, governmental agency or court or other tribunal to
which it or any of its properties is subject. No consent,
approval or authorization of, or registration, qualification
or filing by it with, any governmental agency or authority is
required for the execution and delivery of this Agreement by
it or for the consummation by it of the transactions
contemplated hereby and thereby.
(d) It shall keep all of the Licensed Property and all of its
rights under this Agreement free and clear of any lien,
charge, security interest or other encumbrance.
(e) It is and shall continue to be in compliance with all
applicable laws and regulations which could, directly or
indirectly, affect its ability to perform its obligations
under this Agreement or any of the Related Agreements,
including but not limited to all United States and Japanese
laws regarding import or export controls.
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<PAGE> 72
(f) It has and will obtain and maintain all licenses, permits,
approvals and authorizations necessary in order to enable it
to perform its obligations under this Agreement and the
Related Agreements.
10.2. Representations and Warranties Regarding Licensed Property.
MMT represents and warrants to the JV that, to the best of MMT's knowledge, (i)
MMT has good title to the Licensed Property and (ii) MMT is not aware that the
Licensed Property currently is infringing any Intellectual Property rights of
any third parties.
10.3. Other Representations and Warranties. The representations and
warranties set forth in Sections 10.1 and 10.2 are not exclusive and are in
addition to the other representations and warranties made by the JV and MMT in
this Agreement and the Related Agreements, including the obligation of MMT to
provide warranties to the JV in connection with sales of CEP Plants pursuant to
Section 8.1.
Article 11
Termination
11.1. Events of Termination. Except as provided in Section 11.2
below, this Agreement shall terminate upon the earliest to occur of:
(a) the mutual written consent at any time of the JV and MMT;
*
; and
(d) March 31, 2007, unless the JV and MMT agree prior to such date
to renew this Agreement for an additional term.
11.2. Effects of Termination.
(a) In the event of any termination of this Agreement pursuant to
Section 11.1, (i) the licenses granted pursuant to Article 2
shall terminate except as provided in paragraph (b) below;
(ii) the provisions of Articles 4, 5, 6, 9, 10, 12 and 13 and
- ----------
*Confidential treatment has been requested for this portion Exhibit 10.46.
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Sections 8.6 and 11.2 shall survive such termination; and
(iii) such termination shall not effect any party's rights
with respect to any breach or non-performance by any other
party prior to such termination.
(b) In the event of any termination of this Agreement pursuant to
Section 11.1, the licenses granted pursuant to Article 2 shall
remain in effect with respect to (i) all CEP Plants previously
sold by the JV, (ii) any CEP Plants under contract which have
not yet commenced commercial operation, to the extent the
Board of Directors elects to complete the development of such
CEP Plants, and (iii) any sublicense in effect at the time of
termination (including sublicenses granted in connection with
the operation and maintenance of one or more CEP Plants). The
licenses granted in Article 2 and any sublicense granted
pursuant to Article 7 shall remain in effect with respect to
any such CEP Plant for the life of such CEP Plant.
(c) In the event of any termination of this Agreement by MMT
pursuant to Section 11.1(b) as a result of a breach by the JV
of Article 4 of this Agreement, MMT shall have the right to
terminate the business relationship established by the JV
Agreement, this Agreement and the Related Agreements, subject
to paragraphs (a) and (b) above.
Article 12
*
Article 13
General
13.1. Expenses. Except as expressly set forth in this Agreement, all
expenses of the preparation, execution and consummation of this Agreement and of
the transactions
- ----------
*Confidential treatment has been requested for this portion of Exhibit 10.46.
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contemplated hereby and thereby, including, without limitation, attorneys',
accountants and outside advisers' fees and disbursements, shall be borne by the
party incurring such expenses.
13.2. Notices. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid or if sent by overnight courier or sent by
written telecommunication, as follows:
If to the JV:
c/o NKK Plant Engineering Corporation
3 Benten-Cho, Tsurumi-ku
Yokohama, Japan 230
Attention: Kosaku Watando,
Director, R&D Department
If to MMT:
Molten Metal Technology, Inc.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
Attention: William M. Haney, III,
President and Chief Executive Officer
Ethan E. Jacks, Esq.,
Vice President and General Counsel
13.3. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) together with the Related Agreements contains the entire
understanding of the parties hereto and thereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof and thereof,
including but not limited to the Letter of Intent dated as of February 15, 1996
between MMT, Nichimen and NKP, and shall not be amended except by a written
instrument hereafter signed by all of the parties hereto or thereto, as
applicable. No waiver of any provision of the Agreement shall be effective
unless evidenced by a written instrument signed by the waiving party. MMT and
the JV further acknowledge and agree that, in entering into this Agreement and
the Related Agreements, they have not in any way relied upon any oral or written
agreements, statements, promises, information, arrangements, understandings,
representations or warranties, express or implied, not specifically set forth in
this Agreement or the Related Agreements.
13.4. Governing Law, Etc. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
all rights and remedies being governed by such laws, without regard to its
conflict of laws rules.
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13.5. Waiver of Jury Trial. Each of the JV and MMT hereby irrevocably
waives any rights that they may have to a trial by jury in respect of any
litigation based upon, or arising out of, this Agreement or any of the Related
Agreements or any course of conduct, course of dealing, statements or actions of
any of them relating thereto.
13.6. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
13.7. Assigns. This Agreement and the Related Agreements shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns. For purposes of the preceding sentence,
any purchaser or all of a majority of the assets of MMT, Nichimen, NKP or the JV
shall be deemed to be a successor. Except as provided in Section 17.8 of the JV
Agreement, neither this Agreement nor the rights or obligations of any party
hereunder shall be assignable or transferable by such party without the prior
written consent of each of the other parties hereto.
13.8. No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, firm or corporation, except MMT
and the JV, any rights or remedies under or by reason of this Agreement.
13.9. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.10. Dispute Resolution. All disputes or claims arising under or in
any way relating to this Agreement shall be subject to the Dispute Resolution
Agreement.
13.11. Construction; English Version Controlling. The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rule of strict construction will be applied
against any party. In case of any conflict between the English version and any
translated version of this Agreement or any Related Agreement, the English
version shall govern.
13.12. Severability. The invalidity or unenforceability of any
particular provision of this Agreement or any Related Agreement shall not affect
the other provisions hereof or thereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision was omitted.
13.13. Payments in U.S. Dollars. Unless otherwise expressly agreed in
writing by MMT, all payments to MMT under this Agreement, including but not
limited to under Sections 4.1, 4.2 and 8.6, shall be made in U.S. dollars.
13.14. Acknowledgment of JV Agreement. The JV and MMT each acknowledge
that this Agreement has been entered into pursuant to, and in accordance with,
the JV Agreement, and
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<PAGE> 76
that the JV Agreement sets forth the roles and responsibilities of MMT, Nichimen
and NKP with respect to the creation and operation of the JV.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed and delivered as a
sealed instrument as of the date and year first above written.
Attest: YUGEN KAISHA (LLP) CEREX CEP JAPAN
_______________________ By: ______________________________________
Ituro Hashimoto
President-Director
Attest: MOLTEN METAL TECHNOLOGY, INC.
_______________________ By: ______________________________________
William M. Haney, III
President and Chief Executive Officer
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Exhibit F to Joint Venture Master Agreement
LIMITED GUARANTY
THIS GUARANTY is made as of ______________, 199__ (this "Guaranty") by
______________, a _________ corporation (the "Guarantor"), in favor of and for
the benefit of _____________, a ___________ corporation ("Company A"), and
_______________, a __________ corporation ("Company B").
RECITALS:
WHEREAS, the Guarantor, Company A and Company B have entered into a
Joint Venture Master Agreement dated as of October 30, 1996 (the "JV
Agreement"). Capitalized terms used herein and not otherwise defined are used as
defined in the JV Agreement.
WHEREAS, pursuant to Section 17.8 of the JV Agreement, the Guarantor
has elected to assign its rights and obligations under the JV Agreement and the
Related Agreements to ________________, a _____________ corporation (the
"Guarantor Subsidiary"), a wholly-owned subsidiary of the Guarantor.
WHEREAS, in accordance with the JV Agreement, the Guarantor has agreed
to execute and deliver to Company A and Company B this Guaranty to guarantee the
payment and performance of the obligations of the Guarantor Subsidiary under the
JV Agreement and the Related Agreements (collectively, the "Guarantor Subsidiary
Obligations").
NOW, THEREFORE, in consideration of value received, the sufficiency of
which is hereby acknowledged, the Guarantor does hereby agree as follows.
1. Guaranty. The Guarantor hereby unconditionally guarantees the prompt
and complete payment and performance, when due, of the Guarantor Subsidiary
Obligations to the JV, Company A and Company B, as applicable. This Guaranty is
one of payment and not of collection.
2. Waiver of Suretyship Defenses. Company A of Company B, as
applicable, may at any time and from time to time without notice to or consent
of the Guarantor and without impairing or releasing the obligations of the
Guarantor hereunder: (i) make any change in the terms of any obligation or
liability of the Guarantor Subsidiary, (ii) take or fail to take any action of
any kind in respect of any security for any obligation or liability of the
Guarantor Subsidiary to Company A, Company B or the JV, (iii) exercise or
refrain from exercising any rights against the Guarantor Subsidiary, or (iv)
compromise or subordinate any obligation or liability of the Guarantor
Subsidiary to Company A or Company B including any security therefor. The
Guarantor hereby waives all suretyship defenses.
3. Waiver of Notices. The Guarantor hereby waives notice of acceptance
of this Guaranty, and waives presentment, demand for payment, protest, notice of
dishonor or non-payment of any such obligation or liability, suit or the taking
of other action by Company A or Company B against the Guarantor Subsidiary or
the Guarantor.
<PAGE> 78
4. Termination of Limited Guaranty. This Guaranty shall continue in
full force and effect until the earlier of (i) termination or expiration of the
JV Agreements and all of the Related Agreements or (ii) written agreement by
Company A and Company B releasing the Guarantor from its obligations hereunder.
Notwithstanding any provision of this Guaranty or any Related Agreement to the
contrary, upon the payment or performance of any Guarantor Subsidiary Obligation
by the Guarantor, the JV and/or the Guarantor Subsidiary, the Guarantor shall be
discharged, and its obligations hereunder shall cease and terminate, with
respect to any such Obligation that has been satisfied by payment or
performance, notwithstanding whether any payment is required to be disgorged or
returned by Company A, Company B or the JV.
5. No Waiver of Subrogation, Indemnity and/or Contribution Rights.
Notwithstanding any provision of this Guaranty to the contrary, no subrogation
rights, indemnity rights and/or contribution rights are being waived hereunder
by the Guarantor.
6. Dispute Resolution. All disputes or claims arising under or in any
way relating to this Guaranty shall be subject to the Dispute Resolution
Agreement.
7. Governing Law. This Guaranty shall be governed by, construed and
enforced in accordance with, the laws of the State of New York (without regard
to its conflict of laws rules), and all rights and remedies shall be governed by
such laws.
8. English Version Controlling. In case of any conflict between the
English version and any translated version of this Agreement, the English
version shall govern.
9. Severability. The invalidity or unenforceability of any particular
provision of this Guaranty shall not affect the other provisions hereof or
thereof, and this Guaranty shall be construed in all respects as if such invalid
or unenforceable provision was omitted.
2
<PAGE> 79
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby has duly and validly executed this Guaranty as of the day and year first
written above.
GUARANTOR:
By: _________________________________
Name:
Title:
Accepted:
[COMPANY A]
By: ________________________________
Name:
Title:
[COMPANY B]
By: ________________________________
Name:
Title:
3
<PAGE> 1
Exhibit 11
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE:
Net income (loss) $(61,181,464) $ 354,789 $(14,569,255)
============ =========== ============
Weighted average common shares outstanding 23,313,243 22,354,056 21,904,213
Incremental shares from use of treasury stock method for
stock options and warrants (i) -- 2,356,367 --
------------ ----------- ------------
Common and common equivalent shares, where applicable 23,313,243 24,710,423 21,904,213
============ =========== ============
Net income (loss) per share $ (2.62) $ 0.01 $ (0.67)
============ =========== ============
NET INCOME (LOSS) PER SHARE ASSUMING FULL DILUTION:
Net income (loss) $(61,181,464) $ 354,789 $(14,569,255)
============ =========== ============
Weighted average common shares outstanding 23,313,243 22,354,056 21,904,213
Incremental shares from use of treasury stock method for
stock options and warrants (i) -- 2,470,146 --
------------ ----------- ------------
Common and common equivalent shares, where applicable 23,313,243 24,824,202 21,904,213
============ =========== ============
Net income (loss) per share $ (2.62) $ 0.01 $ (0.67)
============ =========== ============
</TABLE>
(i) For the years ended December 31, 1996 and 1994, the incremental shares
from the use of the treasury stock method for options and warrants have
been excluded from the computation since their effect is anti-dilutive.
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
MMT Federal Holdings, Inc. Delaware
MMT International Holdings Inc. Delaware
MMT of Tennessee Inc. Delaware
MMT de Mexico, S.A. de C.V. Mexico
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-65688 and 33-98852) and in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-10949
and 333-12435) of Molten Metal Technology, Inc. of our report dated May 23, 1997
appearing on page F-1 of this Annual Report on Form 10-K.
Price Waterhouse LLP
Boston, Massachusetts
May 23, 1997
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-65688 and 33-98852) and in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-10949
and 333-12435) of Molten Metal Technology, Inc. of our report dated May 23,
1997 relating to the financial statements of M4 Environmental L.P., which
report is included as an exhibit to this Annual Report on Form 10-K of Molten
Metal Technology, Inc. for the year ended December 31, 1996.
Price Waterhouse LLP
Boston, Massachusetts
May 23, 1997
<TABLE> <S> <C>
<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>
<PAGE> 1
Exhibit 99.1
Cautionary Statements for the Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
Molten Metal Technology, Inc. (the "Company") desires to take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 and is filing this Exhibit in order to do so. From time to time the Company
issues statements in public filings or press releases, or makes oral statements,
through an authorized spokesperson of the Company, that may be considered
forward-looking within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements may include, among other items, (i) the Company's growth
strategies; (ii) anticipated trends in the Company's business; (iii)
developments in the Company's technology; (iv) the Company's plans to construct
CEP plants; (v) the Company's plans to enter into contracts with potential
customers and joint venture partners; (vi) receipt of research and development
funding; (vii) anticipated capital expenditures; (viii) anticipated revenues
from license fees and commercial operations; (ix) continued operations and
start-up of operations at facilities owned by the Company or its affiliates; (x)
expected sales of CEP systems by the Company and its partners; (xi) regulatory
acceptance of the Company's CEP technology; and (xii) the Company's financing
plans. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, certain of
which are beyond the Company's control. Actual results could differ materially
from these forward-looking statements as a result of the factors described below
and, as a result, there can be no assurance that the events described in any
such forward-looking statements will in fact transpire.
- - The Company's Catalytic Extraction Processing ("CEP") technology is a new
technology for which there is no established market. Feedstock generators
may not view the Company's CEP technology 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, the
economic terms under which generators may be willing to use the Company's
CEP technology may not be profitable to the Company.
- - 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.
- - To date, the testing of CEP largely has been limited to trials conducted
under controlled testing conditions. No demonstration has yet been made
that a commercial CEP system, once installed and operated at a customer's
location, will process such customer's feedstock and
<PAGE> 2
recover commodity and specialty products of commercial quality and in
significant quantities. 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 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.
- - 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.
- - 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.
- - 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,
2
<PAGE> 3
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 the Company 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 affect the Company's operations.
- - 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 Q-CEP will be greater than those
produced from other applications of CEP.
- - The Company's business exposes it to the risk that harmful substances will
escape into the environment and cause substantial damages or injuries. The
Company could be materially adversely affected by a claim that is not
covered or only partially covered by insurance.
- - Denial, revocation or modification of required federal, state or local
government permits could affect the Company's ability to conduct business
in certain areas or to process certain types of wastes. In addition,
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.
- - The Company will require substantial funds to construct the initial
commercial CEP systems that it anticipates it will own and operate, to
continue its development activities and to fund further operations at its
research, development, testing and demonstration facility in Fall River,
Massachusetts. 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
3
<PAGE> 4
development of CEP; the nature and timing of permits required for CEP
systems; and the availability and terms of alternative sources of
financing.
- - The Company has historically been dependent on two customers, M4
Environmental L.P. and the Department of Energy, for a substantial portion
of its revenues. The Company does not expect to be receiving substantial
revenues from M4 or the Department of Energy in 1997. 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 believes that its future success will depend, in part, on its
collaborative relationships. Although the Company has entered into
collaborative relationships with a number of entities, the failure of one
or more of these relationships could materially adversely affect the
Company's ability to sell CEP systems or have a material adverse effect on
the Company's projected growth.
- - There are a number of companies which are in competition with the Company
for waste processing, and any of these companies may develop technologies
superior to those of the Company. 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.
- - 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. The Company's ability to obtain approval of pending
patent applications, develop additional proprietary processes that are
patentable, obtain or license patents that will provide the Company with
competitive advantages will directly affect the ability of the Company to
successfully conduct its business. To the extent that the Company's
patents are challenged by third parties, or that third parties
independently develop similar or superior technologies, duplicate any of
the Company's processes or design around the patented processes developed
by the Company, the Company's ability to successfully conduct its business
may be materially adversely affected. In addition, 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. The costs of such licenses or patent litigation could materially
adversely affect the Company's business.
- - The Company is highly dependent upon the efforts of its senior management
and scientific staff. The loss of the services of one or more of these
individuals may have a material
4
<PAGE> 5
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, President and
Chief Executive Officer, and Eugene Berman, Vice President of Government
and External Affairs, the Company does not have any employment agreements
with any of its employees for a specific time. There can be no assurance
that the Company will continue to be successful in attracting and
retaining such personnel.
5
